Pragathi Sept

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Aml Agraal

Amol Agrawal blogs at Mostly Economics (mostlyeconomics.blogspot.com)

C Uda Basar

C. Uday Bhaskar is Senior ellow with the New Delhi-based National

Maritime Foundation

Daveed GarensteinRss

Daveed Gartenstein-Ross is the director o the Center or the Study o

Terrorist Radicalization at the Foundation or Deense o Democracies, and

the author o Bin Ladens Legacy (Wiley, 2012)

MR Madavan

MR Madhavan heads research at PRS Legislative Research, New Delhi

Barun S. Mitra

Barun S. Mitra is the director o Liberty Institute, an independent think tank

based in New Delhi

Ran Muerjee

Rohan Mukherjee is a doctoral student at the Department o Politics in

Princeton University

Rit Pradan

Rohit Pradhan is a Fellow with the Takshashila Institution

Jacb Jsep Putenparambil

Jacob Joseph Puthenparambil works or a Public Relations Agency in Dubai

Rean

Rezwan is the regional editor or South Asia at Global Voices Online, an

international network o bloggers and citizen journalists

Vive Sengupta

Vivek Sengupta is Founder and Chie Executive o the consulting rm

Moving Finger Communications

Marvi Sirmed

Marvi Sirmed is an independent researcher and political commentator based

in Islamabad

PRAGATI The Indian National Interest Review2

C O N T R I B U T O R S

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Published by theTakshashila Institutin , anindependent think tank on Indias strategic aairs.

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Advisry Panel

Mukul G AsherSameer JainAmey V Laud

V Anantha NageswaranRam Narayanan

Sameer Wagle

EditrsNitin Pai

Dhruva JaishankarSushant K Singh

Editrial Supprt

Priya KadamAruna Urs

Samudra Neelam Bhuyan

GraphicsDibyo Haldar

Aditya DipankarAnuj Agrawal

AcknwledgementsBrandon Doran

Oxord University PressDainik Jagran

[email protected]

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Neither Pragati nor The Indian NationalInterest website are aliated with anypolitical party or platorm. The views

expressed in this publication arepersonal opinions o the contributors

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We accept letters and unsolicited manuscripts.

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means. You are encouraged to shareyour copy with your local community.


5/36

PRAGATI The Indian National Interest Review 3

On 15th August, the Prime MinisterDr Manmohan Singh unurled thenational ag to celebrate Indias

65th Independence Day and the attainment

o reedom rom oppressive colonial rule.In comparison to many o its peers whowere similarly liberated rom the colonialyoke, India has much to be satisfed aboutater 64 years.

But there are many areas o inadequacythat must cause deep concern, such ascorruption, and in some areas abidingshame, as or instances o emale oeticideand honour killings. The reedom and

equality that was envisioned in August 1947and ormalised in January 1950 through theConstitution remains elusive or millions oIndias, and where it is ostensibly provided itis. And in may ways, the controversy over the

C UDAy BhASkARC. Uday Bhaskar is Senior Fellow with the Delhi-based National Maritime Foundation

A distrtin urreedmI India is to progress, we must ocus on serious issues

P E R S P E C T I V E

Public Policy

flm Aarakshan epitomises these distortionsand contradictions.

This is not a review o the flm which isbeing perceived as anti-Dalit but it drawsattention to the nature o the controversygenerated by dierent constituencies thathas resulted in the banning o the flm in twostates Uttar Pradesh and Punjab - whileanother - Andhra Pradesh - has suspendedthe flm.

The flm, which was duly cleared by the FilmCertifcation Board (the old nomenclatureCensor Board has been thoughtully

changed to Certifcation by Leela Samson)was yet to be released. But the promotionaldialogue and clips shown on Television weredeemed to be oensive to Dalit sensibilitiesand the controversy grew by the day.

GoDakshin


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Cntinued n Page 8

The reedom o speech and expressionguaranteed in the Constitution wasdistorted in an opportunistic manner and aparadoxical sequence o events ollowed.

The flm which was not seen by the principalprotesters was assumed to be against the

lower caste cross-section and cynical politicalopportunism introduced. The debates thatraged became shrill and angry and caste-bank politics were at play. The director,Prakash Jha has moved the Supreme Courtto challenge the ban imposed by some states.

More than the legal precedent endorsingArticle 19 (1)(a) o the Constitution, thatwas already established in 1989 in the case

o the Tamil flm Ore Oru Gramathille,the Aarakshan controversy is illustrativeo two serious malignancies in the Indianbody-politic, which i ignored will have veryadverse national security consequences.

While the ounding athers o August 1947and those like Dr Ambedkar who dratedthe Constitution had hoped to make socialequality (and religious neutrality) a realityprogressively, in a eudal caste-riven society- by introducing the concept o equitablereservation in education and employmentopportunities or the traditionally oppressedsections o Indian society the reality aterseven decades is ugly and dangerous.

