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Challenges in Indo-Pacific region
India must play a proactive role for long-term security and stability
Gurmeet Kanwal
India has acquired robust military intervention capabilities and is formulating a suitable doctrine for intervention. |
The security environment in the Indo-Pacific region has been vitiated by territorial disputes on land in the South China Sea and the East China Sea as well as terrorism, the proliferation of small arms and piracy in the Malacca Strait. Freedom of navigation on the high seas is of critical importance for the economies of most Asian countries. Maintaining peace and stability and ensuring the unfettered flow of trade and energy supplies through the sea lanes of communications will pose major challenges for the Asian powers as well as the United States. Only a cooperative security architecture can provide long-term stability and mutual reassurance.Through its forward military presence and its abiding military alliances, the US has played a key role in providing stability in the Indo-Pacific region through many decades of turbulence during and after the cold war. The US is now re-balancing or 'pivoting' from the Euro-Atlantic zone to the Indo-Pacific in tune with its changing geo-strategic priorities and the rise of emerging powers. It is also simultaneously downsizing its forces and will need new strategic partners to help it maintain order and stability. According to Rory Medcalf, Senior Fellow, Brookings Institution, Washington, "the choreography of this geopolitical interplay will depend on the quality of leadership and decision-making in Beijing, New Delhi and Washington." As C Raja Mohan has averred in his book "Samudra Manthan: Sino-Indian Rivalry in the Indo-Pacific", the major powers in the region, including Australia, China, India, Indonesia, Japan and the US, need to work creatively to frame acceptable rules for the commons in the Indo-Pacific. Unless such realisation comes about, subterranean tensions will continue to hamper stability. China has so far been ambivalent in seeking to join a cooperative framework and has preferred to stand apart. It has failed to realise that its growing trade and massive dependence on energy imports through the Indian Ocean make it imperative for it to join the efforts being made to establish such a framework. It would be in India's interest to readily join cooperative efforts aimed at maintaining stability. India has acquired robust military intervention capabilities and is formulating a suitable doctrine for intervention. Though India has a pacifist strategic culture rather than a proactive one that nips emerging challenges in the bud through pre-emption, it has not hesitated to intervene militarily when its national interests warranted intervention, both internally and beyond the shores. The Army was asked to forcibly integrate the states of Goa, Hyderabad and Junagadh into the Indian Union soon after Independence as part of the nation-building process. The Indian armed forces created the new nation of Bangladesh after the Pakistan army conducted genocide in East Pakistan in 1971. India intervened in the Maldives and Sri Lanka at the behest of the governments of these countries and was ready to do so in Mauritius in 1983 when the threat to the government there passed. India had airlifted 150,000 civilian workers from Iraq through Jordan during Gulf War I in what became known as the largest airlift after the Berlin airlift. Also, almost 5,000 civilian workers were evacuated by ship from Lebanon in 2006. After the 2004 South-East Asian tsunami, 72 naval ships had set sail within three days to join the international rescue and relief operations even though India's eastern sea board had itself suffered extensive loss of life and damage. India's limited military presence overseas has been mostly benign. According to Shyam Saran, a former Foreign Secretary, "…most South-East Asian countries and Japan welcome a larger presence of Indian naval assets in the region." As part of the Indo-US defence cooperation, joint patrolling of the SLOCs in the Indian Ocean is already being undertaken up to the western mouth of the Malacca Strait as part of joint naval exercises. Other military exercises have led to a broad understanding of each other's military capabilities and limitations and many interoperability challenges have been ironed out. The Indian Army has designated one infantry division as a rapid reaction division, with an amphibious brigade, an air assault brigade and an infantry brigade. The Army also has an independent parachute brigade that can be deployed at short notice. The Indian Navy now possesses the INS Jalashva (USS Trenton) that can carry one infantry battalion with full operational loads and is in the process of acquiring additional landing ships. Besides long-range fighter-bomber aircraft with air-to-air refuelling capability like the SU-30MKI, the Indian Air Force has acquired fairly substantive strategic airlift capabilities, including six C-130 Super Hercules aircraft for the Special Forces. A permanent corps-level