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Committing to more reforms

Thu, 26 Nov 2009 18:19:00 GMT

In his budget speech this year, finance minister Pranab Mukherjee had unequivocally stated that if expectations held true and the economy stabilized, then the government would by the time of the next budget revert to fiscal prudence. More recently, Prime Minister Manmohan Singh drew a linkage between financial sector reform and sustained revival in the real sector. In an interview to Mint, published on Thursday, finance secretary Ashok Chawla has restated these first principles.

Illustration: Jayachandran / Mint

First off, it is commendable that three key people in the decision making hierarchy have with such candidness renewed their faith in future reforms. And the finance minister has clearly provided political cover by linking reforms with growth—without which the United Progressive Alliance will be hard-pressed to meet its avowed commitment to the so-called aam aadmi.

It is also a reiteration of the fact that the worst is behind for the Indian economy. Barring any unexpected external shocks, it does seem the economic growth may even touch 7% in the current fiscal and accelerate in 2010-11. It is unlikely that the government will withdraw in a hurry the fiscal stimulus package, which has clearly worked; though the withdrawal of the monetary largesse has already begun—and rightly so, with inflation, led by food prices, firming up. So there are no fears of any immediate loss of momentum.

What the finance secretary left unsaid, too, is significant. Politically, the Congress has strengthened itself, following its continuous electoral wins after better- than-expected performance that powered it to a second term in the 15th general election. It has also helped that the two principal political opponents, the Left and the Bharatiya Janata Party, are severely distracted, tiding over internal crises. Along with acquiring confidence, the Congress has also changed its tack on pushing the reform agenda.

At one level, it has begun to cleverly link it with the ability to raise funds to finance social welfare programmes. At another, it has begun to make major policy changes without much fanfare—like the Reserve Bank of India initiating financial sector reform by including in its credit policy statement the decision to expand the portfolio of currency derivatives beyond the dollar and also set the stage for introduction of the much-maligned credit default swaps.

All of this seems to suggest that the government is, with the economy gradually stabilizing, setting the stage for a big-bang Union budget on 28 February. Hopefully, it won’t be a case of impressing to disappoint.

Will it be a big-bang budget next year? Tell us at views@livemint.com

Best-sellers and exit poll bans

Thu, 26 Nov 2009 18:19:00 GMT

It was a turkey shoot. On Wednesday, the Rajya Sabha passed the Representation of the People (Second Amendment) Bill, 2008. While the legislation sounds innocuous, it does great damage: It restricts information to potential voters during an election, something necessary to make an informed political choice. It bans exit polls.

From a politician’s perspective, exit polls are damaging stuff. They have the potential to unleash a bandwagon effect in the course of an electoral season. In India, a general election is usually staggered over many phases. One state may poll one day, another one the next day. If exit poll predictions for one phase of the polling are broadcast one day, they have the potential to affect voter outcome and choices in the next phase. This mortifies our politicians. But with a ban on exit polls, voter behaviour becomes more predictable. It also has the potential to bestow an unfair advantage on incumbent governments and members of Parliament. So it is not surprising that such a ban is being given legal sanction.

In most walks of life, people imitate each other, for instances, in trends, fashions, choosing a book (best-sellers are good examples of such choices) and other stuff. Why should political choices be immune from this current? Curmudgeons will say politics merits seriousness. We say no. For, all that “seriousness” will do with an exit poll ban is to ensure the election and re-election of undeserving candidates.

Exit polls have the potential to unleash “waves” of change. (Imagine voters in Maharashtra taking a cue from those in Assam, exit polls ensuring that. Many a cookie will crumble.) What is wrong with that? In fact, it will make representatives more aware of the demands and problems of their voters. Unsurprisingly, this regressive legislation had all-round political support.

The saving grace here is that when the Bill becomes law, it could be subject to judicial scrutiny. It should be. There is, of course, the danger that exit polls can be manipulated and then used for unhealthy political purposes. But there are other ways to check the problem, say, by regulation. A blanket ban, however, is no solution.

Exit poll ban: unfair advantage to ruling parties and governments? Tell us at views@livemint.com

A republic living in fear

Wed, 25 Nov 2009 16:20:00 GMT

The first anniversary of the Mumbai terrorist attacks is a good time to reflect on the nature and effects of terrorism in India. While plenty has been done (and not done) on preventing atrocities of the 26/11 scale, more fundamental questions such as “what makes them do it?” have been left unaddressed.

Unless that is done, all efforts will remain mere palliatives. As of date, that is the case. Tighter anti-terrorism laws, better equipping and training of police forces and better intelligence gathering have helped law enforcers greatly. We also have a diligent Union home minister. But all this misses the wood for the trees: The external and internal props of terrorism are intact.

Illustration: Jayachandran / Mint

First, consider the internal problem, top-down. In any democracy, it is hazardous to associate an ethnic or religious group with acts of political violence. There are howls of protest as soon as such an association is even uttered. Votes take care of everything else. Forget “identifying” such a group. But are such linkages devoid of any substance? To be sure, branding entire communities as “terrorist-friendly” is not only illiberal, but positively inhumane. That, however, is not what is sought. Careful, fine-combed profiling of groups within such communities holds great promise to stem the tide of terrorism. But that requires that we give up our long-held taboos: Disaffected minorities being incapable of any wrong being the first.

