Black Money Bill – cure worse than the problem?

Loksabha has passed the so-called Black money bill. The formal short name is Undisclosed Foreign Income and Assets Bill. While no one can question the basic intentions behind the bill, it is sad this bill too follows numerous others that simply complicate the matter, don’t solve the problem and in fact make it worse in many ways.

Incidentally many of these points were also raised in an excellent speech by Deepender Singh Hooda, Congress MP from Haryana, during the LS debate on the bill.

Problems with the Bill

1. There is no need for a separate bill, IT Act is there already

There are over 85 sections, with numerous clauses and sub-clauses in the bill. This will delight many lawyers and Chartered accountants and ITOs but will be a nightmare for ordinary people. For all that, it accomplishes nothing that’s not already there in the IT Act or can be inserted in one paragraph.

Is it legal to not disclose income, whether local or foreign? Of course not! It is legal to hold assets in India or overseas out of income not taxed at all? Of course not! As Mr. Hooda rightly pointed out, such disclosures (and penalties) are already there since 2013. Then what good does this law do? Your guess is as good as mine!

2. Vaguely defined ‘satisfactory explanation’ clause gives ample scope for harrassment

The law says overseas assets held by resident taxpayers (NRIs thankfully exempt, but more on that later) for which ‘no satisfactory explanation’ can be given. Now who’s to be satisfied? ITO of course. What is ‘satisfactory’? No one knows.

Obviously for rent seeking corrupt ITOs, or those simply desperate to meet quotas and targets or earn promotions, it is very easy to issue a demand notice claiming to be unsatisfied. This is even for assets properly disclosed!. The poor taxpayer then has to fight the system or go to jail. At best he can waste months and years of effort, huge fees to accountants and lawyers before he can escape the law. And what penalty applies to the crooked officer that started the whole process? Nothing of course.

This is exactly how foreign investors end up with irrational, huge tax demands on MAT and other matters, often running into tens of thousands of crores of rupees (of which nothing is really collected) after years wasted destroying India’s investment climate, image and economic prospects. Once the law is there, the rules are, it will be physically impossible for any FM, however smart or well meaning, to stop abuse.

As with Section 498A and so many other laws, this will be misused to generate fees and bribe. And there will be no control other than goody goody assurances by the Hon Finance Minister which can be written in a sheet of water.

3. Big blow for NRIs, a community that supported NaMo consistently

Even though NRIs are exempt, many that plan to return to India will have to think twice. This is because a crooked corrupt ITO can simply dismiss their explanations and seek to levy 120% tax on whatever assets they disclose upon return, simply alleging he is ‘not satisfied’ with the explanation. And become a hero internally for standing up for the exchequer. Either you pay through your nose in bribes or be prepared for years of court battle.

Most of the income earned from such wealth is taxed somewhere or the other and it is likely to be eligible for double taxation relief. Most countries, other than few like Singapore or Hong Kong that attract legitimate wealth through well run capital, property and other markets, have high tax rates. This means, nothing much will flow to the Indian Government anyway. This is because such tax is only due if the tax paid overseas is less than Indian taxes.

4. Easy for real big fish to escape the law, even legally

Anyone with substantial overseas income or assets, that too earned illegally can easily ensure one of his family member is a NRI and keep all wealth in his / her name. It is so easy to purchase such residences in numerous nations, perfectly legally. It will be impossible to go after such individuals. In any case these people are not going to declare assets in any return and if by some miracle the IT can find them and prove the case, they can easily do so without this law as well, under existing Income tax laws.

5. Doesn’t help with vast amounts of black money inside India

That should be clear from the title of the bill itself. But then our minister has a fantastic cure! Another law, presumably of equal length, complexity and viciousness will be enacted for that! I can see many ITOs and CAs licking their palms in anticipation!

6. Doesn’t address the structural issues that help generate black money in the first place

Some of the structural issues have been addressed, although slowly and over a very long period of time. Ridiculously high tax is obviously the first one. We had urine drinking morons running this country that argued 98% tax is ‘reasonable’. Thankfully today they are a lot better.

But there are many other sources of black money – the mining, real estate (land), government contract sectors together will probably account for 90% of the black money generated. If nothing is done to stop this, the money will sure find a way to end up in tax havens abroad. If the government does reduce the generation, it will find that such draconian laws are completely unnecessary.

7. Reflects sad state of Indian politics in general. Draconian laws too easy to pass. Real solutions never found

It is the same with so many other laws, be it anti-dowry, anti-harassment, anti-Dailt atrocity etc. Draconian laws get passed because no one dares to oppose them and risk tarred with a black paint. They then become nuclear weapons in the hands of corrupt cops, officers, lawyers and others who simply use them to generate revenue.

Many lawyers openly confess that their first advise to any woman coming with a divorce case is to file a Section 498A complaint. The cops then merrily go and arrest anyone and everyone they can find, including mothers, grand mothers, uncles, aunts and relatives. This then generates huge revenue for them, lawyers from both sides as well. Little wonder when attempts to dilute the section were made, the biggest howls of protest came from lawyers!  It is almost similar story with the ‘atrocity against Dalits’ Act which shifts burden of proof to the accused! Just last week a judge of the Chennai High Court threatened to use this very act against his own fellow judge, that too the Chief Justice, for difference of opinion over a routine matter of appointments, underscoring the ridiculous extent to which this law has been misused.

While Mr. Hooda and Shashi Tharoor made good speeches, they could not bring themselves to vote against this bill. Just as BJP had trouble voting against the ‘draconian’ land bill they are desperately trying to dilute now.

