Much as I might love Russia, England, France, America, I despise their spies & local agents affecting poor India’s policies: Memo to PM Modi, Mr Jaitley, Mr Doval & the new Govt. of India: Beware of Delhi’s sleeper agents, lobbyists & other dalals (2014)

 

1 July 2014

 

Dear Bibek,

 

The very elderly man I refer to as “Sonia’s Lying Courtier” herein

https://independentindian.com/2007/11/25/sonias-lying-courtier/

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.

 

Cordially

 

Suby Roy

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.

 

My Recent Works, Interviews etc on India’s Money, Public Finance, Banking, Trade, BoP, Land, etc (an incomplete list)

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My “Critique of Monetary Ideas of Manmohan & Modi: the Roy Model explaining to Bimal Jalan, Nirmala Sitharaman, RBI etc what it is they are doing” of 2019 is here.

 

 

My critical assessment dated 23 August 2013 of Professors Jagdish Bhagwati & Amartya Sen and Dr Manmohan Singh is here

 

 

My critique of PM Modi’s 8 November 2016 statement began on Twitter immediately, and is  summarized here “Modi & Monetary Theory: Economic Consequences of the Prime Minister of India”

 3dec

My critical assessment dated 19 August 2013 of Professor Raghuram Rajan is here and here.

My 3 Dec 2012 Delhi talk on India’s Money is now available at You-Tube in an audio version here

My July 2012 article “India’s Money” in the Caymans Financial Review is here and here https://independentindian.com/2012/07/21/my-article-indias-money-in-the-cayman-financial-review-july-2012/

My 5 December 2012 interview by Mr Paranjoy Guha Thakurta, on Lok Sabha TV, the channel of India’s Lower House of Parliament, broadcast for the first time on 9 December 2012 on Lok Sabha TV, is here and here  in two parts.

My interview by GDI Impuls banking quarterly of  Zürich  published on 6 Dec 2012 is here.

My interview by Ragini Bhuyan of Delhi’s Sunday Guardian published on 16 Dec 2012  is here.

 “Monetary Integrity and the Rupee” (2008)

https://independentindian.com/2008/09/28/monetary-integrity-and-the-rupee/

  “India’s Macroeconomics” (2007)

“Fiscal Instability” (2007)

 “Fallacious Finance” (2007)

https://independentindian.com/2007/03/05/fallacious-finance-the-congress-bjp-cpi-m-et-al-may-be-leading-india-to-hyperinflation/

 “Growth and Government Delusion” (2008)

https://independentindian.com/2008/02/22/growth-government-delusion/

 “Distribution of Govt of India Expenditure (Net of Operational Income) 1995”
https://independentindian.com/2008/07/27/distribution-of-govt-of-india-expenditure-net-of-operational-income-1995/

“India in World Trade & Payments” (2007)

https://independentindian.com/2007/02/12/india-in-world-trade-payments/

“Path of the Indian Rupee 1947-1993″ (1993)

https://independentindian.com/1993/06/01/path-of-the-indian-rupee-1947-1993/

“Our Policy Process” (2007)

https://independentindian.com/2007/02/20/our-policy-process-self-styled-planners-have-controlled-indias-paper-money-for-decades/

“Indian Money and Credit” (2006)

https://independentindian.com/2006/08/06/indian-money-and-credit/

“Indian Money and Banking” (2006)

https://independentindian.com/2006/04/23/indian-money-and-banking/

“Indian Inflation” (2008)

https://independentindian.com/2008/04/16/indian-inflation-upside-down-economics-from-new-delhis-establishment/

 How the Liabilities/Assets Ratio of Indian Banks Changed from 84% in 1970 to 108% in 1998 https://independentindian.com/2008/10/20/how-the-liabilitiesassets-ratio-of-indian-banks-changed-from-84-in-1970-to-108-in-1998/

indiasbanks1

“Growth of Real Income, Money & Prices in India 1869-2004” (2005)

https://independentindian.com/2008/07/28/growth-of-real-income-money-prices-in-india-1869-2004/

“How to Budget” (2008)

https://independentindian.com/2008/02/26/how-to-budget-thrift-not-theft-should-guide-our-public-finances/

“Waffle but No Models of Monetary Policy: The RBI and Financial Repression (2005)”

https://independentindian.com/2005/10/27/waffle-but-no-models-of-monetary-policy-the-rbi-and-financial-repression/

“The Dream Team: A Critique” (2006)

https://independentindian.com/2006/01/08/the-dream-team-a-critique/

 

“Against Quackery” (2007)

https://independentindian.com/2007/09/24/against-quackery/

“Mistaken Macroeconomics” (2009)

https://independentindian.com/2009/06/12/mistaken-macroeconomics-an-open-letter-to-prime-minister-dr-manmohan-singh/

Towards a Highly Transparent Fiscal & Monetary Framework for India’s Union & State Governments (RBI lecture 29 April 2000)

https://independentindian.com/2000/04/29/towards-a-highly-transparent-fiscal-monetary-framework-for-india%E2%80%99s-union-state-governments/

“The Indian Revolution (2008)”

https://independentindian.com/2008/12/08/the-indian-revolution/

Can India Become an Economic Superpower or Will There Be a Monetary Meltdown? (2005)

https://independentindian.com/2005/05/05/can-india-become-an-economic-superpower-or-will-there-be-a-monetary-meltdown-2005/

Memo to Kaushik Basu, 2010

Land, Liberty, & Value, 2006

https://independentindian.com/2006/12/31/land-liberty-value/

On Land-Grabbing, 2007

https://independentindian.com/2007/01/14/on-land-grabbing/

No Marxist MBAs? An amicus curiae brief for the Honourable High Court

https://independentindian.com/2007/08/29/no-marxist-mbasan-amicus-curae-brief-for-the-honourable-high-court/

Coverage in The *Asian Age*/*Deccan Herald* of 4 Dec 2012.

IICtophalf IICtalkbottom,half

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sundayguardiantp sgmiddle sgmid2 sgmid3 sgmid4 sgmid5 3Dec

Posted in Academic research, Amartya Sen, Arvind Panagariya, Bhagwati-Sen spat, Britain in India, China's macroeconomics, China's savings rate, Economic Policy, Economic quackery, Economic Theory, Economic Theory of Growth, Economic Theory of Interest, Economic Theory of Value, Economics of exchange controls, Economics of Public Finance, GDI Impuls Zurich, Government accounting, Government Budget Constraint, Government of India, India's Big Business, India's credit markets, India's Government economists, India's 1991 Economic Reform, India's balance of payments, India's Banking, India's Budget, India's Capital Markets, India's corporate governance, India's corruption, India's currency history, India's Economic History, India's Economy, India's Exports, India's Foreign Exchange Reserves, India's Foreign Trade, India's Government Budget Constraint, India's Government Expenditure, India's Macroeconomics, India's Military Defence, India's Monetary & Fiscal Policy, India's Money, India's nomenclatura, India's political lobbyists, India's Politics, India's pork-barrel politics, India's poverty, India's Public Finance, India's Reserve Bank, India's State Finances, Inflation, Institute of Economic Affairs, International economics, Jagdish Bhagwati, Jean Drèze, Lok Sabha TV, Macroeconomics, Manmohan Singh, Microeconomic foundations of macroeconomics, Milton Friedman, Raghuram Govind Rajan, Raghuram Rajan, Rajiv Gandhi, Reverse-Euro Model for India, Sen-Bhagwati spat, Sonia Gandhi. 1 Comment »

Two Different Models for India’s Political Economy: Mine & Dr Manmohan Singh’s (Updated 2013)

see

https://independentindian.com/2013/05/19/cambridge-economics-the-disputation-in-indias-economic-policy/

https://independentindian.com/2013/08/23/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-encounter-with-rajiv-gandhi-just-as-siddhartha-shan/

https://independentindian.com/2009/06/12/mistaken-macroeconomics-an-open-letter-to-prime-minister-dr-manmohan-singh/

From Facebook

February 24 2011

Subroto Roy does not know if he just heard Manmohan Singh say “inflation will soon come down” — excuse me Dr Singh, but how was it you and all your acolytes uniformly said back in July 2010 that inflation would be down to 6% by Dec 2010? 6%?! 16% more likely! I said. Until he explains his previous error, we may suppose he will repeat it.

January 11 2011:

Subroto Roy can stop the Indian inflation and bring integrity to the currency over time, and Manmohan Singh and his advisers cannot (because they have the wrong economic models/theories/data etc and refuse to change), but then they would have to make me a Minister and I keep getting reminded of what Groucho Marx said about clubs that would have him.

Subroto Roy does not think Dr Manmohan Singh or his acolytes and advisers, or his Finance Minister and his acolytes and advisers, understand Indian inflation. If you do not understand something, you are not likely to change it.

March 6 2010:

Subroto Roy  says the central difference between the Subroto Roy Model for India as described in 1990-1991 to Rajiv Gandhi in his last months, and the Manmohan Singh Model for India that has developed since Rajiv’s assassination, is that by my model, India’s money and public finances would have acquired integrity enough for the Indian Rupee to have become a hard currency of the world economy by now, allowing all one billion Indians access to foreign exchange and precious metals freely, whereas by the model of Dr Singh and his countless supporters, India’s money and public finance remain subject to government misuse and abuse, and access to foreign exchange remains available principally to politicians, bureaucrats, big business and its influential lobbyists, the military, as well as perhaps ten or twenty million nomenclatura in the metropolitan cities.

April 8 2010:

Subroto Roy notes a different way of stating his cardinal difference with the economics of Dr Manmohan Singh’s Govt: in their economics, foreign exchange is “made available” by the GoI for “business and personal uses”. That is different from my economics of aiming for all one billion Indians to have a money that has some integrity, i.e., a rupee that becomes a hard currency of the world economy. (Ditto incidentally with the PRC.)

 

Updates:

From Facebook:

Subroto Roy  reads in *Newsweek* today  (Aug 19) Manmohan Singh “engineered the transition from stagnant socialism to a spectacular takeoff”.  This contradicts my experience with Rajiv Gandhi at 10 Janpath in 1990-91. Dr Singh had not returned to India from his years with Julius Nyerere in his final assignment before retiring from the bureaucracy when Rajiv and I first met on 18 September 1990.

“After (Rajiv Gandhi’s) 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… There is no evidence Dr Singh or his acolytes were committed to any economic liberalism prior to 1991 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…by Rajiv Gandhi in hand at 10 Janpath on 18 September 1990 and specifically sparked the change in the direction of his economic thinking…”

Subroto Roy notes that current Indian public policy discussion has thus far failed to realise that the rise in money prices of real goods and services is the same as the fall in the real value of money.

Subroto Roy  is interested to hear Mr Jaitley say in Parliament today the credibility of Government economists is at stake. Of course it is. There has been far too much greed and mendacity all around, besides sheer ignorance. (When I taught for a year or so at the Delhi School of Economics as a 22 year old Visiting Assistant Professor in 1977-78, I was told Mr Jaitley was in the law school and a student leader of note. I though was more interested in teaching the usefulness of Roy Radner’s “information structures” in a course on “advanced economic theory”.)

 

 

 

 

July 31 2010

Subroto Roy reads in today’s pink business newspaper the GoI’s debt level at Rs 38 trillion & three large states (WB, MH, UP) is at Rs 6 trillion, add another 18 for all other large states together, another 5 for all small states & 3 for errors and omissions, making my One Minute Estimate of India’s Public Debt Stock Rs 70 trillion (70 lakh crores). Interest payments at, say, 9%, keep the banking system afloat, extracting oxygen from the public finances like a cyanide capsule.

July 28 2010

Subroto Roy observes Parliament to be discussing Indian inflation but expects a solution will not be found until the problem has been comprehended.

July 27 2010:

Subroto Roy continues to weep at New Delhi’s continual debauching of the rupee.

July 25 2010:

Subroto Roy  has no idea why Dr Manmohan Singh has himself (along with all his acolytes and flatterers in the Government and media and big business), gone about predicting Indian inflation will fall to 6% by December. 16% may be a more likely figure given a public debt at Rs 40 trillion perhaps plus money supply growth above 20%! (Of course, the higher the figure the Government admits, the more it has to pay in dearness allowance to those poor unionized unfortunates known as Government employees, so perhaps the official misunderestimation (sic) of Indian inflation is a strategy of public finance!)

July 12 2010:

Subroto Roy is amused to read Dr Manmohan Singh’s Chief Acolyte say in today’s pink business newspaper how important accounting is in project-appraisal — does the sinner repent after almost single-handedly helping to ruin project-appraisal  & government accounting & macroeconomic planning over decades?  I  rather doubt it.   For myself, I am amused to see chastity now being suddenly preached from within you-know-where.

July 4 2010:

Subroto Roy does not think the Rs 90 billion (mostly in foreign exchange) spent by the Manmohan Singh Government on New Delhi’s “Indira Gandhi International Airport Terminal 3” is conducive to the welfare of the common man (“aam admi”) who travels, if at all, mostly within India and by rail.

Subroto Roy hears Dr Manmohan Singh say yesterday “Global economic recession did not have much impact on us as it had on other countries”. Of course it didn’t. I had said India was hardly affected but for a collapse of exports & some fall in foreign investment. Why did he & his acolytes then waste vast public resources claiming they were rescuing India using a purported Keynesian fiscal “stimulus” (aka corporate/lobbyist pork)?

May 26 2010:

Subroto Roy  would like to know how & when Dr Manmohan Singh will assess he has finished the task/assignment he thinks has been assigned to him & finally retire from his post-retirement career: when his Chief Acolyte declares on TV that 10% real GDP growth has been reached? (Excuse me, but is that per capita? And about those inequalities….?)

My 200 words on India’s Naxal guerrilla rebels that a “leading business magazine” invited but then found too hot to handle

“Public finances in India, state and Union, show appalling accounting and lack of transparency. Vast amounts of waste, fraud and malfeasance get hidden as a result. The Congress, BJP, official communists, socialists et al are all culpable for this situation having developed – over decades. So if you ask me, “Is the Indian state and polity in a healthy condition?” I would say no, it is pretty rotten. Well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominate government agendas at the cost of ill-informed, diffused masses of anonymous individual citizens ~ peasants, forest-dwellers, small businessmen, non-unionized workers, the destitute, etc. Demarcations of private, community and public property rights frequently remain fuzzy. Inflation causes non-paper assets to rise in value, encouraging land-grabs. And the fetish over purported growth-rates continues despite measurements being faulty, not reaching UN SNA standards, probably hiding increasing inequalities. India’s polity and economy are in poor shape for many millions of ordinary people. Armed rebellion, however, does not follow from this. Killing poor policemen and starting class-wars were failed Naxal tactics in the 1970s and remain so today. Naxals should put down their weapons and use Excel sheets and government accounting data instead.

Dr Subroto Roy, economist and adviser to Rajiv Gandhi 1990-1991.”

“Climate Change” Alarmism (2008/9): The real battle is against corruption, pollution, deforestation, energy waste etc

Last year I wrote but happened not to publish this brief article which may be relevant today.

Climate Change Alarmism: The real battle is against corruption, pollution, deforestation, energy waste etc

Subroto Roy
May 28 2008

Like the AIDS epidemic that never was, “climate change” is on its way to becoming the new myth sold by paternalist governments and their bureaucrat/scientist busybodies to ordinary people coping with their normal lives. E.g., someone says, without any trace of irony: “Everyone in the world should have the same emissions quota. Since Trotsky’s permanent revolution is unfortunately on hold at the moment, and the world still happens to be partitioned into nations, once the per capita quotas are determined they would have to be grouped on a nationwide basis”.

Trotskyism will have to be made of sterner stuff. Canada’s Lorne Gunter (*National Post* 20 May 2008) reports that Noel Keenlyside, the principal scientist who suggested that man-made global warming exists, has now led a team from the Leibniz Institute of Marine Science and Max Planck Institute of Meteorology which “for the first time entered verifiable data on ocean circulation cycles into one of the UN’s climate supercomputers, and the machine spit out a projection that there will be no more warming for the foreseeable future.…” Oops! So much for impending catastrophe. Rajendra Pachauri himself has in January “reluctantly admitted to Reuters… that there has been no warming so far in the 21st Century”.

Mr Pachauri had earlier gone on Indian television comparing himself to CV Raman and Mother Theresa as an Indian Nobel Prize winner — in fact, Al Gore and the 2500 member “UN Intergovernmental Panel on Climate Change” chaired by Mr Pachauri shared the Nobel Peace Prize last year. Now the prediction from that UN “Panel” of “a 0.3 deg C rise in temperature in the coming decade” has been contradicted by Noel Keenlyside’s own scientific results. Gunter reports further that 2007 “saw a drop in the global average temperature of nearly 0.7 deg C (the largest single-year movement up or down since global temperature averages have been calculated). Despite advanced predictions that 2007 would be the warmest year on record, made by such UN associates as Britain’s Hadley Centre, a government climate research agency, 2007 was the coolest year since at least 1993. According to the U. S. National Climatic Data Centre, the average temperature of the global land surface in January 2008 was below the 20th-Century mean for the first time since 1982. Also in January, Southern Hemisphere sea ice coverage was at its greatest summer level (January is summer in the Southern Hemisphere) in the past 30 years. Neither the 3,000 temperature buoys that float throughout the world’s oceans nor the eight NASA satellites that float above our atmosphere have recorded appreciable warming in the past six to eight years. Climate alarmists the world over were quick to add that they had known all along there would be periods when the Earth’s climate would cool even as the overall trend was toward dangerous climate change.”

Honest government doctors know that the myth that HIV/AIDS can spread at Western rates in a society as conservative and sexless as India’s has diverted vast public resources away from India’s numerous real killer diseases: filariasis, dysentery, leprosy, influenza, malaria, gastroenteritis, TB, whooping cough, enteric fever, infectious hepatitis, gonococcal infection, syphilis, measles, tetanus, chicken-pox, cholera, rabies, diptheria, meningococcal infection, poliomelitis, dengue and haemmorrhagic fever and encephalitis. Candid environmentalists similarly know that obsessing about climate change distracts from what is significant and within our power to do, namely, the prevention or at least regulation of the pollution of our air and water and prevention of the waste of energy using policies appropriate for a myriad of local communities and neighbourhoods.

The pollution of India’s atmosphere, rivers, lakes, roads and public property is an unending disgrace. Pollution and corruption are mirror images of each other: corruption is to steal something valuable that belongs to the public; pollution is to dispose private waste into the public domain. Both occur conspicuously where property rights between public and private domains are vague or fuzzy, where pricing of public and private goods and services is distorted, and where judicial and legal processes enforcing contracts are for whatever reason weak or inoperable.

Walk into any government office in India and lights, fans, ACs may be found working at top speed whether or not any living being can be seen. A few rare individual bureaucrats may be concerned but India’s Government as a whole cares not a hoot if public electricity or for that matter any public funds and resources are being wasted, stolen or abused.
At the same time, private motorists face little disincentive from pouring untaxed “black money” into imported gas-guzzling heavy automobiles regardless of India’s narrow roads and congestion. There are no incentives whatsoever for anyone who does not have to do so to want to bicycle or walk to work. The “nuclear deal” involves importing “six to eight lightwater reactors” on a turnkey basis; like the Enron-Dabhol deal a decade ago, it makes no financial sense at all and will make even less if the rupee depreciates anytime in future. Our government policy is in general invented and carried out regardless of technical or financial feasibility; the waste of energy and pollution of the environment are merely examples of the waste of resources and abuse of public property in general.

Someone says “The North”, mainly the USA, “is primarily responsible for climate change”. He may mean Western countries have contributed relatively more pollutants and effluents into the world’s waters and air which is probably a good guess since the West has also contributed more to the world’s scientific, industrial and agricultural progress in general over the centuries.

