Ambitions in South China Sea and India ASEAN trade ties

The first full moon after Diwali (Indian festival of lights) marks the beginning of a seven day long festival of Bali Jatra (Journey to Bali) in Cuttack (a city in Eastern state of Orissa). Small boats made of dried banana tree stump are sailed into lakes and rivers to commemorate the annual sailing season to Bali. Traders in ancient times would set sail to present day Indonesia with retreating monsoon winds and come back with advancing monsoon. Items like ivory, sandalwood, textile etc were exported and spices were imported. This perhaps was the first engagement of India with what now has become ASEAN (Association of South East Asian Nations, a trade bloc). The ships no longer sail to Bali from there and business and cultural contacts were virtually lost in post independence era. Things however have started to change since the last decade. 

Towards an integrated Asia

India is now a summit level partner with ASEAN and has already signed a free trade agreement (FTA) in goods. Bilateral trade has seen a sharp increase. Provisional data posted by ministry of commerce shows the trade between ASEAN and India at USD 79.2 billion (10% of total trade and an increase of 41% over the last year). This figure is expected to reach USD 100 billion in the next couple of years. On 20^th and 21^st December 2012 Delhi will hold the India – ASEAN Commemorative summit to mark twenty years of partnership. A FTA for services and investments is expected to be finalised with ASEAN during this summit. The FTA once signed (formal adoption around August 2013) will open up ASEAN for Indian companies to provide services in sectors like finance, accounting, law, medicine, media and communication, business process outsourcing, tourism etc. Inter regional investment will also get a boost as a result of the FTA.

There is a lot of potential for trade between India and ASEAN, especially due to a stable political environment and steady economic growth. These trade and service pact however have to be supplemented by a strong infrastructure network. Surface connectivity is absent between the two regions. With changes in Myanmar politics Trans ASEAN surface connectivity seems more likely than ever before. The intra ASEAN business and trade has made great progress in the past decades but connectivity is still a big issue. Crossing borders on land is a challenge and eats up a lot of time (not a good thing for people and goods waiting to cross over). Compared to the ease of crossing land borders in Europe ASEAN is still a long way to go. During his address, Prime Minister Singh spoke about the urgency to build the India – Myanmar – Thailand trilateral highway and further connect it to Cambodia and Vietnam in future. The urgency should now flow from the dais to pouring asphalt.

Apart from the business aspect of the summit there is a parallel strategic effort going on in the region. India has dispatched a sail training ship, INS Sudarshini on a commemorative expedition to the ASEAN countries. The ship is retracing the routes which the ships from Cuttack might have taken, along the Monsoon route. At the time of writing this blog the ship was anchored near Manila waiting for its next call at Da Nang in Vietnam. The journey would take it across the fiercely disputed South China Sea. Straits Times, a widely read newspaper in Singapore covered the summit under a headline, “Amid China tensions, South-East Asia looks to India”. This is in reference to the recent aggressive stance taken by China in the South China Sea, where it virtually claims all of it as its sovereign territory. India is obviously worried about the Chinese advances (an Indian ship while in Vietnam territory was allegedly warned to retreat from Chinese waters earlier this year). India has increased its military engagement with ASEAN countries in the recent past. It has conducted joint naval exercise with Singapore, Indonesia, Malaysia and The Philippines. India’s navy chief Admiral D. K. Joshi’s comment on India’s preparedness to intervene in South China Sea saw The Philippines welcome such a move. These steps might be seen as India’s willingness to play a greater role in the region.

The South China Sea is of strategic importance to not just China but to the larger Asia Pacific region too. Its proximity to the Strait of Malacca is the primary reason of concern in the immediate future. A quarter of world trade is carried out through the straits which is a busy shipping lane connecting the Indian Ocean to the Pacific. Chinese presences in the disputed waters will make it easy for it to control the trade routes. India’s involvement is seen as a counter balance to an aggressive China by the ASEAN and by US and Australia. The India – ASEAN summit has definitely proved to be of economic importance. Its strategic importance is yet to be seen.

   

                                                         

Cash in my pockets

For the fiscal year 2011-12 India poured in a total of 2.16 lakh crore rupees (USD 39.7 billion) in subsidy. The three major heads under which this subsidy is rolled out are food, fertilizer and fuel. All three heads have equal share in the booty. The total cost of subsidy is three times the planned outlay for ministry of health and family welfare or just bit lower than the total planned outlay for defense at USD 40.44 billion. It’s not too difficult to get a perspective on how much money is spent on subsidy. Most of the subsidy under all the three categories either fails to reach the true beneficiary or is misused. The public distribution system (PDS) (barring in Madhya Pradesh and Chattisgarh) is highly corrupt and inefficient. Food grains are siphoned off and sold in the open market. Grains meant for PDS rots in open due to lack of proper storage. Cheap fertilizer has lead to indiscriminate usage and reduced soil quality and has made food unsafe. Free power and subsidised fuel has also done little benefit to the farmers. A report by Central Ground Water Board has indicated sharp decline in water table in Northern India. Most of the decline can be attributed to overdrawing of ground water due to free access to electricity and fuel. A big hole is burnt in the national budget with little benefit to show.

Cash or kind? 

