Volume 27 - Issue 01 :: Jan. 02-15, 2010 INDIA'S NATIONAL MAGAZINE from the publishers of THE HINDU ECONOMY ‘A question of political will’ DR. VENKATESH ATHREYA Interview with Prof. Prabhat Patnaik THE HINDU PHOTO LIBRARY Prabhat Patnaik. He is now a Professor at the Centre for Economic Studies and Planning, School of Social Sciences, JNU. Professor Prabhat Patnaik is one of India’s foremost younger economists. Educated at Cambridge University and a student of Joan Robinson, he is a specialist in macroeconomic theory. He has been concerned with problems of growth, inflation and inequality in developing economies. He has written extensively on the world capitalist economy and socialist economic reform as well as on the political economy of development. Dr Patnaik is Professor at the Centre for Economic Studies and Planning in the School of Social Sciences, Jawaharlal Nehru University. He was interviewed in Delhi by Dr Venkatesh Athreya for Frontline. There has been a great deal of concern over the state of the Indian economy. The Prime Minister and the Finance Minister have spoken of this. How do you read the current economic situation? In other words, what are the main aspects/features of what we may call the current economic crisis? The main features are, of course, first the foreign exchange crisis – which is extremely serious – which is partly a reflection of the fiscal crisis of the government. The fiscal crisis manifests itself partly in terms of the inflationary pressures, and partly in terms of the balance of payments problem. Added, of course, to the fundamental balance of payments crisis, which consists in the fact of having an unsustainable level of current accounts deficit, there is the short- term problem of capital flight out of the country and that has given the immediate urgency to the balance of payments situation. So these three – the price rise, the basic imbalance in the balance of payments, and the fiscal crisis... Though I must add that these three relate to specifically the situation today, and these three are superimposed on much deeper problems which the economy has been facing for several years – particularly those relating to unemployment and to poverty, and so on. The Finance Minister has gone on record that there is no alternative in this context to the IMF loan. Now, how do you see this? Specifically a) Do we really need the IMF loan? b) If we do take it, what would be the consequences? Would it solve our problems? Let me answer these questions one by one. To the view that there is no alternative to the IMF loan, I would say this is an absurd proposition. First, what we actually find is that the government has figures which nobody knows. The government is demanding a consensus on the IMF loan by saying, “Okay, what alternatives do you have?” To any alternative that you suggest, they are going to say, “Oh! that would not be sufficient” because they alone have the figures! The government, in other words, is putting the onus on those who say the IMF loan is not necessary to find solutions to a problem which remains unstated. Nobody knows exactly what the current balance of payments problem is, exactly what kinds of obligations we have for payments. At the same time, we are told that there is no alternative. In other words, we have just to take it on trust. There is absolutely no iota of evidence that the government has given on the basis of which an independent observer can say whether there is an alternative or not. Secondly, it is absurd because, look, it is a question of political will. Countries go to war to defend their sovereignty.... Now, I do not see why we cannot adopt measures to defend our economic sovereignty which is definitely going to be jeopardised by the IMF loan. Let me elaborate. Why is there this current balance of payments crisis? After all, why did we have to borrow so much? It is basically a result of the fact that the liberalisation policy was pursued for some years and that has resulted in a significant inflation of our import bill, mainly to meet the domestic consumption requirement. We have had a luxury consumption boom. It was claimed that we have been having high rates of industrial growth. These high rates of industrial growth made no difference to the employment scenario of the country, but at the same time… the obverse of it, the other side of it was the fact that we actually had a balance of payments problem. Now, at that time we had been told that if we liberalised the economy, then very soon we would be able to develop a viable economy, we would be able to export more, we would be able, in fact, to meet our payments requirements. Today’s crisis is the result of a set of wrong policies pursued then…. We were critical of the policies the government pursued then. They say today that we have a lot of short-term