tri-Service planning HQ with all-weather reconnaissance and surveillance capabilities needs to be set up under the aegis of the HQ Integrated Defence Staff to monitor emerging situations on a regular basis and act as a control HQ for intervention operations. In future, India may undertake joint military operations in its area of strategic interest if the country's major national interests are at stake. Such a campaign may take the form of an intervention under the UN flag - something that India would prefer - or even a "coalition of the willing" in a contingency in which India's vital national interests are threatened. There will naturally be several caveats to such cooperation as India will not join any military alliance. It will also be necessary to work with other strategic partners and friendly countries in India's extended neighbourhood and with organisations like the Gulf Cooperation Council (GCC), the ASEAN Regional Forum (ARF) and, when possible, even the Shanghai Cooperation Organisation (SCO). The aim should be to establish consultative mechanisms through diplomatic channels for the exchange of ideas, and conduct joint training and reconnaissance. Small-scale joint military exercises with likely coalition partners help eliminate interoperability and command and control challenges and enable strategic partners to operate together during crises. The writer is a Delhi-based strategic analyst
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Out of touch with surroundings
Madhumita Gupta
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I
could blame only myself when I couldn't understand a word of what all the ladies around me were talking about. The language was our usual Hinglish, not Greek, as I'd first thought, it was the people I couldn't place. I had missed some of the conversation, I first thought, but doubts crept up when my questions, 'who's he?', 'where does she live?', 'whose daughter did you say?' drew incredulous, nay, pitiful looks. 'Where do you live?' seemed to be the unasked question in the mildly accusing eyes. Even I wondered about that. True I'm one of those 'blind' types who generally are oblivious of their surroundings, but surely even I couldn't be as blind as to miss elopements, extra-marital affairs and families breaking all around me. It was news to me that Sharma's daughter-in-law had created such a rift in the till-then exemplary joint-family that partition was inevitable. Their younger daughter-in-law was trying her best to salvage the family but would she succeed, especially as the loving ma-in-law was not there to support her? My query regarding the lady caused Sunita to balk. It had apparently been the talk of the town; it was in newspapers too; didn't I know anything? Shame-facedly, mentally swearing to read my local papers more thoroughly, I repeated my question. Taking pity on my genuine ignorance, Sunita condescended to reply: The lady had fallen down the stairs (at this point, significant glances, as usual lost on me, were exchanged all around) and had been in a nursing home, recuperating from a concussion, for the past two months. Despite not being in the medical profession, it seemed a tad too long a time to recover. The fall must have been quite something, I assumed and offered a quick prayer for forgiveness for my negligence and the lady's recovery. By that time the topic had shifted to Bindiya. I was glad that I was aware of the name. "The yesteryear heroine", I chirped enthusiastically, though wondering about her newsworthiness in today's times of Katrinas and Kareenas. It was their turn to look blank. "Who?" they asked. It was obviously not the Bindiya I'd thought. This one was apparently a rebel with a cause. She had brought dishonor to her family by falling in love with a boy from another caste. "Another caste should be OK", I laughed lightly. "It is the same 'gotras' which cause a problem these days!" Again I was silenced with cold looks. I was given the royal ignore and a heated argument started about what Bindiya should do. One faction was all for 'family first' and the other was 'it's her life after all'. Both had rock-solid points in their favour. I almost clapped at their superb debating skills. Obviously such an argument could end only one way -- the cosy tea party ended on a hostile note. "We'll know it tonight only," declared Sunita, getting up with a huff. I know Sunita has that knack of befriending people and drawing out secrets, so if there was anybody who could find out what Bindiya was up to, it had to be Sunita. "Oh, so you're meeting this Bindiya tonight then?" I asked and watched with mild surprise as Sunita's face broke into a broad grin. For some reason she jovially slapped my back and crowed, "Yeah, yeah, and so can you!" I didn't particularly want to get involved but courtesy made me say that I'd love to, but when and where could I see her? "Same time, same place!" she said irritatingly. I held my cool and continued to look enquiringly at her. "Oh, ho, don't be silly," she said, exasperation obvious in her normally melodious voice, "XYZ Channel, prime time, yaar!"