The government has finally woken up to the fact and will roll out the first direct cash transfer scheme in the country. It will start in the New Year beginning 1^st January 2013. The idea is to transfer cash directly into the accounts of entitled families and selling the food grains in open market. The argument given by the government is that this will increase the supply in open market (food which was held back to be distributed through PDS will now enter the market) and hence bring the prices down marginally. People will have a choice to buy what they want and when they want. Corruption in the system will be put to an end. These arguments seem plausible, given that such schemes have benefited poor people in other countries as well. The move is also seen as a trump card by the central government for the general elections due in 2014. The scheme is intended to be fully operational by that time. Some states are however unhappy about the scheme. The chief minister of Chhattisgarh has written to the prime minister to withdraw direct cash transfer. He has a valid reason. The credit for good governance will no longer go to the local government, which streamlined the PDS system in Chhattisgarh.

Subsidies are bad for an economy and are worse the way they are handed out at the moment. The new step is indeed a much needed change. The government however should not make it easy for the beneficiaries to get the money. The idea of subsidy is to help the poor balance their budgets so that they can come out of poverty over a period of time. Handing out cash without any conditions will not bring about that change. Proven systems of conditional cash assistance exist in the developing world. The most effective and recognized being the “Bolsa Familia” of Brazil. It is aimed at reducing poverty by direct cash transfer. The aid is linked to the beneficiaries sending their children to school and getting them vaccinated as per the schedule. The cash assistance helps them to top up their limited incomes and schooling and timely vaccination of their children helps in creating a healthy and educated workforce for future.

The Indian system should learn from such schemes and implement some checks and balances. First step would be to set a limit to such assistance. People should not be given lifelong subsidies. Once they know it is unlimited the incentive to work towards it is gone. The benefit should be set to last a certain number of years and after that it will automatically cease. This will ensure that the beneficiaries will utilize the money judiciously. The benefit should also be tied to milestones like in the Brazilian system of children attending school or regular vaccination. Demographic measures like population control and balancing the sex ratio too can be incorporated in the system. Biometric identification (which will be linked to each bank account) of all family members should be used to verify the claims. There is a whole lot which can be done to pull millions out of poverty. The government should be judicious the way it uses public money and make its welfare schemes sustainable rather than populist.  

Do you know what you are reading?

Two senior executives of Zee news have been arrested on charges of extortion. Navin Jindal (owner of a steel and mining conglomerate and a sitting member of parliament on a Congress ticket) has alleged that he was being blackmailed by the media house and asked to pay up Rs. 100 crore ($ 18.2 million) over a period of four years in advertising money to Zee news. A grainy video (edited version) allegedly shot by the Jindal employees has been posted on Youtube. The video suggests that a deal is being struck to prevent damaging coverage of coal mine allocation to the Jindals. Zee news has rubbished the allegation and the case is now sub judice. More will be revealed in the coming months, but this leaves us wondering whom to believe and what to ignore?

It is widely accepted that Indian media is free and uncensored, which to a large extent is true. All the media reporting on scams by the sitting UPA government would not have been possible without a free media. The kind of support lent by the media to Anna hazare’s movement, which was clearly anti establishment, once again proved the freedom enjoyed by Indian media. Despite this there are a lot of grey zones. As claimed in the Jindal video by the Zee executives that the likes of Amir Khan and Madhur Bhandarkar (well known Bollywood actor and director respectively) also have to pay for news coverage and that the front page stories in The Economic Times are paid, are enough to shake our faith in independent reporting. The ugly nexus of corporate world and media companies has come to the front.

The colour yellow looks good on mailboxes
not on newspapers

Indian society has always relied on media. The secretly published regional newspapers during colonial times were trusted over the official media. When Indira Gandhi declared state emergency on 26^th June 1975, newspapers protested by leaving blank front pages and announcing the demise of democracy in their obituary columns. Indians have grown up trusting their newspapers. After the advent of private electronic media more people now rely on them for independent news and views rather than on state media. The change in which started in mid 90s did little to assign accountability to the media. Media houses disclose little about their investment structure, their relationship with other media firms and businesses. Disclosure is completely lacking when it comes to reporting. As a reader one is entitled to know the background of a news piece.

Take the example of the Zee news Jindal scandal. There was wide spread reporting of the matter in various newspapers including DNA. DNA batted for Zee news and carried full press statements from the electronic channel. What it failed to inform the readers was that DNA is part owned by Essel Group which is also the owner of Zee news. Readers would have formed a better opinion if this information was disclosed in the news article. Non disclosure of full information is just one aspect of dishonest reporting.

The problem of misleading the readers is not limited to business reporting. Popular, award winning journalists like P. Sainath (writes mostly for The Hindu, a Chennai based newspaper on social cause related to farmers and poverty) too tend to distort or hide facts in their reports. In his article, “To fix BPL, nix CPL” published on 26^th March 2012 he talks about how the government is helping corporate world by writing off Rs. 5 lakh crore ($ 91.4 billion) in the annual budgets since 2005-06 as revenue foregone. He on purpose fails to tell his readers what exactly is included under the revenue foregone head. Reading the article one gets the impression that it is all about giving concessions to big multinationals at the cost of poor people. The truth however is that revenue foregone includes more than just tax breaks to businesses. It includes the amount waived off by the government under various sections of income tax (investments, donations, savings, provident fund and pension contributions, rent allowance, higher education loan, etc), area based exemption in excise for North Eastern states and hill states, etc. Revenue foregone is also the subsidy the government provides on cooking fuel, electricity to farmers, fertilizers, etc. If the readers know the real definition of revenues foregone they would probably form a different opinion.  