8. A big blow to the pro business pro middle class image of Modi regime for little electoral benefit

Forty plus years of Nehru/Indira Gandhi style socialism and the ridiculous nonsensical laws, rules, notifications and regulations as well as paperwork spawned by them have spoiled India’s image as well as its investment and social climate for long time to come. It has also kept generations of Indians poor and deprived. Many educated Indians were hoping for big things when they enthusiastically endorsed Narendra Modi and his vision.

In this context, it will be good if Mr. Modi and Arun Jaitley sit together and think carefully about such bills and their impact on their own image as well as India’s.

They may find that it is better to expend their enormous energies elsewhere.

 

 

Salman Verdict brings out quintessential liberal Indian

The verdict

The verdict is out. Even as poor under trials languish in prison for decade or more, serving time far exceeding sentences for crimes they haven’t committed or proved to, Mumbai High Court chose to set aside all other business to hear his bail appeal within minutes. He got bail same day and now barely two days later, the sentence itself has been suspended.

Pic1

 

Now that ‘mission keep Salman out of jail’ accomplished, one can safely predict our justice
“system” will revert to its usual glacial pace, delivering a verdict sometime after Salman turns 95.

Be that as it may, the case has brought out yet another example of the hypocritical attitude of the liberal crowd or at least the Bollywood liberal crowd.

Bollywood Hypocrisy

Bollywood often seen as the major weapon of India’s soft-power, is known for its blatant plagiarism, low quality, hypocrisy, anti-Hindu hatred, pro-jihadi sympathies wrapped up as liberalism and sheer insensitivity. A lot of that was on display over the last few days

Farah Khan, Abhijeet (singer), many others in utter disregard for the heinous nature of Salman’s crime (drunk driving, not helping victim, consistent denials and unwillingness to take responsibility further exacerbating the original crime) and its poor victims, issued bizarre tweets and statements.

Typical Indian liberal elastic morals and ethics

But what was abundantly clear is this: Indian pseudo liberals, living in a cocoon of comfort, extravagance and luxury wants a separate set of law for themselves as well as moral and ethical code, which too they may flout with gay abandon.

They sit on top of moral pedestals lecturing others on what is right and what is not. They would rather judge than be judged, lecture than be lectured to, and use their ‘liberalism’ as a veil behind which anything and everything can be done without any accountability. Question them, you are a ‘fascist’

If the poor exist at all in this super-luxury seven star world, it is to provide ‘background’ for their moral lectures and to act as props for their elaborate image building exercises, gladly accepting crumbs thrown their way.

Pretty much every trick in the liberal book was deployed to ‘rescue’ Salman. Let’s look at a few of them.

Why not go catch others? A typical argument used by criminals. After all there are so many rapes, murders, why not go after them? You go after their rapes and murders they’ll squeal why not go after drug trafficking and if you go after drugs, it’ll be Can’t they attack poverty first!

He’s a nice guy! The most ‘harmless’ of all the ridiculous nonsense that was thrown about. That Salman is a nice guy. He is, of course. But then that nicety did not stop him from being utterly callous about the victim. Or to own up his act and plead guilty! If he had done so, then it can be rightly argued it is a one time mistake, although he has had other run ins with the law as well.

So the ‘nice guy’ was visited at home to be consoled by Bollywood elite, as if he was the victim! It is pertinent to ask if any of these worthies visited the homes of the dead poor. The answer should be obvious.

 

So much money is at stake! This comes a close second to the crazy defense award. Figures like Rs.200 crores were floated about. A twitterati gets it right though

It’s the fault of victims! This was yet another trick tried. So it is more wrong to sleep on the pavement ‘like a dog’ as singer Abhjijeet puts it, than to run them over. Of course, our resident genius Farah Ali compared them to people crossing train tracks!

Blame it on government! This was the height of liberal idiocy. Blame government for an individuals drunken orgy of crime and then pretend that they are the only ones caring for the poor! Guess it’s ok to bulldoze jayBlameItOnModi walkers and blind going without guard dogs?

 

Sentence too harsh! If all else fails, this can be tTooHarshried.

 

 

Idiotic suggestions and ‘cures’ This takes the first prize! Farah Khan wants separate lanes earmarked for poor homeless to sleep on the pavement so that drunk drivers like Salman can run over whatever else lies on other pavements! Guess walking on pavements should be banned too, so that you don’t get run over by a speeding SUV driven by a drunk Bollywood hunk!

 

 

GST in India – Miles to go

One hurdle crossed

This is no time to sleep. GST Bill has cleared the LS hurdle. A remarkable achievement in of itself for a government often accused of ‘bulldozing’ and ‘arrogance’. But the RS hurdle remains. At worse it may get passed in first few weeks of July. Shamefully, Congress walked out instead of supporting their own bill for flimsy reasons. After all, most the amendments to their bill was the product of further consultation and consensus building by Jaitley. Because of their rabid opposition for opposition sake Congress is losing valuable chance to claim credit for this bold reform.

A long to-do list

But this is only the beginning. There are many things that need to be done right and right on time to make sure the growth boost that GST can provide in theory happens in reality. Let’s look at a few of them

The Rate

Yes, Arun Jaitley has clarified 27% is high and will not be the final figure. But what’s it going to be? We don’t know. The unwieldy looking GST Council will set the rate. Hopefully it will be something around 16% not higher as India is already a high tax country. GST is also regressive, i.e., it taxes poor more heavily than the rich. After all poor spend more save less. In the long run a sensible balance between income and consumption tax is the key to national competitiveness. Very hard to achieve in a federal setup though.