debt. Now, who asked them to go in for short-term debt? We did not ask them to go in for it. We had been warning the government that the country would fall into a debt trap if we went on liberalising imports the way we had been doing – basically to meet domestic requirements, not liberalisation of imports for the purpose of exports. In fact, the peculiar feature of the Indian import liberalisation measures is that they were not tied, in any way, to any export obligations. Now, if we take an IMF loan today, the first thing that the IMF is going to demand is that we liberalise our imports further…. Even the import restrictions we have had in the very recent months, immediately they would have to go; and the Fund would demand that we actually liberalise imports further. If we liberalise imports further, we would find that notwithstanding a reduction in the Budget deficit, which of course would have severe recessionary consequences, you would not be able to balance your balance of payments at a sustainable level. The IMF loan would be used up in barely a year’s time and at the end of it, we would be back to square one – except that the economy would be in an even more vulnerable position than now. Once the economy is in a vulnerable position like this, then your whole effort is oriented towards maintaining the confidence of the international investors in the domestic economy. You will have to pursue economic policies which maintain their confidence, you in fact have to have a polity which maintains their confidence. You would have to have a Prime Minister whose presence maintains the international investors’ confidence, you will have a Finance Minister whose presence maintains their confidence. That basically means that the sovereignty of the people – their having a say on economic policies that affect their livelihood – is going to be abridged, which I think is fundamentally undemocratic. In other words, if we pursue these policies and go to the IMF for a loan, we will find ourselves in a situation where what happens to this country, what policies we pursue, what government we have, is something over which the power to decide will lie basically with the whims of international investors rather than the will of the people. Now if this is the situation, then obviously anyone committed to the sovereignty of the country and democracy has to think of alternative ways. And so, there is no question of there being no alternative to the IMF loan, we have to find an alternative. This is the first point. In a sense you have also touched, upon the second point – some of the consequences. Perhaps you would like to go on to that. You may also want to respond to the following: Earlier this year, a conclave of Left economists argued that the IMF package tends to put the entire burden of adjustment on the domestic economy and all this talk of reducing the fiscal deficit at one go from 9 per cent of GDP to 6 or 6.5 per cent would cause a deep recession. Could you elaborate on the consequences of two different strategies – one where the entire burden of adjustment is imposed on the domestic economy in this manner, and another where one could think of a different way? Yes, first, there is no question that if you have an unsustainable level of current account deficit, you are living beyond your means and you have to cut back on your expenditure. If that is the case, it is argued that the best way of doing so is through a cut in the fiscal deficit. Now, the question is what is going to be the distributional impact of such a cut on different sections of the people? I would like to make it very clear that the difference in the country is not between one group of people – economists or official spokesmen who would like to stabilise the economy by reducing its absorption – and another who would like to continue the absorption. The real difference is the mode of reduction of its absorption. We also would like to stabilise the economy. But we have a view of how to stabilise the economy different from the government’s. If one actually takes the IMF loan, the reduction in the Budget deficit is going to be essentially at the expense of the working people and the relatively poorer sections. The reason for that is quite straightforward. The IMF, while it wants a reduction in the fiscal deficit, at the same time wants an appropriate climate to be built for the operation of capital – private capita], including foreign capital. Obviously, therefore, a whole host of measures such as, for instance, direct taxation, the imposition of higher taxes on corporate and individual income and wealth, are something which would go against the Fund’s _object_ive of building up a climate appropriate for private capital. Inevitably, therefore, the Fund conditionalities always entail a reduction of the fiscal deficit at the expense of the working people and poorer sections.... For instance, the slashing of food subsidies is evidently one of the measures. It is certainly true that the consumers of the food distribution system are