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Job creation to judge economic
success
Raghuram Rajan
Panjab University’s engineering students in a joyous mood after winning a contest. Youth need education and training for jobs that will be created. Some of this will require higher degrees, not just computer science but also design or civil engineering. |
in
the years to come, our
measure of economic success should be the jobs that are created;
created not by giving government subsidies or protections to labour-intensive
industries or sectors but by developing a facilitating, competitive,
environment that will encourage efficiency and creativity. The job agenda requires a disciplined focus on four issues: 
We need to improve the quality of our infrastructure, especially the logistical support and power that industry and services need. Grand plans are on the anvil, such as the Delhi-Mumbai Industrial Corridor. We need to complete such projects on time, and within budget. The success of the New Delhi Metro suggests that timeliness and cost control are not foreign to the Indian psyche.
Our youth need education and training for the jobs that will be created. Some of this will require higher degrees, not just computer science but also design or civil engineering. Some of it will be appropriate vocational education that teaches them to be good plumbers and electricians rather than unemployable low-skilled engineers. Teaching our citizens can be a stepping stone to teaching the world. India can be at the forefront of providing mass technology-enabled education with our professors providing appropriate human inputs to achieve the best mix of automation and for learning.
We need better business regulation. This does not always mean less regulation but it means regulation that is appropriate to the objective and, that is enforced. The lack of change may be sheer inertia, but it may be more sinister rent-seeking. All too often, we have too much regulation on the books and too little regulation in practice, with the worst of the regulated finding unscrupulous ways around the regulation while the honest are stymied. Even opening a business legitimately requires an enormous number of clearances and paperwork. In the same way as we have Saral form for filing income tax, could we have a Saral one page disclosure for opening a small business, with a single authority giving all necessary permissions.
And finally, we need a better financial system, which will finance the needed infrastructure and the expansion of every producer ranging from the kirana shop owner to the industrialist even as it allows households to save safely with positive real returns, insure themselves against health emergencies or old age costs, and borrow at low cost to finance consumption. Importantly, the financial system should not require constant subsidies to bail it out. We, at the Reserve Bank, are trying to improve the financial system. We plan to build the Reserve Bank’s developmental measures over the next few quarters on five pillars. These are:
Clarifying and strengthening the monetary policy framework.
Strengthening banking structure through new entry, branch expansion, encouraging new varieties of banks, and moving foreign banks into better regulated organisational forms.
Broadening and deepening financial markets and increasing their liquidity and resilience so that they can help allocate and absorb the risks entailed in financing India’s growth.
Expanding access to finance for small and medium enterprises, the unorganised sector, the poor, and remote and underserved areas of the country through technology, new business practices, and new organisational structures; that is, we need financial inclusion.
Improving the system’s ability to deal with corporate distress and financial institution distress by strengthening real and financial restructuring as well as debt recovery.Let me elaborate on each of these measures a little. First, we are among the large countries with the highest consumer price inflation in the world, even though growth is weaker than we would like it to be. Much of the inflation is concentrated in food and services. Our households are turning to gold because they find financial investments unattractive. At the same time, many industrial corporations are complaining about high interest rates because they cannot pass through their higher costs into higher prices for their products. We can spend a long time debating the sources of this inflation. But ultimately, inflation comes from demand exceeding supply, and it can be curtailed only by bringing both in balance. We need to reduce demand somewhat without having serious adverse effects on investment and supply. This is a balancing act, which requires the Reserve Bank to act firmly so that the economy is disinflating, even while allowing the weak economy more time than one would normally allow for it to reach a comfortable level of inflation. The weak state of the economy, as well as the good Kharif and Rabi harvest this year, will generate disinflationary forces that will help, and we await data to see how these forces are playing out. No single data point or number will determine our next move. I think the market understands what we are trying to do. But we do need a more carefully spelled out monetary policy framework than we currently have. Action on the framework will follow the submission of the Dr. Urjit Patel Committee which is expected to submit its report shortly. Second, we have already announced measures to free bank branching, and to incentivise foreign banks to incorporate domestically. Going forward, we have to give our public sector banks, which are a national asset, the means to improve their competitiveness. Many of them have made enormous strides in the last decade – for instance, the extent to which they have digitised their operations is extremely praiseworthy -- but because competition in the banking