How many rates? This is another key question. Purist fanatics may argue for one rate, no exemptions to keep things simple. But then this is impractical for India. We are going to live with multiple rates, and exemptions to a whole lot of goods, some justified by nothing other than political expediency. This makes accounting complex.  And pushes up rates for the taxed items. Here we would argue it can be ‘mission accomplished’ if the rates are kept to as few as possible (say 3 at most) and exemptions at bare minimum.

The Paperwork

This is the most significant of all. After all, a key benefit of GST is supposedly simplified compliance. But this means several things

The monthly return form has to be kept as simple as possible. For example, in Singapore, most businesses simply fill in three or four numbers. Purchases, Input GST, Sales, Output GST, Net owed/due. That’s it! More rates will mean more breakdowns. But despite that it can be kept simple if there is bureaucratic will.

Information should be asked for on exception basis, only if evasion is suspected or arising from random checks. There is absolutely no need to ask for detailed information from each and every business, drowning the babus in mountains of useless data.

The registration process has to be instant, online and the exemption limit for optional registration kept at sensible levels. The paperwork has to be so easy, small businesses should opt to register instead of fearing the process to stay out of GST altogether. This helps them get input tax credit. It also helps the Government – it gets to tax the last bit of value add (retail margin) and gives access to statistics of consumption and business activity otherwise lost.

The process of proving input tax should also involve as little paperwork as possible and kept simple. If refund cannot be claimed, businesses would find ways to stay out of the system and not pay output tax as well. Here again, the returns filed should be taken as true, with stringent penalties for wanton wrong declaration or false claims. This is easier said than done. Our bureaucracy is used to treating every businessman as a criminal in order to setup a complex system that is then used to milk bribes and favors. And provide rent seeking opportunity to unproductive “experts”, accountants, fixers and the like. What makes GST even more challenging is the input may have been taxed in another state. This gives lots of incentives for the state where the output is taxed, to deny input credit or insist on onerous, impractical documentation. This could be due to irrational fears or simply to increase ‘revenue’ opportunities for babus and netas. This is where the Central Government should control the process to ensure transparency.

The Coverage

A lot has been said on numerous items left out of the GST system. What this means is the input tax spent on producing those items gets cascaded, losing the GST value-add benefit. This obviously hits industries using these products as their key input and its final consumers. And there’s lots of them.

It also means fragmented production capacities for items like alcohol. It would be near impossible to setup large scale bottling and canning lines for beer or wine, for instance, to be produced where it makes sense, and shipped to consuming states. Getting states to agree to this, when they get huge percentage of their revenue from alcohol is going to be impossible.

Here again, we would argue for taking pragmatic look at what is sale-able in the current system and not waste time insisting on perfection along Singapore or New Zealand lines. This is where agenda driven columnists that have been slamming the ‘imperfect’ GST get it wrong. Perfection is something we should work on for the medium and long term, savoring minor victories along the way.

Hopefully once states see the tangible benefits of GST system, they will be more amenable to including more items with the assurance that they don’t lose out on revenue.

The Process

One advantage of a fragmented tax system was that states could decide quickly on what gets taxed, how much and when. The GST system introduces a rather complex consensus process which has to be activated for every major change.

We have to see how this works out in practice. It is too early to comment.

Other concerns

We are not as concerned about the 1% cascading tax as others seem to be. It is supposedly temporary, and even if it becomes permanent, if it helps get GST off the ground, it may pay for itself in more ways than one. After all it is better to get started somewhere instead of spending another decade building a perfect GST.

Something is better than nothing!

All said, something is better than nothing. Past experience tells us, be it in aviation policy, telecom liberalisation or for that matter anything else, the “Indian way” is to get going with something imperfect and once it becomes part of landscape, patch it up along the way. It will still be something imperfect by any rational comparison, but if you look back 20 years you’d go “Wow, that’s a lot better!”

GST is no different

 

Revised upgraded version of Rahul Gandhi

It’s a bird! It’s a plane! No its Rahul Gandhi V4.2.1 launched afresh by Congress party after his disappearance for 2 months, presumably to Thailand. For a guy that sarcastically requested PM Modi to ‘visit India’, it is strange he could not find peace and inner awakening from within this subcontinent, something Buddha and many others seem to have managed quite well.

It’s clear Congress did a lot of home work to ensure this revised, upgraded version would get better reception in the marketplace. Courtiers were lined up in the media to give the story a good copy and push things along with flattering tweets and articles.

But then in arranging fawning praise of the crown prince by media “friends” as well dynastic domestic servants and sycophants, Congress inadvertently betrayed its real problem.  It came across as a mother going into raptures over the babble of her child who should actually be speaking full sentences for his age.

For example when Rahul spoke in the Parliament for the first time in this house, after a year of dozing, (And his third speech in entire Parliamentary career of more than a decade), party faithful started dancing as if the messiah has arrived with the manna. Shashi Tharoor’s was a typical reaction “Fiesty, combative, bilingual speech….he and INCIndia are back!“. So a 46 year old man speaking Hindi which is as good as his mother tongue, and English is something to be celebrate! Hallelujah!

Whether the rest of India and ordinary voters will react the same way will be known in a few years time. But for now, Congress has a lot of servants singing “Thumak Chalat Ramachandra” every time Rahul Gandhi takes baby steps!

