Monday, December 31, 2012

The Iran Driver for the Rupee

Teheran Market

India wants its businessmen to sell more to Iran. No big deal, you may say in these days of global slowdown. But here’s the caveat – North Block wants Indian business to sell in rupees and not in the dollars they are used to and has this December, sent out trade delegations to Teheran to explore rupee trade deals.

India had agreed to buy about 45 per cent of the $ 11  billion in oil it purchases from Iran in rupees, to be liquidated by that country in buying Indian goods, early this year, after US and EU imposed sanctions ended the earlier preferred routes of paying through Turkish and Gulf based banks. The money was to be parked in Uco Bank to facilitate Iranian purchases from India. Not much happened after that.

Strangely, instead of the Indians getting worried about the $ 5 billion lying idle in Uco Bank, it was the Iranians who started fretting. Iranian ministers and diplomats complained that Indians lacked business acumen and pointedly compared them with the Chinese, who in their words “were flooding the markets of Iran with Chinese-made goods” traded in Renminbi, which Iran had accrued by selling some 25-30 million tons of crude a year, to the Middle Kingdom.

To push Indian business to try liquidate the huge rupee positions Iran is building up, the Indian government has started encouraging Indian trade delegations to make their way to Teheran.  From December 17-19, a trade delegation of pharmaceutical  firms were sent out to explore rupee deals to sell bulk drugs to Iran.

This followed a letter from the Commerce Ministry which informed drug makers that “ECGC has agreed to provide guarantee cover up to Rs.300 crores ($600 million) to UCO Bank and also to waive the restrictive clause of “insufficient funds” for negotiation of L/C  (letter of credit) by the banks. “ Incidentally, the December trip was the second one organised for pharmaceutical firms, in 2012 to Iran which has a $ 3 billion market for medicines.

The pharmaceutical firms are not the only ones, being encouraged to fly down to Teheran. Engineering firms were sent on trips  to Teheran to explore similar rupee based deals. India wants to rachet up two-way trade from a current $ 14 billion to $ 25 billion over the next four years, with trade evenly balanced between the two countries, instead of the current situation where Iranian sales of oil and gas outweigh Indian sales of food, medicines, chemicals and engineered goods by 11:3.

Iran is already the largest importer of rice from India, with India exporting around 1 million tonnes of basmati rice to Iran. Iran is also one of the biggest buyers of Indian orthodox quality tea, consuming about 15 million kg every year. India has also sealed deals to export 176,000 tons of sugar to Iran so far this year .“The chances of selling more food to Iran are consequently limited. India needs to sell manufactures to Iran, if it wants to take on China … its brands have to be present in Taheran markets more prominently,” said Commerce Ministry officials.

But there are problems in doing business with Iran too. In theory,  Uco Bank will pay Indian exporters out of the account maintained by it on behalf of Bank Markazi, the Iranian central bank, when any of four Iranian Banks  — Bank Parsian, Saman Bank, Pasargad bank and EN Bank — issue valid letters of credit.

However, in reality, LCs take a long time in coming as importers and exporters are put on bureaucratic queue by the Iranian banks. The quick-fluctuating price of Rials makes pricing a tough job too. Even when Indian exports have reached Iran, payments against LCs take a huge time, with Iranian banks taking their own sweet time.

However, the good thing about the Indo-Iranian rupee trade, officials in Finance Ministry say is that this is “encouraging the idea that the rupee can become a currency for international trade … yes there are glitches, but if resolved, India could start exporting more in rupees and cutting out the risk of global forex fluctuations.”

Both the Indian rupee and the Chinese currency are convertible on the current account but not on the capital account, but the Indian rupee’s value is market determined while the Chinese currency’s value is fixed by its central bankers. However, it’s the Renminbi which is talked about in international banking circles, whenever debates occur over new hard currencies which would join the Dollar,  Euro, Pound and Yen in global trade.

Currently, the rupee is officially used for international transactions only with Bhutan and Nepal. Though unofficially, traders in UAE, Singapore, Malaysia, Afghanistan and other neighbouring Asian nations deal in rupees.

According to reports, the Sri Lankan Central Bank’s Monetary Board which earlier this year decided to include Renminbi in the list of designated currencies permitted for international transactions through banks in Sri Lanka, is considering placing the Indian currency too on its list of designated currencies.

Wednesday, December 12, 2012

Vijay Divas – the Day We Miss out in our Celebrations’ List

by Jayanta Roy Chowdhury
The Pakistani Surrender at Dhaka, December 16, 1971

Forty one years ago on December 16, independent India won its finest victory, in a war which was not merely a necessity, but perhaps one of the few in the annals of modern history which could be described as righteous.
The victory was not merely won by military muscle but by a combination of outstanding diplomatic, intelligence and industrial effort. India managed to gain the moral high ground even before entering the battlefield through a sustained global public relations campaign which exposed Pakistan’s ghastly record of murdering 2 million Bangladeshi civilians, raping over a quarter million women and driving out a seventh of its population to Indian refugee camps.
Our intelligence agencies had managed to gather vital intelligence on Pakistan’s war intentions, while fooling the rival army into believing we would not carry through the war effort to liberate the whole of East Pakistan.

The Indian military-industrial machinery had managed to manufacture and supply all necessary munitions and war materials despite a ban on arms sales by Western powers, imposed after the 1965 war with Pakistan.
The creation of a new nation Bangladesh, made the world sit up and look at India in a new light. Not only had India liberated a country, the size of Syria in fortnight’s time and taken some 92,000 Pakistani soldiers prisoners of war in the process, it had defied the most powerful nation in the world – the United States of America – through this war. As everyone knows, the United States famously sent its Seventh Fleet to threaten India’s intervention in East Pakistan, and asked allies Jordan and Turkey to send military aircraft to Pakistan’s aid.

Other western powers too were not exactly happy with the turn of events nor was Pakistan’s all weather friend – China – all of whom saw the emergence of Bangladesh under a new secular leadership as a challenge to their control of Asia. Not much reported, was the movement of a British naval group led by the aircraft carrier Eagle closer to India’s territorial waters in what could have been pincer movement in conjunction with the US Seventh Fleet and exhortations by US President Nixon and his secretary of state Henry Kissinger to the Chinese leadership to `threaten’ India on its northern borders.
Kissinger with Mao

By any account, this was a victory,which could be said to equal that of the Pandavas over Kauravas in the Mahabharatan era, of the Grecian wars against Persia or in more modern times of Rommel against the British in Libya.
Yet, strangely, India does not celebrate this victory outside its military cantonments, nor celebrate the men and women associated with this victory by building statues to them or through street naming ceremonies.