sector is likely to increase in the next few years, they cannot rest on their laurels. In the coming months, we will discuss with stakeholders in public sector banks about what needs to be done to further improve their stability, efficiency and productivity. Third, we need to enlist markets in the aid of banking. Liquid markets will help banks offload risks they should not bear, such as interest rate or exchange risk. They will also allow banks to sell assets that they have no comparative advantage in holding, such as long-term loans to completed infrastructure projects, which are better held by infrastructure funds, pension funds, and insurance companies. Liquid markets will help promoters raise equity, which is sorely needed in the Indian economy to absorb the risks that banks otherwise end up absorbing. Rather than seeing markets as being inimical to the development of the banking sector, we have to see them as complementary. In the coming weeks, we will roll out more measures to improve the liquidity and depth of the G-Sec market. We will then turn to money markets and corporate debt markets. We have introduced new variants of interest rate futures and products like inflation indexed certificates, and we will continue to work to improve liquidity in derivative markets. As the exchange markets became unstable, we imposed restrictions on participation in these markets. We have started removing these restrictions in a calibrated fashion. Fourth, we have to reach everyone, however remote or small, with financial services. Financial inclusion does not just mean credit for productive purposes, it means credit for paying a doctor to heal your child or to pay lumpy school or college fees. It means a safe mode of remunerated savings, and an easy way to make payments and remittances. It means insurance and pensions. It also means financial literacy and consumer protection. We have made great strides in inclusion, but we are still some distance from our goal. We have adopted a branch based strategy for inclusion, but it is not enough. Too many poor people in so-called “over-banked” urban areas still do not have access to banking services. We have many experiments under way to use technology, mobile phones, new products such as mobile wallets, and new entities as business correspondents to link people up to the formal financial system. Much as with cell phones where we created a frugal Indian model, we need a frugal, trustworthy, and effective Indian model for financial inclusion. The Dr. Nachiket Mor Committee is helping us think through possible models, and I am hopeful that when we outline measures based on its recommendations, our fine banks, NBFCs, IT companies and mobile players will rise to the occasion. The key will be to encourage entities to compete to serve the customers at the bottom of the pyramid. We should tolerate profit but not profiteering. And last but not the least, we have to deal better with distress. We have to ensure that the system recognises financial distress early, takes steps to resolve it, and ensures fair recovery for lenders and investors. We could wish for a more effective judicial process or a better bankruptcy system, but while we await that, we have to improve the functioning of what we have. We have put out a paper for discussion that will focus on putting real assets back to work in their best use. The key elements to deal with distressed borrowers will include:
Early formation of a lender committee with timelines for reaching agreement on a plan for resolution.
Stronger incentives for lenders to agree collectively and quickly to a plan – this will involve better regulatory treatment of stressed assets if a resolution plan is formulated and agreed to, accelerated provisioning if no agreement can be reached.
A mandated independent evaluation of large value restructurings, with a focus on plan viability and a fair sharing of losses (and future possible upside) between promoters and creditors.
More expensive future borrowing for wilful defaulters or uncooperative defaulters who do not work with lenders to achieve an efficient and equitable resolution of distressed assets.
More liberal regulatory treatment of asset sales and more encouragement for new entities to purchase or refinance assets.The lesson of every period of financial stress across economies has been that early recognition and resolution of problems gives the economy its best chance of robust recovery. Through the measures that have been outlined, the RBI intends to help promoters and banks deal effectively with the financial stress that has built up. Let me conclude. I will depart from the usual conservatism of a central banker to predict that the best of India is yet to come. We will be a healthier, better educated, and richer nation, not just in absolute terms, but even relative to other countries. This is not a jingoistic statement based on some intrinsic Indian superiority but a sober recognition that we are still much poorer than other countries, and catching up is always easier than to draw away from the pack. But we achieve these outcomes only if we go about addressing the challenges we face, methodically, with discipline and a sense of national purpose. In the coming years, I hope that is what we do. Excerpted from the Kao Memorial Lecture the RBI Governor delivered in Delhi on January 23, 2014
Five pillars to build RBI We need a more carefully spelled out monetary policy framework than we currently have Measures to free bank branching, incentivise foreign banks to incorporate domestically and improve public sector banks’ competitiveness We need to enlist markets in the aid of banking We have to reach everyone, however remote or small, with financial services We have to ensure that the system recognises financial distress early, takes steps to resolve it, and ensures fair recovery for lenders and investors
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