For now, its comedy time as our dear friend proved he needs a smartphone to ‘copy’ even a simple paragraph in English paying tribute to Nepal earthquake victims. Twitter world was rolling in the aisles trending #PappuCantWriteSaala  Wonder how much of the precious money spent on building up a pro-poor image for the messiah had to be written off with that one picture of Rahul copying from his smartphone! Thankfully Mr. Tharoor did not tweet his delight over Rahul writing a paragraph in English with his own hand.

But many others would not be amused to see yet another Gandhi (after his grandma and Papa/Mama) trying to turn the deprivation and misery created by their own policies and misrule into a franchise or marketing gimmick to exploit to rule yet again, create more misery.

 

 

 

Three big strikes for reform

By passing the Insurance, Coal and Mines and Minerals Bill, Parliament has given a big boost to Narendra Mddi government’s reform agenda. Interestingly while the Insurance bill was supported by Congress but opposed by TMC and few others, the very same parties supported the Mines and Coal bill opposed by Congress!

What this implies is, while the risk of being seen as ‘anti-farmer’, which the Land bill debate has been reduced to, made these parties join Sonia in her ‘march’ to President’s office they have no intention of letting her steal the thunder and grab leadership on all issues, even where these parties and their governments tend to gain by reform moves.

In states where JDU, TMC, SP are in power, they have absolutely no intention of allowing Congress room to grow back to No. 1 position. They may, at best, be okay with letting the party in as a junior partner to be chucked out at the slightest sign of growth or ambition. If that means cooperating with BJP tactically, so be it. The vote bank of these parties overlaps considerably with that of Congress, so it can only be a zero sum game.

This can only be good news for those hoping for ‘ache din’ in the coming days and months.

 

Pending bills in Rajyasabha – Is Modi regime derailed?

We often read about logjams in the US House or Senate, with the President’s party outnumbered by his opponents who do their best to scuttle his agenda. India, despite its much more divided and bitterly polarised politics, has not seen much of this. No doubt there have been noisy and prolonged disruptions in the Parliament but those have been event driven or tactical. They have often resulted in back room deals and compromises that eventually lets the government have its way. In any case the opposition never had the numbers to force their way other than through disruptive tactics such as storming the well of the house, preventing any business from being transacted. In other words the problem was not ‘structural’

But now Narendra Modi’s less than year old regime faces, for the first time, a clear and present danger of seeing its legislative agenda brought to a complete stop at least as far as meaningful bills go. This is because its problem is not one of tactic or strategy but a structural one, much harder to solve. Journalist R. Jagannathan’s excellent article in the First Post provides valid reasons for this – BJPs opponents are fighting for their political life, nothing less.

Let’s examine these questions

  1. Who’s to blame
  2. Prognosis for current stalemate
  3. What does it imply for Modi’s government for the rest of the term
  4. BJPs game plan

Who’s to blame?

As with almost anything else in Indian politics, this depends on who you ask or read. Pro-Congress Marxist newspapers like Hindu have clearly laid the blame at the foot of Modi regime. In fact their coverage of Modi’s troubles has been sort of celebratory, with every opposition victory presented as if it were a fresh triumph by the men in blue at the World Cup Cricket series now on in Australia. See this article and this

All things considered it could be said Modi government perhaps erred in rushing through the ordinances, particularly on matters like Coal, Citizenship, Insurance etc., where the chances of consensus were much higher. As far as the Land bill goes, he would never have been allowed to have his way anyway, so an ordinance may have made sense after seeing the rest through. Is the government so bereft of legal talent that it could not see the difficulties in using the joint session route? Or the tactics opposition could adopt to legally stall its agenda?

It is easy to have perfect vision in hindsight. Anyway, these are water under bridge and the more important question is what happens going forward.

Prognosis for current stalemate

Again, if one were to go by the pro-Congress media, Modi regime is doomed. None of the five pending bills would pass the Rajya Sabha, forcing the government to either give it up or risk another confrontation with the President as well as the opposition in extending the ordinances. Even the joint session route is years away given the rules and opposition strategy of not rejecting the bills outright.

As usual back room negotiations are on. And the Central government is not exactly powerless, particularly given the vulnerabilities of some of the opposition parties and their leaders. This all or nothing scenario may not come to pass. It is quite likely that some of the less contentious bills may pass through even as the opposition has its way on the Land bill and perhaps even the Insurance bills. In other words a 3-2 victory for the opposition is likely. The smooth passage of the Citizenship bill is a pointer in this direction. That was hit with an ordinance too.

The primary reason for this optimism on our part is the fact that the opposition would not like to be seen as too anarchist as it doesn’t suit their agenda. Their case would be, “Look, we are so nice, we help pass bills that are good, only oppose ‘anti-people’ ones”

Implications for the remainder of Modi’s term

If at all once could turn this episode into something positive, it should be remembered, all this is happening early in his tenure. In other words, he has almost four years to rethink strategy, retool, and change course.

Clearly, contentious and easy to politicise issues, or in other words, bold reforms, cannot be legislated by this regime until and unless it gets majority in the RS. That may never happen in this term.  Any attempt to tinker with labour laws, for example, would be very easy to project as anti-labour and block.

This may require a careful re-calibration of expectations. Primarily expectations created by Modi’s own words and actions in the past which have been of the He-Man, Terminator variety.

Indeed there are so many things that can be done outside of the Parliament and this is time to go deeper into those and come up with creative solutions. For example, the Companies Act, among other laws, allows considerable leeway to the government to issue Notifications that can be quite powerful.  So much can be done to simplify business compliance just by tweaking them.

By keeping a steady trickle of non legislative reform initiatives, along with simultaneous attempts to reach out directly the the public and sell the government vision can ensure Modi’s agenda not only survives but flourishes. As the Economic Survey clearly points out, big bang reforms are not feasible in a country like India except during a crisis.