Caste and religion have become the majordrivers o Indian politics and many statesin India have strong and assertive regionalparties that are predicated on caste. TamilNadu, Uttar Pradesh and Bihar are cases in

point while Punjab has spawned a sectarianreligion derived identity. Debate on theseissues has become polarised and the backlasho the Mandal commission is still to be ullyinternalised.

Intolerance was at play in the controversyover the release oAarakshan and Televisiondiscussions saw little o the objective,constructive, persuasive debate that isthe bedrock o democracy. Freedom asenvisioned in 1947 was about the right to

have and be allowed to voice dissentingviews - but the mood in the country today,whether reected in Parliament in Delhior legislatures in state capitals is partisan,

juvenile and oten abusive in orm andcontent. When was the last time that theIndian citizen was privy to a reasoned andconstructive debate in the legislature on amatter o national import ?

While caste has become the lightning rod

aboutAarakshan it is misleading. The flmdwells more on the crass commercialisationo education in India today and here isanother grave trampling o the cherishedobjective o equality. As a security analyst, Ihave no hesitation is asserting that the mostserious omission o the Indian state romJawaharlal Nehru onwards is the lip-servicepaid to education and the reedom denied tomillions o Indians. The state and its elected

representatives are culpable.By treating education not as a undamentalright o the citizen but a lucrativecommercial enterprise the Indian state hasdenied the most valuable reedom thatrom ignorance and illiteracy.Aarakshandwells on this issue, but strangely this hasnot attracted the kind o attention it deservesbut has been distorted, lest the angry Indianparent ask inconvenient questions o the

politician and bureaucrat.

It is oten said that the politicisation o crimeand the criminalisation o politics in Indiahas reached its nadir and whether the 3Gscam, land mafas or the current patternin Uttar Pradesh where history-sheetersare being politically rehabilitated themood in the country is grim and reedomor the citizen is sullied. But the greatestcrime being perpetuated by the Indian state

is the denial o equitable, aordable high

The Indian state hasdenied its citizens themost valuable reedom that rom ignorance andilliteracy.


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While exercising thereedom to protest, there is

a danger o underminingthe very constitutionalprocesses that have

protected these reedoms.

However, he was anything but inexible.On February 4, 1922, police fred on aprocession o protestors near Gorakhpur. Arampaging mob then set fre to the policestation in Chauri Chaura, killing more than20 policemen. Gandhi called o the agitationdespite objections rom his colleagues in theCongress Party. He elt that his ollowers hadnot yet grasped the essence o non-violenceand thereore, were not ready to undertakesatyagraha.

Fast essentials

In 1932, Gandhi started his politically mostcontroversial ast while in jail, in Pune.The British government had accepted aproposal or separate electorate or lower

caste sections o the population, ollowinga demand rom Dr B. R. Ambedkar. Gandhiwent on a ast against this proposal. He wasnot asting against the British governmentbut wanted Ambedkar to withdraw thatdemand, and not divide the Indian Hindupopulation on caste lines. Ater days onegotiations, a compromise was reached,and it was agreed that rather than a separateelectorate, a certain number o seats in the

assembly would be reserved or the lowercaste sections, in order to acilitate theirpolitical participation.

Ambedkar was not very happy with thePoona Pact but he accepted the compromisebecause he elt that i something were tohappen to Gandhi, he and the lower castepopulation would be blamed, and that wouldput at risk whatever little progress was beingmade in the matter.

Gandhi perormed his biggest miraclein September 1947. He went on a ast inCalcutta, in an ordinary house in a Muslimlocality in the city. He said he did not want tosee the destruction o the ideals he had triedto strive or all his lie. Gandhi declared thatunless the violence ended, he would preerto die. As the word o his ast spread, citizensand leaders began to come out, calling orpeace. In three days, the 78- year- old Gandhi

was able to calm the religious renzy and themob violence ebbed.

Today, the protestors claim to believe inconstitutional democracy but do not seem

to believe in the legitimacy o the electedMembers o Parliament. They claim torepresent the angst o the masses againstcorruption but eel that the same massesare gullible and would never elect honestpeople to oce. They claim to be ollowers o

Gandhian ideals yet one o the most talkedabout Anna Hazare legends is o him tyingup village drunkards to a tree and whippingthem with a belt!

Changing curse

For those who want to uphold Gandhian

values and fght corruption, it would beworthwhile to ponder i their target shouldbe the elected government o the day, or i,like Gandhi, they could inspire people toeschew the giving and taking o bribes.

The anti-corruption campaigners want tocreate a strong and independent institutiono Lok Pal, combining the roles o policing,investigation and prosecution, all in one.They may be looking or a Superman who

could easily turn into Monster Man.

Caught in the middle o the anti-corruptionbattle, todays crusaders seems to haveorgotten that corruption is not merely aconsequence o moral railty but an outcomeo policies that sanction state patronage,bestow avours, and distort normal economicunctions.