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India, Pak exchange lists of nuclear installations 1 Jan 2010, 1901 hrs IST, PTI NEW DELHI: India and Pakistan exchanged the lists of their nuclear installations for the 19th consecutive time under an agreement which prohibits any kind of attack on such facilities. The lists were exchanged through diplomatic channels simultaneously at New Delhi and Islamabad under the Agreement on the Prohibition of Attack against Nuclear Installations and Facilities, a statement by the External Affairs Ministry said here. Under the agreement signed on December 31, 1988, which came into force on January 27, 1991, the two countries share details of their nuclear installations with each other on the first day of every year. The pact is one of the best confidence-building measures between the two countries which has continued even when the relations witnessed chill. http://economictimes.indiatimes.com/News/Politics/Nation/India-Pak-ex... ...and I am Sid Harth

Millennial Bharat, 2020 India Jaithirth Rao Posted: Friday , Jan 01, 2010 at 0324 hrs India In India, we measure time in terms of “yugas” with each yuga lasting a few million years. Millenia and centuries count for little. Who cares about decades? And yetz given that we invented the decimal system where the number “ten” is a central showpiece, it may not be untraditional to think in terms of decades. How will the next decade be? Are there any inflexion points, any crucial collective decisions which can turn us one way or the other? The cynical response, is that the next decade will be like any other. At the end of it, we will still be an aspiring super-power, mainly in our own minds; we will still have our ever-present poor with us—they of the “thin legs”; we will still have dirty cities, filthy towns and filthier villages; we will still have venality and corruption on a scale that will keep us world champions in this dubious space; some individual Indians will still succeed not because they are Indians, but despite being so; having said all this, we will still be making progress. Albeit in our own halting, fumbling way; our near-anarchic democratic system will ensure that we do not get too many things blatantly wrong even if we do not get many of them dead right. In short, ten years from now I will probably be writing another Express column not very different from this one! But then, not to bear witness to one’s time and place could be construed as “adharmic” ; hence this attempt to fulfil one’s “manushya dharma”—a human obligation, not anything associated with “varnashrama” which is obsolete, politically incorrect and dysfunctional as it always has been. Translated from the Sanskrit which has more or less disappeared from the landscapes of our minds: “In this reign of the Brahma who is known as Adi, in the second phase of his reign, in this Age of the White Boar, as a descendant of Vaivaswata Manu, in the first half of the Iron Age known as Kaliyuga, placed as I am south of Mount Meru, in Bharta Varsha which is part of Bharata Kanda, in the Crab Apple Continent of Jambu-Dvipa, west of the divine Godavari, on the shores of the western oceans, in the Land of Parashurama, on this island sacred to the goddesses Mumba and Mahalakshmi, in the calendar year 2009 as calculated by the Yavanas, as we enter the calendar year 2010 as now accepted by our own benign government (hence not referring to the calendars of Vikrama or Shaalivahana), in the fifty-ninth year of our glorious Republic, I hereby stand forth to give my testimony with respect to my fears, anxieties, hopes, aspirations, dreams and nightmares for this fair land of ours named for mighty Bharata, the son of forgetful Dushyanta.” To abandon poetic Sanskrit and to revert to prosaic English is the task of a second. (In contemporary India, a Sanskrit phrase is literally “Kshana-Bhangura”— that which can be destroyed in a second!); let me make it even more prosaic by adopting the grammar of the dismal science of Economics. Given our Savings Rate and given our ICOR (Incremental Capital Output Ratio, to the uninitiated), I am of the firm opinion that in the next decade an eight to ten percent GDP growth rate is a given. There is virtually nothing that our leaders or any other sundry actors can do to prevent this. Pessimists and doomsayers simply do not know how to multiply one number by another. The real questions to ask are: Is it possible to have a higher growth rate? How will we handle the social and political tensions that growth will create? (As an aside, stagnation or low growth rarely create too many tensions!) Will