But to think human beings today understand the complexities of climate and its changes adequately enough to be able to control it is a fatal conceit. Philip Stott, emeritus professor of biogeography at the University of London, is among many scientists who have challenged “the key contradiction at the heart of the Kyoto Protocol, the global climate agreement – that climate is one of the most complex systems known, yet that we can manage it by trying to control a small set of factors, namely greenhouse gas emissions. Scientifically, this is not mere uncertainty: it is a lie…The problem with a chaotic coupled non-linear system as complex as climate is that you can no more predict successfully the outcome of doing something as of not doing something. Kyoto will not halt climate change. Full stop.” (BBC 25 February 2002). For Indian foreign or economic policy to waffle on about climate change is as ineffectual and irrelevant as for the Indian Finance Minister to waffle on about AIDS.

Important summits in the USA, Russia, Copenhagen can be attended by the Prime Minister of India as he is not a Member of the Lok Sabha

Subroto Roy notes that since Dr Manmohan Singh is the first Indian Prime Minister ever to have chosen with deliberation not to be a member of the Lok Sabha, he has been free to hold important summits at the White House, Kremlin, Copenhagen etc while the Lok Sabha debates mundane matters like the Liberhan Commission report, inflation etc.

“But he has nothing on at all,” said a little child at last.

From Facebook:

Subroto Roy  is hurt that Christopher Booker says “Not for nothing was Copenhagen the city in which Hans Andersen wrote his story about the Emperor whose people were brainwashed into believing that he was wearing a beautiful suit of clothes” because he always thought Hans Andersen meant it for modern New Delhi.

Thoughts on Indian Governance

Subroto Roy believes the great optimism about the Indian Republic that he had felt as a 7-year old boy upon meeting Jawaharlal Nehru at Colombo Airport on Oct 13 1962 (the first days of the surprise Communist Chinese attack on India), has now dissipated, and apart from Nehru’s immediate successor (Lal Bahadur Shastri) all Indian Prime Ministers since then have been gravely, perhaps catastrophically, disappointing.

Subroto Roy thinks President Obama’s informed lawyerly academic approach to the Afghanistan decision, whether or not it has its intended good consequences, has a positive demonstration effect for other capital cities, e.g. New Delhi, where public policy decisions are too often made to appease special interest groups inside a cloud of meaningless rhetoric.

Subroto Roy says of India and China in summary discussion at Edward Hugh’s Wall: “Well, both have massive and energetic populations, each with relatively little capital per head; raising the capital per head with new production and exchange processes leads to growth. (But the nominal economies are weak, public finances are absymal and paper money is out of control.)”

Subroto Roy recalls again Pericles of Athens: “Here each individual is interested not only in his own affairs but in the affairs of the state as well; even those who are mostly occupied with their own business are extremely well-informed on general politics- this is a peculiarity of ours:we do not say that a man who takes no inter…est in politics is a man who minds his own business;we say that he has no business here at all.”

Question for the Sonia-Manmohan Govt: is a little polo in Washington expected to benefit India’s “aam admi”?

From Facebook:

Subroto Roy must ask Dr Manmohan Singh’s Government how it sees India’s “aam admi” coming to benefit by the United States Polo Team welcoming India in 2010 in the world championship polo matches on the DC National Mall, as has been very kindly reported by Mr and Mrs Tareq Salahi following the “Sensational Night honoring India”.

Do diplomatic parties help the common man?

From Facebook

Subroto Roy is afraid he does not think the interests of the common man and woman of India come to be served in the slightest by a fancy dinner-party whether given by the Queen of  England at Buckingham Palace for the President of India or by the President of the United States at the White House for the Prime Minister of India….(…though some businessmen and bureaucrats become happy…)

New compradors in old bottles? Old compradors in new bottles?

From Facebook:

Subroto Roy is amused to read in today’s business press in India that the most prominent declared lobbyist in the country wishes to be credited with having promoted economic liberalisation. The mendacity & self-delusion that capital cities are capable of seem boundless.

How to fight government corruption whether on Earth or Mars

From Facebook:

Subroto Roy believes — partly from personal experience — that there is only one really sustainable way to fight government corruption whether in Afghanistan, Pakistan, India, the UK, the USA, Russia, China or Mars: tough and clean government accounting and audit processes allied with an uncorrupted press/media. And without clean government accounting, incidentally, all public finance and hence almost all monetary policy becomes meaningless.

Sketching India’s Rupees 35 (?70?) trillion (lakh crore) public debt?

Exactly nineteen years ago, in late October 1990, I advised the then-Congress Party President Rajiv Gandhi as follows:

“The prime indicator of economic mismanagement today is not the annual deficit, but rather the vast public debt today of more than Rs. 273,000 crores (Rs.2.73 trillion). Our Government has borrowed something like Rs. 3500/- on behalf of each man, woman and child in the country — and spent it. A pile of rupee coins adding up to the public debt of India would stretch 4.55 million km into the sky, or be as long as six trips to the moon and back. That is the size of the problem….”

In recent years I have estimated the stock of India’s public debt has grown to perhaps Rs 30 trillion; after the lobbyist-induced corporate pork aka the “fiscal stimulus” since 2008, it has  perhaps risen to Rs 35 trillion, along with States’ debts, Rs  70 trillion!

[From Facebook July 31 2010

Subroto Roy reads in today’s pink business newspaper the GoI’s debt level at Rs 38 trillion &  that of each of three large states (WB, MH, UP) is at Rs 6 trillion, add another 18 for all other large states together, another 5 for all small states & 3 for errors and omissions, making my One Minute Estimate of India’s Public Debt Stock Rs 70 trillion (70 lakh crores). Interest payments at, say, 9%, keep the banking system afloat, extracting oxygen from the public finances like a cyanide capsule.]

(1 trillion = 1 lakh crore  ie. 1,000,000,000,000 = 100000,0000000)

Now when I advised Rajiv it was still early days in the IT-revolution and in fact I wrote the words quoted above on the first laptop I had ever used which was Rajiv’s own (enormous) Toshiba laptop in an office of his staff.

It was eight years before Google was launched — and now there is even something called Google Sketch which I am downloading as I write.

Today on Facebook, I have reposted this wonderful link sent by a friend of a Google Sketch of what one trillion dollars (or one lakh crore dollars) looks like:

Ten thousand dollars:

packet

1million dollars (i.e. ten lakh dollars):

pile

100 million dollars (i.e. ten crore dollars):

pallet

One billion dollars (i.e. one hundred crore dollars):

pallet_x_10

One trillion dollars (i.e. one lakh crore dollars):

pallet_x_10000

So much for dollars.

May I ask someone to use this link and this one to re-sketch India’s public debt, of perhaps Rs 35 70 trillion, and annual interest-payments, at perhaps 9% per annum on average? (Before the next “Budget” please…)

Subroto Roy

Postscript: Of course, most of this exists intangibly as deposits or accounting-entries, not as tangible cash, but it is fun anyway — and an illustrative way to explain things to politicians and citizens.

Finally, a dozen years late, the Sonia-Manmohan Congress takes a small Rajivist step: Yes Prime Minister, our Judiciary is indeed a premier public good (or example of “infrastructure” to use that dreadful bureaucratic term)

I was very harsh and did not beat about the bush in my Sep 23-24 2007 article  in The Statesman “Against Quackery” when I said in its subtitle

“Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms”.

I said inter alia

“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….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. …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 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.”

Days after the article appeared there were press reports Dr Singh was murmuring about quitting, and then came a fierce speech in Hindi from the Congress President saying “enemies” would receive their dues or whatever – only to be retracted a few days later saying that no more had been meant than a local critique of the BJP in Haryana politics!  (Phew! I said to myself in relief…)

Today I am very happy to learn that Dr Manmohan Singh spoke on Sunday of the importance of the Rule of Law and an effective and efficient judiciary. The new Law Minister in the second Sonia-Manmohan Government has been eagerly saying the same.

All this is constructive and positive, late as it is since Sonia Gandhi and Manmohan Singh both became heavy-duty Congress Party politicians for the first time a dozen years ago.

I was privileged to advise a previous Congress President in his last months from September 1990 as has been told elsewhere. And six years before that I had  said:

“….….The most serious examples of the malfunctioning of civil government in India are probably the failure to take feasible public precautions against the monsoons and the disarray of the judicial system. …The Statesman lamented in July 1980:`The simplest matter takes an inordinate amount of time, remedies seldom being available to those without means or influence. Of the more than 16,000 cases pending in the Supreme Court, about 5,000 were introduced more than five years ago; while nearly 16,000 of the backlog of more than 600,000 cases in our high courts have been hanging fire for over a decade. Allahabad is the worst offender but there are about 75,000 uncleared cases in the Calcutta High Court in addition to well over a million in West Bengal’s lower courts.” Such a state of affairs has been caused not only by lazy and corrupt policemen, court clerks and lawyers, but also by the paucity of judges and magistrates. . . . a vast volume of laws provokes endless litigation as much because of poor drafting which leads to disputes over interpretation as because they appear to violate particular rights and privileges…. When governments determinedly do what they need not or should not do, it may be expected that they will fail to do what civil government positively should be doing.” A few months ago was the 25th anniversary of this statement… ! 🙂

Yes Prime Minister, having an effective and efficient judiciary is indeed a premier public good and one that has failed to be provided to India’s people from Nehru’s time and through Indira’s. I managed to persuade Rajiv about it completely. Might I next be so bold as to draw attention as well to the paragraphs of the 2007 article that followed?

“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 accounts: 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.”

Subroto Roy

Kolkata


Is this a reason China has far outpaced India in exports?

From Facebook:

Subroto Roy  suggests one reason China has far outpaced India in exports is because it was willing to focus on manufacturing common man mass consumption items  like toys, umbrellas, winter clothing etc for a start, where India’s conceited nomenclatura businessmen/ bureaucrats either maintained traditional imperial exports like textiles, raw materials & tea or chose a high-end middle-class item like software….

Q: What is common to swine flu, a weak monsoon, climate change, America’s financial crisis and Pakistani terrorism?

A: They are all external or exogenous factors that the Government of India’s leaders, spokesmen and other apologists adduce to explain away endogenous economic outcomes arising from bad fiscal and monetary policies, pork-barrel politics, lobbying by organised Big Business and Big Labour, political and bureaucratic corruption etc.  (And the Parliamentary Opposition is hardly any better, probably worse…)

More to come…

Subroto Roy

Protected: Why the Governing Body of India’s National Council of Applied Economic Research (NCAER) Must Resign In Toto And A Fresh Board Constituted: A Letter to Shri Bimal Jalan, MP, Rajya Sabha, et al

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Does the Govt. of India assume “foreign investors and analysts” are a key constituency for Indian economic policy-making? If so, why so? Have Govt. economists “learnt nothing, forgotten everything”? Some Bastille Day thoughts

Today is Bastille Day in France and the Prime Minister of India, Dr Manmohan Singh, at the invitation of President Sarkozy, is visiting Paris (where the Government of India has flown in military contingents to participate in the annual parade), before he goes to another summit in Egypt with Present Mubarak and others, following his recent summits in Italy with the Pope and others, and in Russia with President Medvedev and others, and in London with President Obama and others, etc.   Dr Singh has  almost certainly become the most internationally well-travelled of all Indian leaders on official visits ever in history, which adds to his having had the longest experience in India’s bureaucracy of any Indian political leader in history, which came to be followed by his stint in the Rajya Sabha as Finance Minister and now as a two-term Prime Minister.

But as a result of being out of the country yesterday, the Prime Minister would have missed the TV interview broadcast last night with his chief economic policy aide when it was said that “foreign investors and analysts” are an important constituency for Indian economic policy-makers, as expressed in the President’s speech to the new 15th Lok Sabha or Pranab Mukherjee’s Budget speech last week.  The interviewer seemed to agree and constantly pressed the aide, who is doubtless the most prominent Government economist on television,  about how stock-market brokers and businessmen seemed to have found the Budget not to their immediate liking, and how  privatisation or “raising insurance caps” would have been seen by businessmen as  crucial elements of future economic reform.  In fact privatisation or the insurance business have little to do with any important economic reform but the lobbying power and spin-control of  organised business becomes manifest in getting interviewers to ask such questions of Government spokesmen —  all part of the (doubtless unconscious) process of camouflaging their private interests in the guise of purported public economic policy discussion.

I have taken a very different view.  For example, I said a few years ago in starkest contrast:

“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….”

Dr Singh’s aide at one point challenged his friendly interviewer  suggesting the very need for “fiscal stimulus” could hardly be questioned as if such a thing was beyond his imagination.  And again, I am afraid, I may have been quite alone  in December 2008 in lambasting as counter-productive all this purported “fiscal stimulus”. Just another colossal, indeed perverse, waste of public resources driven by organised business lobbies in their own interests, since in fact no one — not Dr Singh nor any of his aides, acolytes or flatterers, foreign or domestic, or anyone else anywhere — has any empirical or theoretical models of any kind depicting the phase, period or amplitude of any possible business-cycle that India’s economy may be on.  Since none of them has any idea whatsoever of what the amplitude or frequency is of any such purported business cycle, they are as likely to have caused a pro-cyclical exacerbation of the amplitude as any sort of counter-cyclical dampening! (Viz., Leibniz ‘s principle of insufficient reason.)

How to see what is happening in Indian macroeconomic policy in the simplest comparative static terms is this: both the IS and LM curves are being pushed outwards drastically based on a deliberately erroneous assumption that there is  or might develop mass involuntary unemployment of the sort Maynard Keynes once described in 1936.  The overall impact on nominal interest-rates is indeterminate; the process of inflationary deficit-finance with an inconvertible currency that the Government has indulged in for half a century merely continues, further pushing us towards a potential hyperinflation.

The Bourbon regime swept away by the French Revolution that Bastille Day celebrates were said to have “learnt nothing and forgotten nothing”.   I am afraid the macroeconomic illogic often found among Government economists, private commentators and business lobbyists in India today suggests to me nothing less than that they have  either learnt nothing or forgotten everything from their economics classes decades ago! We in India may need our own storming of the Bastille to sweep away the perverse thoughts and power structures of the post-1947 Dilli Raj.

Subroto Roy
Kolkata

Mistaken Macroeconomics: An Open Letter to Prime Minister Dr Manmohan Singh 12 June 2009

 

 

12 June 2009

The Hon’ble Dr Manmohan Singh, MP, Rajya Sabha

Prime Minister of India

 

 

Respected Pradhan Mantriji:

 

In September 1993 at the residence of the Indian Ambassador to Washington, I had the privilege of being introduced to you by our Ambassador the Hon’ble Siddhartha Shankar Ray, Bar-at-Law. Ambassador Ray was kind enough to introduce me saying the 1991 “Congress manifesto had been written on (my laptop) computer” – a reference to my work as adviser on economic and other policy to the late Rajiv Gandhi in his last months. I presented you a book Foundations of India’s Political Economy: Towards an Agenda for the 1990s created and edited by myself and WE James at the University of Hawaii since 1986 — the unpublished manuscript of that book had reached Rajivji by my hand when he and I first met on September 18 1990. Tragically, my pleadings in subsequent months to those around him that he seemed to my layman’s eyes vulnerable to the assassin went unheeded.

 

 

When you and I met in 1993, we had both forgotten another meeting twenty years earlier in Paris. My father had been a long-time friend of the late Brahma Kaul, ICS, and the late MG Kaul, ICS, who knew you in your early days in the Government of India. In the late summer of 1973, you had acceded to my father’s request to advise me about economics before I embarked for the London School of Economics as a freshman undergraduate. You visited our then-home in Paris for about 40 minutes despite your busy schedule as part of an Indian delegation to the Aid-India Consortium. We ended up having a tense debate about the merits (as you saw them) and demerits (as I saw them) of the Soviet influence on Indian economic “planning”. You had not expected such controversy from a lad of 18 but you were kindly disposed and offered when departing to write a letter of introduction to Amartya Sen, then teaching at the LSE, which you later sent me and which I was delighted to carry to Professor Sen.

 

 

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.

 

 

As it happens, the British Labour Party politician Dr Meghnad Desai made an analogous statement to yours about India when he claimed in 2006 that China

 

 

“now has 10.4% growth on a 44 % savings rate… ”

 

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.

 

At the 1989 project-conference itself, Professor Friedman made the following astute observation about all GNP, GDP etc growth-numbers that speaks for itself:

 

 

“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:

 

Let

 

 

Kt be capital stock

 

Yt be national output

 

It be the level of real investment

 

St be the level of real savings

 

By definition

 

It = K t+1 – Kt

 

By assumption

 

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

 

Or

 

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.

 

Assume

 

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

 

Or

 

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.

 

 

How I described this phenomenon in a 2007 article in The Statesman is this:

 

 

“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.”

 

 

An article of mine in 2008 in Business Standard put it like this:

 

 

“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.”

 

In “Growth and Government Delusion” published in The Statesman last year, I described the growth process more fully like this:

 

“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.

 

It is wonderful that your young party colleague, the Hon’ble MP from Amethi, Shri Rahul Gandhi, has declined to join the present Government and instead wishes to reflect further on the “common man” and “common woman” about whom I had described his late father talking to me on September 18 1990. Certainly the aam admi is not someone to be found among India’s lobbyists of organised Big Business or organised Big Labour who have tended to control government agendas from the big cities.

 

With my warmest personal regards and respect, I remain,

Cordially yours

Subroto Roy, PhD (Cantab.), BScEcon (London)

 

see also https://independentindian.com/thoughts-words-deeds-my-work-1973-2010/rajiv-gandhi-and-the-origins-of-indias-1991-economic-reform/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-e/

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How tightly will organised Big Business be able to control economic policies this time?

The power of organised Big Business over New Delhi’s economic policies (whether Congress-led or BJP-led) was signalled by the presence in the audience at Rashtrapati Bhavan last week of several prominent lobbyists when Dr Manmohan Singh and his senior-most Cabinet colleagues were being sworn-in by the President of India. Why were such witnesses needed at such an auspicious national occasion?

Organised Big Business (both private sector and public sector) along with organised Big Labour (whose interests are represented most ably by New Delhi’s official communist parties like the CPI-M and CPI), are astutely aware of how best to advance their own economic interests; this usually gets assisted nicely enough through clever use of our comprador English-language TV, newspaper and magazine media. Shortly after the election results, lobbyists were all over commercial TV proposing things like FDI in insurance and airports etc– as if that was the meaning of the Sonia-Rahul mandate or were issues of high national priority. A typical piece of such “pretend-economics” appears in today’s business-press from a formerly Leftist Indian bureaucrat: “With its decisive victory, the new Manmohan Singh government should at last be able to implement the required second generation reforms. Their lineaments (sic) are well known and with the removal of the Left’s veto, many of those stalled in the legislature as well as those which were forestalled can now be implemented. These should be able to put India back on a 9-10 per cent per annum growth rate…”

Today’s business-press also reports that the new Government is planning to create a fresh “Disinvestment Ministry” and Dr Singh’s chief economic policy aide is “a frontrunner among the names short-listed to head the new ministry” with Cabinet rank.

Now if any enterprising doctoral student was to investigate the question, I think the evidence would show that I, and I alone – not even BR Shenoy or AD Shroff or Jagdish Bhagwati — may have been the first among Indian economists to have argued in favour of the privatisation of India’s public sector. I did so precisely 25 years ago in Pricing, Planning and Politics: A Study of Economic Distortions in India, which was so unusual for its time that it attracted the lead editorial of The Times of London on the day it was published May 29 1984, and had its due impact on Indian economic policy then and since, as has been described elsewhere here.  In 1990-1991 while with Rajiv Gandhi, I had floated an idea of literally giving away shares of the public sector to the public that owned it (as several other countries had been doing at that time), specifically perhaps giving them to the poorest panchayats in aid of their development.  In 2004-2005, upon returning to Britain after many years, I helped create the book Margaret Thatcher’s Revolution: How it Happened and What it Meant, and Margaret Thatcher if anyone was a paragon of privatisation.

That being said, I have to say I think a new Indian policy of creating a Ministry to privatise India’s public sector is probably a very BAD idea indeed in present circumstances — mainly because it will be driven by the interests of the organised Big Business lobbies that have so profoundly and subtly been able to control the New Delhi Government’s behaviour in recent decades.

