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.”