our GDP growth help us lick the persistent poverty in our midst? Are we going to destroy our environment and leave a desert behind for our children? We must perforce confront each of these questions, we must grapple with the answers however difficult or problematic they may be. Is it possible to have a higher growth rate? Yes it is. There is nothing inherently Sinic about double digit growth rates. In order to get to the next level, there are a few things we need to do and some things that we definitely need not to do. We must not reintroduce a predatory tax system. In the guise of a new direct tax code, our finance minister should not destroy incentives to create wealth. The proposed re-introduction of wealth tax on financial assets is one such measure that may very well slip through in the fine print of the new code. Investments in start-up companies (a pre-requisite for healthy growth) will suffer as all investors will get mired in endless litigation with the mandarins of the Income Tax Department; promoters will try to suppress their share prices as they used to do when the clever Krishnamachari supervised the finances of our nation. On the other hand, the speedy introduction of a national GST will provide a fillip for growth, reduce prices all around and make government revenues more buoyant. We do not need any more Press Notes converting Indian companies into foreign ones. We must somehow manage to slip through labour law reform by sleight of hand, for given the realities of our democratic political economy and the power of the aristocracy of unionised labour doing this khullam khulla will simply not be possible. We must somehow create islands within the country where power generation and distribution are economically viable, where we finally escape the curse of power cuts. Again realistically speaking, this cannot and will not happen everywhere. But islands that slowly engulf the whole country are do-able and would constitute an eminently practical second order optimal solution. We must continue with the new- found focus on physical infrastructure. Our Central Government should stop expecting bankrupt states to fund these efforts fully or even partially. The Centre should just take bold steps and move on. If we do all of this, even with a fifty percent rate of success in their execution, a twelve to fourteen percent GDP growth is quite simply speaking staring us in our face. Will we like Arjuna, in the first chapter of the Gita be paralysed by faint-heartedness or will we like he does at the end of the eighteenth chapter go forth and fight to conquer? The choice, dear Brutus is ours to make! How will we handle the social and political tensions of the next decade? The poor of India, left to themselves have rarely rebelled against the worst of rulers. But the poor, once infused with aspirations for a better life are another matter altogether. Anyone who is even slightly acquainted with the young in our country knows that there is a hunger for betterment. They are willing and able to take risks and to work long and hard hours. They need the right tools, the right opportunities. The sad, but hopeful voices of many young people who say “ I need to know English well” need to register with our rulers. If the children of the rulers can and do learn English, why not the children of the poor? Or are we committed to a new caste system that conspires to deprive many of crucial knowledge? A bold voucher-_base_d education initiative where parents of the poor are free to choose the schools for their children will at one stroke dramatically improve our human capital and give a concrete opportunity for India’s poor to pull themselves out of the blind alley that they are trapped in. Guess what...it will be a vote-winner as well. Will our rulers finally get it? Or will they continue to stay tethered to selfish fanatics and nay-sayers in their midst? If we spent a fraction of the money that we are willing to devote to fighting the Maoists on a voucher system to encourage parental choice of schools in any sector (government, private on a for-profit basis or private on a not-for- profit basis) one can safely bet that most Maoists would opt to send their children to these schools so that the children at least can escape from poverty and destitution. The time to act is now. Manmohan Singh and Kapil Sibal have an opportunity to make it big in the history books. Will they grasp it? Will our GDP growth help us lick our persistent poverty? The irony that high growth may make little impact on the excluded is a monumental human tragedy. Apart from a choice-_base_d education system, the best antidote for this crippling ailment of our country is quite simply to make the NREGS more efficient and less corrupt. Throwing up our hands that the state delivery system in India cannot be reformed is