Such lobbyist control is exercised often without the Government even realising or comprehending its parameters. For example, ask yourself: Is there any record anywhere of Dr Manmohan Singh, in his long career as a Government economist and then as a Rajya Sabha MP, having ever proposed before 2004-2005 that nuclear reactors were something vitally important to India’s future? And why do you suppose the most prominent Indian business lobby spent a million dollars and registered itself as an official lobbyist in Washington DC to promote the nuclear deal among American legislators? Because Big Business was feeling generous and altruistic towards the “energy security” of the ordinary people of India? Hardly.  Indian Big Business calculates and acts in its own interests, as is only to be expected under economic assumptions; those interests are frequently camouflaged by their lobbyist and media friends into seeming to be economic policy for the country as a whole.

Now our Government every year produces paper rupees and bank deposits in  practically unlimited amounts to pay for its practically unlimited deficit financing, and it has behaved thus over decades. Why we do not hear about this at all is because the most prominent Government economists themselves remain clueless — sometimes by choice, mostly by sheer ignorance — about the nature of the macroeconomic process that they are or have been part of.  (See my  “India’s Macroeconomics”, “The Dream Team: A Critique” etc elsewhere here). As for the Opposition’s economists, the less said about the CPI-M’s economists the better while the BJP, poor thing, has absolutely no economists at all!

Briefly speaking, Indian Big Business has acquired an acute sense of this long-term nominal/paper expansion of India’s economy, and as a result 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 the Indian rupee 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 15 2006 had a lead editorial titled Government’s land-fraud: Cheating peasants in a hyperinflation-prone economy. It 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.”

Mamata Banerjee started her famous protest fast-unto-death in Kolkata not long afterwards, riveting the nation’s attention in the winter of 2006-2007.

What goes for the 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 Dr Singh’s new Government wishes to see real public sector assets being sold, let the Government seek to value these assets not in inconvertible rupees which the Government itself has been producing in unlimited quantities but rather in forex or gold-units instead!

Today’s headline says “Short of cash, govt. plans to revive disinvestment ministry”. Big Business’s powerful lobbies will suggest  that real public assets must be sold  (to whom? to organised Big Business of course!) in order to solve the grave fiscal problems in an inflationary economy caused precisely by those grave  fiscal problems! What I said in 2002 at IndiaSeminar may still be found to apply: I said the BJP’s privatisation ideas “deserve to be condemned…because they have made themselves believe that the proceeds of selling the public sector should merely go into patching up the bleeding haemorrhage which is India’s fiscal and monetary situation… (w)hile…Congress were largely responsible for that haemorrhage to have occurred in the first place.”

If the new Government would like to know how to proceed more wisely, they need to read and grasp, in the book edited by myself and Professor John Clarke in 2004-2005, the chapter by Professor Patrick Minford on Margaret Thatcher’s fiscal and monetary policy (macroeconomics) before they read 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 Thatcher came in.

During the recent Election Campaign, I contrasted Dr Singh’s flattering praise in 2005 of the CPI-M’s Buddhadeb Bhattacharjee with Sonia Gandhi’s pro-Mamata line in 2009 saying the CPI-M had taken land away from the poor.  This may soon signal a new fault-line in the new Cabinet too on economic policy with respect to not only land but also public sector privatisation – with Dr Singh’s pro-Big Business acolytes on one side and Mamata Banerjee’s stance in favour of small-scale unorganised business and labour on the other.  Party heavyweights like Dr Singh himself and Sharad Pawar and Pranab Mukherjee will weigh in one side or the other with Sonia being asked in due course to referee.

I personally am delighted to see the New Rahul Gandhi deciding not to be in Government and to instead reflect further on the “common man” and “common woman” about whom I had described his father talking to me on September 18 1990 at his home. Certainly the “aam admi” is not someone to be found among India’s organised Big Business or organised Big Labour nor their paid lobbyists in the big cities.

Subroto Roy

Posted in Academic research, AD Shroff, Asia and the West, Big Business and Big Labour, BR Shenoy, Britain, Britain in India, British history, Economic Policy, Economic quackery, Economic Theory, Economics of exchange controls, Economics of Public Finance, Economics of real estate valuation, Financial Management, Financial markets, Foreign exchange controls, Government Budget Constraint, Government of India, India's Big Business, India's Banking, India's bureaucracy, India's Capital Markets, India's corporate finance, India's corporate governance, India's corruption, India's currency history, India's Economic History, India's Economy, India's Government Budget Constraint, India's Government Expenditure, India's Industry, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's peasants, India's political lobbyists, India's Politics, India's pork-barrel politics, India's poverty, India's Public Finance, Inflation, Land and political economy, Macroeconomics, Mamata Banerjee, Manmohan Singh, Margaret Thatcher, Margaret Thatcher's Revolution, Martin Ricketts, Mendacity in politics, Microeconomics, Monetary Theory, Money and banking, Mumbai financial world, New Delhi, Patrick Minford, Political cynicism, Political Economy, Political mendacity, Political Science, Politics, Pork-barrel politics, Power-elites and nomenclatura, Practical wisdom, Principal-agent problem, Privatisation, Public Choice/Public Finance, Public property waste fraud, Rajiv Gandhi, Rational decisions, Singur and Nandigram, Sonia Gandhi, Statesmanship, The Statesman, The Times (London), University of Buckingham. Leave a Comment »

My 2009 prediction of the Sonia Congress election win

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.

How the victory takes shape is, I think, by their having won the median voter on both the economic and the secular-communal axes of Indian politics.  (See my 2008 published graph on the Median Voter Model in Indian politics, available elsewhere here).

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.

Subroto Roy

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.
SR

A Dozen Grown-Up Questions for Indian Politicians Dreaming of Becoming/Deciding India’s PM After the 2009 General Elections

The 2009 General Election campaign is supposed to elect a Parliament and a Head of Government for the Republic of India, not a Head Boy/Head Girl at an urban middle-class high school or the karta of a joint family. Unfortunately, our comprador national-level media seem to be docile  and juvenile enough in face of power and privilege to want to ask only touchy-feely koochi-woochi pretty baby questions of the “candidates” for PM (several of whom are not even running as candidates for the Lok Sabha but still seem to want to be PM).   Rival candidates themselves seem to want to hurl invective and innuendo at one another, as if all this was merely some public squabble between Delhi middle-class families.

So here are a set of grown-up adult questions instead:

1. Pakistan is politically and strategically our most important neighbour. Can you assure the country that a government headed by you will have a coherent policy on both war and peace with Pakistan? How would you achieve it?

2. Do you agree with the Reagan-Gorbachev opinion that “a nuclear war cannot be won and must never be fought”? If so, what would your Government do about it?

3. If there are Indian citizens in Jammu & Kashmir presently governed by Article 370 who wish to renounce Indian nationality and remain stateless or become Pakistani/Afghan/Iranian citizens instead, would you consider letting them do so and giving them Indian “green cards” for peaceful permanent residence in J&K and India as a whole?

4. Do you know where Chumbi Valley is? If so, would your Government consider reviving the decades-old idea with China to mutually exchange permanent leases to Aksai Chin and Chumbi Valley respectively?

5. Nuclear power presently accounts as a source of about 4% of total Indian electricity; do you agree that even if nuclear power capacity alone increased by 100% over the next ten years and all other sources of electricity remained constant, nuclear power would still account for less than 8% of the total?

6. The public debt of the country  may now amount to something like Rs 30 lakh crore (Rs 30 trillion); do you find that worrisome? If so, why so? If not, why not?

7. The Government of India may be paying something like Rs 3 lakh crore (Rs 3 trillion) annually on interest payments on its debt;  do you agree that tends to suck dry every public budget even before it can try to do something worthwhile?

8.  If our money supply growth is near 22% per annum, and the rate of growth of real income is near 7% per annum, would you agree the decline in the value of money (i.e., the rate of inflation) could be as high as 15% per annum?

9. Do you agree that giving poor people direct income subsidies is a far better way to help them than by distorting market prices for everybody? If not, why not?

10. How would you seek to improve the working of  (and reduce the corruption in) the following public institutions: (1) the Army and paramilitary; (2) the Judiciary and Police; (3) Universities and technical institutes?

11. There has never been a Prime Minister in any parliamentary democracy in the world throughout the 20th Century who was also not an elected member of the Lower House; do you agree BR Ambedkar and Jawaharlal Nehru intended that for the Republic of India as well and thought it  something so obvious as  not necessary to specify in the 1950 Constitution?  What will your Government do to improve the working of the Presidency, the Lok Sabha, Rajya Sabha and State Assemblies?

12. What, personally, is your vision for India after a five-year period of a Government led by you?

Subroto Roy,

Citizen & Voter

Posted in 15th Lok Sabha, Academic research, Afghanistan, Air warfare, Aksai Chin, BR Ambedkar, China's expansionism, China-India Relations, Chumbi Valley, India's 2009 General Election, India's Army, India's Banking, India's Budget, India's bureaucracy, India's Constitution, India's constitutional politics, India's Democracy, India's Diplomacy, India's Economy, India's education, India's Election Commission, India's Electorate, India's Foreign Policy, India's Government Budget Constraint, India's Government Expenditure, India's higher education, India's History, India's inflation, India's Judiciary, India's Lok Sabha, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's Personality Cults, India's political lobbyists, India's political parties, India's Politics, India's Polity, India's pork-barrel politics, India's poverty, India's Presidency, India's private TV channels, India's Public Finance, India's Rajya Sabha, India's Reserve Bank, India's Rule of Law, India's State Finances, India's Supreme Court, India's Union-State relations, India-China relations, India-Pakistan cooperation against terrorism, India-Pakistan naval cooperation, India-Pakistan peace process, India-Tibet Border, India-United States business, India-US Nuclear Deal, International diplomacy, Iran, Jammu & Kashmir, Jammu & Kashmir in international law, Jawaharlal Nehru, Just war, Laddakh, Land and political economy, LK Advani, Manmohan Singh, Pakistan's murder of Indian POWs, Pakistan's terrorist masterminds, Pakistan's terrorist training institutes, Pakistan, Balochistan, Afghanistan, Iran, Pakistani expansionism, Press and Media, Sonia Gandhi, Stonewalling in politics, Voting, War. Leave a Comment »

Will someone please teach the BJP’s gerontocracy some Economics 101 on an emergency basis?

Two years ago, I said in “Political Paralysis”,

“[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?

As I have said elsewhere, only quackery, fallacious finance and multitudinous intellectual fraud seem destined to emerge from New Delhi’s governing class of all political parties and their media and businessman friends. “Government finance requires scientific honesty, especially by way of clear rigorous accounting and audit of uses and origins of public resources. That scientific honesty is what we have not had at Union or State level for more than half a century.”

Subroto Roy, Kolkata

India is not a monarchy! We urgently need to universalize the French concept of “citoyen”! (2009)

Each of the two sons of Feroze and Indira Gandhi died tragically  in his prime, years ago, and it is unbecoming to see their family successors squabble today. Everyone may need to be constantly reminded that this handful of persons are in fact ordinary citizens in our democratic polity, deserving India’s attention principally in such a capacity.

What did, indeed, Feroze Gandhi, Jawaharlal Nehru, Sanjay Gandhi, Indira Gandhi and Rajiv Gandhi “live and die for”?  It was not any one identifiable thing or any set of common things, that seems certain.

Feroze Gandhi from all accounts stood for integrity in Indian politics and journalism; it is not impossible his premature death was related to  his wife’s negligence because she had returned to her father’s side instead.  Jawaharlal Nehru did not do well as a father to promote his daughter so blatantly as his assistant either before 1947

nehruindira70yearsago1

or after.

nehruindira56

Nehru did not achieve political power until well into middle age; his catastrophic misjudgment of communist ideology and intentions, especially Chinese communist ideology and intentions, contributed to an Indian defeat at war, and led soon thereafter to his health collapsing and his death. He and Indira somewhat nonchalantly made a visit to Ceylon even as the Chinese attack was commencing; a high point of my own childhood was saying namaste on October 13 1962 at Colombo airport when they arrived.

nehru

Feroze and Indira’s younger son evidently came to die in a self-inflicted aeronautical mishap of some sort.  What did Sanjay Gandhi “live for”?  The book Foundations of India’s Political Economy: Towards an Agenda for the 1990s created twenty years ago in America

indvol

has a chapter titled “The State of Governance” by the political scientist James Manor which says:

“After 1973 or so, personal loyalty tended increasingly to become the main criterion for advancement in the Congress Party. People who appeared to be loyal often replaced skilled political managers who seemed too independent.  Many of these new arrivals did not worry, as an earlier generation of Congress officials  had done, that excessive private profiteering might earn the wrath of party leaders.  In 1975, Sanjay Gandhi suddenly became the second most powerful figure in Indian politics.  He saw that the parties of the left and right had strong organizations that could put large numbers of militants into the streets for demonstrations while Congress had no such capacity.  In the belief that Congress should also have this kind of muscle, he began recruiting elements from urban centres including the criminal underworld.  The problem of corruption was exacerbated by demands that State-level Congress leaders place large sums of money at the disposal not of the national party but of the persons who presided over it.  Congress chief ministers realized that a fulsome response to these demands went a long way toward insulating them from interference from New Delhi, and a monumental system of fund-raising sprang up.  When so many people were being drawn into semi-institutionalized malfeasance, which seemed to be condoned by higher authorities, it was inevitable many would skim off portions of the funds raised for personal benefit.  Corruption soared. The problem was compounded by the tendency for people to be dismissed from public and party offices abruptly, leading many Congress politicians to fear that their time in power might be quite short.”

I do not have reason to disagree with this  opinion  contained in the book  that I and WE James created  at the University of Hawaii twenty years ago.   If anything, Sanjay’s political model may have spread  itself across  other Indian  political parties in one way or another.

What does strike me as odd in light of current  political controversy is that  several  of Sanjay’s friends and colleagues  are now part-and-parcel of the   Sonia Congress – one must ask, were they such fair-weather  friends that they never  lent a hand or a shoulder to his young widow and her infant son especially against the cruelties Sanjay’s mother bestowed upon them?  Did they offer help or guidance to Sanjay’s son, have they tried to guide him away from becoming the bigoted young politician he seems to wish to be today?

Indira’s major faults included playing favourites among her bahus and her grandchildren with as much gusto as any mother-in-law portrayed on the tackiest TV-serial today.

What were her good deeds?  There was one, and it was an enormously large one, of paramount significance for the country and our subcontinent as a whole: her statesmanship before, during and to some extent after the war that created Bangladesh.  My father has preserved a classic photograph over the years of Indira’s finest period as an international stateswoman, when she visited Paris and other foreign capitals including Washington in the autumn of 1971.

scan0024

She tried to prevent the Yahya Khan/Tikka Khan  genocide in Bangladesh when many  Bangladeshis came to be sacrificed at the altar of the Nixon-Kissinger visits to Mao and Zhou.  She made a major diplomatic effort in world capitals to avert war with West Pakistan over its atrocities in East Pakistan. But war could not be averted, and within a few weeks, in December 1971, Bangladesh was born.

“Indira Gandhi’s one and paramount good deed as India’s leader and indeed as a world leader of her time was to have fought a war that was so rare in international law for having been unambiguously just. And she fought it flawlessly. The cause had been thrust upon her by an evil enemy’s behaviour against his own people, an enemy supported by the world’s strongest military power with pretensions to global leadership. Victims of the enemy’s wickedness were scores of millions of utterly defenceless, penniless human beings. Indira Gandhi did everything right. She practised patient but firm diplomacy on the world’s stage to avert war if it was at all possible to do. She chose her military generals well and took their professional judgment seriously as to when to go to war and how to win it. Finally, in victory she was magnanimous to the enemy that had been defeated. Children’s history-books in India should remember her as the stateswoman who freed a fraternal nation from tyranny, at great expense to our own people. As a war-leader, Indira Gandhi displayed extraordinary bravery, courage and good sense.” (From my review article of Inder Malhotra’s Indira Gandhi, first published in The Statesman May 7 2006.)

“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 judgment 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….” (From  “Unhealthy Delhi” first published in The Statesman June 11 2007).

What did Indira die for?  I have said it was “blowback” from domestic and/or international politics, similar to what happened to Rajiv Gandhi and Benazir Bhutto in later years.

“Indira Gandhi died in “blowback” from the unrest she and her younger son and others in their party had opportunistically fomented among Sikh fundamentalists and sectarians since the late 1970s.  Rajiv Gandhi died in “blowback” from an erroneous imperialistic foreign policy that he, as Prime Minister, had been induced to make by jingoistic Indian diplomats, a move that got India’s military needlessly involved in the then-nascent Sri Lankan civil war.  Benazir Bhutto similarly may be seen to have died in “blowback” from her own political activity as prime minister and opposition leader since the late 1980s, including her own encouragement of Muslim fundamentalist forces.  Certainly in all three cases, as in all assassinations, there were lapses of security too and imprudent political judgments made that contributed to the tragic outcomes.” From “An Indian Reply to President Zardari”.

And then there was Rajiv.  He did not know me except in his last eight months. It has now emerged that Dr Manmohan Singh’s first bypass operation was in 1990-1991, coinciding precisely with the time I gave Rajiv the results of the perestroika-for-India project that I had led at the University of Hawaii since 1986, an encounter that sparked the 1991 economic reform as has been told elsewhere. Dr Singh was simply not in that loop, nor has he himself ever claimed to have been in it — regardless of what innumerable flatterers, sycophants and other straightforwardly mendacious characters in Delhi’s high power circles have been making out over the years since.  Facts are rather stubborn things.

As a 35-year old newcomer to Delhi and a complete layman on security issues, I did what little I knew  how to try to reduce the vulnerability that I felt  Rajiv  faced from unknown lists of assassins.

“That night KR 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. KR 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 V. P. 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…..  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. Eleven years later, on 25 May 2002, press reports said “P. V. 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.” Rajiv’s years in Government, like those of Indira Gandhi, were in fact marked by profligacy and the resource cost of poor macroeconomic policy since bank-nationalisation may be as high as Rs. 125 trillion measured in 1994 rupees. Certainly though it was Rajiv Gandhi as Leader of the Opposition in his last months who was the principal architect of the economic reform that came to begin after his passing.”

(I have had to say that I do not think the policies pursued by Dr Singh thus far have been consistent with the direction I believe Rajiv,  in a second term as PM, would have wished to take. See, for example, “India’s Macroeconomics”, “Fallacious Finance”, “Against Quackery”, “Mistaken Macroeconomics”, and other articles listed and linked at “Memo to Dr Kaushik Basu”.  See also https://independentindian.com/2006/05/21/the-politics-of-dr-singh/ https://independentindian.com/2008/04/25/assessing-manmohan-the-doctor-of-deficit-finance-should-realise-the-currency-is-at-stake/  https://independentindian.com/2013/08/23/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-encounter-with-rajiv-gandhi-just-as-siddhartha-shan/)

The treatment of Indira or Rajiv or Sanjay or their family successors as royalty of any kind whatsoever in India was, is, and remains absurd, reflecting stunted growth of Indian democracy.  I remember well the obsequiousness I witnessed on the part of old men in the presence of Rajiv Gandhi.

Tribal and mansabdari political cultures still dominate Northern and Western regions of the Indian subcontinent (descending from the Sikhs, Muslims, Rajputs, Mahrattas etc).

Nehru in his younger days was an exemplary democrat, and he had an outstanding democratically-minded young friend in Sheikh Mohammad Abdullah.

abdullahnehru1947

But Nehru and Abdullah as Westernized political liberals were exceptions  in the autocratic/monarchical political cultures of north India (and Pakistan) which continue today and stunt the growth of any democratic mindset.

What we may urgently need is some French  Liberté, égalité, fraternité ! to create a simple ordinary citoyen universally in the country and the subcontinent as a whole!  May we please import a Marquis de Lafayette?