If India had been England or the US or even Australia, we would have been holding public commemorative services for those who died, victory parades with participation of defence forces, students and firemen, with floats and dancers on December 16. Statues of Field Marshall Sam Maneckshaw and Air Chief Marshall P.C. Lal would have dotted town squares along with Indira Gandhi’s. School history textbooks would have had whole chapters devoted to this one single decisive war.
But then this is India. Anything militaristic is frowned upon ever since Pandit Jawaharlal Nehru’s time, perhaps out of a sense of paranoia, fuelled by coups across Asia by Pakistani, Egyptian and Burmese Generals.

Gen J.N.Chaudhuri, who besides winning the 1965 war, also built up the Indian Army after a disastrous rout in 1962 from a 2.5 lakh-strong demoralised army to a three-fold larger and yet more professional national force, was sidelined without much ado by Mrs Indira Gandhi. Documents leaked now, reveal that his phone was probably tapped and that defence minister Y.B.Chavan even went to the extent of questioning him on the possibility of the army trying out a coup-de-etat!
Pt Jawaharlal Nehru with Gen Chaudhuri after 1962 war

Part of the downplaying of 1971 victory is this fear in the minds of India’s political elite that deifying the victory and the victors could result in the rise of a new military culture in this country, which has been an oasis of democracy amidst a continent where military coups have been more the rule than the aberration.

Compounding this fear, was a lack of appreciation on the part of independent India’s leaders of the positive role a modern military can play as an instrument of state policy and in actual policy formulation, especially foreign policy.
Possibly the only two leaders who understood the potential of the military as an instrument of state policy in the 20th century were Subhash Chandra Bose and Indira Gandhi. Bose, as head of the Azad Hind government during the Second World War, of course, discussed politics and political solutions with the military leaders of the Indian National Army and even went to the extent of consulting them on such issues as whether to declare war on the US and other allied nations or to limit his war to combating Great Britain. Mrs Gandhi is well known to have taken the military leadership into confidence well ahead of the 1971 war and in ensuring a holistic approach to the war effort.
Nehru, on the other hand kept the army at bay by appointing his close aide Krishna Menon, an over-rated intellectual as defence minister and a buffer between himself and the army he rated so lowly.

Menon and Nehru had such a low esteem of the Indian military leadership’s abilities as advisors for their foreign policy, that they never bothered to take their inputs on India’s options in the border spat with China in the early years of the dispute. Rather they treated the army as a police force to be deployed on the border without questions.
Raising the Indian flag at Haji Pir Pass

Lal Bahadur Shastri, disregarded professional military advice after the 1965 war, to sign a disastrous accord in Tashkent after intense bullying by Soviet leaders, which gave back the hard-won Haji Pir pass in Kashmir and land up to Lahore in the Punjab, to Pakistan. A deal which was protested by many Indian military officers with resignations, including by BJP leader Jaswant Singh.
In more recent times, Indian prime minister Manmohan Singh is reported to have been on the verge of signing a deal which would have seen Indian forces vacating Siachen ! Luckily last minute consultations with the Army and apprehensions voiced by the military leadership, besides continued Pakistani belligerence, placed that proposal on the backburner.

Unlike in the US, India does not use policy inputs from its Generals’ in forming its foreign policy. Generals come into the picture as bit players asked to advise when issues related to the border are almost finalised!

On a more philosophical plane, the Indian state has formulated a policy which rejects the use of force as an instrument of politics in favour of a policy of strategic restraint that minimizes the importance of the military.

This is said to spring from Gandhian principles. But in reality stems perhaps from a strong lack of trust of the country’s military among its elected leadership. This anti-militarism despite the reality of conflict and war that followed independence, has effectively tied India’s hands in dealing with states like Pakistan, whose state policy lies in forcing India to part with territory through overt or covert use of its military-intelligence infrastructure.

As a result, India blindly searches for a way to manage Pakistan’s provocations, every time it is hit in the face by it. Whether it be a Kargil, a terror strike in Mumbai, bombings of marketplaces and mosques or nuclear blackmail at every stage.

Similarly, devoid of proper coordination in formulating foreign policy and military planning, India does not know how to proceed when Chinese forces test India with a Sumdrongchu or threaten Indian ships in the South China Sea.
Without game theorising involving all essential arms of the government, including the Armed Forces, India can never realise which move by its opponents is a bluff, which a blind, which a real threat. When Chinese forces supposedly threatened India in Arunachal Pradesh in the late 1980s, Pakistan’s bomb was ticking away towards fruition. Were we fooled into a defensive stand, so that Pakistan gained valuable time to complete its Nuclear Bomb, without risking a raid by Indian fighter jets?
19th Century Cartoon on China-phobia

As strategic thinker Stephen Cohen once remarked in an essay “Indian leaders simply have not seen the use of force as a useful instrument of politics”, simply because they did not trust the use of force or those they would have to employ in the effort.
However, it is time our leadership gave heed to what Gen Chaudhuri is reported to have told Chavan when quizzed about the possibility of a military coup: (a) there was a deep-seated respect for constitutional government at all levels in the country. (b) The size of India and the degree of decentralisation of its government machinery made it impracticable for the Army to seize power from both the Union and the State governments in a single operation. (c) If the Army were to attempt a coup against the Union government without seizing power in the States simultaneously, the political machinery would remain operational and the coup would almost certainly be ineffectual. (d) Any coup attempt would place a critical strain on the loyalty of Army, since State loyalties and rivalries are a real factor in the Army.

Rather they would do well to understand that in the modern world as in the ancient, power and projection of power are ways to define and shape foreign policy. It was not for nothing, that Theodore Roosevelt, who was US President at beginning of the 20th century formulated America’s foreign policy stance till the Second World War – “Walk softly, but carry a big stick.”

Friday, November 23, 2012

Elephants, SAIL, Maoists & Mines

A battalion of CRPF para-military men took up positions this week, deep in the jungles of Chattisgarh’s Maoist-stronghold in Rowghat forests, to provide cover for building barracks  for upto 4,000 soldiers who will guard the planned 511 million tonne iron ore mine and a railway track running upto the mine.
India’s Steel Authority of India Ltd (SAIL), an under-performer in the bourses, has been forced to go in for the costly security cover in a desperate bid to keep iron ore flowing to its steel mills, after stalled environment clearances shut down two of its top mines – Bolani in Orissa and Gua in Jharkhand.
Out of the 24 million tonnes of iron ore the steel giant requires to keep its steel factorys at Bhilai, Rourkella, Bokaro, Burnpur, Durgapur and Salem running, some 7 mt used to come from these two shut mines. The shortfall, which will pinch SAIL soon as it has limited stockpiles, could translate into costly purchases in the year ahead unless either Rowghat starts producing or the shut mines restart. 
The CRPF forces who are to be deployed had demanded that barracks be built for them before the brigade strength security is sent to protect the proposed mine. However, in a chicken and egg situation, contactors tasked to build the barracks asked for at least one battalion to be posted to guard those who build the buildings!