Institutions matter. But in their zeal to end

corruption, the campaigners are attemptingto de-legitimise the only institution whichthe people are able to hold accountable the Parliament. Most other sections osociety, be it amily, business or non-proft


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P E R S P E C T I V E

Public Policy

It is hard to sympathise with the UnitedProgressive Alliances (UPA) opendiscomfture with the anti-corruption

movement launched by Anna Hazare andhis ollowers. UPA ministers allege thatMr. Hazares movement is supplanting theauthority o the Parliament by insistingthat Indias lawmakers must pass hisversion o the Lokpal bill and therebycreate a super-regulator unencumberedby constitutional constraints in hispurported war against corruption.However, the National Advisory Council(NAC) manned by unelected apparatchiks

has oten worked at cross-purposes withthe UPA government. Backed by theall-powerul Sonia Gandhi, NAC hasrequently prevailed and pushed policiesrom employment guarantee to health

RohIT PRADhANRohit Pradhan is a Fellow with the Takshashila Institution

N cunter-revlutinpleasePreserving Indias constitutional democracy is more important than a eel-goodagitation

reormswhich not only militate againstthe basic notions o fscal sanity but clearlyundermine the constitutional legitimacyand authority o the government, and itsputative leader, Dr. Manomohan Singh.

Nor is corruption an issue which can bedismissed in an o-hand manner. Recentheadlines have been dominated by largescams while the much-wooed aam aadmicontinues to suer rom the day-to-daydepredations and corruptions o the localpolice, municipal authorities and thelaggardly court system. While it is true

that some o the prime suspects in majorscamsrom Suresh Kalmadi to A. Rajaare currently languishing in jail, it is equallyundeniable that i history is any guide,these leaders are unlikely to be punished by

KannanB


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The government has published thedrat National Land Acquisition andRehabilitation and Resettlement Bill

or public discussion and eedback. The Billwill replace the Land Acquisition Act, 1894.

Land acquisition reers to orcible takeovero land rom its owner; this is dierent romland purchase which implies a willing seller.The Land Acquisition Act, 1894 as well asseveral state level laws govern this process.In 2007, the government introduced a Billto amend the 1894 Act. It also introducedthe Rehabilitation and Resettlement Bill to

provide statutory rights to people aected byland acquisition. Both these Bills lapsed in2009. The 2011 drat Bill combines the twoobjectives, with several modifcations.

Let us look at three important elementsrelated to any law on land acquisition. First,what are the purposes or which involuntaryacquisition may be made. Second, whatshould be the compensation paid to landholders. Third, how are the interests o the

wider community in that area saeguarded.

Purpse

It is generally accepted that the governmentmay exercise the power o acquisition only iit serves a wider public purpose. However,public purpose can be defned widely. Forexample, it is clear that roads, highways,water pipelines, railways, deence, policestations etc. are public goods. When we

move to other items, it is dicult to draw astrict line. Is a power plant a public good?What i it is privately owned? What aboutan industry that generates jobs? Shouldownership matter, i.e., would one distinguish

Foreign afairs

B R I E F S

MR MADhAVANMR Madhavan heads research at PRS Legislative Research, New Delhi

In ParliamentThe drat Land Acquisition and Rehabilitation & Resettlement Billbetween a public sector steel plant and aprivately owned one? What about urbanredevelopment?

The 1894 Act is open to wide interpretation.It defnes public purpose as land or villagesites, town or rural planning, residencesor poor and displaced persons, planneddevelopment, government schemes oreducation, health and slum clearance, landor a public oce, and or land needed by astate corporation. It also permits acquisitionor a private company i it is or a publicpurpose, or likely to prove useul to the

public. The 2007 amendment narrowedthis list to three specifc purposes: strategicdeence use, inrastructure, and or acompany i it has purchased 70 precent othe required land through private purchase.The 70 percent criterion was included toensure that availability o contiguous land isnot held back by a minority o land holders.

The drat 2011 Bill has a dierent list. Itdefnes public purpose as (a) deence, police

and saety o the people, (b) inrastructure,industrialisation and urbanisation projectso the government where the benefts largelyaccrue to the general public, (c) villageand urban sites, residences or the poor,government schemes or education andhealth, (d) other projects including those orprivate companies, where 80 percent o theaected people have given consent, and (e)residences or the poor and people displacedby natural calamities or due to government

schemes.

It can be seen that there are clearlysignifcant dierences rom the earlierormulations. The government continues


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The drat Bill gives the entire beneft tothe developer (though there is an increasedcompensation to the land owner).

other afected peple

The drat Bill requires the acquirer toprovide rehabilitation and resettlementto all aected people, including landowners, landless labourers and artisanswhose livelihoods are adversely aected.It includes a subsistence allowance o Rs3,000 per month or 12 months, an ination-indexed annuity o Rs 24,000 or 20 years,ree housing, resettlement and transportallowance (total Rs 1 lakh), and employmentor Rs 2 lakh. The acquirer is also requiredto provide inrastructure acilities in the

resettlement area, including schools, healthcentres, panchayat buildings, post oces, airprice shops etc. Curiously, even a companypurchasing land over 100 acres in the reemarket will have to meet these requirements.Other than gaming possibilities (purchasein smaller lots), this may not all intoParliaments lawmaking domain as reeland purchases are in the state list o the

constitution (unlike acquisition o property

which is in the concurrent list).