"Boldness in areas where policy levers can be more easily pulled by the center combined with incrementalism in other areas is a combination that can cumulate over time to Big Bang reforms" (Economic Survey 2015)

This would gain praise from the business lobby as well as international media and thereby generate a positive environment for investments and eventually jobs to grow.

BJPs game plan

The confusing statements coming from Prime Minister himself have made it quite difficult to figure out BJPs game plan. Is it conciliatory or confrontational? If confrontational, why beg cooperation and offer olive branches? If conciliatory, why not concede some of the more harmless of opposition demands such as allowing them to seek clarifications on PM’s address to Rajya Sabha? After all he can be better than the best in replying to any political attack?

Be that as it may, there are still many things BJP can do to keep its momentum going despite its crippling lack of majority in the RS. In fact it could even turn it into an advantage!

Modi is not a Maun Mohan Singh, not only he talks (some would say too much) but he is a forceful communicator. He goes direct to the people, bypassing hostile ‘liberal’ media elites. as his recent effort to sell the Land bill to a rural audience in Rajasthan clearly shows. While the opposition may have the numbers in Rajya Sabha, it doesn’t have anyone of the calibre of Modi to sell its vision to a national audience.

What this implies is they could win a battle or two, yet lose the war. After all Modi could easily turn the tables and blame the opposition tactics for any problem on the investment or jobs front while claiming credit for any positive news as hard won victory ‘despite opposition sabotage’. Given the discredited and corrupt image of some of the ageing patriarchs of the opposition, this message could indeed sell. For example, if the Coal bill were to be defeated, it would be politically very easy for Modi to portray this as “anti-national” move by the “corrupt” Congress to protect favored businessmen who got direct allotment, depriving the nation of revenues running into lakhs of crores of rupees.

BJP’s game plan should also be to continue its aggressive moves to expand its base in various states thereby signalling clearly that its political agenda cannot be traded for cooperation in Delhi. This is likely to force some of the more amenable players to work with BJP to seek common ground instead of working with the opposition and gaining nothing. States where the BJP threat is remote and distant (like Tamilnadu) are more likely to fall in line to this approach. States like Bengal, due for elections in the near term and where the BJP expansion is credible and threatening, are obviously lost causes in terms of getting the opposition (TMC in this case) to cooperate on any term.

Obviously, needless confrontation and strong words can be and should be avoided. But meekly surrendering to the opposition tantrums and turning dovish is clearly not the option. This essentially means a free handle to BJPs opponents to continue their war while Modi is effectively disarmed. In fact, no matter what the price is, some parties like TMC and even the Congress would simply see no benefit in siding with the BJP or its reform agenda. They get no credit for its victory and may be blamed for not opposing strongly enough by upstarts like AAP, if it fails.

In sum, a clever plan to push non-legislative reforms combined with aggressive moves on the political arena to counter the opposition propaganda may yet see the BJP get its way.

 

The Afghan mess

The flurry of recent high level visits in the region and the impending US pullout no doubt has put Afghanistan on the front burner at least from a regional perspective. There is apprehension that India’s role in Afghanistan would diminish and India would be asked to ‘take a hike’ now that big boys are coming together to play a game that is in a different league.

Is India’s Afghan policy doomed?

Commentaries of this nature have appeared in local media. C. Raja Mohan writing for Indian Express doesn’t sound too optimistic. Of course, commentators like M K Bhadrakumar play up this doomsday scenario, primarily to scare Indian Government into ‘accommodating’ Pakistan’s demands. Bhadrakumar for one, has been prophesying about the grand and imminent victory for Pakistan’s Afghan strategy for a few years now. The victory has always been around the corner and is likely to remain so.

Much of the hand wringing and breast beating (we seem to be experts in this) over India’s ‘diminished role’ or even a strategic nightmare unfolding in the coming months may be unwarranted.

The mistrust

Afghan Pakistan mistrust is a result of years of Pakistani double dealing and it would be insulting Afghan intelligence to attribute it entirely to some deep Indian conspiracy. Even the Taliban fighters have been quoted bad mouthing Pakistan and its Army. Ahmed Rashid’s recent BBC article is but one example.  They probably alternate between being used and using the ISI to further their own agenda. Their reluctance, even while in power, to accept the Durand line as the official Afghan Pakistan border has often been cited as an example of this mistrust and independent agenda. What is also surprising is the level of hostility towards Pakistan amongst ordinary Afghans be they villagers or educated elite. What this means is that even if Ashraf Ghani has entirely signed up for the Pakistani plan, given his own fractured verdict and shaky hold on power in a country full of ethnic and other fault lines, he is not going to wave a magic wand and transform Pakistan’s image problem in Afghanistan.

His rival Abdullah, who is “CEO” under the power sharing system worked out after last elections is much more friendlier towards India.

Ghani’s gambit

That brings us to the new President, Ashraf Ghani. Ghani obviously will have Afghan interests as his bottom line. He may be convinced, rightly or wrongly that being friendly to Pakistan will further that interest. He has certainly kept India at a safe distance, avoiding a visit. He even cancelled long pending arms request which India was reluctant to provide anyway. Sooner or later he may have to change tunes. This is because Pakistan will continue to play games and expect a one sided relationship where its own demands take precedence and offer nothing in return. Pakistan’s generals are in cocky mood, congratulating themselves for hoodwinking the Americans for decades. They were successful in bilking billions of dollars even as they actively sabotage American interests and lives in the region. It is likely they continue to believe this can be done for many more years profitably. If the mighty Americans can be fooled for so long, it would be even easier to do so with the Afghans who can’t even hit back.