The liberal riposte to this argument runs somewhat like this. Terrorists have no religion. Or, there are terrorists from X and Y communities but these religious communities have nothing to do with the problem.

Both arguments are devoid of operational import and are certainly unhelpful in tackling the challenge.

Today, no one—our leaders, liberal voices and public intellectuals—even wants to countenance that option. Such a dialogue, if it can be called that, has a snowball’s chance in hell.

Then, there is the external threat (read Pakistan). There is no need to pretend otherwise. Here, our ability to counter it is even more limited than our internal problems. Everything has been tried—talks, cajoling and threats—to no avail. Here again, the standard argument is: more talks. That is least likely to work, especially now that that country is on the brink of imploding. Perhaps the only reason why we have not seen Pakistani terrorists (and their local proxies) mounting another spectacular attack is that their terrorists have found enough to chew locally. But once again, nothing substantial has been done to check that country.

It is time we stopped believing that giving candy to prospective terrorists will turn them into law-abiding citizens. That would only be a beginning in rectifying a serious problem. But yes, it would be a beginning.

Are the external and internal sources of terrorism intact? Tell us at views@livemint.com

Here come the Japanese

Wed, 25 Nov 2009 16:18:00 GMT

The collaboration between Indian steel company JSW Steel and Japanese steel company JSE Steel that was announced last week is just the latest example of growing Japanese interest in the India story.

The initial agreement between the two steel companies does not mention any equity investment, but most stock market analysts believe it is a matter of time before JSE Steel buys a stake in JSW Steel.

The deal follows several high-profile Japanese investments in India over the past two years. Japanese telecom company DoCoMo spent $2.7 billion to buy a stake in Tata Teleservices in February.

Japanese pharmaceuticals firm Daiichi Sankyo spent $4.6 billion to take control of Ranbaxy Laboratories in June 2008.

This is in addition to the $4 billion that the Japanese government has promised as funding for the ambitious Mumbai-Delhi freight corridor, after it put up money for building the Delhi Metro in 2002.

The economic case for trying to attract more Japanese direct investment is clear. Japan is an ageing country with a huge current account surplus while India is a dynamic economy that needs foreign capital.

The geopolitical implications are important as well. Both Japan and India are worried about the growing importance of China in the region and its clout with the US, given that it is an important source of funding of the consumption binges and gaping trade deficits of the world’s only superpower.

Like rejected suitors, India and Japan are trying to build an alliance that is also cemented by the fact that both countries are democracies with market economies.

The Japanese had three years ago spoken of building an arc of freedom across Asia, with Japan and India at the two ends. India has its own Look East policy.

The two countries have also been involved in on-off discussions about a comprehensive economic partnership agreement.

Japanese investment in India is still very small if one looks at the data over the past six years, fluctuating between 3.75% of total foreign direct investment inflows in 2005-06 and 0.54% in 2006-07. Trade, too, is modest.

The two governments would do well to encourage more trade and investment between companies in their respective countries.

Should Japanese investment in India be encouraged? Tell us at views@livemint.com

India’s dollar dilemmas

Tue, 24 Nov 2009 16:01:00 GMT

Prime Minister Manmohan Singh has said that there is no substitute for the dollar as the global reserve currency.

His statement comes a few weeks after the Reserve Bank of India (RBI) bought 200 tonnes of gold from the International Monetary Fund in what many analysts believe is an attempt by the Indian central bank to cut its exposure to the American currency, which has been sliding against other major currencies in recent months. New data released by the US treasury shows that India reduced its holding of US government bonds between June and September: from $39.3 billion to $35.9 billion. RBI does not provide too many details about how it invests the country’s foreign exchange hoard, so we may have to wait a few more months to find out whether the gold purchase was financed by selling US treasury bonds on October and November.

Illustration: Jayachandran / Mint

The Prime Minister’s statement and RBI’s actions seem to be at odds with each other, but it is hard to say for sure till there is more clarity about what exactly the central bank is doing with its foreign exchange reserves. It is quite possible that RBI has cut its exposure to US government debt, but not US assets. In other words, it may have moved some money into other instruments such as certificates of deposit and agency debt, since yields on US treasury bills are now close to zero.

Equally importantly, Manmohan Singh’s vote of confidence in the dollar is at odds with what leaders of many other countries have been saying, not to mention the dollar selling by foreign exchange traders. For example, China has been playing an intricate cat and mouse game with the US: sometimes hinting that the dollar needs to be replaced with a new international currency and sometimes saying quite the opposite. The US treasury also reported that China has been a less enthusiastic buyer of US treasury bills than before. It has bought only $30 billion of them since April, barely one-fifth of what it bought in the previous six months.

The politics of the dollar is as important as the economics of the dollar. A weak economy, rock bottom interest rates and a trade deficit are pushing down the dollar as the return of risk appetite sends money into other assets such as gold, industrial commodities and emerging market equities. The politics is another matter: Dollar supremacy is inextricably linked to US supremacy.

In this context, China’s stern lectures to Barack Obama on the economic mess in the US and Manmohan Singh’s conciliatory remarks on the dollar and the US economy tell us a lot about the power equations between the world’s only superpower and Asia’s two rising powers.