Cnclusin

Land acquisition has been a contentiousissue, and there have been several recentcases o unrest ollowing such acquisitionacross the country. High profle incidentsinclude acquisition or the Tatas in Singur,Posco and Vedanta in Orissa, the nuclearplant in Jaitapur, and the various projectsaround a highway in Noida. These cases

indicate the need or a law that can providea air balance between the property rightso the land owner and the wider good o thegeneral public. The new drat Bill provides anopportunity to fnd such a balance.


There have been severalrecent cases o unrest

ollowing land acquisitionacross the country.

to have the power to acquire land ormost o its projects. This will includeindustrialisation and urbanisation, so thestate land development authorities andindustrial development corporations cancontinue to acquire land. However, orprivate companies, the requirement isnow 80 percent o the aected people, achange rom 70 percent o land area. Thedefnition o project aected amily includedthe land owners, landless labourers andartisans whose primary source o livelihoodis aected, tribals and traditional orestdwellers, and any other individuals assignedland by the government. This opens upa scenario in which most armers (say, 95percent) in an area are willing to sell their

land but the project can be stalled unless 80percent o the labourers (who could evenbe inter-state migrant labour) agree to thescheme.

Cmpensatin

The 1894 Act states that the current airmarket value o the land (and all standingcrops, buildings etc.) should be paid ascompensation, with a premium o 30 percent

to compensate or the compulsory nature othe acquisition. It specifes that the currentland use (and not the intended use) be theguiding actor in determining compensation.The 2007 Bill amended this to use theintended land use. The drat Bill goes back tothe earlier ormulation. It however changesthe method o calculating the air value. Itstates that the value should be multipliedthree times in rural areas (presumably to

compensate or the under-reporting o landprices in sale deeds). It urther gives a 100percent premium or the compulsory nature.Thus, rural land is acquired at six timesand urban land at twice the price o recenttransactions.

Usually, land prices rise by a multiple ithe land use is changed or a commercialventure. The question is who should getthe beneft o this windall: the original

owner (as he has been invested in the land),the project developer (as he has been partlythe cause o increase in valuation), or theexchequer (as the windall is partly causedby the sovereign unction o land zoning).


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Clearly, Delhi has decided toaggressively engage with Dhaka.The urry o activity began in early

May, with Vice President Hamid Ansaritravelling to Dhaka to jointly inaugurate the

Indo-Bangladeshi celebrations o the 150thbirth anniversary o Tagore. In June, ForeignSecretary Nirupama Rao was in Dhakaor talks. In July, there were visits by UPAChairperson Sonia Gandhi, External AairsMinister SM Krishna and Home Minister P.Chidambaram. Also in July, Commerce andIndustry Minister Anand Sharma travelled tothe Bangladesh border with the West GaroHills district o Meghalaya. His mission:

to join his Bangladeshi counterpart ininaugurating a Border Haat or rural trade.

Sonia Gandhi was in Dhaka to accept thehighest state award o Bangladesh on behalo her mother-in-law, Indira Gandhi. Byhonouring Indira, Dhaka has exposed thehollowness o the criticism, oten heard inIndia, that Dhaka has orgotten the roleIndia played in the liberation o Bangladesh.In act, rom the lukewarm coverage that

Delhis mainstream press gave to the awardceremony, it seemed it was Indians whosuered rom amnesia.

Dhakas graciousness in honouring Indirawas o a piece with the maturity it displayeda ew weeks ago when it made light o thePMOsaux pas in ailing to expunge Dr.Manmohan Singhs o-the-record statementon the extent o anti-Indian sentiment inBangladesh. The statement had the potential

to cause a signifcant dent in bilateral ties.But Dhaka reused to make an issue o it.

Also boding well or improved bilateral tieswas the recent Supreme Court decision to lit

Give Dhaka its dueDelhi must cease to be seen as the overbearing Big Brother in Bangladeshits 17-month old stay on limestone mining byFrench multinational Laarge in Meghalayato provide eedstock to its cement plant inBangladesh. The Indo-Bangladesh operationso Laarge are a symbol o economicinterdependence between the two countries.Laarge, the global leader in cement, has setup a unique two-nation industrial projectacross the two sides o the Indo-Bangladeshborder in the Meghalaya-Sylhet region. TheUSD255 million cement plant is located atChhatak, Bangladesh. Raw material or theplant, comprising limestone and shale, comesrom quarries in East Khasi Hills, Meghalayavia a 17-km long belt conveyor.

Certain quarters opposed to the Meghalayamining project had raised the bogey oenvironmental damage and taken the matterto the Supreme Court. In February, 2010,the Court had barred limestone mining byLaarge.

The Government o India made a strongplea or the liting o the ban, citinginternational commitments and bilateralrelations. The viability o the cement

plant in Bangladesh would be threatenedi limestone supplies rom India were notassured. The decision o the Indian SupremeCourt is widely seen as giving a boost to tieswith Dhaka, not the least because it ensuresthat Indias critics in that capital have onething less to gripe about.

