Saturday, August 23, 2014

The Reimagining India Man : Arvind Subramanian

The man who told the world `Why China’s dominance is a sure thing’ and rated the Modi Government with 3 straight As along with a dismal D, Arvind Subramanian, Senior Fellow at the Peterson Institute for International Economics, will be India's new Chief Economic Advisor.

Arvind Subramanian & his book `Eclipse'

Report Card For Modi

A year before the Indian elections which swept Modi to power, Subramanian in an essay `Precious Experiment’ written in a book `Reimagining India', said “strong leaders, who will deliver good governance and reforms, like Gujarat chief minister Narendra Modi” were part of the reason to maintain faith in India’s economic possibilities.  He also pointed out that at that point of time, in comparison to neighbor China, India suffered from relative less effective state capacity, an indirect but easily understood criticism of the Manmohan Singh regime.

Not surprisingly, just about 45 days after Modi took over, Subramanian published a `Provisional Scorecard for Recent Modi Government Measures’, where he gave three straight As to the Modi regime for tackling inflation, encouraging states to liberalise free movement of fruits and vegetables, and partially rolling back restrictive labour laws. He however gave the Government a poor `D’ rating for raising sugar subsidies and increasing duty on sugar imports in a bid to appease the powerful Uttar Pradesh and Maharashtra based sugar lobby.

The Government’s decision to raise duty on imported sugar to 25 per cent announced on Friday 22 August coincided with news leaking out that he will be the new Chief. One wonders how the economist reacted to the cause of his `D' grade rating becoming a reality.

The Inevitable Superpower

Subramanian, whom the influential Foreign Policy magazine included in its annual global list of `Top 100 Thinkers’ for 2011, is considered an unconventional yet brilliant economist whose seminal book `Eclipse: Living in the Shadows of China’s Economic Dominance’ which challenged the conventional belief that US would remain the global leader well into the rest of the century at best and at worst share the power-play with China at worst. He did this by coming up with an index of dominance based on GDP, trade and the extent to which a country is a net creditor to the rest of the world, to figure out relative standing of the largest economies between 1870 and 2030.

His startling finding was that even on a conservative estimate, the world was going to be a unipolar one, dominated not by the US, but by China, whose relative rise would fuelled partly by American decline and partly by its own economic ascendancy. The US debt to GDP ratio, for instance, would have crossed 100 per cent, while China which already holds 50 per cent of US paper, would have accumulated far greater credit holdings. In an interview he gave to the magazine wired, Subramanian said: “I see China’s Renminbi replacing the dollar as a global reserve currency in 10 to 15 years.”

`China's Star Over Africa'

The Stephanian, who had gone on to study at IIM Ahmedabad, before doing his doctorate in economics from Oxford, pointed out in a preview piece in the influential Council for Foreign Affairs’s publication – Foreign Affairs - that it was control over the levers of credit, which allowed the US to use the IMF, in the words of Mickey Kantor, US Trade Representative under Bill Clinton, as "a battering ram," to open up Asian markets, including India, which in time would give China global dominance.

Even before that, the USA had used the threat to hold back credit to get the ageing Super-power of that time - Great Britain - to withdraw troops from the Suez canal in 1956. A bitter Harold Macmillan, who, as the British chancellor of the exchequer, presided over humiliating stages of the crisis, would later recall that it was "the last gasp of a declining power." Macmillan has been quoted as having said then "perhaps in 200 years the United States would know how we felt."

Subramanian's contention is that despite having a fairly low per capita income, China had already started using credit and trade to influence global power-play. Among other things by convincing African countries where it invests heavily to shut down Taiwanese embassies. It has similarly forced European and US firms to part with technology to allow them to access to its market and America's time feel the hurt was coming sooner than Macmillan had predicted. 

His controversial book won him many detractors, but also admirers among the best brains in the world. Legendary former US Secretary Henry Kissinger, Stanford professor and influential author of `End of World’, Francis Fukuyama and Pulitzer prize winner  Liaquat Ahamed  are among those who gushed about his thesis.

Indian Perestroika

Subramanian who has worked for the GATT and IMF in previous incarnations, in another startling paper, vindicated what many of President Pranab Mukherjee aides when he was finance minister in the Indira Gandhi Government,  have long touted - the real  `Indian perestroika’  happened in the 1980s and not in the 1990s.