However, not having any results to show after several months of bending over backwards to Pakistan’s demands would destroy whatever little credibility Ashraf Ghani enjoys now.

The Taliban

But if one were to assume that the Pakistani Army has turned a corner and is now a truly anti-jihad (which incidentally is their official motif) that makes things even more interesting and complicated. Ahmed Rashid, a well known Pakistani author and commentator is sceptical about Pakistan Army’s clout over the Taliban. They may have been stooges or useful idiots in the past, but have their own plans. They are not going to accompany Gen. Sharif to the slaughterhouse like a lamb. With support from sections of the radicalised Pakistani public, elements in the army itself and sectarian terror gangs like TTP and Al Qaeda/ISIL they may even become openly hostile to Pakistan. If anything, effort by Pakistan to bulldoze Taliban into some ‘settlement’ not entirely to their liking will only confirm Taliban’s suspicion. Getting the Taliban to agree to a compromise that also satisfies Tajik and other Afghan tribal interests would not be easy particularly for a bunch of generals trusted by no one.

Any strong arm tactic to please the Americans or soften up the Talibs for talks would probably end up making matters worse. Yet this may become the unintended collateral consequence of the airstrikes and bombings as well as hangings that have followed the Peshawar school massacre.

Although Obama administration has recently started calling the Taliban ‘armed insurgents’ and not terrorists, they are not another Indian or African National Congress simply fighting for their country’s independence. Their goals and agenda go much further. In fact pressure from even greener Islamist groups like IS would force them to adopt increasingly tough line, simply to keep their flock from defecting. Any defeat at the negotiating table, when they feel they have pretty much driven away the Americans and “won” in the battlefield, is not only unlikely but unrealistic to expect. On the contrary a victory for Taliban would not only be unacceptable to large sections of Afghan public including Pashtuns, it will have long term consequences for Pakistan’s own western provinces as well as its core interests. Islamist forces would see that as a template worthy of implementing in Pakistan itself.

America’s endless generosity?

America’s vital interests in the region have been overestimated. Unlike dictatorships like China, frequent regime changes in America makes it easy for any President to disown and walk away from the mess his predecessor has created and trumpet that as an achievement in of itself. That is exactly what Obama has been promising to voters and doing as well. Unlike George Bush, President Obama has very little ‘face’ to lose because it was simply not his war. A new President even if from the same Democratic party, assuming power after elections next year would be even more distant from the mess and would not want to invest a dollar more.

Frankly, America is least bothered as its oil dependence has dropped considerably. It’s reliance on Middle East oil is insignificant and declining by the year. It’s strategic priorities lie much further to the East and West. In other words, the Pakistani generals and their fan club members like Bhadrakumar that are expecting huge dowries and ransom in exchange for facilitating some sort of grand bargain, are simply day dreaming.

American eagerness to drop this can of worms on China’s lap is seen by some as a great victory for China and a ‘proof’ of its rise, but it is more like American companies getting rid of some dirty or dangerous assembly business to the Chinese because it makes sense.

The China hand

That brings us to China! It should be obvious that China lacks the money to spend the tens of billions of dollars Americans could spend in the Af-Pak theatre each year. It wants to make money, not throw it in a bottomless pit. It’s interests are entirely commercial and self centered. It has two main concerns – the Xinjiang issue and long term economic interests. China has never given big bucks even to its most trusted slave Pakistan, mostly confining itself to flowery words and empty promises. Commercial deals, if any, have been on terms massively in its favor.

China has been enjoying Pakistan’s ‘services’ pretty much free of charge with Uncle Sam footing the bill. It may not have any interest in funding the Afghan economy or much worse, its Army. The trillions of dollars of mineral wealth supposedly waiting to be tapped are worth a lot less for its economy given the price crash of most commodities and the global glut. It may announce a few grandiose projects, more flowery words and poetry and fund some of these projects to some extent and rapidly cut losses and get out if the going gets tough as it did in Africa. For example, its much hyped copper mining project in Aynak have not seen any investments and is simply announcement-ware.

Net Net

All said, Pakistan army is nowhere close to getting what it wants and the only ‘victory’ it scores are in the political arena when it plays games with its own elected civilian leaders. In fact more than India, it is Pakistan that faces the risk of ‘heads you win, tails I lose’ scenario unfolding in Afghanistan.

As far as India is concerned, its legitimate interests merely lie in ensuring Afghanistan does not become a backyard for anti-Indian terrorists or a ‘strategic depth’ for Pakistan. This is achievable in all but the most pessimistic of scenarios, even if Taliban were to share power.

In fact, it may make a lot of sense to just lie low, open a large bag of pop corns and watch the fun from a distance as Pakistan slowly finds its goose cooked to perfection in a mess of its own making.

 

Book Review: Jean Dreze & Amartya Sen’s “An uncertain glory”

The ‘debate’

In the recent past two renowned economists who are generally all but unknown to the ‘aam aadmi’ rose to prominence in the main stream media. One of them was Dr Amartya Sen and the other was Dr. Jagdish Bhagwati. The issue was economic policy and its focus. Sen is widely seen as advocating a left of centre, welfare oriented state that provides basic social services like education, health etc. Whereas Bhagwati is seen as a right winger advocating “growth first” policy. Given the political divide in India, that too in the context of the 2014 Parliament elections, they were seen as favoring either Modi (Bhagwati) or Rahul Gandhi (Sen). Sen openly stated he doesn’t want to see Narendra Modi as ‘his’ PM. On the other hand Bhagwati has been described as ‘unabashedly pro Modi’

I did not follow that debate closely but recently came across a book written by Jean Dreze and Amartya Sen titled “An Uncertain Glory: India and its Contradictions“. This article is about this book.