Should India invest its foreign exchange reserves in US debt and assets? Tell us at views@livemint.com

The wisdom of crowdsourcing

Tue, 24 Nov 2009 16:00:00 GMT

Wikipedia, it’s often said, is a success story of Web 2.0’s democratizing power. It’s hugely popular, free, and relies on an army of eager Average Joes—volunteers who collaboratively chronicle the world’s knowledge into (sometimes) illuminating encyclopaedic factoids.

But middling democracies often suffer from certain creaks as their nationalist fervours subside into the day-to-day hum of midlife. The same criticisms that have dogged Indian democracy for a half-century are resonant in the Wikipedia debate: That its debilitating bureaucracy and obsession with rules stifles creativity. Or that Wikipedia’s preoccupation with consensus-building fosters a kind of mobocracy.

The encyclopaedia popularized the crowdsourcing model, where an aggregation of many users use their collective wisdom to generate consolidated content. The fate of Wikipedia will determine the credibility of crowdsourcing. A recent article in The Wall Street Journal noted that volunteers are departing the online encyclopaedia at record speeds. As participation has declined, Wikipedia is poised to redefine itself to address some of its shortcomings.

The most prominent criticism of Wikipedia is the very selling-point of its model: That anyone (at least in principle) can create and edit encyclopaedia entries. According to Wikipedia’s entry on itself, “Critics of Wikipedia accuse it of systemic bias and inconsistencies…and allege that it favours consensus over credentials in its editorial process.”

This reveals a central trade-off of the crowdsourced model. It relies on the wisdom of a democratized user base, but if some accountability checks aren’t placed on users, its credibility will always be called into question. But in order to be effective, Wikipedia cannot cut out the crowd that makes its system viable.

According to The Wall Street Journal, it looks like Wikipedia is concerned about this. It is looking to launch a streamlined layout, so editing will be easier for the less technically inclined. It is reaching out to experts to write more rigorous pieces. And finally, it appears to be making its complex set of rules more accessible to average users.

These are all good moves. But Wikipedia must ensure that, in pursuing quality crowdsourced wisdom, it doesn’t cut out a key part: the crowd. That will prove quite a task.

Will crowdsourcing survive its credibility crisis? Tell us at views@livemint.com

Paradox of high food prices

Mon, 23 Nov 2009 17:19:00 GMT

High food prices have not as yet sparked off angry protests from citizens and political parties, for economic and political reasons. This inertia gives the Manmohan Singh government some breathing space to plan a proper response. It should grab the opportunity.

Food inflation in the first week of November was 14.55%, yet there has barely been a whimper of organized protest in the streets because the Opposition is distracted by internal problems—the Left by its crumbling support base in West Bengal and the Right by internal succession wars. This is a paradox in a country where elections have been won and lost over the price of onions.

Measuring public response to climbing food prices is not an easy task. The Reserve Bank of India (RBI) surveys housewives across the country every three months about their price expectations in the coming months. RBI governor D. Subbarao said, when he announced his new monetary policy on 27 October, that the “survey for households indicates that while inflationary expectations remain contained, a majority of the respondents expect inflation rate to increase over the next three months as also over the next year”.

Why do inflationary expectations continue to be “contained”? One possible reason is that food spending accounts now for a lower slice of household budgets than before, thanks to higher incomes. Food accounted for 53.70% of consumer spending at current prices in 1980-81, when Indira Gandhi came back to power. That average household now spends around 42% on food, and hence is less affected by high food prices than before.

But that can hardly be the entire answer. Lower relative spending on food may be a fact for the growing urban middle class, but there are also millions of poor Indians who are net buyers of high-priced food and for whom current levels of food prices must be hurting. Government programmes such as the rural jobs scheme must be offering some income support, but there is research to show that districts where money has been pumped in for the jobs scheme in fact experience higher inflation because of the extra money with citizens.

That brings us back to the politics: Neither the Left nor the Right has the energy to take advantage of a hot-button issue for most Indian families.

How politically relevant is food inflation? Tell us at views@livemint.com

Revisiting a 17-yr-old story

Mon, 23 Nov 2009 16:43:00 GMT

Some stories are worth recounting, if only to prevent their repetition in the future. The destruction of the Babri Masjid in 1992 and the role of L.K. Advani, once a contender for prime ministership, is one such tale.

On Monday, The Indian Express published a story about the indictment of Advani and other Bharatiya Janata Party (BJP) leaders by the justice Manmohan Singh Liberhan commission of inquiry. It is a meaningless indictment. Given the record of our criminal justice system, it is unlikely that Advani and the other persons indicted will ever face justice. In fact, the time has come to consider such crimes as a distinct set, one that calls for radically different judicial procedures to tackle them.

Illustration: Jayachandran / Mint

Beyond that cataclysmic political event, however, lies a bigger story, one that our political system is incapable of heeding. How did matters come to such a pass on 6 December 1992? A one-line version is this: history and a peculiar variant of democracy conspired to kill a mosque. Since Independence, the Indian Right has had little success. Instead of evolving into an issues- or agenda-driven system, democracy in India took the colour of the personalities that led it. Achin Vanaik, a public intellectual, has argued that since at least 1971, elections have become “plebiscitary”: They have mutated into “either/or” contests. The Congress party won almost all these sweepstakes. The BJP and other players got much less.

