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A
terrorist mastermind Fresh
setback to UPA |
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RBI
intervention
Politico-military
interface in India
The
great office outdoors
What
drives growth in South Asia
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Fresh setback to UPA
Virbhadra
Singh, charge-sheeted by a Shimla court along with his wife in a corruption case, has resigned as Union Minister. The step will save him and the UPA government acute embarrassment they would have faced had he delayed. Even as resignation should only be taken as owning of moral responsibility — and not admission of guilt — what it cannot save the UPA from is the terrible blow to its credibility in public eye. With two ministers already out of the Cabinet following corruption charges, the Himachal court order could not have come at a worse time for the Congress, which is still smarting from the loss in Punjab, barely scraping through in Uttarakhand, and having taken a terrible beating in Andhra Pradesh byelections. The 78-year-old veteran who has been chief minister five times has been put at a crossroads in politics. For now, he cannot be the chief-ministerial candidate for the Congress in the Himachal Assembly elections later this year. His only hope is relief from the high court, where his appeal against prosecution is pending. That he is the tallest leader of the party in the state is not a question, but he has serious detractors. And he will first have to clear his name in courts, even as the party high command cannot afford to ignore his popularity as a mass leader. A shrewd manoeuvrer known to have his way with the party, he may even take confidence from Jagan Mohan Reddy’s success in Andhra despite the latter’s arrest on corruption charges. The power of sympathy vote can never be ignored. That a Union Minister should face corruption charges is bad, but what makes the whole system seem sinister is the politics surrounding the case based on an incident purported to have taken place 23 years ago. The charges were first levelled just ahead of the 2007 elections, and now it is election time again. It is hard to say who would be a fair investigator — the Vigilance of the state, where the BJP is in power, or the CBI, with the Congress in power at the
Centre.
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RBI intervention
The
RBI measures announced on Monday to check the rupee fall fell short of expectations. There was hope that Pranab Mukherjee would give a nice parting gift before quitting as Finance Minister. The rupee and stocks rose in anticipation of a big move only to fall in disappointment. Pranab should not have raised hopes, at least. Foreign funds were allowed to invest $5 billion more in Indian government debt, which carries a high interest rate. In developed countries interest rates are close to zero. Manufacturing and infrastructure companies with overseas sales can borrow $10 billion more from foreign banks now. But many such firms are hard-pressed to repay existing loans in dollars because of the slowdown and the weakening rupee. Currently, only foreign institutional investors (FIIs) can invest in government bonds. On Monday, the RBI opened the door to foreign wealth managers as well as insurance and pension funds. Efforts to woo foreign investors are in sharp contrast to budgetary changes that annoyed them. January and February saw heavy inflows of foreign investment but the retroactive tax changes in the budget unnerved FIIs. The worsening euro zone trouble and poor economic data from the US have forced global investors to look for safe investment havens. India no longer falls in this category. In this difficult environment the RBI and the government have to go beyond tinkering rates and policies. India has been downgraded by global rating agencies for its high fiscal and current deficits. This is because tax revenue has fallen but subsidies, government expenditure and the spending on welfare schemes remain unchanged. India imports more things than it exports. Either due to opposition from allies or from within the Congress, the UPA is unable to cut expenditure on subsidies by raising oil prices or push through reforms like permitting FDI in multi-brand retail and opening up insurance. It is caught in a bind. Fortunately, a near normal monsoon and falling global oil prices have come to its rescue.