an unacceptable cop-out. Attempts to amend the Right to Information Act to deprive it of its teeth must be resisted by all of us very forcefully. That is the only weapon the citizens of this country have against corrupt bureaucrats and venal politicians. A second initiative which needs to be seriously considered is the launch of an NREGS equivalent in small towns and cities. Let’s face it: in urban settings the force of casteism gets dissipated; people are able to breathe the liberating air of a city; the media are much stronger in cities and that will force greater transparency and efficiency in monitoring the outcomes of our efforts. A National Urban Employment Programme is the need of the hour. We can create social assets in our cities and towns. Who knows, we might just be able to build virtually new cities. Manmohan Singh should note that all great rulers of antiquity founded new cities and embellished existing ones and one of their motivators was to create job opportunities for their people. For a ruler who is not interested in increasing his family’s wealth by corrupt means, one hopes that kind sentiments will prove an adequate incentive. Are we going to destroy our environment and convert Bharata’s legacy into a desert? We need to heal the ravages inflicted on our land not because some busybodies in Copenhagen tell us to do so. We need to preserve our forests, our mangroves, our glaciers, our rivers, our reservoirs,
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January 02, 2010 India Nod to US gun purchase minus bids SUJAN DUTTA http://www.telegraphindia.com//1100102/jsp/nation/story_11934631.jsp New Delhi, Jan. 1: The government has authorised an outright purchase of 145 ultra-light howitzers from the US, a highly-placed defence ministry source said today. The ultra-light howitzers are for the mountain artillery divisions of the Indian Army to be used in high-altitude frontiers opposite Pakistan and China. They can be transported slung from some helicopters. The defence acquisitions committee has decided to take the foreign military sales route. Foreign military sales is a US programme of government-to-government sales of military hardware bypassing a lengthy system of competitive bidding. But bidders who lose out to foreign military sales orders allege that the system lacks transparency. “We will also look at other options,” defence secretary Pradeep Kumar said. The Indian Air Force has taken the foreign military sales route to contract six Lockheed Martin-made Hercules C130J air lifters and the army did the same to buy artillery fire-finding radars. Two brands of ultra-light howitzers were initially in contention for the Indian Army’s estimated $2.5-billion artillery modernisation programme — ST Kinetics’ Pegasus and BAE Land Systems’ M777 made in the US. BAE Land Systems has bought over the erstwhile Swedish firm Bofors that sold 410 155mm howitzers to India in 1986. The army has not bought a single big gun since the last of the Bofors howitzer was delivered in 1987, 22 years back. ST Kinetics was blacklisted this year after the company figured in investigations into the deals struck by the former director general of the Ordnance Factory Board in Calcutta. The government has lifted the bar on trials in multiple-vendor situations. If the government takes the foreign military sales route, the order is likely to go to BAE Land Systems. The source said the defence acquisitions council authorised the foreign military sales route before Prime Minister Manmohan Singh’s visit to the US last month. The army wants to buy 145 ultra-light howitzers, 158 towed and wheeled, 100 tracked, and 180 wheeled and armoured guns in the first phase as part of its field artillery rationalisation plan, the programme to upgrade its artillery divisions. Defence secretary Pradeep Kumar said the government has speeded up the buying of military hardware. Between 2007 and 2009, a total of 465 contracts have been signed. These are worth more than Rs 1,35,000 crore. He said in 10 years, the defence ministry had doubled the capital expenditure for new acquisitions. The acquisitions were worth Rs 62,272 crore between 1999 and 2004. They total Rs 1,37,496 crore between 2004 and 2009. In the current year (2009-2010), Rs 41,000 crore was being spent on direct capital acquisitions. The acquisitions have included Phalcon Airborne Warning and Control Systems, Sukhoi 30MKI fighter aircraft, aircraft for VIPs, missiles of different types and tanks. Posted by Naxal Watch at 5:43 AM http://intellibriefs.blogspot.com/2010/01/india-nod-to-us-gun-purchas... ...and I am Sid Harth

