The Tribune, Chandigarh, India

Lessons from Lehman
When watchdogs are caught sleeping

FIRST, Bears Stern collapsed, then, Fannie Mae and Freddie Mac were nationalised and now, Lehman Brothers has filed for bankruptcy. The list of US financial institutions biting the dust in the wake of the sub-prime crisis has been worryingly growing. Merrill Lynch sold itself hurriedly and cheap to the Bank of America. All eyes are now on the American International Group (AIG), once the world’s largest insurer, which has been looking around for a bailout. A former chief of the Federal Reserve, who has partly contributed to the present mess by keeping interest rates too low for too long, has dubbed it a “once-in-a-century crisis”.

As some of these institutions have a presence in several countries, including India, the reverbrations of the financial tsunami are being felt across the world. Global stock markets fell between 3 and 5 per cent on Monday. The US leadership is squarely responsble for the unending turmoil. First, the financial watchdogs slept as banks and investment firms, driven by greed, created complicated credit instruments and resorted to reckless lending. There was lack of transparency. As the sub-prime crisis erupted, no one knew its magnitude. Few had realised that some of the old venerated institutions, regarded as pillars of capitalism, would suddenly crumble. Public faith in the US financial system stands eroded. The US administration has been inconsistent in deciding whom to save and whom to let go.

The Lehman failure has left an obvious lesson for India and other countries: audit and clean up public and private financial institutions. Another is to strenghten the regulatory mechanism and ensure transparency in deals. For India the maelstrom in the markets could not have come at a more inopportune time.The oil had started cooling. Inflation was on the retreat. The industrial growth rate at 7.1 per cent for July was enthusing. But Monday saw all this go up in smoke. How long it would take financial markets to weather the storm is anybody’s guess.

Business as usual
Prachanda woos India Inc

NEPALESE Prime Minister Pushpa Kamal Dahal ‘Prachanda’ has made it plain in the most emphatic language that his government is determined to deepen the economic relationship with India. Addressing the three leading chambers of commerce and industry — CII, Ficci and Assocham — in New Delhi on his first visit to the country after assuming office as Prime Minister, he assured his audience that Indian industry and investment were most welcome. In an effort to allay the apprehensions in the wake of a Maoist-led coalition taking office, Mr Prachanda let it be known that it would be more than business as usual; in fact, there would be new initiatives to attract Indian investors. “We will do all we can to ensure industrial security in Nepal and also a fair collaborative relationship between labour and industry as well”, he said.

These affirmations underscore that the Maoist leader is alert to the need for not only creating a positive climate but also winning over Indian industry and capital as the centerpiece of his economic reforms agenda. Mr Prachanda must be all too aware that India alone accounts for nearly 40 per cent of foreign investment in Nepal. Equally, he must be aware that if Indian industry and investment become wary of entering the Himalayan country, then few other countries would venture forth to invest in Nepal.

Mr Prachanda has acknowledged the role of the private sector in building the economic edifice of a new Nepal. In recognition of the difficulties faced by investors, he assured that his government would simplify processes, create an investment-friendly environment and set up special economic zones. Besides hydropower and water resources management, other key sectors where Nepal could benefit from Indian investment and expertise are infrastructure and automobiles. Accelerated growth should be Nepal’s paramount concern if Mr Prachanda wants to see the benefits flow for “judicious distribution”.

Thought for the Day

His imagination resembled the wings of an ostrich. It enabled him to run, though not to sour. —Lord Macaulay

ARTICLE

Economic slow-down
A Western view of obstacles to growth
by Jayshree Sengupta

Why is the comparison with China never ending? In a recent book on China, India and Japan (Rivals: How the Power Struggle between China , India and Japan will shape our Next Decade by Bill Emmott, former Editor of The Economist, London), the comparison between India and China has been detailed rather well and the obvious answer to the question who will be a world economic power in the next decade-India or China - the answer is, of course, China. According to the current western economic thinking, many important reforms are needed in India to bring it on a par with China, and the main reasons for India’s slow progress in manufacturing are labour reforms and easy land acquisition for industrial purposes and SEZs.

The big controversy surrounding the land acquisition for setting up the Tata factory in Singur, raked up recently after a gap of almost a year, is a case in point. Many think the plant’s Nano car production should have happened smoothly since adequate compensations had been paid to the farmers and share croppers. But the agitation has continued and got politicised, bringing the West Bengal economy to a halt through a blockade of the main arterial road between Delhi and Kolkata on which the Singur factory is located.