There is an air o expectancy in the twocapitals today. It is expected that Dr.

Manmohan Singhs September visit toDhaka will lead to urther cementing o ties.And yet there is no denying that there isalso, in both Delhi and Dhaka, a very strongeeling o under-realisation o potential:

Neighbours

R O U N D U P

VIVEk SENGUPTAPublic afairs analyst Vivek Sengupta is Founder and Chie Executive o the consulting rm Moving Finger Communications


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deteriorated, India continued to stress thelack o reliable inormation regarding eventson the ground, in particular regarding theidentity o the perpetrators o atrocities.In addition, Delhi ocused on the needor domestic stability while searching or

domestic political solutions to Syrias internalproblems. In August, India, Brazil andSouth Arica sent a three-person delegationto Damascus to meet with President Assadand his oreign minister in the hopes oarriving at a negotiated solution to thecrisis. Meanwhile, responding to Indias callor more inormation on the humanitariancrisis in Syria, the UN High Commissioneror Human Rights, Navi Pillay, released

a detailed report on violations by Assadsgovernment that hinted at the possibilityo crimes against humanity. As India tookon the Presidency o the UNSC or themonth o Augustor the frst time in 19yearsthe Indian representative HardeepPuri expressed the desire to bring an end tohostilities in Syria, as well as to implementa ceasefre in Libya. Mr. Puris statementon Syria was necessarily ambiguous, given

increasing US pressure on India and China tosupport intervention in Syria.

Finally, on Iran, Delhi has walked a tensetightrope between the need to maintain itsown material interests and bilateral relationswith Tehran, and the need to at least meetthe United States and other Western powershalway on the Iranian nuclear issue, whichis indeed a serious concern or Delhi in itsown right. Since 2006, India has displayed

remarkable alacrity in managing both sideso this equation. On the one hand, Delhihas consistently voted against Iranianinterests at the International Atomic Energy

Agency (IAEA) and at the UNSC. On theother hand, Delhi has done its best torearm to Tehran the importance o theirbilateral relationship and to keep channelso economic and cultural contact open. Therecent controversy over oil payments owed

by India to Iran is a case in point. Indiacomplied with UNSC sanctions and USpressure against the use o the Asian ClearingUnion currency swap system o oil paymentsto Iran, while at the same time looking or

creative alternatives to ensure the continuedow o oil rom Iran, Indias second largestsupplier. Although the impasse took sixmonths to resolve, during which time Indiancompanies sought alternative suppliesin Saudi Arabia (a politically contentious

decision but much less so rom an economicstandpoint) and Tehran threatened to cuto supplies, Delhi was eventually able to payo a large amount o its oil debt and at thetime o writing Iran had issued a statementassuring India o continued supply.

In each o the cases discussed here, Indiahas sought to achieve a delicate balancebetween its own strategic interests andthe increasingly interventionist role o theUNSC in international politics. Moreover,in keeping with earlier calls by Delhi orUNSC reorm, India has taken pains toreiterate the need or greater inormation

and consultation in the decision-makingprocesses o the Council. In its March 2011statement on the Cote dIvoire vote in theUNSC, the Indian representative clearlyexpressed dissatisaction with the tendencyto hurry the process o adopting resolutions.On balance, thereore, Indias behavior at theUNSC so ar has been motivated ar more byconcerns o strategic interest, organizationaleectiveness and legitimacy than any naveconsiderations o the India-US relationship,non-alignment, or sovereignty.

Indias counsel at the UNSC has been oneo caution. In this sense, it has acquitteditsel rather admirably as a responsibleglobal player, advocating against ill-prepared interventions in the developingworld (Libya) and attempting to upholdthe credibility o the UN as an impartialagent o conict resolution (Cote dIvoire).

Whenever possible, India has viewedmilitary intervention as an option o lastresort, to be employed when all potentialdomestic avenues have been exhausted(Syria). And fnally, just as any other nation

Indias counsel at the UNSC

has been one o caution.


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in international politics would do, India hasbeen careul to protect its own material andstrategic interests when voting at the UNSC(Iran, Libya).

What, then, does Indias approach tomultilateralism mean or its longer term

interests? Sumit Ganguly has articulated twostrong critiques o this approachfrst, byacting irresponsibly, India risks jeopardizingits strategic interests vis--vis its growingpartnership with the United States; second,India pays too high a moral price or itsinaction in cases o clear humanitarian crisis.On the frst point, it is worth noting, asSrinath Raghavan has recently argued, thatIndias relationship with the US is more a

partnership than an alliance or a relationshipo subordination. Moreover, while short-termdierences may continue to create hurdles,the long term trajectory o the partnershipremains healthy and in act better o orbeing predicated on a shared understandingo divergent interests. On the second point,one must remember that abstention does not

amount to opposition. In the Libyan case, theWestern powers were able to carry the daywith the support o the League o Arab Statesand the Arican Union. I Indias role hadbeen one o a swing voter, perhaps its decisionmight have been dierent. More importantly,India has been careul not to lose sight o thehuman protection aspect o contemporaryUN activityDelhis critiques o interventionhave ocused on ecacy rather thandesirability.