Bengal and parts of Dravidian India have long lost fondness for monarchy and autocracy —  Western political liberalism began to reach  Kolkata  almost two centuries ago after all (see e.g. Tapan Raychaudhuri’s  fine study Europe Reconsidered). Both Nepal and Pakistan have been undergoing radical transformation towards democracy in recent  months, as Bengali Pakistanis had done 40 years earlier under Sheikh Mujib.  I said last year and say again that there may be a dangerous  intellectual vacuum around the throne of Delhi.

Subroto Roy

Just how much intellectual fraud can Delhi produce?

Today’s English-language newspapers report a front-page story that suggests the extent of intellectual fraud emanating from our capital-city’s English-speaking elite may be unending and limitless and uncontrollable (and this  Delhi-based elite has spread itself to other places in the country too).

Such  may be a source of our ridiculous politics, paralleled by the corruption in organized business in both public and private sectors.  Delhi was perhaps the wrong place to which to move India’s capital  one hundred years ago; the geography was such that it made ordinary survival hard or at least highly stressful, and when you have a capital-city in which the elite have to work so hard all the time merely to remain within the city-limits, it was inevitable perhaps that truthfulness and honesty would become  major casualties.

Subroto Roy

India’s incredibly volatile inflation rate!

Some months ago India’s inflation rate was said to be the highest it has been for decades and now today, right on cue, it is said to be the lowest it has been for decades!   Today’s business press says Dr Manmohan Singh’s chief economic policy aide has apparently immediately expressed his keenness to see an even further purported “fiscal stimulus package” (aka pork-barrel politics prior to an election).

For myself,  I have long given up on the credibility of such stuff emanating from our capital’s supposed policy-makers — putting it down, generally speaking, to what I consider and what  I have called “New Delhi’s intellectual and moral bankruptcy”.

Here are two simple crude alternative ways to measure India’s (long-term trend) inflation-rate:

1.  Take the Money-Supply Growth Rate, say 22% per annum, subtract from it the Growth of Real National Income, say 7%, get, hmmmm, 15%.

2.  Find C&AG data for a series of several years; read off nominal expenditure on a dozen major heads of government bureaucracy (like “Central Secretariat”); calculate an average rate of growth of nominal expenditure on bureaucratic departments.   On an assumption that Government of India  bureaucracies, especially useless unproductive ones in New Delhi, seek to maintain their real consumption-levels, that growth of nominal expenditure reflects their beliefs about the actual change in the cost of living or decline in the value of money.   Oddly enough, quick calculations of that amount to, hmmmm, 15% again!

For those who prefer to believe what emanates from New Delhi’s  pretentious  economists wallowing in their own ignorance, I wonder, as I said  a couple of years ago on The Statesman’s frontpage, might I interest you in a marble structure in Agra, or perhaps a steel bridge over the Hooghly River, very famous, like Brooklyn Bridge itself….?

Subroto Roy

Satyam and IT-firms in general may be good candidates to become “Labour-Managed” firms

Satyam may be able to summarily solve the problems caused by its high-level corporate fraud by transforming itself into a “Labour-Managed Firm”.

One of the new Government-appointed board members has stated publicly today that the company has little or no debt.  If this is true it would be interesting because not only were the vast cash-assets non-existent, the liabilities-side of the balance-sheet also may be small, which could mean the company was simply far smaller in terms of value than it had made itself out to be.  In a bankrupt firm, the remaining assets normally come to belong to the creditors but what if the main creditors happen to be the work-force?  If that is in fact the situation in this case, Satyam may be a prime candidate to be transformed into a “Labour-Managed Firm” of the sort discussed by Jaroslav Vanek (The General Theory of Labour Managed Firms and Market Economies, 1970) and James Meade (The theory of the labour-managed firm and profit-sharing, Economic Journal 1972), and surveyed by e.g. Louis Putterman in the New Palgrave Dictionary and by Martin Ricketts in The Economics of Business Enterprise 2003.

As I had briefly mentioned earlier here, the transition could be made by Satyam’s existing  technical and other staff being allowed to participate (with their personal savings and claims to future income) in any auction of the “works-in-progress” that constitute the client contracts the company presently has around the world and which constitute its major intangible asset.   This may be the single best way to preserve the firm’s value as well as the income-streams of its staff.

The staff would have to make a transition from being employees to becoming self-managers which may not be easy in practice, although in theory the information-technology industry may be well-suited to labour-managed firms given the peculiarly intangible nature of their products.  The marginal cost of production of (true) information is typically very high but the marginal cost of dissemination of information  is near- zero.

If this happened and a corrupt bankrupt Satyam-I transformed itself into a viable Labour-Managed Satyam-II, the newly appointed board would become redundant even more quickly than it would have done otherwise — though this board may be even less likely to know of Vanek and Meade than to be familiar with modern corporate finance.  Time perhaps to hit the textbooks, gentlemen, and burn that midnight candle!  Is that something we can expect from some of the key lobbyists of India’s organized business sector?

Subroto Roy

Postscript  1 :  Of course if the asset-side has been fraudulently exaggerated while the liabilities-side has been small, the fraud has been directly perpetrated on equity-holders who held stock that was overvalued  by the market as a direct result of the fraud.

Postscript 2:  I find (grotesquely) amusing the new found emphasis on “Independent Directors” in view of the obvious fraud in the advertised biographies of some rather notorious Independent Directors in the IT-business and other sectors of corporate India and the higher bureaucracy!   There seems in fact to have been a wild hyperinflation of reputations generally, especially in Delhi,  Mumbai,  Bangalore, Pune and other such hip with-it places  — people claiming to have earned PhDs when they have none,  people calling themselves “Dr” on the basis of some defunct Soviet management institute  having once paid them off, people claiming to be Harvard postgraduates on the basis of  some outsourced executive development programme of a few weeks’ duration, people claiming academic publications and academic affiliations which are non-existent, etc etc.   All that for another day!  (But any former students of mine who may find the above pertinent to themselves may please know their old prof is cross with them! Tsk tsk!)  (And then there was the one of the senior government economic planner who told his astrologer on the  telephone his correct date  of birth but had lied to the Government of India by a couple of years…. clearly he did not want to get his own Ptolomaic horoscope wrong even if his plans for India in the Copernican world went awry!)

Could the Satyam/PwC fraud be the visible part of an iceberg? Where are India’s “Generally Accepted Accounting Principles”? Isn’t governance rather poor all over corporate India? Bad public finance may be a root cause

In a March 5 2007 article in The Statesman, I said:

“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.”

In a September 23-24 2007 article in The Sunday Statesman I said:

“… 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.”

In a February 4 2007 article in The Statesman, I said:

“Financial control of India’s fiscal condition, and hence monetary expansion, vitally requires control of the growth of these kinds of dynamic processes and comprehension of their analytical underpinnings. Yet such understanding and control seem quite absent from all organs of our Government, including establishment economists and the docile financial press…. the actual difference between Government Expenditure and Income in India has been made to appear much smaller than it really is. Although neglected by the Cabinet, Finance Ministry, RBI and even (almost) the C&AG, the significance of this discrepancy in measurement will not be lost on anyone seriously concerned to address India’s fiscal and monetary problems.”

All three articles are available elsewhere here and are republished below together.  I have published elsewhere today my brief 2006 lecture on corporate governance.  (See also my “The Indian Revolution”, “Monetary Integrity & the Rupee”, “Indian Inflation”,  “The Dream Team: A Critique”, “India’s Macroeconomics”, “Growth & Government Delusion”, etc).

The fraud at Satyam amounts to it having been long bankrupt but not seemingly so.  The fact it was long bankrupt was apparently overlooked or condoned by its auditors Pricewaterhouse Coopers! This may be big news today but the response of corporate India and the Indian business media seems utterly insincere (and there has been a lot of fake pontificating on TV by some notorious frauds).  Remember the head of Satyam received awards with all the other honchos at those fake ceremonies that businessmen and the business media keep holding at this or that hotel.  (See my several articles here under the categories “Satyam corporate fraud”, “Corporate governance” etc.)

Government agencies, as enforcers of the law, must be seen in such circumstances to have greater credibility than the violators, but who can say that Government accounting and audit and corporate governance in India is not as bad as that of the private sector?    It may be in fact far, far worse.   Poor accounting, endless deficit finance, unlimited paper money creation, false convertibility of the rupee etc is what emerges from our supposedly wise economic policy-makers.

When was the last time some major businessman or top politician spoke publicly about the importance of “Generally Accepted Accounting Principles”?   The answer is never.   Government (of this party or that) has become well-oiled by political lobbyists and is hand-in-glove with organized business, especially in a few cities.  Until Government gets its own accounts straight, stops its endless deficit finance, reins in unlimited paper money-creation, creates an honest currency domestically and externally, there is no proper example or standard set for the private sector, and such scandals will erupt along with insincere responses from the cartels of corporate India.

What emerges from New Delhi’s economists seems often to have as much to do with economics as Bollywood has to do with cinema.

Subroto Roy

Fallacious Finance: Congress, BJP, CPI-M et al may be leading India to hyperinflation

by

Subroto Roy

First published in The Statesman, March 5 2007 Editorial Page Special Article http://www.thestatesman.net

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.

Against Quackery

First published in two parts in The Sunday Statesman, September 23 2007, The Statesman September 24 2007, http://www.thestatesman.net

By Subroto Roy

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.

2. 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 accounts
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.

Fiscal Instabilty

Interest payments quickly suck dry every year’s Budget. And rolling over old public debt means that Government Borrowing in fact much exceeds the Fiscal Deficit

by Subroto Roy

First published in The Sunday Statesman, Editorial Page Special Article, February 4 2007, http://www.thestatesman.net

While releasing Mr Chidambaram’s book some days ago, our PM said that as Narasimha Rao’s Finance Minister in 1991 he had caused “fiscal stabilization” of the country. Unfortunately, Dr Manmohan Singh may have been believing the flattery of his sycophants, since the facts point differently.

The Fiscal Deficit is new borrowing by Government added for a given year. In 1994-1995 for example, the Union Government’s expenditure net of operational and other income was some Rs 1,295 billion (1 billion = 100 crore). Rs. 674 billion was generated for the Union Government by taxation that year (Rs 184 billion from direct taxes, Rs 653 billion from indirect and miscellaneous taxes, less Rs 163 billion as the States’ share). The difference between Rs 1,295 billion and Rs. 674 billion, that is Rs. 621 billion had to be borrowed by the Government of India in the name of future unborn generations of Indian citizens. That was the “Fiscal Deficit” that year. If the stock of Public Debt already accumulated has been B,this Fiscal Deficit, C, adds to the interest burden that will be faced next year since interest will have to be then paid on B + C.

Interest payments on Government debt have dominated all public finance in recent decades, quickly sucking dry the budgets every year both of the Union and each of our more than two dozen States. Some Rs. 440 billion was paid by the Union Government as interest in 1994-1995, and this had risen to some Rs. 1,281 billion by 2003-2004. As a percentage of tax revenue, interest expenditure by the Government of India on its own debt rose from 40% in 1991 to 68% in 2004 ~ through the Finance Ministerships of Manmohan Singh, P Chidambaram, Yashwant Sinha and Jaswant Singh.

Financial control of India’s fiscal condition, and hence monetary expansion, vitally requires control of the growth of these kinds of dynamic processes and comprehension of their analytical underpinnings. Yet such understanding and control seem quite absent from all organs of our Government, including establishment economists and the docile financial press.

For example, contrary to the impression created by the Finance Ministry, RBI and Union Cabinet (whether of the UPA or NDA, while the Communists would only be worse), the Fiscal Deficit has been in fact very far from being all that the Government of India borrows from financial markets in a given year. The stock of Public Debt at any given moment consists of numerous debt-instruments of various sorts at different terms. Some fraction of these come to maturity every year and hence their principal amounts (not merely their interest) must be repaid by Government. What our Government has been doing routinely over decades is to roll over these debts, i.e. issue fresh public debt of the same amount as that being extinguished and more. For example, some Rs. 720 billion, Rs. 1,180 billion, Rs.1,330 billion and Rs. 1,390 billion were amounts spent in extinguishing maturing public debt in 1993, 1994, 1995 and 1996 respectively. No special taxes were raised in those years specifically for that purpose. Instead the Government merely issued additional new debt or “rolled over” or “converted” the old debt in the same amounts and more in the portfolios of the captive nationalized banking system (see graph).

Plainly, the Government of India’s actual “Borrowing Requirement”, as the difference between its Income and Expenditure, when accounted for properly, will be the sum of this rolled over old debt and the Fiscal Deficit (which is merely the additional borrowing required by a single year’s Budget). In other words, the Government’s Borrowing Requirement is the Fiscal Deficit plus the much larger amount required to annually roll over maturing debt. Because the latter expenditure does not appear at all in calculation of the Fiscal Deficit by the subterfuge of having been routinely rolled over every year, the actual difference between Government Expenditure and Income in India has been made to appear much smaller than it really is. Although neglected by the Cabinet, Finance Ministry, RBI and even (almost) the C&AG, the significance of this discrepancy in measurement will not be lost on anyone seriously concerned to address India’s fiscal and monetary problems.

On the expenditure side, Current Expenditure (anachronistically named “Revenue Expenditure” in India as it is supposed to be met by current revenue) meets recurrent liabilities from one budget-date to the next, like salaries of school-staff or coupon payments on Government debt.

Investment Expenditure “of a capital nature” is supposed to increase “concrete assets of a material and permanent character” like spending on a new public library, or reducing “recurring liabilities” by setting aside a sinking fund to reduce Government debt. Some public resources need to be spent to yield benefits or reduce costs not immediately but in the future. Besides roads, bridges and libraries, these may include less tangible investments too like ensuring proper working of law-courts or training police-officers and school-teachers.

Also, there has been large outright direct lending by the Government of India bypassing normal capital markets on the pattern of old Soviet “central planning”, whereby “credit” is disbursed to chosen recipients.

“Current”, “Investment” and “Loan” expenditure decisions of this kind are made on the same activities. For example, in 1994-1995, the Government of India spent Rs. 2.7 billion as “Loans for Power Projects” in addition to Rs. 9.8 billion under Current Expenditure on “Power” and Rs. 15.5 billion as Investment Expenditure on “Power Projects”. By 2003-2004, these had grown to Rs. 50.94 billion, Rs. 31.02 billion, Rs. 28.5 billion respectively. Yet the opaqueness of Government accounts, finances and economic decision-making today is such that nowhere will such data be found in one table giving a full picture of public expenditure on the Power sector as a whole. On the revenue side, Government’s “Current Income” includes direct and indirect taxes, operational income from public utilities (like railways or the post office), and dividends and profits from public assets. There has been a small “Investment Income” too received from sale of public assets like Maruti. Also, since loans are made directly, there has to be a category for their recovery.

“One must not take from the real needs of the people for the imaginary needs of the state”, said Montesquieu; while De Marco in the same vein said “the greatest satisfaction of collective needs” has to be sought by “the least possible waste of private wealth”. Even Mao Zedong reportedly said: “Thrift should be the guiding principle of our government expenditure”. The C&AG requires Government determine “how little money it need take out of the pockets of the taxpayers in order to maintain its necessary activities at the proper standard of efficiency”.

Yet India’s top politicians and bureaucrats spend wildly ~ driven by the organised special interest groups on whom they depend, while ostentatiously consuming public time, space and resources themselves “quite uselessly in the pleasurable business of inflating the ego” (Veblen).

For Government to do what it need not or should not do contributes to its failure to do what it must. Thus we have armies of indolent soldiers, policemen and bureaucrats and piles of rotting supplies in government warehouses while there are queues outside hospitals, schools, courts etc.

Parliament and State Legislatures need to first ask of an annual budget whether it is efficient: “Is expenditure being allocated to enhance the public interest to the greatest extent possible, and if not, how may it be made to do so?” National welfare overall should increase the same whichever public good or service the final million of public rupees has been spent on.

Fundamentally, government finance requires scientific honesty, especially by way of clear rigorous accounting and audit of uses and origins of public resources. That scientific honesty is what we have not had at Union or State level for more than half a century.

Corporate Governance & the Principal-Agent Problem (a brief lecture dated 31 May 2006)

Corporate Governance & the Principal-Agent Problem
by

Subroto Roy
for a conference on corporate governance

I am most grateful for this opportunity to speak at this distinguished gathering.  I have to say I have had just a day to collect my thoughts on the subject of our discussion, so I may be less precise than I would wish to be.  But I am delighted I  have  a mere 7 minutes to speak, and I will not plan to speak for a second more!

I would like to ask you to consider the following pairings:

PATIENT: DOCTOR
CLIENT: LAWYER
PUPIL: TEACHER
STUDENT: PROFESSOR
SHAREHOLDER: DIRECTORS & MANAGERS
CITIZEN: GOVERNMENT

You will recognize something in common to all of these pairings I am sure.  A patient goes to a doctor with a problem, like a swelling or a stomach ache or a fever, and expects the doctor to do his/her best to treat it successfully.  A client goes to a  lawyer with a problem, of a contract or a tort or a criminal charge, and expects the lawyer to represent him to the best of his ability.  A student attends a University or higher educational Institute, and expects the professors there to impart some necessary knowledge,  to explain some difficult or complex natural or social phenomena, to share some well-defined expertise, so the student too may aspire to becoming an expert.

In each case, there is a Principal – namely the patient, the client, the student, — and there is an Agent, namely, the doctor, the lawyer, the professor.  The Agent is not acting out of charity but is someone who receives payment from the Principal either directly through fees or indirectly through taxes.

The Agent is also someone who necessarily knows more than the Principal about the answer to the Principal’s problem.  I.e. there is an asymmetry in the information between the two sides.   The Agent has the relevant information or expertise —  the Principal needs this information or expertise and wishes to purchase it from him one way or another.

A company’s Board of Directors and the management that reports to it, may be similarly assumed to have far greater specific knowledge than the company’s shareholders (and other stakeholders) about the state of a company’s operations, its finances, its organisation, its position in various input and output markets, its potential for growth in the industry it is a part of, and so on.  Yet the shareholders are the Principal and the directors and managers are their Agents.

And indeed the Government of a country, i.e. its political leadership and the bureaucracy and military that are reporting to it, also have much more relevant decision-making information available to them than does the individual citizen as to the economic and political direction the country should be taking and why, and again the body of the ordinary citizenry of any country may have a reasonable expectation that politicians, bureaucrats and military generals are acting on their behalf.

In each of these cases, the Principal, having less information than the Agent, must necessarily trust that the Agent is going to be acting in good faith on the Principal’s behalf.  There is a corporate governance problem in each case simply because the Agent can abuse this derived power that he acquires over the Principal, and breach the contract he has entered into with the Principal.   Doctors or lawyers can practise improperly, professors can cheat their students of their money and teach them nothing or less than nothing, boards of directors and managers can cheat their shareholders and other “stakeholders” (including their workers who have expectations about the company) of value that should be rightfully theirs — and of course politicians, bureaucrats and military men are all too easily able to misuse the public purse in a way that the public will not even begin to know how to rectify.

In such situations, the only real checks against abuse can come from within the professions themselves.   It is only doctors who can control medical malpractice, and only a doctor can certify that another doctor has behaved badly.  It is only lawyers who can control legal malpractice, and testify that yes a client has been cheated of his money by some unscrupulous attorney.  It is only good professors and good teachers who can do what they can to stand out as contrasting examples against corrupt professors or incompetent teachers.

In case of managerial malpractice, it is only fellow-managers who may be able to comprehend the scam that a particular CEO has been part of, in stealing money from his shareholders.   And in case of political malpractice, similarly, it is only rival political parties and when even those fail, rival political institutions like the courts or the press and media, who can expose the shenanigans of a Government, and tell an electorate to throw the rascals out in the next election.

In other words, self-policing, and professional self-discipline are the only ultimate checks and balances that any society has.  The ancient Greeks asked the question “Who guards the guardians”,  and the answer has to be that the guardians themselves have to guard themselves.   We ultimately must police ourselves .  I think it was William Humboldt who said that a people get the government they deserve.