While western observers laud India’s democracy and workers’ and farmers’ rights, they also want that land should be acquired by the government like in China by ordering people to move to a new location (which they cannot disobey), sometimes overnight. One cannot have a vibrant democracy as in India where everyone has “rights” and also have a smooth transition to a capitalist system in which the big corporate sector companies dominate the scene and every government in power at the Centre is expected to play the role of a facilitator.

There is another way to development also which emphasises the small and medium enterprises and the state facilitates the production process for the small producers and retailers, especially when big basic industries have already been established and many are doing well under public ownership. For example, the opening of the organised retail trade to foreign investment has been pressed for by many Indian and western economists. They say that India is missing a great opportunity to hook on to the world production chain because big names like Walmart will source products from India and will sell it to the world. In this way, many million jobs could be created.

The small retailers, commonly termed as “mom and pop” shops, will, of course, shut down inconveniencing a large section of the low-income population. There are around 40 million small retailers in India but once big retailers enter the scene, what guarantee is there that they would not be selling goods made in Thailand, China and Taiwan to Indians first? They are keen to have a foothold in the big and growing retail market of India, but is India prepared for the opening up? Naturally, there has been much protest against the opening up of the retail trade as it is a politically sensitive subject and will immediately render millions jobless.

In a country without a social safety net, small retailing is often the only way out for the people who cannot find jobs in the organised sector to earn a living. These people would need help but can the government give it to them?

Another reform deemed as “most important” by western economists is labour sector reforms that again is relevant to big industry. According to them, without the law permitting factory owners to hire and fire freely, labour-intensive production will not expand. These protagonists say that in the organised sector (employing only 8 per cent of the labour force), factory owners should be allowed to fire workers when they want to trim the labour force. And according to them, it is the archaic laws which are forcing Indian industry to go for capital-intensive industrialisation.

This may be true in a small number of cases, but the inflexibility faced by industrialists can easily be circumvented by hiring contract labour. There are very few industries in India which are still in the old mode of production with a large number of organised workers who disrupt production and protest often and who cannot be fired.

Almost every factory owner has factored in the existing labour laws and its problems. It is thus a part of the old World Bank rhetoric that rigid labour laws in India are standing in the way of progress in manufacturing vis-à-vis China.

It is true that India’s GDP growth is slowing down, but there are many reasons for it and not just the labour laws and land acquisition problems. Poorer infrastructure like power shortage, inadequate road network and high cost of finance are also to be blamed. The main advantage, however, that China has over India is a disciplined and educated labour force which can be easily trained and made to perform in an efficient manner. Indian labour force by comparison is malnourished, not properly educated and fraught with disciplinary problems.

Yet in smaller, manageable enterprises, quality products are being produced in India today especially when there is the involvement of the entrepreneurs themselves. Otherwise, much waste of materials and man hours of work is common.

India, too, can produce beautiful, very price-competitive products like the hand-made paper products from two export oriented units in Sanganer or exquisite hand block printed fabrics from Bagru, near Jaipur. They are selling unique, hand-made, environment-friendly and zero-defect products to major stores in the UK, the EU and the US. But again close supervision at every stage is important and can come only with the involvement of the owners with everyday operations.

Where India has a distinct advantage over China is in handcrafted products and handlooms which are now more and more favoured by aesthetically inclined and environmentally conscious world citizens. Surprisingly, Indian goods are praised for their high quality, uniqueness and natural beauty even by the Chinese. These have to be developed with a much greater amount of state help than is already available, and these products can capture niche markets around the world.

Marketing of these products is a perennial problem but since these small and medium-sized units already exist with their ancient heritage, traditions as well as problems, it is easier to help them and nurture them rather than replace them with big foreign or Indian-owned businesses in new SEZs. Quite a few of the small and medium enterprises are manned by workers who have been traditionally making these products, and many master craftsmen are available to train workers. But they may not be able to continue practicing their crafts if big foreign retailers swamp the market with slick and trendy machine-made items from abroad.

Moreover, small units can be efficient in terms of productivity and give employment to rural youth which is very important. There is some truth in the saying, “Small is beautiful” but, may be, big industry is important for India. And to the western economists only big industry can help achieve a high rate of GDP growth like in China and in wealth creation, but it is not going to be easy to remove the obstacles to growth if the rights of citizens are also to be respected.