Rowghat has long been used by the Maoist groups as a base for operations in the tribal state.
The forces would guard not only the mines which will supply upto 14 mt per annum of high grade iron ore to Bhilai steel plant but also a new railway line  -Dalli-Rajhara-Rowghat-Jagdalpur - to be built jointly by the Railways, NMDC and Chattisgarh state on a cost sharing basis.
An elephant corridor demanded by India’s strident environmentalist lobby has shut down its iron mine at Bolani in Orissa and a tussle is on over whether and when it will be re-opened. While bureaucratic red tape has delayed forestry clearances necessary to operate another mine at Gua in Chattisgarh state.
The net result is SAIL’s iron ore production from its captive mines is short by 14,000 tonnes every day. Forcing it to look towards an area frequented only by wild animals and Maoist militants till now. 
However, realistically, even after the deployment of armed para-military forces,  Rowghat mine will not start shipping its high quality iron ore for at least two to three year years. The Rs 700-crore railway line is expected to take two years to build. As for the mine, Australian consultants Hatch Associates are preparing a detailed mining report which will take some months. Bidding for a mining partner is expected to be held after that, sometime next year. Actual mining could take at least two-to three more years after the winning bidder weighs anchor.


Thursday, November 22, 2012

Kasab and The Terror Trail

Mumbai's Taj Hotel Under Attack  26/11
India has hung the infamous Kasab, sole survivor of a terrorist guerrilla team which attacked and held to ransom two 5-star hotels and a Jewish centre at Mumbai on 26th November 2008, slaughtering more than 150 Indians and foreigners. Will that act of capital punishment, end terror strikes against India?
Even when the news that Kasab, the symbol of the dastardly attack on one of India’s most lived  and loved mega-cities, was being hung  flashed on television screens, I doubted we would have any  such luck in resolving the terror threat from across the border.

Sure enough, soon afterwards, the Pakistani Taliban and Lashkar-e-Toiba, the terror organisation to which Ajmal Kasab owed  his indoctrination and training vowed to hit India and Indians back.
Pakistan Taliban has spun out of the control of its creator – the Pakistani spy agency – ISI. However, Lashkar and its new avatar Jamat ud Dawa remain tied to the spymasters who see them as valuable assets to be used against India and Afghanistan, two nations, Pakistan has traditionally considered its enemies.   

Though a few liberal newspapers in Pakistan have called out for action against the masterminds behind 26/11, the threats made this week by Pakistani terror groups have not been condoned by the Pakistani state. Which seems to indicate that the threats may have the tacit support of sections of the Pakistani establishment, if not the blessings of the state machinery as a whole.  The logic for this is convulated and hard to understand, but it exists. More on that later.

India’s borders with Pakistan, despite fencing off of large chunks remain porous; Its coasts, vulnerable to landings on lonely beaches by small craft piloted by teams of the kind which attacked Mumbai.

The country’s borders with Nepal are totally open and those with neighbouring Bangladesh far less secure than the western one. The trails which terror sellers could take are many.  Indians could also be targeted abroad or on the high seas. At particular risk, would be Indian investments in Afghanistan, which Pakistan resents intensely as it considers this mountainous highland to be its strategic backyard where it hopes to impose its will in the future.   

Indian strategic thinker and former additional secretary in the cabinet secretariat, B Raman in a clinically analytical blog, too seems to feel that the threat would be highest for Indian establishments in Afghanistan and lists LeT, the Haqqani network, the Taliban and the Hizbe Islami as groups whch have the ground capability to launch those attacks.

US leadership watch live footage from the Osama raid
To deal with such probabilities, the Indian state needs to think out responses which will stifle terror. The American, Israeli and Russian state responses to terror perhaps hold lessons from which could learn.
The policy paradigm for these responses are the same, though the exact modus operandi differs. That policy, simply stated, is to attack and diminish the capability of groups which can threaten the countries concerned. The methods differ –  covert operations in some cases, huge state led responses across borders in others.  

With Pakistan shielding its terror groups by using nuclear blackmail – threatening nuclear strikes if India attacks terror camps in Pakistan, there are just two options. The best option remains covert, deniable attacks to finish off these camps. The other, albeit risky option, is to ignore the nuclear bluff, for it is a bluff, and to go in for limited military operations.
The second kind of operation,  will have to be met by Pakistan with some kind of official retaliation, which could escalate and is hence one which should be taken as a last resort. The first, will be grudged, but can hardly be met by official, overt military retaliation. Pakistan understands this kind of covert response, for it has come up with its own covert war against India and Afghanistan, using home grown terror groups, to avoid direct confrontation by denying all that happened.

Indian soldiers celebrate taking back a hill in Kargil ranges
When Pakistani Frontier corps soldiers dug into India’s then unguarded Kargil hills in 1999 and built bunkers from where they lobbed artillery fire onto a main arterial road connecting Ladakh with the rest of India, Pakistan simply denied they were its men. Indian soldiers eventually stormed those bunkers and killed the Gilgit tribal soldiers manning the `nests’. The bodies with their identity cards were offered to Pakistan, which  refused them, denying responsibility ! Though later, Pakistani leaders and generals gloated on their success in launching the sneak attack. 
When Kasab and his mates attacked Mumbai, again Pakistan denied they were Pakistanis. When confronted by telephone taps which showed they were being controlled out of Pakistan by men like LeT chief Hafiz Saeed and ISI officers, Pakistan officially claimed these were non-state actors who acted without the knowledge of the Pakistani state! The logic for such attacks is however, more difficult to understand.

Former Pakistani dictator Gen. Pervez Musharaf was recently in India, to address a gathering organised by a Delhi-based media group. He remained unfazed by questions on Pakistan’s attack on Kargil peaks in Kashmir and seemed to indicate that it was merely a tit for tat response for India’s involvement in the independence of Bangladesh!

What that comment revealed, was the mindset of the Pakistani establishment. It is still seeking revenge against India for perceived insults without either (i) introspection into either their role in Bangladesh or (ii) realisation of the high price being paid for the hatred of India which the Pakistani ruling elite nurses.