Indian media which carries out anti corruption campaigns should start doing some housekeeping. It is time that the readers are given honest information complete with background information where ever it is required and clearly disclosing their business and investment relationships. Reporters like P. Sainath who are known for their good work and recognized by international institutions of repute should not mislead their readers by promoting their agenda instead of reporting.

The Zee news scandal should also send a signal to the readers on how they form their opinions. They should learn to question the report and try to find out the truth behind it. Blindly believing or rubbishing a report will turn us into a herd of sheep.

Exchange rate used is of today, 29/11/12 USD @ 54.73

A new dawn – Suu Kyi warms up to India

The winds of change in Myanmar brought Ms Suu Kyi to India, her first visit since her release from her house arrest. Her visit is getting covered extensively by the Indian media, something that the other heads of neighbouring states hardly manage to get. Her close relationship with India as her educational base, her father’s close political relations with India in early days of independence and her being a noble laureate have all contributed to the excitement of the press. In her interviews she appears as a calm and composed person who has overcome her bitter experiences and has moved on. She talks of being disappointed by India’s failure to support the democratic cause of her movement, but immediately jumps to accept the pragmatic aspects of diplomacy and wants to start a new chapter. Her visit has provided India a golden chance to shrug off the past and start a meaningful partnership with Myanmar.

Myanmar used to be an important trade partner of colonial India. Hundreds of thousands of Indians from Bengal (now divided as West Bengal in India and Bangladesh) went to seek their fortune in Myanmar. The Marwaris (a trading community from western Indian state of Rajasthan) established trade links and industries in Myanmar. Regular ferry services used to connect the Indian trade hub of Kolkata to Yangon and then onwards to Singapore. Indian cinema of the 40s had references of getting telephone call from Rangoon (now Yangon) where the protagonist has gone to work. Such were the close relations between the two countries. Much has changed since independence and post military takeover of Myanmar. So much so that Ms Suu Kyi could not fly direct but had to make a stopover in Bangkok to reach New Delhi.

Advantage Myanmar

The sky looks brighter, for you and for me

Myanmar shares its borders with India on its west, China on its east and Thailand on its south. All three countries are fast growing economies with a huge middle class. Myanmar is also the only ASEAN (Association of South East Asian Nations, a regional trade bloc) state to share borders with India. The country was long isolated from rest of the world due to the military rule and international sanctions, leading to a low industry base and a small economy. However the social indicators of the country are healthy with high rate of literacy and low unemployment.

Indicator	Value*	Comparison with India*
GDP	$82.68 billion	Revenue, Tata sons 2011-12 $100 billion^
Literacy	89.9%	74%
Median Age	27.2	26.5
Population Growth	1.07%	1.2%
Unemployment	5.5%	9.8%
Urbanization	34%	30%
*CIA world fact book, ^financial results Tata sons

The economy of Myanmar depends largely on agriculture. 40% of the GDP contributions come directly from agriculture, major industries are also engaged in agricultural processing and timber. Other industries are mostly in natural resource mining and oil production. This combination gives an ideal platform to build the industrial base of the country and diversify its economy. Geographical advantage of Myanmar can help India connect with the fast growing ASEAN market by linking its surface connectivity.

Top of the list

India should look at long term prospects of closer ties with Myanmar and prepare a list of top priorities. Given the low industrial base of Myanmar there is a huge potential for Indian companies to setup base there. India in the past decade has developed skills in automobile, pharmaceuticals, steel, cement, etc. all these will be required in abundance once Myanmar opens up fully for investments. India should also offer help in institutional reforms like training of civil servants, setting up of an independent election commission, training and recruiting staff to oversee elections, building capacity to improve infrastructure, etc. Another major exercise will be to provide direct connectivity between the two countries, both surface and air. India is already providing financial help to Bangladesh to connect its north eastern states. Similar help can be provided to Myanmar to complete the seamless connection into ASEAN. There are proposals of intra ASEAN high speed rail networks. India will benefit by linking its own rail network to that of ASEAN. Increasing business relation will feed the demand of travel and improve productivity.   

All this will however not happen till basics of a healthy business environment are not put into place. Independent judiciary, enforcing contracts, transparency in governance, etc are some of the aspects Myanmar has to reform before foreign investment starts pouring in. This however should not stop the Indian government and business to start chalking out their Myanmar plans. 