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Be sure your wisest words are those you do not say. — Robert W. Service
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Politico-military interface in India
One
of the cornerstones of a democracy is a healthy politico-military relationship. But what has been witnessed in the recent past is an unhealthy row over the age of the last Army Chief, the attempted bribe to purchase Tatra vehicles from BEML, a public sector undertaking, deliberate leakage of a classified letter to the Prime Minister on defence preparedness, and the deep suspicion over the movement of Army units on training near Delhi. There is also deep discontent among the armed forces veterans and widows who retain an umbilical connection with serving soldiers and maintain traditional camaraderie and kinship. They feel cheated over pension disparities and anomalies by the civilian bureaucracy and an unsympathetic political leadership. As a result, they have been organising rallies, fast unto death agitations, and surrender of war and gallantry medals to the President to draw public and political attention. The general impression is that the political leadership takes little or no interest in the armed forces’ advice to protect their hierarchal status in the government and society. The relationship is far from healthy. A major cause for the fragility of politico-military relationship is that instead of maintaining ‘political control’, India practices a unique system of ‘bureaucratic control’ over the military. There is hardly any discourse between the political and military leaders on geo-political and security-related environment, strategies and defence planning for conflict contingencies. My aim here is to draw attention to these strategic aspects. Over the last few decades, with greater focus on peace and economic development, the approach to security has become more liberal. There is greater consciousness of the comprehensive nature of security. That includes the traditional defence-related threats as well as societal, economic and environmental challenges. Globalisation and regional cooperation are the buzz words in international relations. Prevention of collateral damage in conflicts and violation of human rights have become matters of serious global concern. A war as an instrument of foreign policy has become increasingly unviable due to international pressures, very high costs and casualties. Sub-conventional conflicts and armed violence have become more prevalent. Although there is a greater likelihood of limited conventional wars than all-out wars, the armed forces cannot afford to take any chance. They have to be prepared for an elongated spectrum of conflicts, ranging from aid to civil authority, counter-insurgency and counter-terrorism to conventional and nuclear wars. They require careful prioritising of roles and missions. Forces require greater versatility and flexibility. These strategic and technology-driven considerations impact the decision-making apparatus and conduct of warfare. For example, separation between the tactical, operational and strategic levels of warfare is blurring. Enhanced mobility, long reaches in targeting, improved communications and more intrusive command and control have obscured tactical and strategic boundaries. It is a situation where a junior military officer is expected to understand political considerations and the political leader to know the tactical and operational considerations. We need more integrated command and control systems for quick decision-making at all levels of command. The cycle of collection, collation, synthesis and dissemination of information needs to be speeded up, as also the subsequent actions and feedback. War fighting has to be conducted in a more integrated manner. Integration has two aspects: greater and faster politico-military interaction and coordination, and integration of the three armed forces verticals at the top for the purpose of defence planning and force structuring, operational planning, integrated advice for budgetary economy and common personnel and logistics-related policies. In any future conflict, there would have to be complete understanding between the political and military leaderships on the political and military objectives and the time available to the armed forces to execute their missions. That would be crucial for planning and conduct of operations. We can also expect fairly rigid political terms of reference as were given during the Kargil war. There are some other challenges likely to be encountered. The military would be required to react quickly to an evolving crisis which may erupt with surprise. It would be expected to arrest deterioration of the situation on the ground and regain the initiative without any loss of time. Domestic and international political support for a military operation will depend upon its ability to operate in a manner that conforms to political legitimacy —- avoidance of civilian casualties, minimisation of collateral damage. This will require careful and calibrated orchestration of military operations, diplomacy and the political environment. Continuous control of the escalatory ladder will require close political-military interaction. Militarily, the greatest challenge could be in the political reluctance to commit a pro-active engagement and its insistence to retain the authority for approving not just key military moves but also many operational decisions. There would be heavy reliance on intelligence, surveillance and reconnaissance by political and military leaderships before committing optimal resources. Drones and surgical strikes would be a common option. Employment of ground forces across the borders could be discouraged or delayed due to fear of casualties and difficulty in disengagement. Information operation is already important. The requirement to achieve and retain the moral high ground and deny that to the adversary would need a comprehensive and sophisticated media, public affairs and information campaign. As the size and complexity of nuclear arsenal in the region increases, different kinds of complications would emerge. The armed forces would have to remain in the decision-making loop. Such a strategic scenario demands (a) keeping the military leadership in the security and strategic decision-making loop, and (b) closer direct politico-military interface in war and peace (when we must prepare for war contingencies), and not the ‘bureaucratic control’ kind that exists today. This leads me to ask certain questions. Does our political leadership have critical understanding of security-related strategic issues and implications of military employment and institutional conduct? Are they adequately conversant with military purposes, capabilities, constraints and effects? If not, should they depend more on military or the generalist bureaucratic advice? Why do our armed forces continue to suffer serious shortage of weapons and equipment year after year? Why does India after 65 years of Independence and fighting so many wars have to import over 70 per cent of its defence equipment from abroad? War as Clausewitz noted is continuation of politics by other means. Recent conflicts have involved a much greater level of integration of politics, diplomacy and military planning and execution than in the past. Even when a decision to employ the military is made, the political leadership has to monitor its escalatory ladder. In practice, there is continuing erosion of the dividing lines between war and politics. Unlike other democracies of the world, the political leadership in India has managed to sideline the military leadership except when faced with an imminent conflict or a crisis situation. There is no politico-military interface; interaction is mostly through civilian bureaucracy. The national security framework is not in sync with the needs of new security challenges or healthy civil-military relations. There is an urgent need, therefore, to re-engineer our national security paradigm and defence management structure. The writer is a former Chief of
Army Staff.