Indian troops being welcomed by Bangladeshis

Pakistan as a nation, especially its leadership, suffers from amnesia when it comes to Bangladesh. It forgets that Indian troops were forced to intervene in a messy civil war because Pakistani soldiers carried out one of the biggest genocides in the history of mankind – killing some 2 million of their own citizens and raping 200,000 helpless civilian women. The reign of terror which the army, to which Gen Musharaf belonged,  let loose on the civilian population of what was then East Pakistan, forced some 10 million Pakistani citizens to seek refuge in India. If India had not intervened, more millions would have perished. More millions would have been pushed into India to live as penniless refugees.

Yet, the Pakistani leadership instead of introspecting on its crimes, blames India for its “loss” and still demands revenge. Kargil and Mumbai 26/11 are seen as “revenge”.

Hans Kiessling, German researcher working for the Munich based Hanns-Seidel-Foundation estimates that ISI has an annual budget of about $ 300-400 million. The budget for the entire state of Pakistan is $ 39 billion, nearly $ 6 billion or a sixth of that budget is spent on its armed forces.

This extraordinarily high proportion of budget spent on defence is because Pakistan keeps needling India and Afghanistan with sneak attacks and consequently fears retaliation.
Pakistan has since the 1950s also tried to fund and arm small rebel groups such as the Naga within India, at great cost to itself.  Pakistan’s spy agency also spend huge sums to try undermine the Indian economy by pushing narcotics and spurious India currency. This massive spending on trying to undermine the Indian state translates into that much less left for Pakistan to spend on its own citizens.

The costs are obvious – deteriorating law and order has already turned Pakistan’s largest city,  Karachi, once touted along with Beirut as the `Paris of the East’, into being one of the world’s most dangerous cities; lack of investment has made Pakistan the slowest growing nation in South Asia; lack of spending on healthcare, education, sanitation and other civic amenities has meant Pakistan has kept slipping every year on the human development index. With little money to spend on the mainstream regions of Pakistan, marginal areas on the border – Balochistan, Gilgit have received even less funds, leading to a sense of deprivation which has fuelled separatism there.   
This brings one to consider whether India’s reaction, covert or overt, will actually bring some kind of closure to Pakistan’s export of terror. It may not, till Pakistan changes fundamentally and starts believing as does a section of its intellectual elite, that peace and friendship with its neighbours is the only way forward.

But in the interim, covert action designed to diminish the capability of Pakistani groups to launch against Indian interests, should deter the Pakistani ruling elite and the terror groups it has spawned. In this world of outsourcing, even covert wars can be outsourced. There are quite a few   groups within Pakistan who are struggling against that nation. India's work could be easily outsourced to them in return for training, arms and funding.

The lesson that has to be driven across is that even covert actions begets retaliatory actions and those with more money and men, which India does have, usually win in the end.   

Monday, November 19, 2012

Ponty's `Invisible' Millions

Ponty Chadha inset in his Centrestage Mall at Noida

They used to call Gurdeep `Ponty’ Chadha by several names - `booze baron’, `the invisible man’ and lastly `Khajanchi’.

For a man whose refugee father used to run a small jaggery crusher, `Ponty’ Chadha who was shot dead by his brother Saturday over a property dispute, had done well for himself. His liquor vends to real estate to film production business was variedly estimated to be worth between Rs 15,000-20,000 crore, most of which was built over the last decade-and-a-half.

The 55-year-old Moradabad born got his first nickname soon after he gained control over some 4,000 liquor vends in Uttar Pradesh through a licensing deal with the Mayawati government which then ruled Uttar Pradesh. `Ponty’ got the rights to decide which liquor firms could sell in U.P and at what price in a market which was worth roughly Rs 6,000 crore.

The second nickname - `invisible man’ came because, though he was constantly in the company of big politicos and Bollywood names, he was rarely, if ever, caught on camera. Chadha knew how to remain in the background.

His `invisible’ name acquired a new meaning when a story started doing the rounds earlier this year. The income tax department raided his business premises at Centrestage Mall in Noida, in February this year after clearance from the very top, in an operation supposed to be top secret.

After opening a three lock vault, all that the tax sleuths managed to find were a few silver coins and three Rs 500 notes. His alleged secret stash of wealth, which many said included money given to him by North Indian politicos for safe-keeping was missing.

The series of raids, about which Chadha seems to have had prior knowledge, covered some 17 locations but yielded a mere Rs 11.61 crore, peanuts, by `Ponty’s’standards.

The last nickname name came from his reputation of being an season financier of politicians – big and small, cutting across party-lines.

His proximity with Mayawati had seen him win the liquor vends contracts, a deal to buy up 5 state-run sugar mills in U.P for a tenth of their real value. and a Rs 9,000 crore contract to supply pre-packaged meals to anagnwadis, in contravention of Supreme Court orders to get self-help groups to cook hot meals under the scheme. He also won the contract to set up a Rs 10,000 crore, mega 40 million square feet real estate including houses, hotels and malls in Noida for his firm wave infratech. The first phase of the controversial project which has been challenged in the supreme court by farmers whose land was taken away and given for the project, is expected to be finished by 2016.

When Mulayam Singh Yadav’s Samajwadi Party came to power, many expected his empire to start crumbling. It didn’t, the multi-crore anaganwadi meal programme was renewed, the liquor vends deal continues.

His proximity to politicians was said to come from his habit of giving out large donations towards election expenses. Some allege he had his wallets out in elections not only in the UP but also Punjab, Haryana and Uttarakhand.

His son `Monty’ Chadha, who is expected to take over his business empire along with his middle brother, is also supposed to be the brain behind setting up a chain of nightclubs, where many of UP’s political scions were often caught shaking a leg, and his group’s involvement in Bollywood, initially as a distributer and later as a multi-plex owner and movie financier. Kahani, khakee, Gadar, No Entry and Ready were among movies he distributed. He entered film production in 2005 by making the Sunny Deol starrer-Jo Bole So Nihal.

In the end, his story ended in a manner which begs a Bollywood storyline. What marketmen and investors will now be watching will be whether his empire ends in the same way or continues as a legacy to man who clawed his way up the tough and often murky world of North Indian business.