Feeding a billion mouths

The green revolution, which took off in late 60s in India, made her self sufficient and virtually ended her dependence on international food aid. A mix of high yielding seeds, increased use of fertilizers and modern irrigation systems brought more land under agriculture. Today India is self sufficient and in some cases also provides food aid to other countries. Having said that there are some disturbing statistics, which paint a different picture all together. The HUNGaMa (hunger and malnutrition) survey (carried out by Naandi, a social sector organization) of 2011 was carried out in 100 focus districts across India to measure hunger and malnutrition among children. The results show that 40% of children surveyed were malnourished and 59% were stunted. The percentage of malnourished children is double that of Sub-Saharan Africa, which is among the poorest regions in world. On the positive side, the report says there is reduction in prevalence of child malnutrition with proportion of underweight children decreasing by 20.3% over a seven-year period (2004-11) with an average annual rate of reduction of 2.9%. The situation is extremely alarming.

The incidents of malnutrition can be attributed to many things. Lack of awareness, poor public distribution network, high wastage during transportation and storage, inefficient farming methods, all contribute their share in denying access to nutrition. 

Stop the rot 

Thanks to efforts during green revolution, more agricultural land was brought under assured irrigation, thus reducing its dependence on unpredictable Monsoon. In the past few years the total combined harvest of the year has been satisfactory and particularly the Rabi crop (harvested in spring). With bumper harvest for consecutive years the storage infrastructure ran out of capacity and fresh harvest was stored in open. For the last two years millions of tons of wheat were left to rot in open due to poor storage strategy. The governments at state and centre failed miserably to find a solution to the problem.

Productivity of Indian agriculture is another major concern. Successive governments have doled out large amounts on farm subsidies with cheap fertilizer and free power (in some states). This has done little to boost the per unit productivity. According to a study by Prof. Mahendra Dev of Indira Gandhi institute of Development Research, per hectare yield of rice is 3.4 tons in India, compared with the global average of 4.31 tons per hectare and 6.6 tons per hectare of China . The government should realize that freebies will never be judiciously used. Free power for example has lead to over exploitation of underground water and has depleted water tables at an alarming rate. Subsidised fertilizers coupled with poorly trained farmers on optimal usage, has lead to deterioration of soil quality. The situation is complex with staggering inequalities. On one hand there are stunted children and on the other the government is unable to deal with problems of storing excess food grain. Huge amounts are spent on farm subsidies, yet the yields are below global averages. There is an urgent need for India to embark upon phase two of green revolution.

To start with investments should be made in creating more storage facilities and modernizing the existing ones. Food Corporation of India (FCI) has become one of the most inefficient bodies which lets huge amount of food to rot and get wasted every year. FCI is also responsible for the corrupt Public Distribution System (PDS) which is the government’s arm to sell food to the poor at a subsidised rate. Even the Supreme Court of India has observed that the present system of distribution is highly corrupt and ineffective. The government should bring in transparency in its workings and shift from food subsidies to cash subsidies. Bringing in private investment in such areas will take some burden off the shoulders of the government and would introduce smooth functioning.

Lessons should be learnt from dairy cooperatives, where individual farmers with only a couple of cows are able to reach a larger market and get benefited from economies of scale generated. Individual farm holdings in India are smaller compared to countries with high per unit yield. According to the 2001 census 80% of farm holdings are less than two hectares. 62% of these were less than half a hectare. With such small holdings it is difficult for the farmers to raise capital or benefit from economies of scale. Farm cooperatives will be an ideal solution to use equipment, seeds, manpower in a collective manner and benefiting from it. This will also free up a lot of workforce for other high value jobs (according to world fact book of CIA, 50% of total workforce in India is working in farm sector, which contributes less than 18% to the total GDP).

Finally the government should provide infrastructure for quick distribution of food across the country so that artificial inflation can be curbed. Good transport infrastructure will reduce wastage and ensure availability when it is required. Food wastage in India (during transport) is colossal. Some estimated put the figure at 40% (including vegetables). Eliminating wastage is one way of controlling price. These measures will help in ensuring food security for India in the coming years and would keep prices under control. High food prices are a major reason why people are pushed back into poverty. 

India and its Diaspora

What does a population of twenty two million mean? For the sake of comparison, it is same as the population of Australia or Taiwan. It is same as Belgium and Sweden put together or thrice the population of Hong Kong. Twenty two million can be a strong number and can do remarkable things. This is how big the Indian Diaspora is. Spread across the world from the USA to Kiribati and North Korea. Indians have been travelling east and west since early middle ages (trade with current day Indonesia and Malaysia in east and Tanzania in the west). Many Indians settled in East Africa and gradually moved westward to Uganda and as far west as Nigeria. Common colonial rule was a great facilitator in movement of Indians to far off places. Some times as administrative and military assistants, sometimes as traders and sometimes as slaves (on sugar plantations of Mauritius and Caribbean). By the time India gained independence and the term Diaspora was well established, Indians were everywhere.

Ethnic Indians now work in different professions in different countries. They own supermarket chains in Africa, shipping companies in Djibouti, airline in Malaysia, head banks in Germany, run state governments in the US, and so on. The Diaspora is well spread out both in terms of geography and employment. They are a mixed bunch with high end jobs as mentioned above and low end jobs (mostly in the Middle East and to some extent in North America). Twenty two million people of Indian origin and nonresident Indians are sitting on a vast cash pile. In 2011 India received inward remittances to the tune of USD 63.3 billion from non residents. Prediction for 2012-13 are close to USD 75 billion, a bit lower than the current account deficit for last fiscal (USD 78.2 billion). While non residents have limited options of parking their money, the ethnic Indians or people of Indian origin (who are no longer Indian citizens) have a much wider choice of investments. India can tap them.