Finally, in the years 1989-1992, the BJP created its own version of plebiscitary politics. It raised historical questions, questions that struck a chord in the Indian mind. These were used by the BJP to secure unprecedented victories. These were questions for which there were valid answers. But the Congress did not answer them or refused to answer them. Disputes about facts are one matter, but denial of historical memory is something else. This is what let the BJP craft a polarizing political strategy.

In the end, this chapter of history did much to demolish the political side of the Nehruvian order. The dismantling of the economic consensus had begun a year earlier in 1991 in the wake of the balance of payments crisis. The demolition, then, altered the political landscape of the country.

What next? Today, it seems Indian politics has touched calmer shores. But its inability to confront divisive politics of all shades makes this a doubtful proposition. Until then, episodes such as Advani’s indictment will continue to make headlines without any redress. Seventeen years after the demolition of a mosque, India continues to be haunted by that episode.

Advani’s indictment: too little, too late? Tell us at views@livemint.com

Capital controls in the air

Sun, 22 Nov 2009 15:46:00 GMT

There has been an avalanche of analysis in the past few days about the latest news from the US bond market: Real interest rates at the short end of the market have turned negative. This is a clear indication that the US Federal Reserve is operating an astonishingly loose monetary policy in a bid to fight the recession in the world’s largest economy.

The effects of this loose monetary policy are being felt in many emerging nations, where new asset bubbles have been spotted and currencies are appreciating. Brazil has taken the unusual step of imposing a tax on capital inflows and one on local companies raising foreign money through the issue of American depository receipts.

Illustration: Jayachandran / Mint

An open capital account is a worthy long-term goal but there are all sorts of disagreements on how a country should deal with short-term spikes in capital inflows that tend to be pro-cyclical and thus complicate central bank policy. Malaysia had closed its capital account to protect its currency during the Asian financial crisis of 1997, freeing itself of the impossible trinity and allowing it to keep interest rates low to help its real economy.

There is equally compelling evidence that companies with global balance sheets have any number of ways to step around capital controls while countries that impose such controls tend to suffer in terms of reputation risk. It is in this context that an intriguing suggestion by economist Arvind Subramanian caught our attention.

“Brazil recently botched its attempt at such controls because the policy action was half-hearted, anxious about the reaction of markets. One possibility could be coordinated restrictions on capital flows action by a set of emerging markets that could be blessed by G-20. No doubt this would be risky, perhaps even counterproductive, but in these unusual times, no policy option should be off limits, at least for discussion,” wrote Subramanian in a post published by The Baseline Scenario, a blog run by former International Monetary Fund chief economist Simon Johnson.

There is already global coordination going on to manage global issues such as the economic crisis and climate change. Subramanian says since the cause of the increased flows is common to all countries, namely Fed policy, it will be a policy challenge not just for individual countries, but also for emerging markets as a group.

Though the minor appreciation in the rupee pales in comparison with the almost 30% rise in the value of the Brazilian real, the Reserve Bank of India (RBI), too, will have to start grappling with how it plans to manage the flood of dollars coming into the economy (almost $15 billion in the stock market alone, according to the last count).

A lot of attention will be on what RBI governor D. Subbarao says and does about this problem.

How should India deal with spikes in capital inflows? Tell us at views@livemint.com

The bitterness of sugar

Sun, 22 Nov 2009 15:46:00 GMT

Sugar in India is a bitter-sweet story. The protests last week by thousands of farmers in Delhi were part of the drama re-enacted every few years since Independence. The sector continues to be governed by archaic laws and rules, and price discovery mechanisms for the sweet substance are weak. The result is that all three sides in the sugar story—consumers, sugar cane farmers and sugar companies—are unhappy.

Every year, the Union government fixes the minimum price of sugar cane that sugar mills have to pay farmers when they purchase the raw material from farmers. This never satisfies farmers. Under political pressure from farmers’ lobbies, the state governments in cane-growing regions increase this price further. The state advised price (SAP) is the real floor price that mills have to pay. The result is that over the years, their profitability have been dented badly.

The latest episode began after certain Supreme Court judgements regarding pricing of sugar compulsorily bought by the government from sugar mills. To meet the altered situation after the apex court orders, the Union government took two steps in October. On the production and pricing of sugar, it issued an ordinance called the Essential Commodities (Amendment and Validation) Ordinance 2009. On the sugar cane front, it created Sugarcane (Control) Amendment Order 2009. Under this order, the difference in the price fixed by the Union government and SAP was to be paid by the state governments. Both orders should be seen together as they reflect state intervention in different stages of the sugar production cycle.

The political impact was immediate. Farmers understand the pricing dynamics of sugar and sugar cane very well. Financially wobbly governments such as Uttar Pradesh would be in no position to bear the burden of the gap between SAP and the price fixed by the Union government. Under the new regime, sugar mills would have some breathing space but life had become difficult for state governments and various political parties. Sugar cane farmers are one of the best organized political lobbies in India. It was only a matter of time before the order would have been nullified. The government now plans to introduce a new Bill in Parliament. The sugar story is set for more twists and turns in the future.