In India today, indeed in India in the last thirty or forty years, perhaps ever since 1966 after the passing away of Lal Bahadur Shastri, we may be facing a universal problem of the breach of good faith especially so perhaps in the Government and the organised corporate sector.   Such breaches occur in other countries too, but when an American court sends the top management of Enron to jail for many years or a Korean court sends the top management of Daewoo to jail for many years, we know that there are processes in these countries which are at least making a show of trying to rectify the breaches of good faith that may have occurred there.   That is regrettably not the situation in India.  And the main responsibility for that rests with our Government simply because our Government is by far the largest organised entity in the country and dwarfs everyone else.

As an economist, I have been personally intrigued to realise that Government corruption is closely caused by the complete absence of serious accounting and audit norms being followed in Government organisations and institutions.   Get control of as big a budget as you can, is the aim of every Government department, then spend as little of it as is absolutely necessary on the publicly declared social or national aim that the department is supposed to have, and instead spend as much as possible on the travel or personal lifestyles of those in charge, or better still transform as much as possible into the personal property of those in charge – for example, through kickbacks on equipment purchases or building contracts.  For example, it is not unknown for the head of some or other government institution to receive an apartment off-site from a builder who may have been chosen for a major construction project on site.  This kind of thing has unfortunately become the implicit goal of almost all departments of the Government of India as well as the Governments of our more than two dozen States.    I have no doubt it is a state of affairs ultimately being caused by the macroeconomic processes of continuous deficit-financing and unlimited printing of paper-money over decades.   For the first two decades or so after Independence, our institutions still had enough self-discipline, integrity, competence and optimism to correct for the natural human instincts of greed and domination.  The next four decades — roughly, as I have said, from the death of Shastriji — there has been increasing social and political rot.  I have to wonder if and when a monetary collapse will follow.

India’s “pork-barrel politics” needs a nice (vegetarian) Hindi name! “Teli/oily politics” perhaps? (And are we next going to see a Bill of Rights for Lobbyists?)

“Pork barrel politics” has been known as a concept  in America and other Western countries for more than a century. India is clearly playing catch-up here but advancing quickly. The so-called “second fiscal stimulus” announced yesterday by Dr Manmohan Singh’s chief economic policy aide no longer makes any pretence of any engagement with serious public finance economics at all and is instead a plain bill of rights for lobbyists, especially organised business (and with it, organised labour).

In fact New Delhi’s way seems to be for organised lobbies to deal directly with the higher bureaucracy with executive political approval or acquiescence;  pork arising from legislative politics may be secondary.

Now “pork” is too ugly a term for our Indian sensibilities and not many people eat any in the country (though, believe it or not, pork-production literally speaking is still the recipient of a government subsidy!).  So we do need a nice preferably vegetarian name for “pork-barrel politics” Indian-style.  “Tel” or “oil” may provide some ideas, and as a rough approximation I would suggest “Teli politics” or “Oily politics” but suggestions are welcome.

There are groups in America known as “Porkbusters” :

porkbustersnewsm

Any similar resistance in India responding to our version of pork-barrel politics might have to be called “Tel busters” or “Oil busters” or just  “Detergents”.

And finally, since there has been a complete takeover of the economic policy process (and the mainstream media) by organised business lobbies, are we going to be perhaps seeing next a formal Bill of Rights for Lobbyists?

Subroto Roy, Kolkata

Transparency & history: India’s archives must be opened to world standards

Transparency & history: India’s archives must be opened to world standards
by Claude Arpi & Subroto Roy
First published in Business Standard New Delhi December 31, 2008, 0:26 IST

The Government of India continues to hide India’s history from India’s people using specious excuses. An example is the Henderson-Brook report on the 1962 war, a single copy of which is said to exist locked away in the Defence Ministry. An anti-Indian author like Neville Maxwell is among the few ever given access to it; he has reiterated his factually incorrect theory (accepted by Henry Kissinger and Zhou Enlai and the US and Chinese establishments since) that the 1962 war was due to Nehru’s aggressive policy and China had no choice but launch a “pre-emptive attack”.

In Parliament not long ago, Defence Minister A K Antony said: “Considering the sensitivity of information contained in the report and its security implications, the report has not been recommended to be declassified in the National Security interest.” This is nonsense. Nothing from as far back as 1962 can possibly affect anything significant to India’s security today. In any case the Defence Ministry’s official history of the 1962 war, though officially unpublished, is openly available.

Even the 2005 Right to Information Act goes against transparency of research into India’s history. Article 8 (1) (a) says, “there shall be no obligation to give any citizen,— (a) information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence.” This can cover all files of the MEA, Defence and Home; there seems to be no right to academic freedom for India’s people to research their own history.

China itself is more open with its archives. Since 2004, the Foreign Ministry in Beijing has begun a systematic process declassifying more than 40,000 items from its diplomatic records for the period 1949-1960. The Cold War International History Project at the Woodrow Wilson International Center in Washington DC has recently published Inside China’s Cold War; the Project Director admits this has been possible due to China’s “archival thaw”.

In the USA, official documents are made available after 30 years or when a reasonable demand is made under the Freedom of Information Act. Numerous groups exist whose only work is to make sure the law is followed. The recently released Foreign Relations of the United States, Volume XVIII, China (1973-1976) published by the American foreign ministry reveals several interesting aspects of the India-USA-China relationship. Last year the National Archives and Records Administration (NARA) posted some 320,000 declassified cables on-line. The text of once-secret diplomatic cables indexed is today retrievable from the NARA Website. It also includes withdrawal cards for documents still classified, so these can be requested under the Freedom of Information Act. Out of 119,356 documents for 1973 and 200,508 for 1974, some 7,484 were related to India. Indians scholars today have to rely on US documents for their own history!

In an open society, the ordinary citizen has reasonably easy access to any and all information relating to the public or social interest— whether the information is directly available to the citizen himself/herself, or is indirectly available to his/her elected representatives like MPs and MLAs. Different citizens will respond to the same factual information in different ways, and conflict and debate about the common good will result. But that would be part of the democratic process. In an open society, both good news and bad news is out there in the pubic domain— to be assessed, debated, rejoiced over, or wept about. Citizens are mature enough to cope with both— the experience causes a process of social maturation in formulating the common good as well as responses to problems or crises the community may face. People improve their civic capacities, becoming better-informed and more discerning voters and decision-makers, and so becoming better citizens.

The opposite of an open society is a closed society— in which a ruling political party or self-styled elite or ‘nomenclatura’ keep publicly important information to themselves, and do not allow the ordinary citizen easy or reasonably free access to it. The reason may be merely that they are intent on accumulating assets for themselves in the dark as quickly as possible while in office, or that they are afraid of public anger and want to save their own skins from demands for accountability. Or it may be they have the impression that the public is better off kept in the dark— that only the elite ‘nomenclatura’ is in a position to use the information to serve the national interest. Bad news comes to be suppressed and so good news gets exaggerated in significance. News of economic disasters, military defeats or domestic uprisings gets suppressed. News of victories or achievements or heroics gets exaggerated. If there are no real victories, achievements or heroics, fake ones have to be invented by government hacks— though the suppressed bad news tends to silently whisper all the way through the public consciousness in any case.

Such is the way of government propaganda everywhere. Closed society totalitarianism permitted the general masses to remain docile and unthinking while the ‘nomenclatura’ make the decisions. Dostoevsky’s Grand Inquisitor said that is all that can be expected of the masses. Open society transparency was instead defined by Pericles for the Athenians: “Here each individual is interested not only in his own affairs but in the affairs of the state as well; even those who are mostly occupied with their own business are extremely well-informed on general politics— this is a peculiarity of ours: we do not say that a man who takes no interest in politics is a man who minds his own business; we say that he has no business here at all.”

The study of the subcontinent’s history using archival material is crucial to disentangle difficult problems like the Jammu & Kashmir issue or the border problem with China. Yet today nobody can access independent India’s primary sources locked in South Block and North Block in New Delhi. Most bizarrely, Jawaharlal Nehru’s papers are under control of his descendants like Priyanka Vadra and Sonia Gandhi, who claim copyright. Someone may need to tell them there is a universal principle that there can be no copyright on the public life-work of historical figures like presidents and prime ministers.

Pump-priming for car-dealers: Keynes groans in his grave (If evidence was needed of the intellectual dishonesty of New Delhi’s new macroeconomic policy, here it is)

Pump-priming for car-dealers: Keynes groans in his grave

(If evidence was needed of the intellectual dishonesty of New Delhi’s new macroeconomic policy, here it is)

by

Subroto Roy

I have said the  Government of India’s new macroeconomic policy announced on Sunday by Dr Manmohan Singh’s main economic policy aide has no economic models or data to support it, and may as likely worsen rather than dampen any business-cycle India might be on for the simple reason that no one has a clue where we are in the cycle, or indeed even if such a cycle exists. (See https://independentindian.com/2008/12/07/will-the-government-of-indias-economic-policy-dampen-or-worsen-the-business-cycle-if-such-a-cycle-exists-at-all-no-one-knows-%E2%80%9Cwhere-ignorance-is-bliss-%E2%80%98tis-folly-to-be-wise/)

The policy appears to be the result of the usual intense lobbying by organised  capital and organised labour with the Government’s Ministries in New Delhi.

If evidence was needed of this root intellectual dishonesty, one need look only as far as “Highlights of India’s fiscal stimulus package” (Daily News and Analysis, December 7 2008) and note the item:

” Norms for government departments to replace vehicles relaxed”.

Dr Singh’s aide, after announcing the policy, openly spoke of how private automobile manufacturers had accumulated a lot of unintended inventory due to falling sales, and how they needed, in his opinion, to lower prices.  Evidently, the Government has also decided to itself  buy a lot of that unintended inventory too, using  the very scarce  public  resources of India’s ordinary people.  Pump-priming for car-dealers — JM Keynes groans in his grave!  Watch out for those fancy  fast new cars carrying India’s bureaucrats, politicians and their friends and family!

Will the Government of India’s new macroeconomic policy dampen or worsen the business-cycle (if such a cycle exists at all)? No one knows! “Where ignorance is bliss, ‘Tis folly to be wise.”

I began a two part article published in The Statesman last year (September 23-24 2007) titled “Against Quackery” saying:

“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…. 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 cheap money policy announced yesterday and now the so-called “fiscal stimulus” announced today may be a case in point.  Dr Manmohan Singh’s main economic policy aide said the aim was for Government to act in a “contra-cyclical”  manner,  presumably referring to an attempted “counter cyclical policy” to dampen the amplitude of a business-cycle.

But has anyone asked — let aside, does anyone know — where precisely, in terms of phase, period and amplitude, India’s macro-economy happens to be on its presumed business-cycle?  Of course not.   No one has the faintest clue.   There are no models of such a cycle existing and there are no data which have been fit to such non-existent models.   Not in Delhi, not in Mumbai, not with any international agency.

[Inspector Gregory (Scotland Yard detective): “Is there any other point to which you would wish to draw my attention?”
Sherlock  Holmes: “To the curious incident of the dog in the night-time.”
Inspector Gregory: “The dog did nothing in the night-time.”
Sherlock  Holmes: “That was the curious incident.”]

A cheap money policy and a so-called “fiscal stimulus” may in fact, for all that anyone in the Government of India or outside it really knows, exacerbate the amplitude of a business-cycle — making it worse, not better.

In such a  state of ignorance,  it is odd for policy-makers to go about glibly formulating and announcing so many policy-changes at once.   (It may all add up to be just incoherent waffle.)   Such has been the typical pattern to emerge from the process of political lobbying by “well-informed, moneyed, mostly city-based special interest groups”.   Organised capital and organised labour (as well as of course bureaucrats and politicians) will likely do very well from all this as usual, at the expense of  “ill-informed, diffused anonymous individual citizens” of India.


How to Budget: Thrift, Not Theft, Needs to Guide Our Public Finances

How to Budget:

 

Thrift, Not Theft, Needs to Guide Our Public Finances

 

By Subroto Roy

 

First published in The Statesman, Editorial Page Special Article, http://www.thestatesman.net, February 26 2008

 

For most family households in India as elsewhere, the time for weekly or monthly budgeting and accounting is a time of sobriety ~ when reality must be faced about which goals and desires can be achieved and which cannot, about how incomings and outgoings of family resources are going to be matched. The same holds for corporations when their managements must face their boards, shareholders or workers, though individual stakeholders in large corporations may be so ignorant of the facts or so small and insignificant in size that top management can get away with a lot of bluff.

 

When it comes to entities the size of countries, the scope for feeding illusions to the general public becomes enormously large; hence there is need for scientific honesty in government accounting and finance, and when that is lacking as it often is in any country, there is need for intense public awareness and vigorous criticism of what the government of the day may be up to with the public purse.

 

‘Seignorage’

 

Mao Zedong once said “Thrift should be the guiding principle of our government expenditure”. Those who govern fiscal and monetary processes, whether autocratically or democratically, have a general duty to be frugal or economic in using resources that have been forcibly raised from the public and which could have been spent privately in other welfare-enhancing directions.

 

“One must not take from the real needs of the people for the imaginary needs of the state” said Montesquieu. National Governments “take” from the people not only via direct taxation (e.g. of income) and indirect taxation (e.g. of expenditure) but also via inflation ~ invisibly reducing the purchasing power or value of paper money and other paper assets by exploiting the government’s monopoly over currency-printing (a process that economists traditionally termed “seignorage” from the debasing of metal coins that kings historically indulged in to pay for wars).

 

In providing public goods and services, if a government does what it need not do it may end up failing to do what it must and which only it can do. “That part of the public expenditure, which is devoted to the maintenance of civil and military establishments (i.e., all except the interest of the national debt), affords, in many of its details, ample scope for retrenchment. But while much of the revenue is wasted under the mere pretence of public service, so much of the most important business of government is left undone, that whatever can be rescued from useless expenditure is urgently required for useful” (JS Mill).

 

Such an idea that “whatever can be rescued from useless expenditure is urgently required for useful” was used in Gordon Brown’s 2004 rhetoric as Britain’s Finance Minister when, for example, he said 40,000 jobs would be reduced in the UK civil services to release resources to enhance “frontline” public services like schools and hospitals.

 

From such a practical point of view, three questions must be typically addressed by any Parliament or Government trying to optimally align public expenditure and income in a budget placed before it:


(1) Is public expenditure allocated efficiently in given circumstances, in a manner that enhances the public interest to the greatest degree possible? If not, how may it be made to do so?


(2) Can income from government operations be enhanced in given circumstances? What taxation should be imposed, raised, lowered or abolished, why so, and at what least cost to the population?


(3) If government expenditure exceeds income from taxation and operations, how should the borrowing be financed at least cost? Is the government’s existing portfolio of assets and liabilities of different liquidity and term-structure efficient, or can it be improved?

 

Unfortunately, we do none of this in India and have not done so for decades. Indeed New Delhi’s establishment economists and the media have not ever even been thinking on such practical lines. Instead, each bureaucratic department tries to maintain or enlarge its own size and claims on public funds every year. What New Delhi does, in a nutshell, is to allow every Ministry (especially the military) to add a 10-20% inflation-premium to its previous year’s expenditures and assert a new claim during the Budget season. (The most accurate measure of inflation in India may be that involved in growth of nominal expenditure on Government’s bureaucracy). Organised business, organised labour, exporters, importers, farmers, women, and every sundry political lobbyist then assert their claims to subsidies and concessions as well ~ and some gargantuan number comes to be added up.

 

To that number must be added the vast annual expenditure on interest payments by Government on the public debt accumulated from previous years and decades ~ payments which keep afloat the entire banking system in India because our nationalized banks hold such debt-instruments as their main assets where customer-deposits are their main liabilities.

 

A crucial question in relation to the convertibility of the rupee has to do with international valuation of that vast public debt (hence valuation of the asset side of our banking system) in the event the rupee became freely exchangeable into gold and foreign exchange for the general public, not merely city-based super-elites and NRIs.

 

Once interest payments have been added to other government expenditures, some humongous number comes to be reached. That number, and how it breaks down between interest expenditures, military expenditures and other expenditures, is among the key variables to look out for in Mr Chidambaram’s forthcoming Budget-Speech. From it will be subtracted the total taxation and non-tax revenues of the Government ~ each after it has been subjected to its own political lobbying process by different interest groups who have managed to obtain access to the Finance Minister. The residual (government expenditure minus government income) is the “Gross Fiscal Deficit” which is how much the Government of India says it plans to newly borrow from the (mostly captive) domestic financial markets. That residual in turn will add itself to next year’s accumulating public debt on which interest payments will have to be then made. The Finance Minister and his spokesmen typically quote the Gross Fiscal Deficit as some percentage of GDP figures; a better ratio to look for may be the size of Government interest payments per head as a percentage of tax revenues per head.

 

Corruption

 

The Union Finance Ministry no longer appears to exercise effective managerial control over the budgets and accounts of the innumerable publicly funded institutions, entities and projects in the country, nor even remembers how to do so. Everyone knows that the eventual aggregate result of public financial processes will be more deficit-finance paid for by silent and unlimited money-printing. Thus, for example, we see enormous building and construction plans being requested and granted for public institutions and agencies to indulge in ~ if the private builders and developers involved in such public contracts throw in an urban apartment or two for the heads of such institutions, who are powerful enough to be making the spending decisions with their friends, what does it really matter? Deficit-finance, arising from an abysmal state of government and public sector accounting, makes government corruption quite simple and straightforward if one thinks about it.

 

It is sad to say that the principle guiding our public finances may have become theft, not thrift, because political and administrative decision-makers throughout the system, instead of being sober, remain drunk when it comes to spending India’s public resources.

Anarchy in Bengal

Anarchy in Bengal

Intra-Left bandh marks the final unravelling of “Brand Buddha”

First published in The Sunday Statesman, 10 February 2008, Editorial Page Special Article   http://www.thestatesman.net

by

SUBROTO ROY

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? (from 2008)

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.

Inheriting advantage

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.

(Author’s Note: The graph that accompanied this article is published elsewhere here under the title “Median Voter Model of India’s Electorate”.)

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.

 

See also

https://independentindian.com/2014/07/03/much-as-i-might-love-russiaengland-france-america-i-despise-their-spies-local-agents-affecting-poor-indias-policies-memo-to-pm-modi-mr-jaitley-mr-doval-the-new-govt-of-india-bew/

https://independentindian.com/thoughts-words-deeds-my-work-1973-2010/rajiv-gandhi-and-the-origins-of-indias-1991-economic-reform/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-e/

Against Quackery

Against Quackery

 

 

First published in two parts in The Sunday Statesman, September 23 2007, The Statesman September 24 2007

 

by

Subroto Roy

 

 

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 accounts


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.

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To Clarity from Confusion on Indo-US Nuclear Deal

(Author’s Note September 3 2008: This article “Need for Clarity” published in The Statesman last year was one of several I have published on the subject; see also, for example, “Towards an Energy Policy”, “India’s Energy Interests” , “Against Quackery” all published first in The Statesman in 2006 and 2007; also “India and ‘Energy Security'” which was my lecture to a KAF conference on the subject.  It seems quite prescient in that it anticipated by a few  months the “secret”  letter from the US Executive Branch to the Legislative Branch, released by the Washington Post today . India’s UPA Government has put forward a junior spokesman from the Congress Party  to waffle around with a purported explanation. )

 

 

 

 

Need for Clarity 

A poorly drafted treaty driven by business motives is a recipe for international misunderstanding

First published in The Sunday Statesman, August 19 2007, Editorial Page Special Article

by

SUBROTO ROY

 

 

Confusion prevails over the Indo-US Nuclear Deal. Businessmen, bureaucrats, politicians, diplomats, scientists and now the public at large have all joined in the cacophony in the last two years.