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The great office outdoors Offices
are strange places. They encourage quiet contemplation and aggressive parleys. Both require closed doors. And for good measure, closed windows — with the blinds firmly drawn. So the view outside the office is always unknown. But a quirk of fate or I should say the shenanigans of a ‘dhobi’, introduced me to the great office outdoors. One Monday morning instead of office blues, I was struck by the ‘spring cleaning’ bug. The caretaker was promptly summoned and assigned the task of getting the blinds washed and put up. We had, of course, not factored in the tardy ‘dhobi’ who took the blinds home but refused to bring them back. While I waited impatiently for the blinds to show up, I was pitched willy-nilly into the great office outdoors. Every time I lifted my eyes from a file I was greeted by pigeons doing the salsa on my window sill or delicate doves cooing as they walked the ledge outside my bank of windows. I studiously ignored them but the delectable and melodious call of the koyal demanded my attention. Much to my delight, I was regaled by the musical notes of a koyal perched on the highest branch of a magnificent mango tree overlooking my office. The tree denizens, mostly parrots, tittered their ‘wah-wahs’ and a rare Alexandrine parrot looked on askance even as he nibbled at some delightful mangoes hanging tantalisingly from the tree. Several days later, to my utter bemusement, I heard the revving of race cars emanating from the parade ground opposite my office. Curious, I rushed to the un-curtained windows and beheld the sight of dusty cars careening down the tracks at full throttle in ‘fast and furious’ mode. The next day saw a dramatic change in the scene. The ground was dressed in a pristine white canopy and festooned with posters of the ubiquitous spiritual guru. The air had the sound of sermons and prayers. A few days later I was transported to a bygone era with a cardboard replica of Lal Quila decorating the ground. The spring carnival brought in stalls and the roller coaster. Every day, in fact, brought glimpses of something new. The monotony of meetings and files was alleviated by scenes that I relished with all the glee of a starving man at a sumptuous feast. But good things don’t last and so the ‘dhobi’ came back and the curtains fell on the last act of the great outdoors. But let me share a secret: When the world gets too much with me, I take a quick peek outside and the wide world walks into my room, making me laugh or
introspect.
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What drives growth in South Asia
Economic
growth in South Asia moderated in 2011, primarily owing to a slowdown of the Indian economy. After expanding by 7.2 per cent in 2010, real GDP is estimated to have grown by 6.5 per cent in 2011. The region is expected to remain fairly resilient to the global economic downturn and sustain its growth momentum in the outlook period. Driven by robust domestic demand, average growth is forecast to accelerate slightly to 6.7 per cent in 2012 and 6.9 per cent in 2013. Private consumption and investment continued to be the main growth drivers in the region, with domestic demand supported by strong agricultural output and robust remittance inflows. Strong exports, particularly in the first half of the year, and a solid expansion of Government spending also contributed positively to growth. However, growth disparities within the region remained wide with Bangladesh, India and Sri Lanka recording GDP growth of 6.5 per cent or higher, and the Islamic Republic of Iran, Nepal and Pakistan registering growth rates of less than 4 per cent. India's economy has slowed over the past year as monetary policy was tightened in order to bring down inflation. With domestic demand moderating, GDP growth is estimated to have declined from 9 per cent in 2010 to 7.6 per cent in 2011. Assuming a gradual easing of inflationary pressures and an end to the monetary tightening cycle, growth is forecast to increase slightly to 7.7 per cent in 2012 and 7.9 per cent in 2013. Buoyant domestic demand and a recovery in exports underpinned strong growth in Bangladesh and Sri Lanka in 2011. In the Islamic Republic of Iran, Nepal and Pakistan, long-standing structural problems such as weak policy implementation, security concerns and low investment in physical and human capital constrain growth. In all three countries, economic conditions are expected to improve slightly in the outlook period, but growth will remain well below potential. Unemployed women The latest labour force surveys in South Asia provide a mixed picture. While the employment situation in the fast-growing economies of India and Sri Lanka has improved, it remained weak in other parts of the region, notably in the Islamic Republic of Iran and crisis-ridden Pakistan. In Sri Lanka, the unemployment rate declined to an all-time low of 4.3 per cent in early 2011 on the back of a strong expansion in the services and industry sectors. By contrast, in the Islamic Republic of Iran and Pakistan, sluggish growth over the past few years has had a negative impact on employment. The average unemployment rate has increased in the Islamic Republic of Iran from 11.9 per cent in the fiscal year 2009-2010 to 14.6 per cent in 20'10-2011 and in Pakistan from 