MIDDLE

Rat-tled
by Ramesh Luthra

Quite often does my mother remark jokingly that some people are born with a silver spoon, but her daughter is born with fear of rodents ..... Gives me a feeling of repulsion the moment I think of this species, especially rats. My goodness! Their squeaking makes my nerves go highstrung and scream at a pitch that would smash the windowpanes, I am afraid.

In my childhood I was virtually a laughing stock of my brothers and cousins. Still the moment my shrieking reached their ears anon they would rush to the battlefield geared up with hockey sticks, rods, booms, et al to launch an offensive against my sworn enemy. While the operation went on I guided them from the bed. My enemy No. I being fatally hit, I would clap hilariously joining the fighting brigade. No wonder they crowned me with the title “Miss Screaming”. When I protested they argued that this and this “honour” alone befitted me.

Unforgettable is the memory of the house in the native village (now in Pakistan). I always avoided going to grandpa’s house — in fact a breeding place for the species I dread most. You never know they may crawl to your bed and have good fun in your cosy quilt — may even give you an uncalled-for kiss (pun intended).

Mere sight of a rat makes me go down the memory lane. One particular event still etched impeccably in my mind resurfaces before me. After Partition our family settled in Gurgaon – not the modern one with concrete jungle all around, but a nondescript tiny town of old times. I was admitted to a nearby school. Our maths class was going on when suddenly I noticed something moving in my school bag. All hell broke loose over there ...... Oh terrifying. Ar ... a .... t rushed out of the bag and climbed over poor me. The mission of screaming started ....., I jumped in one go. So panicky I was that next moment I fell headlong on the classmate ahead of me. The blackboard on which the lean old Sir was solving sums too toppled down with a loud bang. A virtual pandemonium! Bags lying upside down and girls screaming all over rushing out.

On top of it the Principal came running fearing some untoward incident had happened. When told by Sir that I was the culprit behind this high drama she shouted at me, “So shocking! Ramesh! Being the monitor of the class ....”

As if it wasn’t enough the rat gave its “darshan” once again. Perhaps it took my being scolded seriously that it scurried through the Principal’s feet making her loose balance and mumble “Ah me!” Don’t ask me what happened next. Suppressed laughter shading our mouths with dupattas, you won’t believe, was as hard as facing Khali in the “akhara”.

Whenever I spot a rat all this swims before my eyes. And the kids! O they hardly miss a chance to tease me, “Mom, rat .......... Another rat ......... see this side ........ oh no! that side”. And a hearty laughter follows. Poor me. Miss — no now Mrs Screaming!

OPED

Prime Minister’s resignation rocks Japan
by Rajaram Panda

The sudden resignation of Prime Minister Yasuo Fukuda of Japan from office on September 1 may set in motion a round of political upheaval with his successor likely to dissolve the Lower House and call a snap election before this year end.

The term of the current House of Representatives lasts until September 2009, but even before Fukuda became the nation’s leader, speculation was unending about when the chamber might be dissolved and an election called.

Critics speculate that the Liberal Democratic Party (LDP) will try and hold the election as soon as possible while its new leader is still fresh and popular with the public. However, the severe current situation is unlikely to change under the new face whosoever he/she may be.

Fukuda’s term was beset with political gridlock and economic problems. His resignation has thrown the world’s second-largest economy into political confusion.

His claim that he was stepping down to avoid a “vacuum” as the deeply troubled government heads into a special session in the politically split parliament.

Coming just days after unveiling $18 billion in spending to shore up the flagging economy, the announcement betrayed many people. People are concerned as growth has stalled amid anemic consumer spending and rising fuel and food prices.

Fukuda, whose father also served as the Prime Minister, suffered from persistently low approval ratings as he presided over a parliament split between the ruling party and the Opposition.

His support base had dropped to 29 per cent on the day of resignation, down sharply over the past month. The resignation prolonged the political uncertainty that has plagued Japan since the popular Junichiro Koizumi left as Prime Minister two years ago.

Koizumi’s hand-picked successor, Shinzo Abe, lasted only a year in office, resigning in September, 2007, for health reasons. The euphoria that his visit to India created a month before he quit, August 2007, dissipated soon enough.

Fukuda had been considered a steady elder who would lend stability to the office. Fukuda, however, was never able to overcome the divisions in parliament, where his ruling LDP controlled the Lower House and the opposition Democratic Party of Japan dominated the Upper House.