Please give us more than just hand gestures 

A comparison in Upendra Kachru’s (the first CEO of Maruti Suzuki) book, "India: Land of a Billion Entrepreneurs", of Indian and Chinese FDI inflow states that China receives almost two thirds of its FDI from Chinese Diaspora compared to India’s under 5%. India has a long way to go before it can successfully attract capital from its Diaspora. The government of India has made it easy for ethnic and nonresident Indians to park money in small investment instruments like bank accounts and fixed deposits, but there is a lack of opportunity to invest in big ticket projects which would contribute to the overall growth of economy and infrastructure development. Long gestation periods of key projects and vulnerability to corruption is one big reason why individuals shy away from investments.

Of late initiatives like overseas Indian facilitation centre (OIFC), a public private partnership between ministry of overseas Indian affairs and confederation of Indian industries (an Indian chamber of commerce) have been set up, but with little success. Long winded processes and bureaucracy holds everything back. A highly understaffed external affairs ministry is another hurdle. A city state like Singapore has more diplomats serving across the globe than India has. Indian embassies and consulates abroad are more representative of a sluggish government authority back home rather than a conduit of business. Rude and indifferent staff can make simple procedures (like obtaining signatures to attest documents) a harrowing experience.  

L.N Mittal, owner of world’s largest steel company, Arcelor Mittal and an ethnic Indian has given up on investments in India. In the past years he tried to build steel plants in Eastern Indian states of Orissa and Jharkhand but the government failed miserably to even provide the land for the plant. Indian growth story is on a bumpy ride and there are twenty two million people willing to invest. India needs to tidy up its home and set the right policies to attract investment. Staffing the external affairs ministry will be a good start. 

The subsidy darlings

Earlier this month the government finally took a bold step to bring down the subsidy bill. It announced increase in price of diesel and a cap on number of subsidized LPG cylinders to just six per year (in some congress ruled states it is since revised up to nine per year). The news enraged the Facebook using Indian middle class. The twitterati went berserk with innovative tweets and the country shut down for a day in protest. Well, almost. However, of all the people upset by diesel price hike, people driving diesel SUVs were the worst hit.

Please do not snatch our crutches 

According to the ministry of petroleum and natural gas, in the year 2010-11, the government gave a subsidy of USD 637 million on Public Distribution System (PDS) Kerosene and domestic LPG (Liquefied petroleum gas). On top of this the oil marketing companies made an under-recovery of USD 17.1 billion. The under-recoveries were paid for by the government cash assistance to the tune of USD 8.995 billion (52%), by upstream NOCs (oil exploration companies) for USD 6.647 billion (39%) and the oil marketing companies paid for USD 1.512 billion (9%). Half of the money was paid for by the government in cash assistance on top of the subsidy.

The cash assistance of USD 8.995 billion must have been financed by tax money or borrowing. Now the interesting thing here is that India is running a huge fiscal deficit. For the year 2011-12 it stood at 5.8%, way above the budget target of 4.6%. The target for this year is 5.1%, which is unlikely to be met, thanks largely reduced economic activity. Ideally the government should look at reducing cost (like most corporations do) to bring the deficit down. Doing away with the subsidy is one of the many steps the government can take.

Often there are emails and Facebook shares suggesting how Indians are being crushed under expensive fuel prices while our neighbours enjoy fuel at less than half of what we pay. The truth however is

Country	Petrol	Diesel	LPG
India	68.46 (Delhi)	46.95 (Delhi)	400/14.2 Kg (Delhi)
Pakistan	55.55	52.19	786/11.8 KG
Sri Lanka	59.72	48.4	881/12.5 Kg
Bangladesh	57.60	38.61	443/12.5 Kg
Germany	114	103.3	-
U.K	111.4	114.79	-
USA	51.87	51.87	-

India still has the lowest diesel and LPG prices in the region, while the highest petrol prices are the highest. Petrol prices in India are 15 – 23% higher compared to our neighbours, having said that we should also look at the impact of subsidised prices on their economies. All three neighbouring countries are running virtually on international aid money. The local currency is weak. International donors like IMF (International Monetary Fund) and others are putting pressure to reduce the subsidy burden in order to receive further aid money. There have been recent hikes in fuel prices in order to placate the donors. Pakistan has an erratic supply of fuel despite low prices and natural gas which is abundant in Baluchistan is sold at a price of Rs. 53, while it is sold at Rs. 38.35 in Delhi.

Subsidies might ease the burden on our pockets but in the longer run will ruin the economy. India needs large scale reforms, which includes elimination of subsidies. While it is fun to be treated as subsidy darlings, it is in our long term interest as a country to pay the market prices and use the resources judiciously.

All prices quoted in Rs are in Indian Rupee and converted as per prevailing rates of 4-10-12 (xe.com)

All new External Affair

Dear Readers

In the past one year I contributed my thoughts exclusively on India's external affair policy. I enjoyed writing and researching each article, trying to give it a balanced look. However, for the past few months I was contemplating starting my third blog, this time on India's current affairs and politics. But that seemed like an uphill task. 