Interestingly one of the authors is a foreigner who lives in India and has been living here for decades and the other is an Indian who spent bulk of his career abroad.

The Book and its case

The essential takeaway from the book is that the authors are not ideologically dogmatic or incorrigibly biased and it is stupid to see them as communist economists and hence dismiss their entire argument.

Personally I find a lot of the goals and objectives espoused by Sen and Dreze quite sensible and essential. After all, can you argue with the logic of “expansion of human freedom and capability” as the key goal of a nation’s government? And economic growth as a means to achieve that goal?

One can also hardly find fault with the strong arguments in favor of universal access to basic healthcare, primary education and facilities like water, sewage treatment and toilets. Although the authors cite copious statistics and references to show how backward India is on these (and other) primary amenities, they are somewhat unnecessary to anyone that has even visited India briefly.  One has to barely get on a taxi and move out of the airport to see slums, people urinating (or worse) on the airport compound wall or darkness in the streets and markets because of ‘load shedding’.

Thanks to the statistics and facts highlighted by the authors we also learn that India was relatively prosperous before the British landed and economic growth during the colonial era was close to zero. For example, GDP growth from 1901-1947 was barely 0.9% per year! It will be music to the ears of nationalistic Indians to hear that Adam Smith had, in his 1776 book ‘Wealth of Nations’, described India as prosperous.  Nalanda University which had students from all over Asia, was 600 years older than Europe’s oldest, Bologna. Of course, in the same breath the authors could not help taking a sarcastic swipe at Indians going back to their mythical past to look for golden era. That plus repeated condescending references to people dreaming of India as ‘economic superpower’ make clear the ideological as well as political leanings of the authors.

BJP and its friends who are not great fans of Jawaharlal Nehru will also find it interesting to read that there was no decline in rural poverty after 3 decades of planned growth (1951-81). They also blame him for neglecting universal primary education. They are also open minded enough to acknowledge and appreciate the sensible advise given to Nehru by American economist Milton Friedman (a free market advocate) to invest in human capital, advise which fell on deaf ears. This is where India’s early years of state planning was different from the approach taken by communist states, although people often describe India of 50s and 60s as following the Soviet model.  .

The authors are also not great fans of Indira Gandhi and her years of socialism. They quote Dr. Bimal Jalan – “politics was driving Indira Gandhi’s economics”. They are happy to acknowledge the constructive role that markets can play even as they advocate a strong constructive role by the state something India has failed to do. They also question many subsidies such as fertilizer and electricity where they are poorly targeted or simply wasteful. This again should please readers who are sympathetic to the ‘other’ camp.

In fact folks that see them as commie economists will be shocked to read the authors negative remarks about high teachers salaries that have come in the way of universal primary education. They even argue high salaries turn teaching into a plum position that attracts people who see it as a job, not interested in teaching! The authors lament about wage increases given by successive Pay commissions, which as they rightly point out, are by babus that benefit from their own recommendations, and are also not bothered about financial implications and funding requirements of their recommendations.

Given their well known political leanings, they also defend programs like MNREGA which have attracted a lot of negative publicity recently for being bottomless pits. They also defend amounts spent on food security comparing that with revenue forgone on “gold and diamonds”, repeatedly citing that example to buttress their arguments. The often heard conflict between development and environment is also argued as unnecessary if one were to take a wider view of the meaning of development. The blue eyed boy of all left wing and liberal economists, renewable energy also finds support. In all of these, we find the authors’ sentiments and objectives are hard to fault though one may question some of their examples and conclusions.

Although some right wing commentators and media may see Dr. Sen as a typical left wing liberal biased against Modi & Co, this book itself has remarkably stayed clear of any overt political propaganda. Copious praise is reserved for states like Tamil Nadu, (primary healthcare, mid day meals etc) which was never ruled by Congress or communists for decades. Even BJP ruled states come in for praise when they do things the authors see as positive. Raman Singh’s Chhattisgarh is one. If the communist ruled states like Kerala are praise at all, it is for specific achievements backed up by facts.

This brings us to the next point..

If I were Prime Minister Narendra Modi

If one were to completely ignore the acrimonious debates and entrenched right versus left arguments and look at India’s problems, prospects and potential with an open mind, there are numerous bullet points that one can take away from this excellent book. We would argue this is precisely what PM Modi or anyone in a public position of influence should do.

  1. Investment in primary education and healthcare can have enormous positive implications for long term growth. This is by no means waste of money or populist splurging of tax money.
  2. India has made impressive progress but lacks basic stuff that even other poor countries take for granted – water, electricity, sewage, clean cities etc. Government has to take a lead role in these. This is a huge failing that needs urgent correction.
  3. Environment protection can go hand in hand with development and should not be seen as zero sum game. We are lucky that solar, wind and other renewable sources that are getting cheaper by the day, provide excellent alternatives that can be pursued today.

In many ways, the new NDA government is on the right track although admirers of Dr. Sen invariably would question this.

 

 

 

 

Bottomline on Delhi Elections

The exit polls are out but results are awaited. Despite the vagaries of opinion polls in India and their patchy track record, every bird in every branch of every tree in Delhi seem to sing only one tune, that is of the BJP’s defeat. Let’s take that as correct for now.