Should the government stop meddling in the sugar sector? Tell us at views@livemint.com

Ratan Tata and Subir Gokarn

Thu, 19 Nov 2009 16:02:00 GMT

There is an underlying common theme between the succession plan of a corporate patriarch and the appointment of a senior central banker.

Ratan Tata said on Wednesday that the next chief of the Tata group could be a foreigner. On the same day, the government finally cleared the appointment of Subir Gokarn as the deputy governor of the Reserve Bank of India (RBI).

Both these events point in the same direction: the readiness to pull in the best talent from outside the normal boundaries set up by the two organizations. The Tata group has always been run by an Indian and almost inevitably by a Tata in its 140-plus years of existence. RBI, too, has mostly reserved its top jobs for people within a charmed circle of central bank insiders or civil servants. Among the few exceptions: R.K. Hazari came to RBI via Bombay University and the Economic and Political Weekly while C. Rangarajan came in from the Indian Institute of Management, Ahmedabad.

There is a lesson here for the rest of the Indian government and corporate sector. Top jobs in companies are still reserved for family scions while it is difficult to get a senior position in government unless you have climbed the civil service ladder. There have been notable exceptions, but the general trend has not been very inspiring.

India has changed. Large corporate groups have gone global, in the scope of their operations as well as the funding of their balance sheets. Governance, too, requires special expertise that does not necessarily lie within the generalist administrative services that were designed to serve a colonial state.

The change to a culture of global talent searches in the case of companies and lateral entries in the case of the civil services is not going to be easy or rapid. Just think back at the shock in Japan when Carlos Ghosn, a Frenchman of Lebanese origin, was appointed head of Japanese car maker Nissan in 1999. He has now been honoured by a Japanese manga comic book on his life.

Civil services in most nations tend to be closed shops that bristle at any suggestion that outsiders should be brought in from time to time.

Have we just seen the first signs of change?

Do Indian organizations have to spread the talent net wider? Tell us at views@livemint.com

The world is not enough

Thu, 19 Nov 2009 16:02:00 GMT

Chances are that it will be an expensive dinner —foreign policy-wise, that is. When US President Barack Obama hosts Prime Minister Manmohan Singh for a “state dinner” next week, matters may end up being restricted to a culinary agenda.

They should not. After the highs of the George Bush Jr years, relations between the two countries have cooled almost to freezing point. Obama’s recent visit to Beijing and his joint statement with President Hu Jintao are a case in point. Viewed in isolation, the statement does not amount to much: China and the US merely pledged support for improving relations between India and Pakistan. Simple. When seen as part of a train of developments, it is a shocker. The US is ceding political and diplomatic space to a known antagonist of India, one that is allied with Pakistan. How can China promote peace? It sees India as a future rival that needs to be curbed now. It also knows that if Pakistan implodes, India will simply become too powerful to control.

Illustration: Jayachandran / Mint

Its efforts will be geared to prevent this.

For the US this is no more than throwing a few shekels at China. This has been done with knowing disregard of Indian sensibilities, but with total regard to US’ changed strategic priorities. India figures quite low in the new American order. Thus, the chances of an Indo-US partnership to further our interests are slim at the moment. The US under Obama has retreated to a position of defensive realism. In simpler terms, it wants to safeguard the real estate that it has and let China have a bit more of it to keep it happy.

The Prime Minister should be aware of this and should not get befuddled with the “honour” of a dinner hosted by Obama. The Americans know how to flatter us. We should know this, too.

We have to bide time. Meanwhile, we should not even think of ceding ground to the US. So far, India has not done that. We have not let it interfere in our dealings with Pakistan, save the pro forma talks with Islamabad. There will be renewed pressure on this front. We should resist that.

At the same time, when it comes to cooperating with the US in areas that are of interest to it, we should set a high price. It is important to do so, if we are to send Washington the right signals.

Let us hope that India will not be forced to stare at an empty plate in South Asia.

Gastronomic honour or realpolitik: What will the PM choose in Washington? Tell us at views@livemint.com

A difficult quest for peace

Wed, 18 Nov 2009 19:10:00 GMT

Bargaining with an armed opponent is a nightmare for any negotiator. Indian Maoists, who control a big chunk of territory and have plenty of guns, know this well. In a recent letter in the Economic and Political Weekly, their spokesperson, Azad, put a high price on any talks with the Union government.

The Union government had only one condition for discussions, that of giving up arms. Azad pointedly rejected this: “Asking Maoists to lay down arms as a precondition for talks shows the utter ignorance regarding the historical and socio-economic factors that had given rise to the Maoist movement.” This is the least of it. There are other demands that are nearly impossible to meet. These include scrapping of mining projects in tribal-dominated areas and withdrawing police and paramilitary camps from violence-affected areas. The icing, however, is yet to come: the government’s stand that they abjure violence is irrational.

Illustration: Jayachandran / Mint

These demands have been justified in phraseology for which Maoists are well known. Explanations are peppered with expressions such as “people’s rights”, and “liberation from exploitation”. These words cannot hide the simple truth that extremist control of people and territory depends on gun power.