Contrary to many criticisms o Indias actionsat the UNSC so ar, one can fnd clear traceso a well thought out approach to crisesas they arise, and a ocus on proceduralclarity and organizational eectiveness

that behooves a rising power wishing toact responsibly on the global stage. Mostimportantly, in a world where the notiono global responsibility is changing ratherrapidly, Indias policy o prudence and cautionwill ensure that it does not over-extend itselglobally while trying to manage dauntingchallenges at home.


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INDIAN GROwTH STORY IS

A CASE OF TRICKLE UP NOT

TRICKLE DOwN

SS AIYAR reviews India

growth story since 1991(The

Elephant That Became a Tiger:

20 Years o Economic Reorm

in India). He points that when

reorms began, critics had

claimed that India would suer

a lost decade o growth as

it was olloweing the WorldBank-IMF growth model o

liberalisation. They warned that

multinationals would crush

Indian companies, while fscal

stringency would strangle social

spending and saety nets. All o

these predictions proved wrong

with India growing at 8.5%

and many Indian businesses

more becoming multinationals

themselves. However, India

continues to be hampered

by poor business conditions

and misgovernance. Both

governance and economic

reorms are needed, but progress

on the ormer lags ar behind, is

thus more urgent, and can help

sustain and promote economic

reorm.

The surprise is his contention

that Indias growth is a case o

trickle up and not trickle down.

He says that a growth rate o 8.5

crisis, ination expectations

have remained low partly due

to credible central banking.

Similar results could be achieved

with fscal policy which has so

ar been discretionary, time

inconsistent and election-

dependent.

SIMON WREN-LEWIS

(Comparing the delegation o

monetary and scal policy) points

how fscal policy is ar more

complicated and fscal councilscan never be as eective as

central banks. He says that time

inconsistency which is used or

monetary policy does not apply

as simply to fscal policy. The

most obvious dierence is that

monetary policy involves the

delegation o decisions, whereas

fscal policy involves delegation

o advice and evaluation. There

is ar more clarity on impact o

long term ination than on debt

policy. So fscal councils end up

being just advisory bodies.

The paper also looks at UKs

Fiscal Council which is charged

with producing the ocial

orecast on which budgetary

decisions are based. It is unclear

whether it can do this whileretaining its independence. It

would thereore seem sensible

to allow Fiscal Councils to

comment on what appropriate

percent in India is possible only

i the bulk o the population

improves its productivity.

This ast growth o poor states

trickled up to create record GDP

growth at the national level.

India is mainly a case o trickle

up, not trickle down, though ast

national growth also produced

more revenue that was shared

with the states.

I India was indeed a trickle

up story, why does governmentneed to do so many social

programs? What is the need or

NREGA, Food Security bill and

several other programs. Why

are inclusive growth, inclusive

fnance and inclusive health on

the agenda?

COMPARING FISCAL COUNCILS

TO CENTRAL BANKS

One ot-repeated suggestion

to fx discretionary fscal policy

is to have fscal councils. These

fscal councils should in turn be

structured like modern central

banks which are independent

and ocused on its mandate.

The results or central banks in

recent years have been very goodwith credible monetary policy

and anchored low ination

expectations. As a result, despite

huge monetary easing in the

Foreign afairs

B R I E F S

Paret

AMoL AGRAwALAmol Agrawal blogs at Mostly Economics (mostlyeconomics.blogspot.com)

Economics in small doses


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intermediate targets or policy

should be (as some already do),

particularly as this may enhance

their perceived credibility and

independence.

wHAT DETERMINES YIELDS OF

INDIAS STATE GOVERNMENT

BONDS?

Like the Centre, Indias

states have also been meeting

its defcits via bond market

(called State Development

Loan Bonds or SDLs) through

auctions in 2006-07. A trio o

RBI economists, look at theactors (Determinants o Primary

Yield Spreads o States in India:

An Econometric Analysis) which

determine state bond yields.

The paper looks at two broad

questions: What is the spread

between Centre and State

Government bonds? And what

determines movement in state

bond yields?

For frst, the spread varies

depending on the business cycle

and conditions. During 2008-

09, which was characterised by

higher interest rates, the spread

was moderate (122 bps). However

in 2009-10, when interest rate

regime was easier, the spread

remained high at 86 bps. During

2010-11, when rates have again

increased the bond spreads

have not frmed up (45 bps). The

pattern o past auctions shows

that accessing the market at

a right time with right size o

issuance yields a right price to

the SDLs.

On what leads to movements

in these bonds, results are

surprising. The key defcit

indicators do not seem to explain

the yield spreads across States.

The analysis lends some support

to the argument that the Stateswith higher debts pay higher

yields as compared with other

States. Similarly, there is also

evidence that Central transers

to the States help them to raise

borrowings at lower spreads.