I then decided to expand the scope of the current blog by including national politics and business affairs. As a result of change in scope I have given a new look to the blog page and changed the web address from www.external-affair.blogspot.com to www.indian-affair.blogspot.com. I sincerely hope you will find my future blogs interesting.

Happy reading

Avenging national shame

It all started at home. The opposition accused the Congress lead UPA government of policy paralysis when it failed to come up with a worthy policy reform in its second stint. Inflation was riding high, foreign investment was slowing down and a string of corruption scandals battered the government. A home grown middle class movement against corruption and the government’s poor handling of the whole movement further damaged its image. The government’s inability to perform and slowing down of the economy brought the corporate India to the front-line. Corporate India openly blamed the government of failing to live up to the expectation and deliver long promised reforms. All was bearable till this point. But suddenly the matter started to get international attention.

It was The Economist which published first of the series of the “damning” articles against the Indian prime minister. In its December 17^th, 2011 edition (India’s political paralysis – Gasping for breath) the newspaper started the article saying, “A LESSER man might have quit by now. Even Manmohan Singh's fabled ability to endure humiliation is being tested”. The reference was made to Mr. Singh being undercut by his colleagues including Mrs Sonia Gandhi. If this was not enough, the same newspaper yet again in its April 14^th 2012 blog called Banyan, accused Mr. Singh of leaving a job half done (referring to the economic reforms). The matters became worse with the Time magazine branding the prime minister an underachiever in its mid July edition. Quickly after the report, The Independent of the UK branded him a poodle of Mrs. Sonia Gandhi.

Will the real underachiever please stand up

This generated a huge uproar in the country; the politicians first ignored it but later lashed out at the foreign media and accused them of spreading false information and insulting the head of the state. The opposition parties took the opportunity and the BJP (the main opposition party) said the Time magazine is late to the party (implying that the prime minister was always an underachiever). Public opinion rode high on patriotism and social media buzzed less with support for the prime minister and more with, “how dare you say something about my prime minister?” The common man took it too personally and eventually The Outlook, a weekly Indian newspaper came up with its own version of Mr. Obama being the real underachiever.

No one can deny that Mr. Singh has failed to deliver in his second stint. There was no big ticket reforms pushed through parliament. The only policy decision worth remembering was to allow foreign direct investment (FDI) into multi brand retail, which sadly was reversed within a fortnight. The Indian middle class loathes the ruling UPA due to high inflation and a consistent inflow of corruption scandals. However, the moment criticism comes from foreign countries it’s not welcome.

In all this madness, what comes out clearly is the relevance of India to rest of the world. How many times does The Economist or the Time magazine talk about the head of the state of Lesotho, or Estonia, that too on their cover? All the attention that Mr. Singh and India is attracting now is because India is too big to be ignored. Indian economy is now linked to the world economy. Stung by domestic slowdown western companies are looking towards the untapped markets in India. Policy paralysis or underachievement by Indian government is as much a worry to the west as it is to Indians.

The Outlook can always launch a counter attack, which at its best was juvenile, given the usual scope of coverage by the magazine. The masses can pour their anger on the Internet, politicians can use the situation for personal gains, industry can feel vindicated, but in all this cacophony there is a subtle message which says India is becoming important in world affairs. Someone in the government should read this message. Stand still too long and others will overtake. There are many of them by the way. 

India and its oil policy

India’s foreign policy has ruffled a few feathers of late. Largely restrained and reactionary the Ministry of External Affairs has been working overtime to secure India’s energy interests. The global oil markets are going through a rough patch. Iran threatened to close the Strait of Hormuz; South Sudan stopped oil production in early January, loss of Syrian oil because of embargoes, drop in exports from Yemen due to strikes and closure of North Sea rigs due to repairs; all this has lead to a situation of panic in the global oil market. The Economist reported that all these disruptions have shaved off 1.25 million barrels a day of crude output globally. The situation might improve later in the year with most of the production resuming, however this is a clear signal to net oil importing economies that a small disruption in the supply chain can cause serious troubles at home.

India imports 80% of its fuel requirements and offers subsidies on diesel, kerosene and cooking gas. The provisions towards fuel subsidy in the budget of 2012-13 are Rs. 43,580 crores (USD 8.5 billion, at Rs 51.15 for a Dollar). Any increase in crude price will have a huge impact on India’s fuel bill. With a fast growing economy India cannot afford to be caught in a situation where its energy requirements are compromised with. At present India imports a lot of oil from the Middle East, Saudi Arabia being the largest exporter, followed by Iran. Together Saudi Arabia and Iran contribute one third of India’s imports, making India heavily dependent on these two countries. With uncertainty looming large over the region, India has rightly decided to revisit its global oil policy.

To diversify its oil basket India has started exploring other options. There are three instances where India has taken a stand contrary to its established foreign policy. The overseas arm of ONGC has engaged in off-shore exploration in South China Sea. China for long has claimed sovereignty over most of the South China Sea sighting historical evidences. In later 2011 and early 2012, China has raised concerns over Indian expeditions in the region. China also terms the Indian endeavours as provocative and urges restrain. So far the Chinese statements on this matter have been restrained and a direct reference to India is not made. On the other hand Chinese neighbours like Vietnam (which claims the oil reserves to be in its Exclusive Economic Zone), Taiwan, The Philippines, Malaysia, Indonesia, Cambodia and Thailand all have territorial disputes over the South China Sea. Some political commentators describe this region as the most dangerous point of conflict in the region. India’s attempt to seek commercial and strategic foothold in such a region is clearly unprecedented.