The logic is simple and was explained many decades ago by economist Mancur Olson Jr. Labour unions, special interests, agricultural and industrial lobbies and other pressure groups have to offer inducements to keep their flock together. Otherwise, many members will be tempted to a free ride. They will partake of all the gains while not contributing money, time and other resources for achieving collective goals. In many cases, the threat of violence is a good adhesive for an otherwise fractious collection of persons. In far-flung areas where dangerous and armed men abound, tribals dare not say anything that will endanger their lives.

Unless the government grasps this truth, all efforts at engagement will turn into appeasement. And appeasement does not work. It is here that the other track of Maoist strategy takes over (track II, petty bourgeois edition). Prime-time liberals warn the government that any police action will result in “genocide” and that India will be a sham democracy if the government tries to restore order.

This has weakened the resolve of the government. Contrary to Leftist speculation about a powerful and intolerant state, the government of India is prone to dithering in the face of adverse public opinion. In this case, it should not waver. Offensive operations are the only way to silence the guns.

Why is the government hesitant to fight Maoists? Tell us at views@livemint.com

The mystery of mirror neurons

Wed, 18 Nov 2009 16:03:00 GMT

The theory of mirror neurons illustrates a well-known Aristotelian observation: that man is wired, by nature, to be a social animal. Our mirror neurons fire when we act—when we are poked, or when we move a hand—but they also fire when we see others perform the same actions. The discovery of these neurons in 1996, by a team led by Giacomo Rizzolatti, and subsequent research by Vilayanur Ramachandran, among others, have spawned a clutch of practical-minded conjectures. These span a range of topics; mirror neurons are thought to lie at the heart of certain characteristics of autism, but they also help explain why pornography can be enjoyable. Ramachandran has been a charismatic roving ambassador for mirror neuron theory, expounding it most recently at a TED India workshop and at two lectures in New Delhi.

Most strikingly, mirror neuron research manages to bring together neuroscience, psychology, philosophy and sociology. These neurons engender empathy, plugging their owner into the human race at large. Yet we don’t feel pain when we watch others in pain, indicating that the human mind has a sophisticated concept of “self”. Ramachandran has even postulated that around 100,000 years ago, an efflorescence of mirror neurons helped early humans watch a useful or aesthetic action and learn to repeat it. Without these neurons, culture would never have spread—and culture, Ramachandran says, is what makes us human. These are attractive hypotheses, not least because they seem to strike at fundamental questions about ourselves.

But these are all still hypotheses. Sceptics point out that we have no idea where mirror neurons live in the brain; scientists have only observed certain areas light up on imaging technology and suspected them to be knots of mirror neurons. There is also more to cognition than the ability to learn through mimicry; macaques, after all, have mirror neurons, but they have not developed for themselves an advanced culture. One psychologist has even questioned the very nomenclature, stating that the function of the neurons is to anticipate, not to mirror. The grinding lab research to confirm these theories is yet to come, and an open mind is required throughout. What will truly differentiate us from the macaques is not our awareness of our mirror neurons, but our patiently earned knowledge of precisely how important they are.

Can mirror neurons unlock the secrets of the mind? Tell us at views@livemint.com

The business of war and games

Tue, 17 Nov 2009 15:44:00 GMT

The geeks and gamers, it appears, are going to revive the economy. Or at least, they’re doing everything in their power to do so.

With utter disregard for the state of the global economy, gamers in the US, the UK, France and Germany have thronged shops to buy copies of Call of Duty: Modern Warfare 2, a multi-platform shooting game. According to estimates, the game sold 4.7 million copies in the first 24 hours of being put on sale, raking in around $310 million. It was released worldwide on 10 November. That makes it the biggest entertainment opening weekend of all time. The closest film competitor was the second instalment in the rebooted series of Batman movies, The Dark Knight. While that movie currently holds the record for the biggest film opening ever, it still managed to make only half of Modern Warfare 2’s mammoth collection.

The success of the game’s launch, and the climate in which it achieved this, point to a growing shift in the entertainment industry’s pecking order. Video games now easily make as much money as Hollywood blockbusters. And they require as much budgetary and creative inputs to produce as well. Grand Theft Auto IV, the game that had the biggest opening before Modern Warfare 2, has been estimated to have cost $100 million to produce.

From a content perspective Modern Warfare 2 is somewhat indicative of the turmoil on the contemporary world stage. With several pockets of conflict all over the atlas, video games no longer have to tap into that endless reservoir of inspiration, World War II.

Modern Warfare 2 has ultranationalists taking over Russia, US spies helping engineer a civilian massacre and, finally, the Russians invading the US and occupying the White House. Washington, DC, is turned into a battlefield and, at some point, a nuclear warhead explodes over the US capital, destroying, conveniently for the plot and graphics designers, the International Space Station. And, but of course, the action begins with a battle against militants in Afghanistan. (Who better to voice some of the macho martial bravado for the in-game characters than rapper 50 Cent.)

Modern Warfare 2 may be imagining mayhem on a massive global scale. But in the real world, the millions in sales is good news for the economy, and food for thought for the entertainment business.