Wednesday, November 14, 2012

Diwali, China, India and the Asian Trading Bloc Dilemma

The lights on Delhi’s streets this Diwali were mostly shipped out of China’s Shanghai port and many of the plastic images of Goddess Lakshmi, the Hindu godess of wealth, being sold in its bazaars, were  made out of dingy factories in Guangde in South China.
The cheap lights and shiny images may bring cheer to many Indian homes, but for its policy makers led by prime minister Manmohan Singh, they are a pointer to the dilemma Singh will face in Phnom Phnem next week. Those trinkets imported from India’s largest trading partner, have already driven thousands working in small scale lighting and decorations factories in western Uttar Pradesh into the ranks of jobless over the last decade-and-a-half. 
Rising Chinese imports and falling Indian exports have meant that in the first ten months of this calendar year, India has already run up a trade deficit of $ 23 billion. India imports finished goods ranging from cheap lights and mobile phones to stainless steel and consumer durables to electricity plant gear from China, but mostly sells raw materials like iron ore, chrome, lead,  copper and cotton to its northern neighbour.
At the Cambodian capital, Singh will join leaders from China, Asean and East Asian countries in talks to create the RCEP – or Regional Comprehensive Economic Partnership – an Asia-wide trading bloc which China wants to forge as a counter to US President Barack Obama’s Trans-pacific trade bloc which shuts out China and draws Asia closer to the Americas in a trade partnership.
Till now, for nearly a decade, China had sought to keep a trading bloc it sought to create, restricted to East and South East Asia, by involving Asean, Japan and Korea, while shutting out India, Australia and New Zealand.  India and Japan on the other hand had long been resisting China’s attempt to forge a trade pact, which it would dominate, by demanding a Pan-Asian trading block of Asean + 6 (Asean, China, Japan, Korea, India, Australia & New Zealand).
Possibly to trump Obama’s proposed trade block, China has suddenly changed tack and adopted the Indo-Japanese proposal as its own. With this comes India’s and many other potential RCEP members’ dilemma.
If they do not join in, they could lose a first mover advantage to be part of the world’s most powerful trading block which would control nearly 30 per cent of the global GDP. However, joining it could mean reducing tariff walls and letting cheap Chinese imports flood local markets killing off domestic industry.
Analysts say Chinese industry benefits from dirt cheap finance, almost no labour laws, hidden subsidies by way of capital costs often underwritten by provincial or central government besides unfair price under-cutting. 
The Indian government’s  Standard Board of Safeguards will hold a meeting on November 15 to decide whether China is dumping stainless steel products in India, causing huge losses for Indian manufacturers, acting on a complaint by Jindal Stainless Steel. The Directorate General of Safeguards has already supported Jindal’s case. India had earlier too been forced to raise import duty on steel to protect domestic manufactures from dumping by Chinese steel firms.
Last year in a speech, Eximbank President Fred Hochberg had pointed out  “In India, (Chinese telecom equipment maker) Huawei grew to $2.5 billion in sales from $50 million in one year. Folks, that kind of growth takes more than just good sales and marketing strategies",  and went on to blame Chinese "state-directed capital" for that growth. It's well known that telecom operators and private power plant owners in India ordered Chinese gear after availing of extremely low cost loans from Chinese banks.
The result has been disastrous for our industry. Latest industry data shows India’s capital goods sector contracted 12.2 per cent in September, a fact which has caused considerable alarm in North Block  and Udyog Bhawan home to India’s  finance and Industry ministries which for long have been beset by representations from India’s top chambers cautioning against dumping of capital goods by China.
On the other hand, these chambers also complain of non-tariff barriers are shutting out their exports of manufactures from China’s markets. The challenge this `unfair’ trade poses was best summed up by commerce minister Anand Sharma in an interaction at last week’s World Economic Forum “We will continue trying to create a balance because there is an adverse balance of trade and we are seeking market access for Indian IT companies and pharmaceuticals and I hope it will come …  we have talked to the previous (Chinese) Prime Minister. We would continue our dialogue and engagement. China is an important partner for India."

Friday, October 5, 2012

Super Thursday Reforms Burst

Manmohan Shining

The Congress-led Government unleashed a Super Thursday  reforms burst – ranging from raising the cap on foreign investment in insurance, allowing foreigners to invest in pension funds, allowing options in commodities markets to clearing a Competition law, a new Companies law which would see more independent directors on corporate boards and clearance to the country’s 12th five year plan.
The rash of cabinet clearances comes on the back of a pull-out by former ally Trinamool Congress which had among other things opposed plans to raise foreign investment in insurance firms to 49 per cent and to allow foreign-held equity in pension funds besides introduction of options in commodity trading. The break had come when the Manmohan Singh
However, passing the twin financial sector bills- Insurance Amendment bill and Pension Regulator’s bill – will be a tough job given the fact that the UPA government does not enjoy a majority in the upper house.
“We will now discuss the passing of the bills with principal opposition parties,”  finance minister P.Chidambaram said cryptically after the reform moves were cleared by the union cabinet today.
The principal opposition party BJP had agreed to help pass the insurance bill, provided the foreign investment cap was retained at the current level of 26 per cent.
With this agreement junked tonight,  BJP made it clear that it would oppose the bill. The UPA holds 95 seats in the upper house which has a strength of 245. If it can ensure the votes of BSP, SP and the RJD together have 27 members, then it can sail through with the bill.
Otherwise, the only way the government can get over this hump is to declare the bill, a money bill which would necessitate passage by just the Lok Sabha. Money bills, which vote in new taxes or cesses or allocate expenses from the Consolidated Fund of India, cannot be held back by the upper house under the Indian constitution.
Officials said as the bill stands today, the Insurance Amendment bill cannot be defined as a money bill, which would mean it would have to be passed by both houses of Parliament. However, the original IRDA Act which the new bill seeks to amend was a money bill as it voted for a cess to be imposed on insurance firms. Law ministry officials said if the new amendment bill is technically declared a money bill because of the cess element, then the Government could hope to by-pass Rajya Sabha, where the UPA is in a minority.
Finance ministry officials clarified that the cap on foreign investment will be raised to 49 per cent, including both foreign direct investors as well as foreign institutional investors.  Officials also said that the foreign investment cap will not apply to PSU insurers where foreign direct investment was not yet allowed.
The pension bill will have a clause which will state that the foreign investment cap in that sector will follow rules in the insurance sector. Which means if the insurance bill is passed by Parliament, then the foreign investment cap in the pension sector would also be 49 per cent, otherwise it would be set at 26 per cent.
“I hope the management of consensus in Parliament is successful … the government is doing its Dharma, now it’s up to Parliament,” said plan panel deputy chairman Montek Singh Ahluwalia.
The IRDA Amendment Act already stands introduced in Parliament and a standing committee has given a report on it which recommended that the FDI cap should not be raised but agreed to go along with other changes. The government was supposed to study the recommendations and re-introduce the bill with changes it thought were needed, but had dithered till now for want of a consensus.
The re-introduction will not necessitate the bill being sent to a standing committee. However, the Lok Sabha could, if it so chooses send it back to the committee for a fresh study. Officials said this was likely to be a last ditch strategy, if the government was unable to muster the majority needed to clear the bill.
The other changes which will be brought to the IRDA ACT, call for allowing Lloyd’s of London to open an insurance trading floor in Mumbai, somewhat akin to a stock market, and to permit foreign reinsurance firms such as Swiss Re and Munich Re to enter India besides giving a green signal to public non-life insurance companies to raise capital by selling minority stakes. Changes which are not being contested by any party except the Left parties.
The pension bill too faces the same situation. The BJP opposed raising the foreign investment cap beyond 26 per cent, but it was the Left and Trinamool which objected to the very bill itself with its ingrained logic of allowing private funds to manage pensions.
Similarly, it was the Trinamool which nixed another step taken by the cabinet today – introduce options trading in the commodity market. A step which is in line with the thinking of the Left front against which it is pitted in West Bengal.
Options trading allows a trader to buy or sell a commodity at a future date at a price which he expects will rule around that time.
In July, Trinamool Congress Supremo Mamata Bannerjee had forced the Prime Minister to defer the move citing fears that it could raise farm produce prices.
Options trading and even trading in commodity exchanges have  in the past been blamed for speculative price spirals but the cause and effect was never clearly established. However, it has always been a popular villain, in Left narrative, something which the Trinamool Congress follows keenly, despite political differences.