In early days of April 2012, India appointed as special envoy for Sudan and South Sudan, again a departure from India’s established foreign policy. For the first time India has categorically mentioned its oil needs as the prime reason for appointing a special envoy. Press statements quote ministry officials saying, "There were three main reasons to send a special envoy - ensure our oil interests are protected, communicate our support for the peace initiative between the two nations and strengthen our technical support to them." India is also challenging the Chinese claims of setting up an alternate pipeline through Kenya in less than two years time.

Lets talk crude

Of all attempts made by India to secure its energy needs the manoeuvres with Iran are the most interesting. International pressure on an Iranian oil embargo is such that it is impossible to pay for Iranian oil through conventional means of bank transfers. The US and EU have banned the payment mechanism in place in Dubai and have delisted all Iranian banks from the SWIFT facility (an electronic funds transfer facility). India as maintained that it will not stop its oil imports from Iran (so have China, Russia, South Korea and Japan). India is now exploring mechanisms to pay for Iranian oil in Rupees. There are technical difficulties in doing so (including many from the Iranian side), however India and Iran are trying to work together to find a solution. In the mean while government of India has announced tax breaks for exports to Iran done in Rupees. The Indian exports will be used to pay for Iranian oil.

These may be considered as bold steps by the Indian government, especially given the fact that they might annoy India’s two largest trade partners, the US and China. But these steps are also testimony to the fact that India is slowly but surely asserting itself in the global geopolitics. The far reaching implications of these actions are not clear as of now, however what is clear is the short term gain. India might get cheap oil from Iran, since less people are buying from it. This might prove to be a breather for a government which is unpopular with masses and high oil price is one of the reasons.  

Sri Lanka in a corner

The bloody civil war, which ravaged Sri Lanka for twenty five long years, came to an end in May 2009. However the battle of survival for the Tamils still continues in the island nation. There are no credible statistics to prove how many people were killed in the long civil war. Estimates put the numbers between 80,000 to 100,000 out of which close to 8,000 were killed in the final days of the war in May 2009. The dead include the Liberation Tigers of Tamil Elam (LTTE) insurgents and civilians. Millions of ethnic Tamils are still displaced and living in temporary shelters. The Sri Lankan army is accused of war crimes by the United Nations Human Rights Commission (UNHRC). On 23^rd March the UN body plans to move a resolution condemning the war crimes by Sri Lankan army.

Let me do some thinking. Again

The ministry of foreign affairs of India is in its usual state of flux. Newspaper reports suggest that the India wants to adopt the wait and watch approach. It does not want to comment without reading the text of the resolution. Parliamentarians from the southern Indian state of Tamil Nadu (who share ethnic links with the Sri Lankan Tamils) disrupted parliamentary proceedings on the government’s non committal gesture. Most of the shouting done by Tamil parliamentarians is for their electoral audience, but the government of India cannot ignore it. One of the Tamil political parties (DMK) is a major coalition partner in the ruling UPA government. The fortunes of DMK have sunk in the past state elections but nevertheless it holds 18 seats and is crucial for the survival of the government.

India’s policy of non interference into matters of other countries is used as an alibi. To make matters worse this is a case of insurgency, which haunts India in Jammu & Kashmir and some north eastern states. Supporting the Tamil cause would mean supporting separatist insurgency, something that India clearly does not want. Supporting the Sri Lankan government will pull India down from its self perceived high moral ground. It is not surprising at all that India is finding hard to take a call on the sensitive issue. But its time India takes a pragmatic approach to the situation.

For nobody but yourself

Monks protesting against the UN resolution in Colombo

India should use its influence on Sri Lanka to make Mr Rajapakse understand the follies of being in deliberate denial. The massacre by the Lankan army in the final days of the civil war is a reality. There are many cases with credible evidence (according to the reports of the UN delegation in Sri Lanka and the government’s self appointed Lessons Learnt and Reconciliation Commission or LLRC) of war crimes. Notorious “white vans” roam the streets of Sri Lanka to abduct protestors who raise voice against the president. Most of the people abducted were later found murdered and their bodies abandoned. Reconciliation and rehabilitation of the displaced Tamils has sadly stayed on paper with little to show to the international community. There is a clear lack of genuine efforts by Mr Rajapakse to assimilate Tamils into the mainstream.

India should make sure Sri Lanka shows credible and sustainable efforts to investigate the war crimes. Taking the “white vans” off the streets should be the first step. Abducted protestors who are missing and if still alive should be released. Humanitarian assistance offered by India should be made available to the Tamils and the reconciliation process should be pursued with the same excitement as shown in the final days of the war in 2009. An honest effort by the president will have far reaching impact on the present situation of the country. A disgruntled population is a sitting tinderbox, waiting for the spark. 