 

On Wednesday August 15, America’s foreign ministry made the clearest most unequivocal statement possible as to the official American Government interpretation of the Indo-US nuclear deal: “The proposed 123 agreement has provisions in it that in an event of a nuclear test by India, then all nuclear co-operation is terminated, as well as there is provision for return of all materials, including reprocessed material covered by the agreement” (Sean McCormack). Yet our Prime Minister had told Parliament two days earlier: “The agreement does not in any way affect India’s right to undertake future nuclear tests, if it is necessary”. What is going on? Our politics are in uproar, and it has been suggested in these pages that the country go to a General Election to allow the people to speak on the matter. Clearly, we need some clarity.

 

Let us start at the beginning. How did it all originate? The private US nuclear industry prevailed upon India’s government bureaucrats and businessmen over several years that nuclear power is the way forward to solving India’s “infrastructure” problems. They would sell us, in words of the Manmohan-Montek Planning Commission’s energy adviser, “six to eight lightwater reactors” (especially as they may not be able to sell these anywhere else). Our usual prominent self-seeking retired bureaucrats started their waffling about the importance of “infrastructure”.

 

 

Then Manmohan Singh felt his foreign travels as PM could be hardly complete without a fife-and-drum visit to the White House. But before he could do so, Dabhol would have to be cleared up since American business in India was on a self-moratorium until GE and Bechtel were paid settlements of some $140-160 million each by the Governments of India and Maharashtra. GE’s CEO for India kindly said afterwards “India is an important country to GE’s global growth. We look forward to working with our partners, customers, and State and Central Governments in helping India continue to develop into a leading world economy”.

 

 

Also, before Manmohan’s USA trip, the Confederation of Indian Industry registered as an official Washington lobbyist and spent half a million dollars lobbying American politicians for the deal. (“Why?” would be a good question.)

 

 

So Dr Singh was able to make his White House visit, accompanied by US business lobbies saying the nuclear deal can generate $100 billion worth of new American business in India’s energy-sector alone. It is only when business has lubricated politics in America that so much agreement about the India-deal could arise. The “bottom-line” is that six to eight reactors must be sold to India, whatever politics and diplomacy it takes.

 

 

Now Dr Singh is not a PM who is a Member of the Lower House of Parliament commanding its confidence. He says his Government constitutes the Executive and can sign treaties on India’s behalf. This is unwise. If he signs a treaty and then the Congress Party loses the next General Election, a new Executive Government can use his same words to rescind the same treaty. What is sauce for the goose is sauce for the gander. One reason we are so confused is that India has not signed very many bilateral treaties, and there is barely a noted specialist in international law anywhere in the country. Dr Singh’s original mentor, PN Haksar, had gone about getting a treaty signed with the USSR back in 1971 which tided us over a war, though the USSR itself collapsed before that treaty ended.

 

 

Signing a treaty is much more than signing an international MOU. It requires a national consensus or a least a wide and deep understanding on the part of the public and the political class as to what necessitates the treaty. That plainly does not exist at present. Most people in India do not even know how nuclear power is generated, nor how small and insignificant nuclear power has been in India.

 

 

Natural uranium is 99.3 per cent of the U-238 isotope and 0.7 per cent the radioactive U-235 isotope. Nuclear power generation requires “enriched uranium” or “yellow cake” to be created in which U-235 has been increased from 0.7 per cent to 4 to 5 percent. (Nuclear bombs require “highly enriched” uranium with more than 90 per cent 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 a reactor, the energy released turns water into steam, which moves turbines generating electricity. 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, almost impossible to dispose of.

 

 

India’s 14 “civilian” nuclear reactors presently produce less than 4% of our total power. 70% of our power arises from burning fossil fuels, mainly coal. Much of the rest arises from hydro. We have vast hydroelectric potential in the North and Northeast but it would take a lot of serious political, administrative and civil engineering effort to organise all that, and there would not be any nice visits to Washington or Paris involved for politicians and bureaucrats.

 

 

Simple arithmetic says that even if all our principal energy sources stayed constant and only our tiny nuclear power sector grew by 100%, that would still hardly increase by very much our energy output overall. Placing a couple of expensive modern lightwater reactors around Delhi, a couple around Mumbai and a few other metros will, however, butter already buttered bread quite nicely and keep all those lifts and ACs running.

 

 

The agreed text of the “treaty” looks, from a legal standpoint, quite sloppily and hurriedly written ~ almost as if each side has cut and paste its own preferred terms in different places with a nod to the other side. For example, there is mention of “WMD” initially which is repeated as “weapons of mass destruction” just a little later. There is solemn mention of the “Government of India” and “Government of the United States of America” as the “Parties”, but this suddenly becomes merely “United States” and “India” in the middle and then reverts again to the formal usage.

 

 

Through the sloppiness comes scope for different interpretations. The Americans have said: try not to test, you don’t need to, we don’t test any more, and you have to know that if you do test, this deal is over, in fact it gets reversed. We have said, okay, we won’t test, and if we do test we know it is over with you but that does not mean it is over with others. Given such sloppy diplomacy and treaty-making, the scope for mutual misunderstanding, even war, remains immense long after all the public Indian moneys have found their way into private pockets worldwide. Will a future President Jeb Bush or Chelsea Clinton send F-22 bombers to bomb India’s nuclear facilities because India has carried out a test yet declined to return American equipment? Riding a tiger is not something generally to be recommended.

 

 The answer to our present conundrum must be patience and the fullest transparency. What is the rush? If it is good or bad for us to buy six or eight new American reactors now, it will remain good or bad to do so a year or two from now after everyone has had a thorough think about everything that is involved. What the Manmohan-Montek Planning Commission needed to do first of all was a thorough cost-benefit analysis of India’s energy requirements but such elementary professionalism has been sorely lacking among our economists for decades.

 

Political Paralysis

POLITICAL PARALYSIS

India has yet to develop normal conservative, liberal and socialist parties. The Nice-Housing-Effect and a little game-theory may explain the current stagnation

By SUBROTO ROY

First published in The Sunday Statesman, Editorial Page Special Article, June 24 2007, http://www.thestatesman.net

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.

Unhealthy Delhi

Unhealthy Delhi

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.

Uttar Pradesh Polity and Finance

Uttar Pradesh Polity & Finance


A Responsible New Govt May Want To Declare A Financial Emergency

First published in

The Statesman Editorial Page, March 24 2007

by

Subroto Roy

 

 

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

30.33
3.17
25.81
1.13
11.63
8.41
29.00
62.79
18.97
6.04
16.13
200.22
29.98
16.07
8.19
1.08
18.36
0.20
0.37
0.53
373.60

3.52%
0.37%
2.99%
0.13%
1.35%
0.98%
3.36%
7.28%
2.20%
0.70%
1.87%
23.23%
3.48%
1.86%
0.95%
0.13%
2.13%
0.02%
0.04%
0.06%
43.34%

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 (2007)

Fallacious Finance: Congress, BJP, CPI-M et al may be leading India to hyperinflation

by

Subroto Roy

first published in The Statesman, March 5 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.

Of related interest: Mistaken Macroeconomics,
“The Indian Revolution”, “Against Quackery”, “The Dream Team: A Critique”, “India’s Macroeconomics”, “Indian Inflation”

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Our Policy Process: Self-Styled “Planners” Have Controlled India’s Paper Money For Decades

Our Policy Process:

 

Self-Styled “Planners” Have Controlled India’s Paper Money For Decades

 

by

Subroto Roy

 

First published in The Statesman, Editorial Page Special Article, Feb 20 2007

 

 

Three agencies of the Executive Branch of our Government have controlled the country’s fiscal and monetary processes. The most glamorous is the Planning Commission, a nominated agency of the Government of the day without constitutional status but which has informally charged itself with articulating national and provincial preferences on public spending. It has overshadowed in impact and prestige the Finance Ministry or Treasury, which normally would design the budget, raise taxes, run the fiscal machinery and be accountable to Parliament (the Legislative Branch) via the person of the Finance Minister. In turn, the Finance Ministry owns and controls the Reserve Bank, effectively placing India’s paper money and bank deposits at the discretion of New Delhi’s purported “economic planners”.

 

 

In addition, the Finance Commission is charged with articulating a suitable allocation of public resources between the Union and States, setting some medium-term parameters of federal finance. And the Comptroller & Auditor General is supposed to assess effectiveness of Government behaviour: the “high independent statutory authority..… who sees on behalf of the Legislature that … money expended was legally available for and applied to the purpose or purposes to which it has been applied.” “Audit … is the main instrument to secure accountability of the Executive to the Legislature …. The fundamental object of audit is to secure real value for the taxpayer’s money” (Indian Government Accounts & Audit, 1930).

 

 

Weakness of Parliament

 

In parliamentary government, the whole Executive Branch is accountable to and the agent of the Legislative Branch. But the utter weakness of our Parliament over decades has led its institutions, including the C&AG, to be run roughshod over by the Government of the day. The Finance Commission, being a temporary and transient body, can hardly take on the entrenched bureaucracy the Planning Commission has become.

 

This unconstitutional subservience of policy-making to the Planning Commission began when the first planners said on December 7 1952: “The raison d’etre of a planned economy is the fullest mobilisation of available resources and their allocation so as to secure optimum results …. There is no doubt that the RBI, which is a nationalised institution, will play its appropriate part in furthering economic development along agreed lines”. When Jawaharlal Nehru as free India’s first prime minister chose to himself lead the “Second Plan”, the fate of India’s paper money was sealed. “Insofar as government expenditure is financed by central bank credit, there is a direct increase in currency in circulation”. That May 14 1956 statement marked the last mention for the next 43 years of India’s money during the process of articulating India’s public expenditure priorities.

 

The Reserve Bank has indeed behaved “along agreed lines”. While superficially presiding over currency, banking and foreign exchange, it has been legally and practically a department (with some 75,000 employees today) of the Finance Ministry. Since the vast bulk of customer deposits are held by nationalized banks owned and managed by the Finance Ministry, India has had practically a “one-tier” banking system on the old USSR model.

 

The “Ninth” and “Tenth” Planning Commissions included not only Prime Minister Atal Behari Vajpayee but also his Finance and Foreign Ministers as members. It was not our Reserve Bank but such persons, including the prominent official (now in post-retirement service) Montek Singh Ahluwalia, who declared on April 5 1999 in the “Ninth Five Year Plan” that a “viable monetary posture” was “to accept an average inflation rate in the region of 7 per cent per annum, which would justify a growth rate of money supply (base money) of 16 per cent per annum”. Recent money supply growth rates under the Sonia-Manmohan Congress have been near 19%-21%, and inflation properly measured may be well above 10%.

 

In Western countries, it would be normal procedure for an acceptable level of inflation to be decided upon, followed by monetary and fiscal targets being set in view of what is statistically expected by way of real economic growth, since growth is mainly a result not of Government behaviour but of spontaneous technological progress and increase in productivity. By contrast, our “planning” process has allowed unconstrained fiscal expenditure to emerge out of chaotic and unconstrained nationwide politics on the sure-fire assumption that budget deficits are going to be “paid for” by money-printing (and hence by invisible taxation of the paper assets of an unknowing public).

 

For a PM and Finance Minister to sign off on fiscal-monetary targets during the “planning” process commits the entire Executive Branch to it. Reversing or even critically discussing such intentions would require nothing less than a Parliamentary Vote of No-Confidence, which itself would require public dissemination of economic models and data exclusively available to the Executive Branch, whether or not the Executive Branch is aware of it. Public exhortations and rhetoric then follow from politicians, bureaucrats and their businessman friends as to how much real growth needs to occur in order for inflation not to be above a given level!

 

The cart is thus squarely placed in front of and not behind the buffalo. If exhortations are not met by reality it is typically said ~ in bureaucrat-speak that avoids accountability ~ “slippages” occurred due to outside factors like rainfall, American business cycles or perhaps, now, global warming and AIDS.

 

Indeed because the upside-down nature of this process has likely not been grasped even by politicians, bureaucrats and establishment economists participating in it, let aside Parliament or the public, it hardly seems a conscious or deliberate “macroeconomic policy” at all, but rather an outcome of habitual, ritualistic routines taking place year after year for decades. And India’s financial press and TV media, instead of soberly seeking facts, have tended merely to flatter top politicians and bureaucrats, as is the wont of businessmen to do.

 

 

War finance, not peace

 

The structure of incentives and information has become such that no one in government, academia, international credit-rating agencies or elsewhere, is able to effectively point out that fiscal intentions expressed in a “Plan” may be infeasible, inflationary or generally unwise. This includes the IMF and World Bank who lead India’s creditors in Western financial markets, and whose staff are generally uninterested in the countries they work on except to make sure loans received are large and repayments timely (as their personal livelihoods depend on such factors). But a brave anonymous squeak can be found hidden in thousands of pages of “Tenth Plan” verbiage dated December 21 2002 ~ that it is all being “financed almost entirely by borrowing …. India’s public finance inherits the consequence of fiscal mismanagement in the past.” Efforts of one recent Governor to carve out a modern independent role for the Reserve Bank have apparently gone in vain, and he too has been co-opted as a Government spokesman in retirement.

 

 

The Bank of England could at one time “theoretically lend the full amount” the British Government was authorized to spend by the UK Parliament (Hirsch). For decades, the RBI has been required by our Government to do almost that in practice (see graph). During the Second World War, the US Government was assured its Central Bank “could and would see that the Treasury was supplied with all the money that it needed for war finance … beyond those secured by taxation and by borrowing from non-bank sources” (Chandler). India’s politicians and bureaucrats have given us macroeconomic processes that pretend our country has since Independence remained at war ~ when in fact we have been mostly at peace.

India’s Macroeconomics

(NB This is one of a set of articles that include “India in World Trade & Payments”, “Fiscal Instability”, “Fallacious Finance”, “Indian Money & Credit”, “Indian Money & Banking”, “Against Quackery”, “Indian Inflation”, “Monetary Integrity and the Rupee”, “The Dream Team: A Critique” etc., as well as “Mistaken Macroeconomics” etc. See My Recent Works, Interviews etc on India’s Money, Public Finance, Banking, Trade, BoP, Land, etc (an incomplete list) )

India’s Macroeconomics

Real growth has steadily occurred because India has shared the world’s technological progress. But bad fiscal, monetary policies over decades have led to monetary weakness and capital flight

by

Subroto Roy

First published in The Sunday Statesman Editorial Page Special Article

January 20 2007

Anyone wishing to understand India’s macroeconomics today must seek to grasp how Government expenditure and taxing behaviour have become related over decades to Government’s rapid creation of paper-money and bank-deposits. Even those policy-makers who have caused this phenomenon (notably our present PM during his long career as the top economic bureaucrat, as well as his many acolytes and foreign and domestic flatterers) seem to have failed to grasp this. Thus they may be unlikely to identify let alone carry out the key political task facing India today, which is to transform the feeble existing state corroded by corruption and waste into a robust modern one with public institutions of a quality meeting or exceeding world standards.

Government expenditure in a democracy is supposed to be representative of real public needs. But democracy is everywhere imperfect, and spending tends to follow instead the pattern of special interest groups, i.e., who has how much organised lobbying power in the polity. “Whatever can be rescued from useless expenditure is urgently required for useful”, said JS Mill. How can public spending be made more productive (or less unproductive) by cutting waste, fraud and abuse, and instead better alleviate mass ignorance, poverty and destitution? And how can there be reduced chance of a collapse of confidence in public institutions, especially currency and the banks as has happened in other countries at different times? These are central questions for serious macroeconomic policy-making in India today. In fact, it is likely the Indian people are at present both over-taxed and under-taxed: we are over-taxed by the corroded, corrupt wasteful polity that has actually arisen, while we are under-taxed relative to the fiscal and monetary needs of a robust modern democratic polity yet to exist.

India has shared the technological progress the world economy witnessed in the 20th Century. Private ingenuity, enterprise and business acumen at all scales of operation are manifest in countless examples across the country every day. Real economic growth has taken place steadily as a result, and there is no doubt average levels of health, education, and material well-being have improved almost everywhere ~ often despite government action, sometimes thanks to it. Our legendary population has grown mainly due to lowering of mortality rates via better health, nutrition and awareness, causing longer life-spans than ever before. Our village festivals, market-towns and city-streets are filled with bustling shops with busy people and merchandise, while large concrete buildings are being built everywhere by invisible builders. There is no apparent lack of a potential basis for taxation of private resources for public uses in the country.

At the same time, monumental problems of absolute poverty, ignorance, destitution and inequality remain obvious to the naked eye everywhere in India, affecting hundreds of millions of citizens. A rare candid Government study said: “It does not require clever tools of measurement to demonstrate that there are millions of children in India who are totally deprived of any education worth the name. And it is not as if they are invisible, remote, and therefore unreached. They are everywhere in the cities: on the streets, wiping cars at traffic junctions, picking rags in mounds of waste; in the roadside eateries; in small factories, as cheap labour or domestic help; at ‘home’ completing household chores. In the villages again they are everywhere, responding to the contextual demands of family work as well as bonded labour.” (India Education Report, 2002, p. 47). Such and similar children, their parents and kith and kin constitute the hundreds of anonymous millions of India today.

Less than 30 million people are employed in the “organised” sector, about 18 by government and 12 by the “organised private sector”. Even if four dependents are assumed for each, that hardly makes 15% of the whole population of one billion people today. So while there may be some 150 million people in India who in one way or another engage with the “organised sector”, there may be 850 million who do not ~ reminiscent of Disraeli’s “Two Nations” of Dickensian England.

India’s tax-revenues are raised in proportion of about 30% direct to 70% indirect, where the same ratio for an advanced economy like the USA is about 90% direct to 10% indirect. A mere 10 million income-tax returns are received in a given year in all of India. The masses are being taxed, perhaps heavily, though they are mostly unaware of what is being indirectly extracted out of their household budgets through ubiquitous archaic systems of Customs and Excise. From long before the British arrived in India, there was a tax on salt via government monopoly, and long after MK Gandhi’s march to the Arabian Sea to produce salt freely, indirect taxes bear down invisibly upon the masses of democratic India today. Nicholas Kaldor approved the current system in 1956 but by 1959 had retracted and recommended widespread direct taxation instead, which has never happened. Kaldor’s best known Indian student is today PM of the country.

Also, everyone’s holdings of monetary assets in India have been taxed by inflation, without people realising it except for a continual feeling or memory of the dwindling value of the rupee and other paper assets. Government debt, the quantity of money and general price-level of real goods and services (the inverse of the price of money) have been on exponential growth paths, most conspicuously since the compulsory government take-over of banks in the early 1970s, though origins reach back to the start of pseudo-socialist “planning” in the 1950s (see graph).

When transparent visible taxation cannot be proposed and voted for in the “real” economy because it needs too much political effort or insight, governments resort to invisible, undemocratic means of taxing the public’s monetary resources by the subterfuge of inflating currency and bank deposits. Inflation has everywhere raised real resources for governments too weak to administer proper tax systems or resist the onslaught of organised pressure-groups in incurring public expenditure.

Taxation via inflation “does not require detailed legislation, and can be administered very simply. All that it requires is to spend newly created notes. The resulting inflation automatically imposes a tax on cash balances by depreciating the value of money” (Cagan). A routine means of meeting a government’s deficits can become “use of the printing press to manufacture legal tender paper money”, either directly by paying its creditors “with new paper money specially printed for the purpose”, or indirectly by paying its creditors “out of loans to itself from the Central Bank”, issuing money to that amount in exchange for government debt (Dalton). Because public memories are short and economic models and data unavailable to ordinary people, a large scope exists for governments to extract real resources by inflation before “money-illusion” comes to be dispelled. Briefly, such has been how India’s continuous budget-deficits have been financed ever since Independence – made possible with impunity because our rulers have also kept our currency from being internationally convertible (except for themselves).