What are the reasons for the success of Modern Warfare 2?Tell us at views@livemint.com

A washout at Copenhagen

Tue, 17 Nov 2009 15:44:00 GMT

It is now increasingly clear that we should not have high expectations from the global climate change talks to be held in Copenhagen in December.

US President Barack Obama on Sunday poured the final tumbler of cold water when he said that “we should not make the perfect the enemy of the good”, a far from subtle hint that negotiators from 192 countries are unlikely to come to a binding agreement.

Illustration: Jayachandran / Mint

What now? It appears there could be a political agreement next month followed by a more detailed treaty a year later in Mexico City: feel good followed by do good.

Developing countries such as India and China have been under immense pressure to give up their old negotiating principles and become good boys. The Manmohan Singh government has been trying to tread a delicate—some would say confused—path: defending the old position that India is not yet ready to sacrifice economic growth while signalling that it does not wish to be a global deal breaker either.

We had in a 20 July editorial cited an interview of Thomas Schelling, who won the 2005 Nobel Prize for his original work in game theory and collective bargaining: “…I think (nations) ought to drop the idea that there are going to be enforceable commitments. There have never been enforceable commitments on anything of that magnitude. And I think they should try to negotiate not what emissions level they will seek in 20 or 50 years, but what they will actually do.” Schelling then compared the complex climate change challenge with the North Atlantic Treaty Organization, or Nato. The agreement to defend western Europe against a Soviet attack was only two pages and there was never any enforcement mechanism. Yet Nato worked. “Because when responsible governments make serious commitments, they stick to them, especially when they see other governments sticking to them,” said Schelling.

The point is that Nato did not succeed because it was based on explicit targets on how much to slow a Soviet attack or by calculating the probability of an attack. It showed that it is not what you promise but what you do that is important.

This newspaper does not dismiss multilateral negotiations; but it also believes that domestic legislation by leading countries is important for a self-reinforcing network of credible commitments. The US should make the first move, as the world’s biggest polluter and its most potent power.

Is a global climate change deal really possible? Tell us at views@livemint.com

Rethinking economic reforms

Mon, 16 Nov 2009 17:34:00 GMT

As the Union government gets ready to disinvest partially from several public sector units, there is some pessimism on its ability to deliver on more meaningful economic reforms. Most reforms of the big push kind are politically difficult, but there is still ample scope for smaller but useful steps.

The consensus now is that perhaps the would-be reformers were too ambitious and did not contend with political realities. A 2005 World Bank report, Economic Growth in the 1990s: Learning from a Decade of Reform, said that clearly. The other view is that it is futile to even contemplate far-reaching changes in labour laws and financial sector reforms among a host of other problematic areas. In this view, exemplified by the Harvard economist Dani Rodrik, reforms only occur in the wake of crises, wars or upheavals on a similar scale.

If the path to such reforms is blocked, other things can be done. This would be mostly at the level of individual firms. There are many simple things pertaining to management practices, technology and credit availability that can make a difference. The focus ought to be on companies employing fewer than 25 workers. Given their huge numbers but technological and relative managerial backwardness, helping them can have a sizeable economic impact. Steps such as managing shop floors, inventory control and equipment maintenance, among other issues, can make a big difference. The problem is that even such simple advice and consultancy is often beyond the means of small firms.

Credit availability is another issue. This is an area where there are few, if any, political problems. Instead of extending money for priority sector lending, if a part of this credit flow could be directed to this end, the returns would be much higher. A simplified legal framework for bankruptcy and liquidation proceedings managed by fast-track courts could change things. It would immediately improve credit flow as banks would not have to fear loans turning into non-performing assets.

These arguments may appear to be a climbdown from the big-ticket reforms that could propel India into a double-digit growth pattern. They are. But what else can be done to keep our still enviable growth record? It is time to look for things that can be done and forget what ought to be done.

Have economic reforms been stalled for now? Tell us at views@livemint.com

At the mercy of imbalances

Mon, 16 Nov 2009 17:34:00 GMT

John Maynard Keynes once observed that if you owe someone £1,000, you’re at his mercy; if you owe him a million, he’s at yours. But what happens when one nation owes another $800 billion? It would seem that they’re jointly at each other’s mercies, unless they are capable of fundamental change.

Whether nations are so capable will decide the epilogue to the US-China imbalance story that is slowly gaining currency as a major factor behind last year’s financial panic, as also a major solution to the world’s ills. It now forms the backdrop to US President Barack Obama’s visit to China this week.

Illustration: Jayachandran / Mint

The story begins in the 1970s, when China embraced the West’s markets while US companies, troubled by trade unions in an age of stagflation, pushed off to the East. Cheap Chinese exports—anchored by the yuan’s peg to the dollar—helped a consumption binge. In turn, China’s trade surplus has over the years added to foreign exchange reserves now worth $2.2 trillion. This surplus had to be invested somewhere; China chose the world’s most liquid asset: dollar-denominated US treasurys. This demand lowered interest rates, fuelling further consumption.

We repeat this prologue only because it shows how the last 30 years may have rendered imbalances inextricable for economic stability in both these nations.

In China, prosperity has had an urban bias. Hung Ho-Fung explains in November’s New Left Review how lack of rural development prompted urban migration, while depressed wages kept consumption low. The resulting emphasis on investment benefited coastal centres: Little surprise that a coastal elite now dominates the Chinese government, especially at the highest levels. Alter this model, and the foundations of Chinese political economy—an authoritarian state already insecure about the slightest protest—could crack.