FORMAL VS INFORMAL

INSTITUTIONS: CASE OF TRADE

BETwEEN NORTH KOREA AND

CHINA

This is a ascinating paper

(Integration in the Absence

o Institutions: China-North

Korea Cross-Border Exchange)

by STEPHAN HAGGARD,

JENNIFER LEE, and MARCUS

NOLAND. Some economists

have shown how commerce

prospered in earlier times in

absence o ormal institutions.

So we need not bother having

ormal institutions i inormal

ones do the job.

This paper reviews this role o

inormal institutions debate in a

natural experiment settingtrade

between North Korea and China.

Few Chinese frms trade with

North Korea in absence o ormal

institutions. The paper conducts

a survey amidst such Chinese

frms and fnds Chinese appraisalso the North Korean business

environment are generally

negative and maniest ear o

expropriation o investments

made in North Korea. Moreover,

they always complain and are

wary o ever-changing regulations

in North Korea. As a result

Chinese frms are smaller in size

and limit themselves to trading.

Chinese are also not happy with

the current system and would

preer more ormal systems.

So, the lesson is that inormal

institutions work only or a

limited scale. Firms need proper

systems to grow.


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I there is one national termite that hasbeen eating up Pakistans physiology andneurology, it is its purported ideology.

Ater more than six decades o existence,Pakistan is still deending its genesis andgoing to-and-ro on the cause-eect tree.Graduating a community into a nation hasnot been without consequences, and is nowaecting aecting its own existence.

The origin o the idea o Pakistan standsas obliterated in the subcontinent, as isPakistans identity. The most prominentnarrative in both countries has been

that Indian partition was based on asimplistic Two-Nation Theory (thatMuslims and Hindus are two essentiallydistinct nations and thus cannot livetogether). In India, the narrative turns

negative, interpreting communalism andMuslim separatism as the raison detreo Pakistan. In Pakistan, it becomes theroot o jingoist patriotism, hatred o Indiaand religious undamentalism with aburgeoning political commitment to urthertheocratise the state. In India, in contrast,the birth o a country based on communalconsiderations continues to be unacceptableto a more secular public. The two narrativesremain unchallenged even by the peaceniks;peaceniks who otherwise bear the brunt opopular ridicule or denying harsh realitieswhile trying to fnd solutions in hollow

emotionalism.

Both the narratives seem to simpliy thecomplex political power-play that shapedthe events leading to the partition o India.

Revisiting the idelgy PakistanThe ideology o Pakistan has put it at the brink o social and political collapse

Neighbours

R O U N D U P

MARVI SIRMEDMarvi Sirmed is an independent researcher and political commentator based in Islamabad

InternationalRivers


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o politics took him, with o course his handfrmly placed on the control panel, whichthe Congress seemed to misread.

Muslims o united India had by mid-1940sbecome extremely conused about thenature and justifcation o Pakistan. Thosein the Muslim minority provinces had beenmain wielders o the idea o save Muslimsthrough resolving existential concernslike greater political rights, greater sharesin power-sharing ormulae and increased

job quotas. The ever-evolving idea oPakistan changed the locus o separatistpolitics rom minority to Muslim-majorityprovinces. Those already in the majoritybecame incomprehensibly conused about

the need or a separate country when theywere already enjoying political, social andeconomic rights as a majority.

The newborn nation obviously could notsurvive this scrambled egg o an ideologyand soon succumbed to political Islam.The phenomenon o jihad as state policy,though not documented as such, amplydefned itsel when Pakistan decided toinvade Indian Kashmir through the tribal

people called mujahiddin, right underJinnahs nose. The Two-Nation Theorybecame an explosive TNT or Pakistan withthe advent o sectarianism in the 1950s andthe perpetual subjugation o Bengalis bythe state and led to the partition once againin 1971. The Islamic Republic o Pakistan,

in which religious oneness was trumpeteddisproportionately, could not keep itspredominantly Muslim East Pakistan wingintact.

The olly called ideology and political

practice, designed by Jinnah, have putPakistan at the brink o social and politicalcollapse. It is high time to correct thishistorical blunder adopted as ideology andrevise the genesis o Pakistan rom thepuerile haziness o Maududis terminologyto Wheeler and Ahsans vocabulary. Thedierence, whatever little it might havebeen, was in the Indus man and the Gangesman, irrespective o their religion. Indusman should look towards Indus, not

the deserts o Arabia or cultural reuge.Embracing heritage and rooting it frmly inthe Indus soil rather than the air rom the

Arabian desert is the option that could putPakistan on its way to international respectand progress. Destruction, otherwise, isimpatiently waiting or us.

Ideology and politicalpractice designed by Jinnahhave put Pakistan at the

brink o social and politicalcollapse


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president, supply chain, Wadawan Retailin her article in the August issue o LOG.India magazine about how the logisticssector in India is welcoming the entry ooreign players. He states he avors oreigninvestment in retail, because o the hugewastage in ood and groceries. India isthe worlds largest producer o ruits andvegetables and we waste about 25 percent oit worth 50,000 crores.