In every democracy, each major or minor party has a certain number of core, die-hard voters. This percentage varies with time, but the core nevertheless exists. These are the sort of voters, who would vote for a donkey (to quote MG Ramachandran or was it NTR?) if their party fields one.

But then there are also voters that shift their allegiances depending on a variety of factors, some of which may make sense to us, some don’t. Charismatic leadership, anti-incumbency, fatigue, non performance, sympathy for underdog, populist promises, caste or religion and a whole host of other factors can swing the choice of these transient voters. Needless to say, parties go after these voters as they make a difference.

Although one cannot agree with voters switching loyalties lured by populist promises and other such ‘negative’ factors, we have to respect these ‘neutral’ voters. Because in their own way, they don’t care for a particular party or ideology, but care for themselves and their families and indirectly and effectively for the country.  It is voters like this that build an effective and powerful democracy, even if they make a few wrong moves along the way. Voters that mechanically vote for one party or leader, come what may, do not add value to the system.  They encourage corruption, inefficiency and non performance. And we have had lots of that.

Coming back to Delhi, it is clear that the voters of the sort mentioned here are the ones that are going to make or destroy BJP’s fortunes. If BJP lost (and/or AAP gained) 10% or more voters in barely 7 months, it is because these voters are not hardcore Sanghis or Hindutva fans. They simply felt Narendra Modi was a better choice for leading the country out of the mess UPA2 had landed it in.  They were hoping for a better future for themselves, and as we mentioned earlier, indirectly for the country.

Similarly, now they feel Kejriwal is the best bet for Delhi. Firstly he is seen as better than anything BJP was able to throw at him, Bedi included. Secondly, some of them also perhaps feel it is ‘fair’ to give Delhi to AAP since Modi already has won a  much bigger prize.

The “Bhagoda” factor exploited by Congress and BJP clearly did not matter even in May 2014 since AAP managed to improve its vote tally even as it lost all seats. It would matter even less now.

It is also these transient voters that hold out the best hope for BJP going forward. Obviously, being a new party, AAP does not have a dedicated committed voter base. Every single vote it gets is because of Kejriwal, his image of being ‘different’ and his promise of improving their daily lives. If he fails to do much, these voters will simply walk away.

AAP will encounter entrenched forces that will resist its push to end corruption and improve public services. A lot of petty corruption is by lower ranks of civil services that can easily hold up the red flag and cause chaos, as other greenhorn Chief Ministers have found to their dismay. Many a new CM cracks down on small crimes like late coming or absenteeism, only to give up after a while because it is much easier to immediately pander to a group of well organized employees than chase the mirage of being rewarded in the distant future by disparate groups of people affected by corruption and sloth.

Lessons for BJP to learn

It is stupid for it to conclude that May 2014 was about voters suddenly becoming Hindutva fans or hardcore nationalists. Just as it is crazy for the professional seculars to conclude voters ‘reject divisive politics’ because BJP lost or were swayed by ‘communal polarisation’ if it wins. A vast majority of voters are simply insulted by such conclusions.

Endemic corruption has been tolerated by too many for too long. Same is the case with pathetic, insensitive, arrogant public servants and services including electricity, water, hospitals, schools etc. It is a problem everywhere in India. Delhi seems to show the way in terms of letting the widely held sense of revulsion with state of affairs become the No. 1 factor overriding all other factors such as religion, caste, region, language, film star appeal etc. Obviously BJP, while seen better than Congress for now, but is still seen as part of the problem and not the solution when a clean new alternative crops up. This has to be fixed ASAP.  As mentioned earlier, this is not going to be easy, but this has to be done.

Public services in India are so under funded, badly run and are in most cases simply non existent that there are several low hanging fruits for any sensitive and sensible CM or PM to pick. To take a simple example, state run primary schools or hospitals that provide basic healthcare. Narendra Modi may have to launch, at Central level as well as in states ruled by BJP a program on war footing to improve them visibly and quickly.

Above all, BJP should learn to take it easy and not come across as “My way or highway, take no prisoners” sort of political player. This has to be obviously done carefully without giving up the competitive spirit and the killer instinct that has served it well. This will help defuse tense situations and take the sting out of defeats that are bound to come along its path, given India’s divisive politics.

 

 

 

 

 

 

AAP Funding scam

It’s interesting to see yet another instance of ex-AAP folks turning against it. There is sure something wrong with Kejriwal and his leadership style or agenda for so many to shun him after getting close. The ones that don’t know him seem to be the ones admiring him!

Coming to the ‘scam’ itself, the matter is straightforward. Donations of Rs.2 cr (at least) – huge amount for any party, particularly for AAP, were received from front companies that have no business or profit. And a party that claims anything over Rs.10 lakhs require special approval by its boss, now claims they didn’t know who it was and don’t care!

Whole bunch of media friends of AAP have jumped to their rescue, raising all sort of silly questions and focusing on semantics (can it be ‘hawala’ if paid by cheque?).  Leftist media ‘intellectuals’ like Nikhil Wagle and S. Varadarajan have been tweeting their way to carpel tunnel syndrome in support of AAP. The argument goes like this – How is BJP entitled to question AAP? Why should AAP care who is funding them if it is received by cheque?

Therein lies the rub! The whole point is AAP was supposed to bring a new style, a new set of ethics,  a code of conduct to Indian politics.  It has been shouting from roof tops about this, calling all and sundry as corrupt and projecting themselves as angels. Now it appears they have nothing better to say than ‘You are no better!’

That is a big problem that no amount of crazy conspiracy theories, helpful media commentators is going to solve.