The successor will also need to help revive the sinking popularity of the LDP, which has ruled Japan for most of the past half century and is required to hold general election within a year. He will be the third prime minister in two years to try to lead.

The Opposition’s charge that Fukuda’s decision to resign has been irresponsible is difficult to reject. That as he claimed that he did not get the desired cooperation from DPJ leader Ichiro Ozawa on the issue of the Maritime Self-Defence Force’s refueling mission in the Indian Ocean and was the immediate provocation to quit seems to be incomprehensible.

The decision also appears irresponsible because it came just one month after he reshuffled his Cabinet to pursue his own political agenda.

Since he was grappling with important issues such as construction of the nation’s pension system, pulling the country’s economy out of a downturn and pushing his pet idea of creating a consumer agency, he seemed to have quit at a wrong time.

Taro Aso, currently secretary-general of the LDP, has emerged as the likely successor. Aso with his sharp tongue and love for comic books, can bring a more forceful style of leadership.

Fukuda gave the impression he was never really in charge, in charge of his party, of parliament or the government. Fukuda is not the only Japanese Prime Minister who struggled to lead.

Last September, his predecessor, Shinzo Abe, also abruptly resigned after about a year in office citing health reasons. This is indeed a sign that the LDP is in the process of collapsing.

With the exception of the popular Koizumi, a charismatic leader who preceded Abe in the office from 2001 to 2006, many prime ministers have not lasted long in office.

Beginning 1989, Japan cycled through 10 prime ministers in 12 years, until Koizumi came to the scene. Many lawmakers in the ruling coalition feared they would not be able to win the next election under Fukuda’s leadership.

Fukuda’s Cabinet had already lost the support of the Sokka Gokkai, the Buddhist organisation, a main support body of New Komeito the LDP’s junior partner.

The LDP’s presidential election committee will hold election on September 22. The nominee should face no difficulty winning approval in the lower house. Aso is expected to declare his formal candidacy around September 10 when the poll officially kicks off.

The LDP president will also be expected to be elected the next Prime Minister because the LDP-Komeito ruling coalition controls the Lower House, which overrides the Upper House on the selection of prime ministers.

Though there are other possible candidates in the fray, Aso seems to be the frontrunner. Aso is liked by the Japanese youth, which could help the LDP in future elections.

The other LDP members seen as possible candidates for the LDP’s presidency include Yuriko Koike, a former defence minister; Sadakazu Tanigaki, land, infrastructure transport and tourism minister; Seiko Noda, minister in charge of consumer affairs; Kaoru Yosano, minister in charge of economy and fiscal policy; and Nobuteru Ishihara, the LDP’s Policy Research Council Chairman.

But whoever succeeds faces the daunting task of fixing a flagging economy and political stagnation.

The writer is a Delhi-based specialist on Japan

Covert operations
US strategy for Afghanistan won’t work
by Patrick Cockburn

The decision of President Bush in July to secretly give orders that US special forces will in future carry out raids against ground targets inside Pakistan without getting the approval of the Pakistani government, is fraught with peril for the US and Nato forces in Afghanistan.

In one respect, it is a recognition at long last by Mr Bush that the Taliban and their al-Qa’ida allies could not stay in business without the backing of Pakistan. This is hardly surprising, since it was Pakistani military intelligence which largely created them in the first place.

It was always absurd for the White House and the Pentagon to pour praise on the former Pakistani leader General Pervez Musharraf as their greater ally against terrorism, despite the clearest evidence that it was the Pakistani army which has been keeping the Taliban going since 2001.

True to Helms’s nostrum, Mr Bush has not adopted a new policy, but is resorting to covert operations, the political disadvantages of which are obvious, and military benefits dubious. A good example of this is the first of these operations undertaken under the new dispensation.

On September 3, two dozen US Navy Seals were helicoptered in to South Waziristan in Pakistan, where they attacked a compound, aided by an AC-130 gunship. When they retreated, they said they had killed many al-Qa’ida fighters, though a senior Pakistani official later said that the true casualty figures were four Taliban and al-Qa’ida “foot soldiers” and 16 civilians, including women and children.

It is a curious way to usher in democracy in Pakistan. Once Pakistan emerges from its preoccupation with the Ramadan fast, it will create nothing but anger among Pakistanis. It will alienate the Pakistani army, which has been humiliated and disregarded. Politically, it only makes sense in terms of American politics, where it will be seen as a sign that the administration is doing something in Afghanistan. It also diverts attention from embarrassing questions about why the Taliban is such a potent force seven years after it had supposedly been destroyed in 2001.