These quite subtle facts remain practically unknown to the Indian public whose lives and those of future generations are deeply affected by them, though in recent decades elite elements like bureaucrats, academics, military officers, businessmen, politicians etc with better information and access to resources have sensed monetary weakness in the country and exported their adult children and savings abroad expeditiously. The sphere of knowledge and concerns of most people are so close to needs of their own survival that they make easy prey for the machinations of others with better information or access to resources. This may help explain why we, who for more than a century and a half have seen a vast political awakening take place and can take pride in having a free press and the world’s largest electorate, at the same time have had our political life and public institutions wracked by enormous corruption, fraud and venality, enfeebling the political economy by widespread cynicism and loss of confidence, and inducing capital flight abroad on the part of a vapid elite.

Hypocrisy of the CPI-M

Hypocrisy of the CPI-M

Political Collapse In Bengal: A Mid-Term Election/Referendum Is Necessary

First published in The Statesman, Editorial Page Special Article, January 9 2007,

By Subroto Roy

For the 1991 Assembly elections, I happened to draft the West Bengal Congress’s election manifesto although I was not then or ever a member of that or any other party. There was no Trinamul but its future leader had made her jibe of there being watermelons who were red inside and green outside, aptly in case of a few senior leaders. The manifesto quoted George Orwell’s denunciation of communist ruling classes, and was so hard-hitting that the CPI-M’s Sailen Dasgupta came out with a statement he had never read a Congress manifesto that had been so harsh on them; privately, I took that to be a compliment though the Congress of course lost the election. There is no one in Bengal who does not want to see Bengal prosper, and the most candid vigorous political conversation is necessary to discover what in fact is true and what ought or not to be done.

Democratic norms

The functioning of the Basu-Bhattacharjee CPI-M is quite utterly amazing. It deserves to be called such because of the seamless transfer of power that occurred between the two men in November 2000. The Chief Minister in a parliamentary democracy is supposed to have the confidence of the House, yet when Jyoti Basu stopped being CM and anointed Buddhadeb Bhattacharjee to succeed him, not even a perfunctory vote of confidence was asked for in the House ~ a fact I brought to the attention of the-then editor of The Statesman who agreed with me it signified the CPI-M’s contempt for the parliamentary institution they have been ruling over for decades. By contrast, there is already talk in Britain of an early general election as soon as Gordon Brown takes over from Tony Blair.

It is the same contempt for democratic parliamentary norms that Mr Bhattacharjee and company reveal today in pushing through their diabolical plan to acquire farmers’ lands on behalf of their businessmen friends.

All of 37% of those voting in the 2006 Assembly Elections voted for the CPI-M. By contrast, 41.2% voted for Trinamul and Congress together. Add also the 11.4% of those who voted for the Forward Bloc, RSP and CPI all of whom though part of the Left Front have been opposing the CPI-M on this cardinal issue. That constitutes prima facie evidence that a majority of 52.6% vs. 37% of voters may oppose the CPI-M’s present course of action. Mr Bhattacharjee heads a Government that is supposed to act not merely in the interest of members or groups of his own party or those who have flattered or financed it, but everyone in West Bengal including those who voted against the CPI-M as well as those who did not vote at all.

Gerhard Schröder dissolved the German Bundestag in 2005 though his own party held a majority there. He did so merely because his party lost a provincial election and he felt that indicated loss of confidence in it at the federal level also. Such is how genuine modern democracies work. In India to the contrary, we have had notorious misuse of the Constitution when State Governments were dissolved merely because they were ruled by parties opposed to that which had won a Union-level General Election. Even so, India remains a Parliamentary democracy at Union and State levels, and the Government of the day may advise the Head of State to dissolve the House and call for new elections to be held. It may do so even when there is no legal necessity to do so, i.e., even when it is secure with a majority of seats. It may do so because a political necessity has arisen for doing so.

If Mr Bhattacharjee is a genuine democrat, as he wishes to convey an impression of being, he should advise the Governor to dissolve the Assembly because the CPI-M wishes to go to the people to seek a mandate for its plans for the State’s industrialisation and forced acquisition of farm lands towards that end. The Trinamul, Congress, SUCI, Maoists and others including perhaps the CPI, FB, RSP and others will state their opposition, while he, Mr Nirupam Sen and their party will be able to articulate for West Bengal’s voters exactly what they propose to do and why. The CPI-M is adamant its cause is right while the Opposition have been agitating in the streets for months, and miniature civil war conditions now prevail in parts of rural Bengal; worse may be yet to come. There is only one way in a supposedly democratic society like ours to discover what should be done, and that is to dissolve the Assembly and call an election. Both sides will have a chance to articulate their positions to the public, and a vote will be held. There the matter would end. It is the one constructive way forward for the State, and indeed for the nation as a whole. (Alternatively, the Governor could be advised to request the Election Commission to administer India’s first referendum on a single agreed-upon question like “The West Bengal Government’s industrialisation and land-acquisition plan deserves citizens’ support: Yes/No”.)

If an Assembly election comes to be called and the CPI-M falls below a pre-set target of the vote-share, say 33%, or the Left Front below, say, 45%, then Mr Bhattacharjee, even if he commands a majority of seats again, will know he has no mandate and that he must stop and reconsider what he is doing. As I have said in these columns, West Bengal’s main economic problems are financial, having to do with Rs. 92 billion (Rs 9,200 crore) being paid as annual interest on the State Public Debt in 2004, and this may reach Rs 200 billion shortly. Economic development of the State has precious little to do with private businessmen making small cars or motorcycles or putting up buildings for information technology institutes, as Mr Bhattacharjee and his Government have deluded themselves into believing.

CPI-M 2003 statement
Besides its lack of democratic mandate, what surprises most about the modern CPI-M is its sheer hypocrisy. This is a party whose “Central Committee” in June 2003 in Kolkata condemned “non-Left State Governments” for allegedly “giving away thousands of hectares of land either on sale or on lease at throw-away prices to multinational companies and domestic monopolists”, and the Union Government for allegedly issuing “a circular calling for forcible eviction of lakhs of adivasis from the land”. The Basu-Bhattacharjee CPI-M is now clearly hoist with its own petard. Tilak said that what Bengal thinks today, India will think tomorrow. It was not for nothing that he said it. If the CPI-M refers the land-acquisition question to the people in a free and fair election or referendum today, it will set a positive precedent for other States and parties in the country. If instead it pushes forward its current diabolical plans, the example it will have set will be one of initiating a class war in reverse, where the poor shall become poorer and the rich richer. India’s poorest consist of those rural inhabitants without land, and Government would have deliberately contributed to their numbers swelling.

(Author’s Note March 2007: The original article in its first paragraph referred mistakenly to Promode Dasgupta when Sailen Dasgupta had been meant, an error corrected in the next day’s paper.)

Milton Friedman on the Mahalanobis-Nehru “Second Plan”

Note by Dr Subroto Roy: Milton Friedman, who died last week (obituary: page 7) , gave me this document (dated 15 February 1956) in 1984. I did not publish it in Hawaii in May 1989 in Foundations of India’s Political Economy along with his November 1955 Memorandum to the Government of India because it was rather more candid and personal in tone. The Berlin Wall had not yet fallen, and I was at the time being attacked by prominent Indian and foreign economists and political scientists for wanting to publish the 1955 Memorandum at all. Today, we in India are well on our way to making more objective studies of our intellectual and political history than was possible two decades ago. Friedman’s candid observations, from the Cold War era of Krushchev’s denunciation of Stalin, seem as fascinating as the tales of travellers from courts of olden times.

Mahalanobis’s  Plan
by Milton Friedman

First published in The Statesman front page http://www.thestatesman.net November 22 2006

“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”.”

 

On a Liberal Party for India

NON-EXISTENT LIBERALS

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.

Indian Money and Credit

Indian Money & Credit
by
Subroto Roy
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.

Imperialism redux

IMPERIALISM REDUX

Business, Energy, Weapons And Foreign Policy

First published in The Statesman March 14 2006 Editorial Page Special Article

By Subroto Roy

If souls can transmigrate, so may souls of companies, and future historians might well look back and say that the new US-India “CEO Forum” heralded the modern rebirth of the East India Company. Like the old Company, the new Forum has many ambitious, competent people. The American side includes heads of AES Corporation, Cargill Inc., Citigroup, JP Morgan Chase, Honeywell, McGraw-Hill, Parsons Brinckerhoff Ltd, PepsiCo, Visa International and Xerox Corporation. The Indian side includes heads of Tata Group, Apollo Hospitals Group, Bharat Forge Ltd, Biocon India Group, HDFC, ICICI One Source, Infosys, ITC Ltd, Max India Group and Reliance Industries — all stalwarts of what Mr Kanu Sanyal’s Naxals would have termed India’s “comprador bourgeoisie”.

Business advocacy
Presiding over the Indian side has been Prime Minister Manmohan Singh’s trusted confidante, Montek Singh Ahluwalia (whose family moved to the USA after 20 years in India). Indeed it may have been his idea to have a government-sponsored business initiative. A “US-India Business Council” has existed for thirty years in Washington as “the premier business advocacy organization promoting US commercial interests in India.… the voice of the American private sector investing in India”. But for both Governments to sponsor private business via the Forum was “unprecedented” as noted by Washington’s press during Dr Singh’s visit in July 2005. The State Department (America’s foreign ministry) announced it saying: “Both our governments have agreed that we should create a high-level private sector forum to exchange business community views on key economic priorities…”

The Forum seems to have gone well beyond exchanging business community views, and has had a clear impact in the sudden redefinition of the direction of India’s foreign, military and energy policy. When Dr Singh addressed America’s legislature, the main aspect of the speech he read there had to do with agreeing with the American President “to enhance Indo-US cooperation in the field of civilian nuclear technology”. And nuclear energy has suddenly begun to dominate India’s news and national political agenda — even though the 2503MW of nuclear power produced in the country accounts for merely 4% of our civilian energy needs, barely significant. But before nuclear or any other deals could be contemplated with American business, the Dabhol payouts were required to be made. The Maharashtra State Electricity Board — or rather, its sovereign guarantor the Government of India — paid out at least $140-$160 million each to General Electric and Bechtel Corporations in “an amicable settlement” of the Dabhol affair. (When is the last word going to be said on that?) Afterwards, General Electric’s CEO for India was kind enough to say “India is an important country to GE’s global growth. We look forward to working with our partners, customers, and State and Central Governments in helping India continue to develop into a leading world economy”.

A weak and corrupt Delhi
Such nice rhetoric was on close display during the deal-making leading up to and beyond President George W. Bush’s recent India visit. America’s Ambassadors are mostly political appointees and special friends of the President of the day; the present Ambassador to India is a prominent Texas businessman, and business has been driving American thinking with India all the way. After Dr Singh’s visit, the US Foreign Commercial Service reportedly said American engineering firms, equipment suppliers and contractors faced a $1000 bn (1 bn = 100 crore) opportunity in India. Before the Bush visit, Dr Singh signed vast purchases of commercial aircraft from Boeing and Airbus, as well as large weapons’ deals with France and Russia. After the Bush visit, the US Chamber of Commerce has said the nuclear deal can cause $100 bn worth of new American business in India’s energy-sector alone. Getting American legislators to agree will require “massive grassroots efforts” at lobbying politicians, saying that “energy-starved” India will now become open “to US investment in key areas from IT and telecom to pharmaceuticals and insurance”. Mr Bush’s foreign minister Condoleezza Rice (who has authored the political aspects of the new India-orientation) and her pointman Nicholas Burns have said, “we are suggesting India-specific amendments to the Atomic Energy Act of 1954… It’s a waiver authority … We are not seeking relief from US law for any country in the world except India and we don’t anticipate putting any country forward. So it is India specific.” India will separate by 2014 closely entwined civilian and military nuclear facilities and put 14 of 22 civilian nuclear reactors under international inspection.

Now the East India Company had not intended to rule India but ended up dictating to a weak and corrupt Delhi, waging wars across Bengal, the Deccan and North India, and inducing “regime change” all over the place among local satraps. In the modern context, the American Government and its businessman Ambassador to the Delhi Court have made it crystal-clear India’s support has been expected in the matter of American policy towards Iran. Dr Singh has been his own Foreign Minister, crafting his America policy aided by Mr Ahluwalia on one hand and Mr M. K. Narayanan on the other. None of the three has diplomatic, historical or foreign policy-making experience. Mr Narayanan is a retired officer of domestic counter-intelligence (which is traditionally Pakistan-specific). Dr Singh and Mr Ahluwalia are retired economic officials. None has ever outlined for public scrutiny any views on India’s history, politics or foreign policy in any book or essay. India’s historians and career diplomats (and not just the most loquacious and greedy ones) have been silenced. Yet this is a time when a well-respected Indian world figure (though unfortunately there may be none, except Zubin Mehta) could have brought Iran and Israel to the conference table together. Iran must recognise Israel and the two countries must exchange ambassadors if the present tension is not to degenerate into more war in our region. Israel needs to declare itself a nuclear weapons’ power and not be belligerent towards Muslims, and Iran could be allowed to pursue its nuclear research within reason. It is in India’s and Pakistan’s common interests to see that Jimmy Carter’s extension of the Monroe doctrine to include the Persian Gulf be replaced by the Zionist philosopher Martin Buber’s idea of a “federative structure” for the peoples of the East. Instead the reverse is happening.

What economics does say
Dr Singh and Mr Ahluwalia may say economics has been driving their new foreign policy. But what economics actually says is that Government should have nothing to do with any kind of business. Government should encourage competition in all avenues of economic activity and prevent or regulate monopoly, and also see to it that firms pay taxes they are due to pay. But that is it. It is as bad for Government to pamper organised business and organised labour with subsidies of any kind 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. Government’s role is to raise taxes and provide public goods and services properly. We need to remind ourselves that India is a large, populous country with hundreds of millions of materially poor ill-informed citizens, a weak tax-base, a humongous internal and external public debt (i.e. debt owed by the Government to domestic and foreign creditors), a non-investment grade credit-rating in world financial markets, massive annual fiscal deficits, an inconvertible currency, nationalized banks, and runaway printing of paper-money. There is plenty of serious economics that has yet to begin to be done in the country. New Delhi must wake up from its self-induced dreaming.

Separation of Powers: India, the USA, Pakistan

SEPARATION OF POWERS

Montesquieu’s Spirit of the Laws outlined a doctrine that applies to India, the USA and all constitutional democracies: there is no monopoly of political wisdom.

By SUBROTO ROY
First published in The Sunday Statesman, The Statesman Editorial Page, Special Article Feb 12-13 2006

The Speaker’s noble office is that of the single member of the House, traditionally chosen by unanimity, whose task it is to self-effacingly maintain order in Parliamentary debate and proceedings, so that the House’s work gets done. C’est tout. Once chosen Speaker, he ipso facto retires from partisan politics for life. The Speaker neither contributes to the substance of Parliamentary debate (except in the rare case of a tie) nor has to feel personally responsible for Parliament’s conduct.

Our Parliament has tended to become so dysfunctional since Indira Gandhi and her sycophants destroyed its traditions 30 years ago, that supervising its normal work is an onerous enough task for even the finest of Speakers to handle.

The Lok Sabha’s incumbent Speaker has tended to see himself as the champion of Parliament.  He need not.  He does not command a majority in the Lok Sabha; the Government Party does. We have had the oddest peculiarity unfolding in India at present where the person who does command the Lok Sabha’s majority, and therefore who would be normally defined as Prime Minister of India, has chosen to nominate someone who is not a member of the Lok Sabha to act as Prime Minister, i.e. to command the Lok Sabha’s majority. (The Rajya Sabha was and remains irrelevant to most things important to Indian democracy, regardless of its narcissism and vanity). Someone with access to 10 Janpath should have told Sonia Gandhi in May 2004 that if she did not wish to be PM and wanted to gift the job to someone else, she should do so to someone who, like herself, had been elected to the Lok Sabha, like Pranab Mukherjee (elected for the first time) or Kamal Nath or Priya Ranjan (both veterans).

Manmohan Singh, a former Lok Sabha candidate, may as Finance Minister have been able to progress much further with economic reforms. But sycophancy has ruled the roost in the Congress’s higher echelons, and nobody had the guts to tell her that. Indeed as early as December 2001, Congress leaders knew that in the unlikely event they won the polls, Manmohan Singh would likely be PM by Sonia Gandhi’s choice (though he was not expected to last long at the top), and yet he did not contest the Lok Sabha polls in 2004.

The Government of the day, not the Speaker, is Parliament’s champion in any discussion with the Supreme Court over constitutional rights and Separation of Powers. And the Government has in fact quietly and sensibly requested the Supreme Court to set up a Constitutional Bench for this purpose. Such a Constitutional Bench shall have cause to ask itself how far Kesavananda Bharati needs to be tweaked if at all to accommodate the contention that Parliament has a right to judge its own members. The Court may well likely say that of course Parliament has a right to judge its own members but even that right is not an absolute right, (nothing is). Even Parliament’s right to judge its own members must be in accordance with natural law, with principles of justice, with due and clearly defined processes. E.g. the established Privileges Committee and not the ad hoc Bansal Committee had to do the needful.

Imagine a hypothetical case of fantastic fiction where half a dozen independent MPs are elected to a future Lok Sabha, and then take it upon themselves to expose corruption and shenanigans of all major political parties. Our fantastic super-heroes become whistleblowers within Parliament itself while remaining totally incorruptible as individuals — like Eliot Ness’s team who jailed Al Capone and other gangsters, and came to be depicted in Hollywood’s The Untouchables. These Untouchables would come to be feared and despised by everyone from Communists on one side of the political spectrum to Fascists on the other. They would upset everybody precisely because they were so clean and were not purchasable. The Government and Opposition of the day might wellgang up to expel such troublemakers and even fabricate charges to do so. (Now there’s a script for a Bollywood movie!)

What our Supreme Court’s Constitutional Bench decides now in the matter at hand will determine the fate of our super-heroes in such a future fantasia. The present case is a polar opposite — where MPs have been caught on camera with their sordid fingers in the cookie-jar, and then made to walk the plank immediately by their peers. Yet natural law applies here as it will to our fantastic future fighters, and this is what the Bench would have to speak on.

Why the present situation continues to be disconcerting is because the whole country heard all the holier-than-thou protestations, yet everyone continues to take a very dim view of what they see of politicians’ behaviour. There remain strong suspicions that only a few very tiny tips of very large icebergs were or can be caught on camera. Large-scale deals and contracts involve payments into invisible bank accounts, not petty cash into pockets or even suitcases filled with cash sloshing around Delhi.

What we have desperately needed in the situation is modern prime ministerial leadership which could intelligently and boldly guide national debate in the right direction on the whole matter of probity in public life. Why a distinguished parliamentarian like the Speaker has found himself in the limelight is because neither the de jure nor de facto Prime Ministers of India are anywhere to be seen thinking on their feet on these central issues of constitutional procedure and practice. They tend to use prepared scripts and may be temperamentally disinclined to do what has been called for by these unscripted circumstances. (Indeed the much-maligned H. D. Deve Gowda could be alone among the bevy of recent PMs who has been able to think on his feet at all.)

Collapse Before Executive Power

In the meantime, the United States is going through its own Separation of Powers’ crisis. As explained in these columns previously, the American system is distinctly different from the British, and our own system is midway between them. Yet similar principles may be discerned to apply or fail to be applied in all.

Winston Churchill once perspicaciously observed:

“The rigid Constitution of the United States, the gigantic scale and strength of its party machinery, the fixed terms for which public officers and representatives are chosen, invest the President with a greater measure of autocratic power than was possessed before (the First World War) by the Head of any great State. The vast size of the country, the diverse types, interests and environments of its enormous population, the safety-valve function of the legislatures of fifty Sovereign States, make the focussing of national public opinion difficult, and confer upon the Federal Government exceptional independence of it except at fixed election times. Few modern Governments need to concern themselves so little with the opinion of the party they have beaten at the polls; none secures to its supreme executive officer, at once the Sovereign and the Party Leader, such direct personal authority.”