Saturday, September 22, 2012

Vodafone Again

With a new dispensation in North Block’s  all important revenue department, the Finance Ministry has in flurry started a long overdue  move to try and get in more Moolah by closing old high value cases like the Vodafone one.

After a five-year slugfest in courts that produced an adverse verdict for the revenue department, the government tried to undermine the effect of the verdict through a 50-year retrospective amendment of the Income tax Act. The move rattled foreign investors and raised serious questions about the notions of fair play and India's respect for court verdicts.

The case arose over the revenue department's move to gouge out $2 billion in taxes from a $11.2 billion deal between two overseas entities - Vodafone International Holdings, a Dutch subsidiary of Vodafone Plc, and Hong Kong-based Hutchison Whampoa and its associate firms.

On Friday, Vodafone India chairman Analjit Singh met finance minister P. Chidambaram, fuelling speculation that a rapprochement was imminent.

The latest initiative from North Block suggests that an old truce offer, which was made about a year ago, has been revived. Under the terms of this offer, Vodafone will have to pay the original tax without any penalties or interest, which the government had threatened to invoke by treating it as an assessee in default. The tax payout could work out to Rs 8,000 crore instead of the Rs 11,000 crore initially demanded, or the Rs 20,000 crore which the government had at one stage threatened to seek.

Chidambaram has asked expenditure secretary Sumit Bose to take over the crucial revenue department to tone down the fulsome rhetoric of its previous secretary who was insisting on the implementation of the general anti-avoidance rule (GAAR). This is a new-age tax measure that developed countries in the west have started to experiment with to stop foreign investors from using elaborate corporate structures and a fund trail passing through a number of tax havens to minimise tax payouts in the country where the income originates. The move to introduce GAAR from April next year had spooked foreign investors who were considering opening ventures in India.

Sources say revenue officials made a strong case that letting Vodafone off the hook would affect a number of other cases. These include the Idea Cellular-ATandT deal, SABMiller's buyout of a 100 per cent stake in Foster's India, and General Electric's sale of its majority stake in Genpact in a $500 million deal.
They argued the total notional loss  to the exchequer may well be in tens of thousands of crores of rupees, something which could well roll into another major controversy, especially if an activist Comptroller and Auditor General took up issues with the government on this.
The government needs to mop up Rs 10.75 trillion in direct and indirect taxes and with the economy going through a slowdown, it’s not yet certain whether tax targets will be met.

The other problem was that the Government had passed a law amending Section 119 of the Income
Tax Act and to repeal it, the move would have to come up before Parliament where the government could well be pilloried for first asking for this all important change and then for seeking to repeal it in a move which could be interpreted to help one single company.

Vodafone which obviously is a long term player in the Indian market which has proved extremely lucrative for it, now seems to favour coming to some kind of a peace deal with the government and has recently said it would consider making a provision against the legal risks of its Indian tax liabilities. The British telecom giant has plans to invest upto $ 4 billion in new telephone licences which are to be auctioned.


Saturday, September 15, 2012

Manmohanics is Back

Manmohan Singh is back as `Salman Khan' aka `Tiger' !*
Manmohanics is finally back. On Friday night, a cabinet headed by prime minister Manmohan Singh, the original reforms man, decided to allow foreign direct investment into India's $ 600 billion retail market, albeit with riders and limited to willing states,.

It also agreed to let power exchanges sell stake to foreign owners, allow foreign airlines to buy into Indian carriers, hike FDI levels in non-news broadcast services and disinvest in 4 blue-chip public sector firms which could rake in about $ 2.5 billion.

Hit by charges of sleeping on the job and of ushering in an era of policy paralysis, Singh’s cabinet, which earlier this week cut subsidy on diesel, by hiking price of the auto-fuel and reduced supply of subsidised coking gas, decided to gamble that a wave of reforms would be too many for recalcitrant allies to take on.

The prime minster, who is credited with having introduced the first big burst of economic reforms in the early 1990s ( an early burst of import-export reforms in the early 1980s by then finance minister Pranab Mukherjee is believed to have helped build the stage for his big leap), is believed to have been keen these decisions should be passed and passed in one shot to dispel notions that his government did not have the belly to take hard-nosed decisions and to kick-in an economic climate where Indian and foreign investors would be enticed to invest.

Especially as India’s GDP growth had slowed down from over 9 per cent a few years ago to just over 5 per cent in the last quarter and a threat from global rating agencies of marking India out by giving it the dubious distinction of having its credit rating downgraded to that of junk bonds.

While the Trinamool Congress which boycotted the reform agenda cabinet meet, was busy sending a 72 hour ultimatum for a roll back of diesel prices, the Congress led coalition decided to risk her and another key ally Samajwadi party’s ire by going ahead with FDI in retail.

The idea seems to be that the government will bow down later to Mamata and roll back diesel price hike by 20-25 per cent or increase the number of subsidised cooking gas cylinders allowed per family, letting her claim victory, while going ahead with the bouquet of reforms. ** 

Friday, September 14’s decision will allow foreign retailers like Walmart, Carrefour and Tesco to take up to 51 per cent stake in large format departmental stores, which Indian officials have dubbed multi-brand retail, but will be limited to states which have agreed to allow them. As yet some 11 states and union territories including Delhi, Maharashtra, Assam, Haryana, Andhra Pradesh, Uttarakhand, Rajasthan, Manipur and Jammu and Kashmir.