That is 25 percent o everything we produce.So i a armer produces 100 bananas, 25percent is wasted on the way. Add fvelayers o middle men and tally up the costs.For that single banana, you are paying orinecient transportation and warehousing,

and padding up or costs at each level otrade to make up or wastage. The onlylosers in this system are you and the armer.He has to sell because he cant store andyou have to buy because there is no otherchoice.

Foreign investment in retail will providemuch needed investments in our cool chainand storage inrastructure. Have you everwondered how McDonalds in India never

runs out o chicken? The logistics o thefrm ensures that all its suppliers, rom thearmer up, have to meet its stringent qualitystandards in storage and transportation.

What about employment? Will FDI in retaillead to loss o jobs? Speaking to the BusinessStandard (August 7, 2011), retail consultancyfrm Technopak Advisors managing director,

Arvind Singhal, states there would be arequirement o an estimated 25 to 30 millionadditional people by 2020. Elixir Consulting,a recruitment process outsourcing frm, putthe additional manpower requirement inthe next 10 years at a modest 12-15 million.Nitin Sethi, practice leader (consultancy),

Aon-Hewitt, said, In 12-24 months, themanpower requirement would be up by 27 to50 percent.

There needs to support on the policy rontas well. Especially in the much awaitedGoods and Services Tax (GST)this willencourage the growth and development olarge temperature controlled warehouses,particularly in central India, which lacksinrastructure. The government is trying

to ormulate policy to establish a middleground o sorts. One o the options is tolimit the multinationals to towns with morethan a million residents; there are about 50such cities and towns in India now.

The second option is to adopt theChinese model. Start with six metros andthen expand in a phased manner. In alllikelihood, this is how the governmentis going to let it play out. While it willannounce an opening up o the sector, itwill try to limit the oreign players to themain metros.

As a frst step, on July 22, a panel o secretariesled by cabinet secretary AK Seth, cleared theproposal or FDI in multi-brand retail stores.The proposal now goes to the Union Cabinetand rules will then be notifed. Only then willwe know how the government is going to playthis out. Some riders have been set, includingminimum investment o $ 100 million with 51per cent investment in backend supply chain.

The other criteria is that 30 percent sourcingwill have to be rom domestic small andmedium units.

Whatever the rules set, the ocus should beon cutting wastage. There is little beneft inboosting agricultural production i we cantensure the inrastructure to transport it ingood condition to market.

25 percent o ruits andvegetables that India

produces is lost in transit


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DAVEED GARTENSTEIN-RoSSDaveed Gartenstein-Ross is the director o the Center or the Study o Terrorist Radicalization at the Foundation or Deense o Democracies, and the author oBin Ladens Legacy (Wiley, 2012)


In recent years, the phenomenon o

American homegrown jihadis hasgained signifcant public attention. In

2009, the United States experienced morehomegrown jihaditerrorist activitythan in any yearsince the 9/11attacks. There

were thirteen suchcases in 2009,representing at thetime over one-quarter o the publicly reported cases o

jihadi radicalisation and recruitment since9/11. Ten such cases were noted in 2010:though a decline rom 2009s number, thisstill represented more homegrown jihaditerror cases than the United States had seenin any other year.

Commentators and the public have manyquestions. How much o a threat dohomegrown jihadi terrorists pose? Will thisphenomenon continue to grow? What isdrawing those who were born and raisedin the US to the support or militant Islam?Numerous op-eds, television segments, andthink tank reports have attempted to provideanswers. J M BergersJihad Joe: Americans

Who Go to War in the Name o Islam is aworthy contribution to the discussion, astrongly researched book that is unique incomprehensively telling the story o morethan thirty years worth o Americans who

In Extenso

B O O K S

The jihads AmericanrecruitsDissecting homegrown terrorism

have been draw to Islamic militancy.

In 1979, armed militants seized Islams holiestsite, the Grand Mosque in Mecca. Followers

o Juhaymanal-Otaibi, theirranks included two

Arican-Americans,one o whomdied ater security

services stormedthe building. Thesetwo men are likely

the frst known American jihadis.

Though Mr Bergers Sunni-centricnarrative notably skips David Belfeld(Dawud Salahuddin), a convert to Islamwho assassinated a oe o the new Iraniantheocracy at its behest in July 1980, it goes onto explore key global events that shaped the

jihadi movement in America. The Aghan-Soviet war was one such event. This conictsent shockwaves through the Arab world andcreated the Aghan Arab phenomenon

Arab oreign fghters who ocked to thesubcontinent to help the Aghan cause.But Americans also ought the Russians,including Mohammed Zaki and ClementHampton-El, who was convicted as aconspirator in the New York City landmarks

bombing plot that also netted Sheikh OmarAbdel Rahman.

One American, Mohammed Loay Bayazid(also a veteran o the Aghan-Soviet war), was

Jihad Joe: Americans Who Go to Warin the Name o Islam

J M Berger

Potomac Books, 2011,280 pages


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