America’s Legislative Branch has, on paper, strong powers of advice and consent to control errors, excesses or abuse of power by the Executive President. But (with rare and courageous exceptions like Sen. Robert C. Byrd of West Virginia) the Legislature cravenly collapsed before the father-son Bush presidencies in regard to the Middle East wars of recent years. America’s once-revered federal judiciary has also tended to lose its independence of mind with overt politicisation of judicial appointments in recent decades.

Bush the First went to war against Saddam Hussein (a former American ally against Islamic Iran) at least partly with an eye to winning re-election in 1992 (which he would have done as a result but for a random shock known as Ross Perot; Bill Clinton became the beneficiary). Bush the Second obsessively wished to follow up on the same, to the point of misjudging the real threat to America from Bin Laden and fabricating a false threat from an emasculated Saddam.

America’s Legislature palpably failed to control her Presidents. Now, late in the day, after all the horses have bolted, the Senate Judiciary Committee began tepid hearings on February 5 2006 into whether the President authorized laws to be broken with impunity in regard to wire-tapping some 5,000 citizens (doubtless mostly non-white and Muslim) without judicial warrants. Republican Senator Arlen Specter, the Committee’s Chairman, has said he believes the Foreign Intelligence Surveillance Act has been “flatly” violated, and “strained and unrealistic” justifications are now being offered. Bush’s men, from his Vice President and Attorney General to political intelligence operatives, have brazenly placed in the dustbin the traditional principle fiat justitia pereat mundus — let justice be done even if the world perishes — saying that the Sovereign can do just as he pleases to save the realm from external enemies as he might perceive and define them to be.

What this kind of collapse in current American practice reveals is a new aspect unknown at the time of Montesquieu’s Spirit of the Laws. In the modern world, Separation of Powers involves not merely constitutional institutions like Executive, Legislature and Judiciary but also the normal civil institutions of a free and open society, especially academic institutions and the press. In America, it has been not merely the Legislature and Judiciary which have tended to collapse before Executive Power in regard to the recent Middle East wars, but the media and academia as well.

“Embedded reporters” and Fox TV set the tone for America’s official thought processes about Iraq and the Muslim world — until it has become too late for America’s mainstream media or academics to recover their own credibility on the subject. On the other hand, unofficial public opinion has, in America’s best traditions, demonstrated using vast numbers of Internet websites and weblogs, a spirited Yankee Doodle individuality against the jingoism and war-mongering of the official polity.

Neither the press nor academia had collapsed the same way during America’s last major foreign wars in Vietnam and Cambodia forty years ago, and it may be fairly said that America’s self-knowledge was rather better then than it is now, except of course there were no Internet websites and weblogs.

Our Pakistani Cousins
Across the border from us, our Pakistani cousins are, from a political and constitutional point of view, cut from the same cloth as ourselves, namely the 1935 Government of India Act, and the Montague-Chelmsford and Morley-Minto reforms earlier. However, ever since Jinnah’s death, they have refused to admit this and instead embarked haplessly on what can only be called an injudicious path of trying to write a Constitution for a new Caliphate. The primary demand of the main scholars influencing this process was “That the sovereignty in Pakistan belongs to God Almighty alone and that the Government of Pakistan shall administer the country as His agent”. By such a view, in the words of Rashid Rida and Maulana Maududi, 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 few modern constitutionalists have been ever since battling impossibly to overcome the ontological error made here of assuming that any mundane government can be in communication with God Almighty. In the meantime, all normal branches of Pakistan’s polity, like the electorate, press, political parties, Legislature and Judiciary, have remained at best in ill-formed inchoate states of being — while the Pakistan Armed Forces stepped in with their own large economic and political interests and agendas to effectively take over the country and the society as a whole, on pretext of protecting Pakistan from India or of gaining J&K for it. Pakistan’s political problems have the ontological error at their root. Pakistan’s political parties, academics and press, have with rare exceptions remained timid in face of the militaristic State — directing their anger and frustration at an easier target instead, namely ourselves in India. The Pakistan Government’s way of silencing its few political, academic or press dissidents has been to send them into comfortable exile abroad.

Sheikh Abdullah Contrasted
Pakistan’s perpetual constitutional confusion deserves to be contrasted with the clarity of Sheikh Mohammad Abdullah’s thinking, e.g. his 5 November 1951 speech to the Constituent Assembly of J&K: “You are the sovereign authority in this State of Jammu & Kashmir; what you decide has the irrevocable force of law. The basic democratic principle of sovereignty of the nation, embodied ably in the American and French Constitutions, is once again given shape in our midst. I shall quote the famous words of Article 3 of the French Constitution of 1791:- ‘The source of all sovereignty resides fundamentally in the nation. Sovereignty is one and indivisible, inalienable and imprescriptable. It belongs to 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.”

Contrasting the Pakistani views of constitution-making with those of Sheikh Abdullah may help to explain a great deal about where we are today on the delicate and profound subject of J&K. (See “Solving Kashmir”, The Statesman, December 1—3, 2005)

India’s current debate about Separation of Powers needs to keep at a distance the clear negative examples of our American friends, who have brought upon themselves in recent times a craven collapse of Legislature, Judiciary, press and academia to the Executive President (as Churchill had seemed to predict), as well as of our Pakistani cousins who have continued with general political and civil collapse for half a century. Because our universities are all owned by the State, India’s academics, from Communist to Fascist, have tended to be servile towards it. In respect of the press, the power of independent newspapers has been dwindling, while the new TV anchors have created their own models of obsequiousness and chummery towards New Delhi’s ruling cliques of the day. It thus becomes India’s Supreme Court which remains the ultimate guardian of our Constitution and the safest haven of our very fragile freedoms — besides of course our own minds and hearts.

The Dream Team: A Critique

The Dream Team: A Critique

by Subroto Roy

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).

2. Money, Convertibility, Inflationary Deficit Financing

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.

 

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Assessing Vajpayee: Hindutva True and False

Assessing Vajpayee: Hindutva True and False

by

Subroto Roy

 

 

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.

 

 

Kargil war

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.

 

 

Political patronage

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.

 

Irrational obsession

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.

Transparency and Economic Policy-Making

Transparency and Economic Policy-Making

An address by Professor Subroto Roy to the Asia-Pacific Public Relations Conference, (panel on Transparency chaired by C. R. Irani) January 30 1998.

This talk is dedicated to the memory of my sister Suchandra Bhattacharjee (14.02.1943-10.01.1998).
1. I would like to talk about transparency and economic policy-making in our country. For something to be transparent is, in plain language, for it to be able to be openly seen through, for it to not to be opaque, obscure or muddy, for it to be clear to the naked eye or to the reasonable mind. A clear glass of water is a transparent glass of water. Similarly, an open and easily comprehensible set of economic policies is a transparent set of economic policies.

The philosopher Karl Popper wrote a famous book after the Second World War titled The Open Society and its Enemies. It contained a passionate defence of liberal institutions and democratic freedoms and a bitter attack on totalitarian doctrines of all kinds. It generated a lot of controversy, especially over its likely misreading of the best known work of political philosophy since the 4th Century BC, namely, Plato’s Republic .[1] I shall borrow Popper’s terms ‘open society’ and ‘closed society’ and will first try to make this a useful distinction for modern times, and then apply it to the process of economic policy-making in India today.

2. An open society is one in which the ordinary citizen has reasonably easy access to any and all information relating to the public or social interest — whether the information is directly available to the citizen himself or herself, or is indirectly available to his or her elected representatives like MP’s and MLA’s. Different citizens will respond to the same factual information in different ways, and conflict and debate about the common good will result. But that would be part of the democratic process.

The assessment that any public makes about the government of the day depends on both good and bad news about the fate of the country at any given time. In an open society, both good news and bad news is out there in the pubic domain — open to be assessed, debated, rejoiced over, or wept about. If we win a cricket match or send a woman into space we rejoice. If we lose a child in a manhole or a busload of children in a river, we weep. If some tremendous fraud on the public exchequer comes to be exposed, we are appalled. And so on.

It is the hallmark of an open society that its citizens are mature enough to cope with both the good and the bad news about their country that comes to be daily placed before them. Or, perhaps more accurately, the experience of having to handle both good and bad news daily about their world causes the citizens in an open society to undergo a process of social maturation in formulating their understanding of the common good as well as their responses to problems or crises that the community may come to face. They might be thereby thought of as improving their civic capacities, as becoming better-informed and more discerning voters and decision-makers, and so becoming better citizens of the country in which they live.

The opposite of an open society is a closed society — one in which a ruling political party or a self-styled elite or nomenclatura keep publicly important information to themselves, and do not allow the ordinary citizen easy or reasonably free access to it. The reason may be merely that they are intent on accumulating assets for themselves as quickly as they can while in office, or that they are afraid of public anger and want to save their own skins from demands for accountability. Or it may be that they have the impression that the public is better off kept in the dark — that only the elite nomenclatura is in position to use the information to serve the national interest.

In a closed society it is inevitable that bad news comes to be censored or suppressed by the nomenclatura, and so the good news gets exaggerated in significance. News of economic disasters, military defeats or domestic uprisings gets suppressed. News of victories or achievements or heroics gets exaggerated. If there are no real victories, achievements or heroics, fake ones have to be invented by government hacks — although the suppressed bad news tends to silently whisper all the way through the public consciousness in any case.

Such is the way of government propaganda in almost every country, even those that pride themselves on being free and democratic societies. Dostoevsky’s cardinal advice in Brothers Karamasov was: “Above all, never lie to yourself”. Yet people in power tend to become so adept at propaganda that they start to deceive themselves and forget what is true and what is false, or worse still, cannot remember how to distinguish between true and false in the first place. In an essay thirty years ago titled Truth and Politics, the American scholar Hannah Arendt put it like this:

“Insofar as man carries within himself a partner from whom he can never win release, he will be better off not to live with a murderer or a liar; or: since thought is the silent dialogue carried out between me and myself, I must be careful to keep the integrity of this partner intact, for otherwise I shall surely lose the capacity for thought altogether.”[2]

3. Closed societies may have been the rule and open societies the exception for most of human history. The good news at the end of the 20th Century is surely that since November 7 1989, when the Berlin Wall fell, the closed society has officially ceased to be a respectable form of human social organization. The age of mass access to television and telecommunications at the end of the 20th Century may be spelling the permanent end of totalitarianism and closed societies in general. The Berlin Wall was perhaps doomed to fall the first day East Germans were able to watch West German television programs.

Other than our large and powerful neighbour China, plus perhaps North Korea, Myanmar, and some Islamic countries, declared closed societies are becoming hard to find, and China remains in two minds whether to be open or closed. No longer is Russia or Romania or Albania or South Africa closed in the way each once was for many years. There may be all sorts of problems and confusions in these countries but they are or trying to become open societies.

Under the glare of TV cameras in the 21st Century, horrors like the Holocaust or the Gulag or even an atrocity like Jalianwalla Bag or the Mai Lai massacre will simply not be able to take place anywhere in the world. Such things are not going to happen, or if they do happen, it will be random terrorism and not systematic, large scale genocide of the sort the 20th Century has experienced. The good news is that somehow, through the growth of human ingenuity that we call technical progress, we may have made some moral progress as a species as well.

4. My hypothesis, then, is that while every country finds its place on a spectrum of openness and closedness with respect to its political institutions and availability of information, a broad and permanent drift has been taking place as the 20th Century comes to an end in the direction of openness.

With this greater openness we should expect bad news not to come to be suppressed or good news not to come to be exaggerated in the old ways of propaganda. Instead we should expect more objectively accurate information to come about in the public domain — i.e., better quality and more reliable information, in other words, more truthful information. This in turn commensurately requires more candour and maturity on the part of citizens in discussions about the national or social interest. Closed society totalitarianism permitted the general masses to remain docile and unthinking while the nomenclatura make the decisions. Dostoevsky’s Grand Inquisitor said that is all that can be expected of the masses. Open society transparency and democracy defines the concept of an ordinary citizen and requires from that citizen individual rationality and individual responsibility. It is the requirement Pericles made of the Athenians:

“Here each individual is interested not only in his own affairs but in the affairs of the state as well; even those who are mostly occupied with their own business are extremely well-informed on general politics – this is a peculiarity of ours: we do not say that a man who takes no interest in politics is a man who minds his own business; we say that he has no business here at all.”[3]

5. All this being said, I am at last in a position to turn to economic policy in India today. I am sorry to have been so long-winded and pedantic but now I can state my main substantive point bluntly: in India today, there is almost zero transparency in the information needed for effective macroeconomic policy-making whether at the Union or State levels. To illustrate by some examples.

(A) Macroeconomic policy-making in any large country requires the presence of half a dozen or a dozen well-defined competing models produced by the government and private agencies, specifying plausible causal links between major economic variables, and made testable against time-series data of reasonably long duration. In India we seem to have almost none. The University Economics Departments are all owned by some government or other and can hardly speak out with any academic freedom. When the Ministry of Finance or RBI or Planning Commission, or the India teams of the World Bank or IMF, make their periodic statements they do not appear to be based on any such models or any such data-base. If any such models exist, these need to be published and placed in the public domain for thorough discussion as to their specification and their data. Otherwise, whatever is being predicted cannot be assessed as being very much more reliable than the predictions obtained from the Finance Minister’s astrologer or palmist. (NB: Horse-Manure is a polite word used in the American South for what elsewhere goes by the initials of B. S.). Furthermore, there is no follow-up or critical review to see whether what the Government said was going to happen a year ago has in fact happened, and if not, why not.

(B) The Constitution of India defines many States yet no one seems to be quite certain how many States really constitute the Union of India at any given time. We began with a dozen. Some 565 petty monarchs were successfully integrated into a unitary Republic of India, and for some years we had sixteen States. But today, do we really have 26 States? Is Delhi a State? UP with 150 million people would be the fifth or sixth largest country in the world on its own; is it really merely one State of India? Are 11 Small States de facto Union Territories in view of their heavy dependence on the Union? Suppose we agreed there are fifteen Major States of India based on sheer population size: namely, Andhra, Assam, Bihar, Gujarat, Haryana, Karnataka, Kerala, MP, Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, UP and West Bengal. These States account for 93% of the population of India. The average population of these 15 Major States is 58 million people each. That is the size of a major country like France or Britain. In other words, the 870 million people in India’s Major States are numerically 15 Frances or 15 Britains put together.

Yet no reliable, uniformly collected GDP figures exist for these 15 States. The RBI has the best data, and these are at least two years old, and the RBI will tell you without further explanation that the data across States are not comparable. If that is the case at State-level, I do not see how the national-level Gross Domestic Product can possibly be estimated with any meaningfulness at all.

(C) Then we hear about the Government Budget deficit as a percentage of GDP. Now any national government is able to pay for its activities only by taxation or borrowing or by using its monopoly over the domestic medium of exchange to print new money. In India today, universal money-illusion seems to prevail. It would not be widely recognised by citizens, journalists or policy-makers that, say, 100,000 Rupees nominally taxed at 10% under 20% inflation leaves less real disposable income than the same taxed at 20% with 5% inflation. This is in part because inflation figures are unknown or suspect. There is no reliable all-India or State-level consumer price index. The wholesale price index on the basis of which the Government of India makes its inflation statements, may not accurately reflect the actual decline in the purchasing power of money, as measured, say, by rises in prices of alternative stores of value like land. The index includes artificially low administered or subsidized prices for petroleum, cereals, and electricity. To the extent these prices may be expected to move towards international equilibrium prices, the index contains a strong element of deferred inflation. One urgent task for all macroeconomic research in India is construction of reliable price-data indices at both Union and State levels, or at a minimum, the testing for reliability by international standards of series currently produced by Government agencies.

Without reliable macroeconomic information being spread widely through a reasonably well-informed electorate, the Government of India has been able to wash away fiscal budget constraints by monetization and inflation without significant response from voters. The routine method of meeting deficits has become “the use of the printing press to manufacture legal tender paper money”, either directly by paying Government creditors “with new paper money specially printed for the purpose” or indirectly by paying creditors “out of loans to itself from the Central Bank”, issuing paper money to that amount. Every Budget of the Government of India, including the most recent ones of 1996 and 1997, comes to be attended by detailed Press discussion with regard to the minutae of changes in tax rates or tax-collection — yet the enormous phenomena of the automatic monetization of the Government’s deficit is ill-understood and effectively ignored. Historically, a policy of monetization started with the British Government in India during the Second World War, with a more than five-fold increase in money supply occurring between 1939 and 1945. Inflation rates never seen in India before or since were the result (Charts 0000), attended by the Great Famine of 1942/43. Though these were brought down after succession of C. D. Deshmukh as Governor of the Reserve Bank, the policy of automatic monetization did not cease and continues until the present day. Inflation “sooner or later destroys the confidence, not only of businessmen, but of the whole community, in the future value of the currency. Then comes the stage known as “the flight from the currency.” Had the Rupee been convertible during the Bretton Woods period, depreciation would have signalled and helped to adjust for disequilibrium. But exchange-controls imposed during the War were enlarged by the new Governments of India and Pakistan after the British departure to exclude convertible Sterling Area currencies as well. With the Rupee no longer convertible, internal monetization of deficits could continue without commensurate exchange-rate depreciation.

The Reserve Bank was originally supposed to be a monetary authority independent of the Government’s fiscal compulsions. It has been prevented from developing into anything more than a department of the Ministry of Finance, and as such, has become the captive creditor of the Government. The RBI in turn has utilized its supervisory role over banking to hold captive creditors, especially nationalized banks whose liabilities account for 90% of commercial bank deposits in the country. Also captive are nationalized insurance companies and pension funds. Government debt instruments show on the asset side of these balance-sheets. To the extent these may not have been held had banks been allowed to act in the interests of proper management of depositors’ liabilities and share-capital according to normal principles, these are pseudo-assets worth small fractions of their nominal values. Chart 0000 shows that in the last five years the average term structure of Government debt has been shortening rapidly, suggesting the Government is finding it increasingly difficult to find creditors, and portending higher interest rates.

General recognition of these business facts, as may be expected to come about with increasing transparency, would be a recipe for a crisis of confidence in the banking and financial system if appropriate policies were not in place beforehand.

(D) As two last examples, I offer two charts. The first shows the domestic interest burden of the Government of India growing at an alarming rate, even after it has been deflated to real terms. The second tries to show India’s foreign assets and liabilities together – we always come to know what is happening to the RBI’s reserve levels, what is less known or less understood is the structure of foreign liabilities being accumulated by the country. Very roughly speaking, in terms that everyone can understand, every man, woman and child in India today owes something like 100 US dollars to the outside world. The Ministry of Finance will tell you that this is not to be worried about because it is long-term debt and not short-term debt. Even if we take them at their word, interest payments still have to be paid on long-term debt, say at 3% per annum. That means for the stock of debt merely to be financed, every man, woman and child in India must be earning $3 every year in foreign exchange via the sale of real goods and services abroad. I.e., something like $3 billion must be newly earned every year in foreign exchange merely to finance the existing stock of debt. Quite clearly, that is not happening and it would stretch the imagination to see how it can be made to happen.

In sum, then, India, blessed with democratic political traditions which we had to take from the British against their will — remember Tilak, “Freedom is my birthright, and I shall have it” — may still be stuck with a closed society mentality when it comes to the all-important issue of economic policy. There is simply an absence in Indian public discourse of vigourous discussion of economic models and facts, whether at Union or State levels. A friendly foreign ambassador pointedly observed an absence in India of political philosophy. It may be more accurate to say that without adequate experience of a normal agenda of government being seen to be practised, widespread ignorance regarding fiscal and monetary causalities and inexperience of the technology of governance remains in the Indian electorate, as well as among public decision-makers at all levels. Our politicians seem to spend an inordinate amount of their time either garlanding one another with flowers or garlanding statues and photographs of the glorious dead. It is high time they stopped to think about the living and the future.

[1] Renford Bambrough (ed.) Plato, Popper and Politics: Some Contributions to a Modern Controversy, 1967.

[2] Philosophy, Politics and Society, 2nd Series, Peter Laslett & W. G. Runciman (eds.), 1967.

[3] Thucydides, History of the Pelopennesian War, II.40.