5.6 per cent in the fiscal year 2009-2010 to 6.0 per cent in 2010-2011. In addition to elevated unemployment rates, South Asia's labour markets face deep-rooted structural challenges, such as the highest share of vulnerable employment among all developing regions and widespread youth unemployment. Moreover, in all countries of the region, unemployment rates among women are far higher than among men. Consumer price inflation remained high across South Asia in 2011, presenting a major challenge for policymakers. Regional inflation averaged 10.3 per cent, down only slightly from 11.6 per cent in 2010 and ranging from 7.0 per cent in Sri Lanka to 17 per cent in the Islamic Republic of Iran. The increases in consumer prices were driven by a variety of factors, including higher international food and energy prices, domestic supply shortages, the reduction of fuel subsidies in several countries (including the Islamic Republic of Iran) and buoyant demand conditions in Bangladesh, India and Sri Lanka. In the outlook, inflation is projected to decline slowly, averaging 9.1 per cent in 2012 and 8.0 per cent in 2013, as pressure from higher food and commodity prices eases and the impact of monetary policy tightening is felt in Bangladesh and India. However, there are substantial upside risks to inflation, including renewed supply shocks such as insufficient monsoon rains and a rise in international commodity prices. Tightening cycle ends Facing high and persistent inflation, several central banks in South Asia,
most notably the Reserve Bank of India, continued to tighten monetary policy in 2011. However, with risks to the world economy again rising, the focus of monetary authorities has started to shift towards supporting domestic demand. The Reserve Bank of India signalled an end to the current tightening cycle in October 2011 after hiking its key policy rates for the thirteenth time since early 2010. In Pakistan, a slowdown in inflation during the third quarter of2011 led the State Bank to cur its main policy rate from 14 per cent to 12 per cent in an attempt to stimulate private investment and growth. Bangladesh Bank by contrast, stepped up measures to contain accelerating inflation, lifting interest rates and restraining credit flows, especially to sectors considered unproductive. Looking ahead, central banks are likely to continue to move towards a growth-supportive monetary policy if inflationary pressures ease. Despite some progress in recent years, fiscal deficits continue to be high in most South Asian countries, particularly in India, Pakistan and Sri Lanka. Government spending rose significantly in 2011 as development expenditures (such as education, health and infrastructure spending), non-development expenditures (such as civil service pay and defence spending) and interest payments increased. High Pak deficit Pakistan recorded a deficit of about 6 per cent of GDP in the fiscal year 2010-2011, missing the International Monetary Fund (IMF) target of 4.7 per cent. This can be mainly attributed to the devastating floods in 2010, higher security expenditures and failed efforts to implement a general sales tax due to domestic political opposition. India's fiscal deficit declined to 5.1 per cent of GDP in the fiscal year 2010-2011, as strong growth boosted tax revenues and the sale of 3G telecommunications licences increased non-tax revenues. However, India's Government is unlikely to reach the deficit target of 4.7 per cent of GDP for the fiscal year 2011-2012, as slowing growth is leading to a shortfall in tax revenues and the disinvestment of stakes in State-run companies is put on hold. After recovering rapidly in the first half of 2011, South Asia's export sectors experienced a moderation in demand owing to deteriorating conditions in developed economies. Nonetheless, in most countries of the region, total export earnings in 2011 were about 20 per cent higher than a year ago. Bangladesh, Pakistan and Sri Lanka benefited from a strong recovery in demand for textiles and garments, partly as a result of significant cost increases in China and political turmoil in North Africa and Western Asia. In India, exports of engineering goods, petroleum products, gems and jewellery soared. High oil and commodity prices and strong domestic demand boosted import spending in 2011, notably in Bangladesh, India.and Sri Lanka. Since, in most countries, imports had started from a higher base than exports, merchandise trade deficits widened further in 2011. This was partly offset by improvements in the services balance and higher current transfers, although workers' remittances grew at a slower rate than in previous years. In 2012, export growth is likely to decelerate, resulting in a further widening of trade deficits in most countries. A prolonged recession in Europe could have a significant impact on growth across South Asia as European countries continue to be a key export market for the region and a main source of tourism revenues. Renewed increases in international commodity prices also represent a risk for South Asia, as this would complicate fiscal deficit reduction and monetary policy decisions while also leading to a widening of current-account deficits. Excerpted from the UN report “World Economic Situation and Prospects 2012” released recently
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