India at the United Nations Security Council - You propose, I oppose

India has been a non-permanent member of the United Nations Security Council (UNSC) seven times since 1950. Its current membership will end in December 2012. This membership period is perhaps the most interesting period in India’s history of UN membership of the Security Council. January 2011, started off with a wave of unprecedented string of uprisings in North Africa and Middle East. What started in Tunisia as a rebellion against the corrupt regime soon spread to the entire region and came to be known as the Arab Spring. Sadly as the Arab Spring gave way to Arab summer and winter, India watched the events from the sidelines or sat on the wrong side of the voting table.

The very first opportunity came up in shape of the Libyan crisis. As the Arab spring entered Libya hundreds of civilians became target of organised massacre by Mr Gaddafi. In middle of March 2011, Gaddafi forces announced a massive crack down on rebel forces in Bengazhi (second city of Libya), which immediately deteriorated the situation. The UNSC proposed to adopt a resolution (resolution number 1973) to enforce a no fly zone. The Libyans wanted UN intervention, the members of neighbouring Arab countries supported UN action, India however chose to abstain. The argument used to justify abstention on voting was more of a lame excuse. India said that the report prepared by the special envoy to Libya was not made available and the secretariat has not made an assessment of the report. In such a situation it will be unfair to take military action. India suggested political efforts to handle the situation, while a city of 650,000 people was under imminent danger from forward marching Gaddafi forces.

The second opportunity came when the case of Mr Gbagbo came up for discussion. Mr Gbagbo disputed the victory of Mr Ouattara, his political rival who won a presidential runoff election in November 2010. Mr Gbagbo’s refusal to hand over power to the legitimate winner (the election was monitored by international observers) started a spate of political violence. Thousands of people were killed by supporters Mr Gbagbo and hundreds of thousands fled their homes. The scale of violence was grave enough to be termed as the second civil war of Côte d’Ivoire. The UNSC adopted a resolution sanctioning military intervention to save civilians from the ongoing killings. The situation in Côte d’Ivoire was clearly an anathema to India’s democratic values. India was not a member of UNSC at the time the resolution (sanctioning military intervention) was adopted. However, India voted against another resolution (on 31^st March 2011) referring the case of Mr Gbagbo to the International Criminal Court. In its speech on the voting floor India came across as a country which preferred restrain even as thousands of civilians were killed or displaced.

Let there be no vote

Yet another opportunity presented itself with intensifying of conflict in Syria. The Human Rights arm of UN, The Human Rights Council on 23^rd August proposed to adopt a resolution to send an independent international commission of inquiry to Syria to investigate alleged violation of human rights. Syrians have been experiencing government crackdown ever since the protests first started on 26^th January 2011. Thousands were killed, tortured and arrested by August 2011. In its response to the resolution India said, “India’s traditional position on country specific resolutions is well known. We do not regard spotlighting and finger -pointing at a country for human right violations as helpful. We believe that engaging the country concerned in collaborative and constructive dialogue and partnership is a more pragmatic and productive way forward...” India abstained from voting.

Beware of the foreign hand

Three crucial votes and India played the spoilsport in all three. India however was not the only country sitting on the wrong side of the table. Russia and China consistently opposed most of the resolutions (it took a lot of effort to make them support the no fly zone over Libya). On careful analysis all the three resolutions were also an instrument of regime change. The UN on behalf of its member states and with support of NATO forces successfully changed regimes in Libya and Côte d’Ivoire. For countries like Russia and China this is their worst fears coming true.

Both Russia and China are accused of large scale human rights abuses, restricting free press, restriction on free movement of people and above all murdering democracy. While the Arab world was blossoming in its Arab Spring, China put extra policemen on the streets to stop a Jasmine revolution. Election results in Russia were predefined and Mr Putin decided to grab power for two more terms. Elections in China happen every decade without a single vote being cast. With political opponents and dissidents being sent to prison on frivolous charges both Russia and China are the hotspots of absolute power. They would be the last ones to support any such resolutions, which are aimed at altering the political framework of a country.

On the contrary India is a shining example of democracy. Human right records put India much ahead of Russia and China, India enjoys a free press and people are free to move within the country. With all the good players on its side India still lost the game. What went wrong with India? There can be many reasons as to why India behaved the way it did. The reasons can be traced back to the cold war and beyond.

As a young democracy India preferred to not align with any of the military blocs during the cold war. Acting on the principle of non interference India together with Egypt and what was then Yugoslavia started a Non Align Movement. This was a bloc of recently independent colonies in Asia and Africa (mostly poor). This bloc came to be known as the third world (the West and Soviet being first and second). India wanted to shed its colonial baggage and march ahead. However, later on India did suffer from some setbacks where the Western bloc meted out a raw deal to India. The non cooperation of the West in the Kashmir issue at the UN and later a war with China demonised it. India opposed whatever the West proposed. This also led to India’s proximity with the Soviet Union during later years of the Cold War.

Though India has emerged out of the “Hindu rate of growth” in economic terms it still is stuck in the cold war days when it comes to diplomacy. It still finds the concept of “sovereignty” extremely touchy and sometimes misunderstands it. Political veterans still refer to the “foreign hand” when situations go out of control (be it inflation or FDI in retail). India still feels threatened by the West and its ideas. However, India aspires to be the member of UNSC. But the question is, is India ready for that position?