Yale, Harvard, MIT buy Sibal's plan Kalpana Pathak / Mumbai January 03, 2010, 0:41 IST Ivy League colleges – Yale, Harvard, Princeton and the Massachusetts Institute of Technology – have approached the ministry of human resources development to collaborate in the proposed Innovation Universities across the country, official sources said. These universities are a part of the ministry’s “brain gain” policy to attract talent from all over the world. Human Resources Development Minister Kapil Sibal had last August announced that 14 Innovation Universities will be set up in the country under the 11th Five-year Plan (2007-12). During his visit to the US in October, Sibal had met senior functionaries of three top universities – Harvard, Yale and MIT – and had discussed the prospects of them setting up Innovation Universities in India in partnership and collaboration with Indian institutions. Sam Pitroda, the well-known technocrat and the head of the National Knowledge Commission, is learnt to be drafting the details for establishing the Innovation Universities. “Pitroda will soon meet Prime Minister Manmohan Singh and discuss the matter. An announcement on the details could come up during the Republic Day ceremonies,” said a source close to the development. The ministry is also looking at public-private partnerships for establishing some of the Innovation Universities. This means that these universities would be autonomous, and outside the purview of the University Grants Commission or the All India Council for Technical Education. http://www.business-standard.com/india/news/yale-harvard-mit-buy-siba... ...and I am Sid Harth

Mukesh Ambani ranked 5th best CEO in the world BS Reporter / Mumbai December 19, 2009, 0:24 IST Mukesh Ambani, India’s richest man and chairman of the country’s largest private sector company, Reliance Industries, has been ranked the fifth-best CEO in the world by Harvard Business Review. Ambani, the only Indian to feature among the top 50 CEOs, is in the same league as Steve Jobs of Apple, Yun Jong-Yong of Samsung Electronics, Alexey Miller of Russia’s Gazprom and John Chambers of Cisco Systems. For the ranking, HBR collected data on over 2,000 CEOs of 48 nationalities, from companies _base_d in 33 countries. Only two Chinese CEOs — China Mobile President Wang Jianzhou, ranked 41, and CNOOC President Fu Chengyu, ranked 42 — feature on the list. Ambani is also ranked number two among the top 10 emerging market CEOs, with Miller at the top. K V Kamath of ICICI Bank is the other Indian in the list of top 10 emerging market CEOs. He is ranked number 9. “Among the up-through-the-ranks leaders on our list are Yun Jong-Yong, who joined Samsung straight out of college and worked there for 30 years before becoming the CEO, and Mukesh Ambani, who joined RIL in 1981, when it was still a textile company run by his father. These CEOs may not be household names, but here’s an _object_ive look at who delivered the top results over the long term,” Morten T Hansen, Herminia Ibarra and Urs Peyer, authors of the report said. “To be sure, we had reliable and sufficient data. We excluded CEOs who had assumed their roles before 1995 or after 2007. We measured their financial performance through the last day of their tenure or September 30, 2009. All told, we ended up with 1,999 CEOs from 1,205 companies,” the report said. Steve Jobs, ranked the best CEO, delivered a whopping 3,188 per cent return on shareholder value (after adjustment to make the figures comparable across sectors) or 34 per cent compounded annually, since he rejoined Apple as CEO in 1997, when the company was in dire straits. From then till this September, Apple’s market value increased by $150 billion. Jobs was followed by Yun Jong-Yong, who ran South Korea’s Samsung Electronics from 1996 to 2008. “Yun is an example of a leader who has stayed out of the limelight. During his tenure, he capably transformed Samsung from a maker of memory chips and me-too products into an innovator selling digital products such as leading-edge cell phones,” the report added. “On an average, the top 50 CEOs increased the wealth of their shareholders by $48.2 billion. These CEOs delivered a total shareholder return of 997 per cent during their time in office. That translates into a spectacular annual return of 32 per cent,” the report said. While Ambani and Chambers were the only two on the top five to hold degrees in business administration, the top three CEOs did not hold an MBA. Many other celebrity CEOs also failed to make the cut, including Carlos Ghosn of Renault-Nissan, Sergio Marchionne of Fiat, John Mack of Morgan Stanley, Jeffrey Immelt of General Electric, Daniel Vasella of Novartis and Robert Iger of Walt Disney. CEOs from US-_base_d companies fill 19, or 38 per cent of the slots on the top 50 list. Only 1.5 per cent were women, and only 15 per cent of the CEOs worked for companies _base_d in a country that was not their country of origin. http://www.business-standard.com/india/news/mukesh-ambani-ranked-5th-... ...and I am Sid Harth