"The series of policy decisions announced by the Government today signal that India is on the move (and) they send out a clear message to the global investor community that the Government is committed to taking forward next generation economic reforms,”  said an exuberant Sunil Bharti Mittal, who has a tie-up with US giant retailer Wal-Mart.

However, the reform burst did not come just because of a desire to attract investments and check a slowdown in the economy. Many analysts saw this as an attempt to cash in on a period when elections were not on the anvil. The next round of state elections are in Gujarat in November-December. Nearer to that date, the Congress led government will have to go back to being populist and not reformist.

Earlier suggested rules of limiting foreign owned retailers to cities with 1 million plus population have been junked, allowing state governments to decide which cities to allow retailers entry into. However, new terms which ask retailers to invest 50 per cent of funds in back-end infrastructure such as cold chains and processing plants in rural areas have been brought in, making the retail proposition attractive to any state with large agricultural production.

West Bengal does happen to be the largest producer of rice, vegetables, fish and pineapples and second largest producer of potatoes in the country and accounts for about 10 per cent of edible oil produced in the country. However, potatoes often sell at as low as Rs 2 a kg at farm market in the state, while they retail at over Rs 20 a kg in most metropolitan cities and at Rs 10 a kg in Calcutta.

Farmers in West Bengal as in other parts of the country rarely benefit from their huge surpluses the way they would have if middlemen could be eliminated from the supply chain and retailers buy directly from farmers. Commerce Ministry officials hope that big states like West Bengal, Tamil Nadu and Uttar Pradesh will be forced to change tack on foreign retailers once they see the direct benefit to their large farmer communities. 

The reforms burst, is expected to be followed by a cut in interest policy rates or a cut in the cash reserve ratio, the amount banks have to keep with the Reserve Bank, despite inflation still ranging at over 7.5 per cent. The RBI it is believed will be told that the government is making sincere efforts to cut subsidies and hence borrowings and this should give the central banker room to manoeuvre on interest rates. ^

But in all this flurry of grand reforms – one little economic logic does not seem to be working out. New jobs and thence fresh demand needs to be generated to make the old economy to jump to new rates of growth.

* The picture taken from The Telegraph newspaper, is a spoof based on the Bollywood Movie `Ek tha Tiger' (Once there was a tiger) where actor Salman Khan plays the role of a Bond-style super-agent, nicknamed `Tiger'. Here Dr Singh is shown as the new `Tiger'.
** At the end of a week after this was written, a `deal' on partial roll-back did not happen after both sides hardened stands and Mamata hit out accusing the Congress of trying to cover up scams such as Coalgate and of tapping her cell-phone. This seemed to be proverbial Rubicon and the Congress decided to call her bluff and let go of her and her party from the coalition in favour of more pliable allies such as Mayawati's BSP.
^ Three days after the article was written - The RBI stuck to its stand on not lowering interest rates, but it did cut the CRR, pumping in some Rs 170 billion or $ 320 billion into the marketplace, thereby encouraging banks to lower lending rates. 

Tuesday, August 21, 2012

Pakistan and The Idea of India

When India and Pakistan were born in 1947, many in the sub-continent hoped the cycle of hatred which partition of the sub-continent had unleashed would  like most conflicts, come to an end. That has as yet not happend, perhaps because of the nature of the theory which gave birth to Pakistan.

What many fail to understand is Pakistan, India's twin brother, was born as an anti-thesis of all that India stood for. India’s leadership envisaged the nation would be a federal, multi-lingual, multi-racial, secular state. The Pakistan theory envisioned just the opposite – a unitary state where one religion and one language and left unsaid – one race - would determine nationhood and citizenship.

Its founder, the otherwise secular in his personal life, Muhammad Ali Jinnah, tried to undo some of the damage that this theory could wreak on the child he was giving birth to by trying to `secularise’ state policy.  In a remearkable speech to the Constituent Assembly of Pakistan, Jinnah said “You are free; you are free to go to your temples, you are free to go to your mosques or to any other place or worship in this State … no distinction between one community and another, no discrimination between one caste or creed and another. We are starting with this fundamental principle that we are all citizens and equal citizens of one State.”

However, his death soon after Pakistan’s creation put an end to that start.

The Pakistan theory’s raison-d’etre was in negating all that India stood for. If Muslims and Hindus could get along together, then Pakistan’s logic was lost. To undo the enmeshed twinning of the two faiths’ adherents, Muslim League and its ideological followers, worked overtime, helped, many allege by Britain, the  fading power which wished to continue its rule through a policy of `Divide et Impera'.

Through the 1930s and ‘40s, in Bengal and Bihar, Muslim women were asked to replace wearing red bordered saris with green bordered ones, in Western and Northern India to replace saris with salwarkameez. Bindis were frowned upon. Muslim boys were asked to stop wearing dhotis and opt for Payjamas. (How these were deemed more `Pakistani' is still a mystery). The idea was to create separate identities.

In 1947 it seemed to work. Identity politics reinforced by communal violence saw the country partitioned.Three fifth’s of the sub-continent’s Muslims lived in the Punjab, Sindh and in the North West Frontier Province or in East Bengal. They opted out of India to follow Jinnah into Pakistan. Those who said otherwise, such as Badshah Khan or the Baloch of Kalat, saw their voice and reasoning drowned by the voluble cries for Pakistan.

Millions more caught on the `wrong’ side of the border, followed the paths of the greatest human migration in history. Post-partition, non-Muslims were less than 5 per cent in West Pakistan and about 29 per cent in East.Through the 1950s and 1960s, with increasing marginalisation and occasional progroms, minorities kept migrating from there to India, bringing down their numbers to about 14 per cent in East Pakistan by late 1960s and two and a half per cent in West Pakistan.

Indian Muslims : Indians first

Yet a third of the sub-continent’s Muslims chose to stay on in secular India in 1947. Some because that was where their lands and businesses were. Some like that of the family of actor Shah Rukh Khan or that of Nawab of Pataudi, because they believed in the Congress and its vision of a secular state. Except for a few stray cases of rich landowners or business tycoons who migrated to save taxes in the 1950s and 1960s, none migrated to the neighbouring `Land of the Pure (Pak-i-stan).’ From 9.9 per cent of India’s total population in 1951, this community’s percentage of the total population went up to 11 per cent by 1981 and 14 per cent by 2011.

Pakistan after coming into being,had started defining who was a Muslim. Ahmedias and Bohras lost out early in this search for the `Pure’. Later Shias were discomfited by questions of how true their Muslim identity was and in recent years subjected to ethnic cleansing attacks.