On the other side, author Fred Goldstein notes in his Low-Wage Capitalism (2009) that the largest employer in the US economy has transformed from the well-paying General Motors in the 1970s to a stingy Wal-Mart today. Workers haven’t minded this because both cheap goods and cheap credit were available, courtesy China. Increase US interest rates or cut off cheap imports, and the US labour market may be looking at an upheaval.

This leaves the middle chapters of this story ambiguous. Washington wants the yuan to appreciate—a point Beijing both admits and gets adamant about, as it did last weekend. China blames loose US monetary policy—as its banking regulator did over the weekend—to which Washington nods, but still insists on maintaining low rates for “an extended period”. All the while, both sides seem farther from a resolution, holding the rest of the world at their mercy.

How will US-China imbalances be resolved? Tell us at views@livemint.com

Countering the MNS threat

Sun, 15 Nov 2009 15:33:00 GMT

It is good that two Maharashtrians with moral authority have tried to prick the Raj Thackeray bubble. Sachin Tendulkar has said that Mumbai belongs to all Indians and Rashtriya Swayamsevak Sangh chief Mohan Bhagwat has spoken out against the divisive politics of the Maharashtra Navnirman Sena (MNS). Meanwhile, the MNS has shot off a letter to the State Bank of India in Mumbai asking it to give priority to Maharashtrians in the local recruitment of bank clerks.

Thackeray’s politics invites either passionate defence or passionate condemnation. Such reactions widen the divide and eventually help his brand of divisive politics. It is time to clinically take apart the MNS’ pernicious agenda by drawing people to the centre.

Illustration: Jayachandran / Mint

Raj Thackeray feeds off the economic insecurities and cultural anxieties of Marathi speakers in the Mumbai region. These are not unique: Such responses to immigration have been seen in areas as different as London and the tribal regions of Chhattisgarh. Bhagwat has pointed out that the issue of local language and its rights have cropped up all around the country and need to be dealt with carefully. Thackeray wants to fan these fires rather than douse them. Dealing with him needs to take this fact on board.

Bal Thackeray pioneered anti-outsider agitations in Mumbai in the mid-1960s, and his rebellious nephew is merely copying what the uncle did. That the same issues continue to resonate shows that street fighting has not helped working class and lower middle-class Maharashtrians even after 40 years. The Shiva Sena got a few of them clerical jobs or helped them set up vada-pav kiosks rather than prepare them for a global economy, while party leaders became successful real estate barons. The MNS will do the same.

Immigration is a winner: Those who come into a region bring skills while also getting a chance to earn more. A Mumbai without “outsiders” would see an economic collapse: depopulation, a labour shortage, uncompetitive wages, a steep fall in real estate prices and a loss of economic vitality.

The bigger threat is that MNS-style politics will take root in other growth regions which receive waves of immigrants from failed north Indian states. India is finally moving to a national market for goods and services because of the imminent introduction of the goods and services tax. A splintering of the national labour market at this juncture would be bad news for the country.

That is why the virus must be tackled before it spreads through a variety of measures: a special Centrally administered fiscal package for Bihar, job training for local youth who feel threatened by immigrants, and a greater respect for local languages and cultures.

How should India respond to the likes of Raj Thackeray? Tell us at views@livemint.com

The myth of a national market

Sun, 15 Nov 2009 15:32:00 GMT

There is perhaps no creature in the economic landscape that is as difficult to understand as the consumer, and even more so in troubled times such as these when the world economy is in turmoil.

There was a time when marketing experts innocently believed that all consumers would behave in similar and predictable ways once they climb the income ladder. This belief was most famously expressed in a much-cited article published in the May-June 1983 issue of Harvard Business Review by Theodore Levitt: The Globalization of Markets.

In that article, Levitt predicted that world markets would become more homogeneous, a convergence of consumer behaviour. It was a well-argued and convincing argument, but the reality that emerged after the rise of globalization was very different: consumer behaviour continued to be prey to cultural norms and local realities. This is the world of the Maharaja Mac and the tandoori pizza.

But are national markets homogeneous, especially in large countries such as India and China? An article in the latest issue of the McKinsey Quarterly says that the battle to win Asian consumers should be fought “cluster by cluster, city by city”.

“To be effective in Asia, consumer companies must think regionally but sell locally: They do better by focusing on urban clusters than by conceiving of an entire country as one market,” writes Todd Guild, director in McKinsey’s Tokyo office.

Indian retailers have already got a sense of this, which is why the merchandise they display depends on which city or even suburb a store is located in. But cities in a country such as ours are great melting pots, as immigrants pour in and change them irrevocably. Understanding these dynamics will perhaps be as important to companies selling consumer goods here as traditional issues such as pricing and promotion.

As consumers in the US and other rich countries continue to be weighed down by the pressure of falling asset prices, stagnant median wages and job losses, it is Asia that is being seen as the next great consumption engine. But understanding the new Asian consumer will require a lot of research, deep thinking and failed experiments.

India: one market or many? Tell us at views@livemint.com