Use of covert forces to achieve political ends with limited means has always held a fatal attraction for political leaders. CIA officials have become used to being dumped with insoluble problems, with peremptory orders to “Get rid of Khomeini” or “Eliminate Saddam.”

Plots to do just that are the common theme of a thousand Hollywood movies, which revolve around the dispatch of elite forces into enemy territory, where they successfully dispatch some local demon.

In reality, covert warfare seldom works. Up-to-date intelligence is hard to come by. Take, for instance, the repeated claims by the US Air Force that it had killed Saddam Hussein during the US-led invasion of Iraq in 2003.

This was meant to be based on up-to-the minute information, much of which turned out to be spurious. Of course Saddam had survived, though not the poor civilians who had the ill luck to live or work where the Iraqi leader was meant to be.

The media plays a particularly nasty role in all of this. Stories of the attempts to kill Saddam Hussein were given maximum publicity. Their total failure was hardly mentioned. The reaction of the Pentagon to the killing of large numbers of civilians in Afghanistan, Iraq and now Pakistan has traditionally been first to deny that it ever happened.

The denial is based on the old public relations principle that “first you say something is no news and didn’t happen. When it is proved some time late, that it did happen, you yawn and say it is old news.”

Covert operations only really succeed when they have strong local allies who want outside support. There are two recent outstanding examples of this. In Afghanistan in 2001, US special forces reinforced the anti-Taliban Northern Alliance and, most importantly, gave them forward air controllers who could call in air strikes. Two years later, US special forces played a similar role in northern Iraq, when they provided air support to Kurdish troops attacking Saddam’s retreating army.

But if covert forces are acting alone, they are very vulnerable. What will happen to them in Pakistan if they get in a fire fight with regular Pakistani forces? What will they do if they are ambushed by local tribesmen allied to the Taliban? Usually, the first to flee in these circumstances are the local civil authorities and the civilian population, so the Taliban will be even more in control than they were before.

By arrangement with The Independent

Delhi Durbar
Tussle in BJP

The BJP’s Uttar Pradesh stalwarts — Kalyan Singh and Vinay Katiyar — were not the only key leaders to skip the party’s national executive held in Bangalore last week.

Senior leader Sushma Swaraj also failed to turn up for this important meeting, which was called to fine-tune the party’s strategy for the coming assembly and Lok Sabha elections.

Sushma maintained that she could not make it because of dental problems. Maybe, she had a genuine enough reason to skip the meeting but the Capital’s resident political pundits were quick to link her absence to the ongoing battle among the BJP’s second-rung leaders.

It is well known that Arun Jaitley, Sushma Swaraj, Venkaiah Naidu, Rajnath Singh and Ananth Kumar are locked in a keen contest for a pre-eminent position in the party’s hierarchy. As of today, Jaitley appears to have surged ahead and clearly this is not going down well with his competitors.

Condom, condom

The spate of advertisements on almost all channels about the “condom” ring-tone has had a large number of households, as was expected, embarrassed.

But in this age when protection is of utmost importance, the ring-tone produced by the BBC World Service trust in India has proved to be a real hit.

According to reports, the ring-tone that sings “condom, condom, condom” has attracted over 2,70,000 downloads since its launch last month, helping to spread the message of safe sex in India.

The word “condom” has been sung in many overlapping melodies in the ring-tone and is the work of an Indian duo, Rupert Fernandes and Vijay Prakash.

It is not clear if the ring-tone will have the desired effect in practical terms. But, for now, it can be downloaded from the website www.condomcondom.org.

Aptly dressed

After last week’s bomb blasts in Delhi, Home Minister Shivraj Patil’s critics have resurfaced. They complain that the minister appears to be concerned about everything in the world except internal security.

On Black Saturday he did what he is best known for — turn out in sparkling clean clothes. He had just come out of the Congress Working Committee meeting when the news of serial blasts flashed across television screens in the country.

At that time Patil was sporting his much-loved virgin white attire. But he changed into a grey safari suit by the time it was his moment to face the camera a few hours later.

The minister may not have the time to change his statements, post serial blasts anywhere in the country but he always manages to ensure he does not repeat his clothes.

He would, perhaps, have functioned better as a minister of textiles; some bystanders were heard murmuring when Patil made his public appearance after the last weekend’s blasts.

Contributed by Faraz Ahmad, Girja Shankar Kaura and Aditi Tandon