Ethnicity was also a moot question. Pakistan defined itself as nation which inherited India’s Arab and Central Asian heritage. This, seemed to suggest that Pakistanis were descendants of the `Golden hordes’, the Arab, Turkic and Moghul armies which came to India in medieval times.

At best this was but a scatter-brain theory which chose to ignore  that most Indian Muslims were descendants of converts to the new,  attractive monotheistic religion, which gave many Indians an alternate to the decadent, caste-ridden form of Hinduism which flourished when Islam entered India. However, this` hypothesis' at one stroke, immediately marginalised the already poor, dark complexioned émigré’ from India and the Bengali Muslims of East Pakistan.

The search for `Purity’ threw up an oligarchical leadership in the neighbouring state – a coterie of Punjabi-Pathan and high born émigré’ from North India feudals who controlled the top rungs of the army, bureaucracy, industry and politics in that country.

Challenges to the Idea of Pakistan

Racial discrimination, insistence on one language, Urdu, economic colonisation of the East by the West, lack of democratic outlets to grievances, led to Pakistan breaking up and giving birth to Bangladesh. Ethnic identity politics still remains a bitter divide in Pakistan, with poor émigré’ Bihari Muslims living in Karachi slums often erupting in violence against real or perceived discrimination.

The challenge whch the formation of Bangladesh gave to the theory that Pakistan, was the sole  refuge for Muslims of the sub-continent, who in the eyes of Pakistan's founders were a separate people set apart from their neighbours, was met by a stricter interpretation of the `Pak (Pure)’ theory. Children were taught through official textbooks from the 1970s onwards, that Hindus were their enemies and that history started  with the Arab invasion of Sindh, which saved people from a despotic, harsh Hindu rule. Earlier eras and civilisations were simply forgotten.

Non-Muslims and Muslims, not deemed to be Muslim enough, were further marginalised and laws and regulations changed to ban liquor, cabarets, Hindi movies, shared festivals, in short anything which was shared fun.

If India was successful as a secular nation, then Pakistan’s logic was lost. Hence Pakistan’s need to challenge the accession of Kashmir, India’s only Muslim majority state. Two wars by Pakistani armed forces could not detach the state. Rather, the state through repeated democratic elections seemed to renew its faith in a life with India. In the late 1980s, Pakistan therefore started fomenting trouble in Kashmir valley.  The result was not really in favour of Pakistan, but it was against Indian unity.

 A secessionist, Islamist, movement took roots in the valley, partly because of Pakistan’s proxy war, partly because of genuine long standing discontent arising from a series of corrupt state governments, economic deprivations, Central neglect, etc.. A challenge, the Indian state has tried to meet partly by using military force and  partly by a mix of talks with separatists and steps to better the economy of the state.

However Kashmir represents just 10 million of India’s more than 160 million Muslims and Kashmiris seem to believe more in their Kashmiriat than their religious identity. Radicalising  the larger body of Indian muslims and using this  mass as a bulwark against India was therefore always an even more attractive option for those who wished to reinforce the two-nation theory.

Unfortunately for them, this proved to be a difficult option. Most Indian Muslims thought of themselves as Indians first and Muslims afterwards and certainly had little or no sympathies for Pakistan. The valour of Indian Muslim soldiers in 1948, 1965, 1971 and more recently in Siachen and Kargil are testimony to that as also the immense contribution of that community to India’s administration, politics, theatre, the arts, literature, academia and sciences.

More recent attempts of using morphed images of Thai, Tibetan and Chinese to represent Rohingya and Assamese Muslim riot victims to inflame passions through India, too seems to have fallen flat on its face.

The unity of multi-racial and multi-ethic India was also a challenge to Pakistan which was trying to create a single Pakistani Muslim identity with links to an Arabic-Central Asian heritage. Hence, Pakistan’s support to rebel groups from the North East. First, when Pakistan was a united entity, through camps in Chittagong Hills and later when a `Pak-friendly’ military government was established in Bangladesh through a coup, by using other border safe havens. Unfortunately, for Pakistan and luckily for India, Bangladesh in the 21st century realised the dangers of allowing these groups which brought drug peddling, money laundering and arms running into that state, a free run. A clampdown by Bangla authorities helped save that nation from a growing threat to its own safety and security, not to mention its relations with its single largest neighbour.

Pakistan - Which Road Will It Take

As India becomes economically more successful and  Pakistan sinks into troubled times with Baluchistan and Gilgit demanding autonomy at the least and independence at the best, Sindh turning more restive and Hill Pathan tribes dreaming of a greater Pashtunistan with their Afghan cousins, the idea of Pakistan will come under greater challenge. Desperate to reinforce its unity, that nation may well then continue on the path it chose earlier – challenging India’s unity and secular credentials to prove that the opposite of Pakistan does not mean success. India has her faultlines and these could well be exploited. Chosing this path will probably be concurrent with greater Islamisation or in effect even eventual Talibanisation of the Pakistan state.

If Pakistan, choses this path, then it could mean more terror strikes at Indian targets, psy-warfare of the kind witnessed in the recent sending of bulk SMSs to people of North Eastern descent, threatening them with attacks by Muslim groups.  The radicalisation of that nation will also mean reinforcement of the feeling of victimhood in Pakistan, greater intolerance towards other religions and people and greater support for ideas of crusade or Jihad against not only India but also those perceived as Christian nations.

However, there is a different path that nation may chose. One of cooperation. It may chose to befriend its twin brother to bring not only peace, but also prosperity within its borders. One would hope it would chose that path. But, yes, that choice will in time kill the idea of Pakistan as an anti-thesis to India. A new identity will then have to be forged for that nation or else it would, in time, wither.

American strategic affairs writer Robert  Kaplan has pointed out that down the ages, nebulous border states have often existed in the sub-continent, encompassing border races and tribes, even as India proper has prospered as a single entity. Perhaps Pakistan would like redefine itself as such a confederacy. The path it choses in the next half a decade will be crucial for its existence and well-being, indeed the well-being of the whole sub-continent.

Once the choice is clear, India and other powers interested in Pakistan would react. If Pakistan choses overt or covert confrontation as well as increasing Talibanisation, India will have to rethink its peace propositions. These have been made on the calculation that it is better to have one united neighbour, with whom peace can be forged at some date on its western border rather than a Balkanised, unstable region.

At some stage, India, and other powers such as the US and Russia who face threats from this rising tide of Talibanisation, will weigh the pros and cons of such a stance and decide whether to risk a Talibanised Pakistan or to support the process of Pakistan unravelling itself, risking the aftermath as a lesser evil.