He pointed out in a paper, "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition’, co-authored with Princeton economist Dani Rodrik, that it was India’s decision to cut corporate tax rates, lift price controls and opening up the market to imports, which spurred firms to become more competitive.

His implicit argument was that the `pro-market’ reforms brought about Dr Manmohan Singh which brought in a surge of foreign investment would not have been possible without the `pro-business’ steps of the 1980s which made domestic business competitive, in effect ran counter to current economic wisdom.

It is now to be seen whether he continues with the 1990s pro-market reforms or strives to bring back some of the 1980s pro-business measures to prop up Indian manufacturing which has been tottering in the wake of the global meltdown and greater ascendance of Chinese manufacturing muscle.  

Monday, August 18, 2014

Demise of Yojana Bhawan

Jawaharlal Nehru chairing a meeting of the Planning Commission
Like other relics of the Nehruvian era  - smoke-belching Ambassador cars, huge unwieldy Murphy radio sets, urban sprawls of ugly, box-like, post-World War flats, the fashion statement of the Nehru jacket and Godrej typewriters – the Planning Commission, housed just three buildings away from the Indian Parliament, is now destined for history’s dustbin. 
The body, housed in the appropriately named Yojana Bhawan (Planning House), was a warren of offices where in its heydays, economists and Babus decided how many bicycles could be made in a factory, what should be the price of a bar of steel and whether a planed factory should see the light of the day or not.
The concept of economic planning was borrowed from the Soviets, who in the eyes of Third World leaders seemed to have done a wonderful job of pulling their poor, backward Russia into the 20th century. Interestingly, the concept planning and a body which would plan for India was first floated in 1938, by Subhash Bose, as newly elected Congress President. He decided, his rival within the Congress, Jawaharal Nehru was the right man to be dumped with the task of dreaming up plans for India’s  economic greatness.
Nehru, himself a Fabian Socialist,  was nevertheless attracted by the Soviet model of centralised planning and a command economy. In 1950, he issued an executive fiat based on a cabinet resolution setting up the powerful plan panel, something which was said to have upset his finance minister John Mathai to resign, and eventually forced him to resign.  Old timers say, what galled Mathai’s was that the body, which did not even have any constitutional authority, was to take away his powers to decide how much money he could spend for India’s development.
The first man to head it was Gulzari Lal Nanda, a simple, honest Congressman who later went on to be twice acting Prime Minister, before breathing his last in a tiny flat atop a shop in Delhi’s  Khan market.
However, the real spirit behind the planning commission was the statistician P.C.Mahalanobis, a personal friend of Nehru, who came up with an input-output matrix for planning or a spread-sheet method on how much capital to invest to get a required targeted rate of growth for any given industry. Nehru and Mahalanobis’s plan model became something of a rage for development economists across the world, with many making the pilgrimage to Delhi to study the new methodology.
P.C Mahalanobis with Nehru

The Second five year plan, which he authored was a remarkable success with the economy growing at 4.5 per cent. However, before and after that growth floundered, with India’s GDP growth prior to 1991, averaging a poor 3.5 per cent and in some years dipping below 1 per cent!
However, with each passing year and the deepening of India’s License Raj,  Yojana Bhawan came to be seen as politically and financially all-powerful. Though the prime minister was nominally chairman of the Planning Commission, the real master of the house, was the full time deputy chairman. He had the "discretion" to distribute "plan funds" to state governments.  To decide which industry could get how much bank financing, how much machinery they could import, how many shifts they could run and even which industries were at all necessary for India.
At its best, however, economists point out, that it was responsible for much of what Nehru described as temples of modern India – Bhakra Nangal multi-pupose dam project, Durgapur Bhilai, Bokaro and Rourkella steel plants. However, critics also point out how the same commission also recommended setting up stainless teel plant at Salem in Tamil Nadu, under the influence of Mohan Kumarmangalam, without any coal or iron ore available anywhere within 1,000 kms of the plant. Steel made at Durgapur and Roukella was sent by train to be melted down again to be rolled into stainless steel, a remarkable planned exercise in duplicating effort and costs.
The Deputy Chairman of the Commission was more often than not a political stalwart – thir ranks included the likes of V T Krishnamachari, C Subramaniam, P N Haksar, Rama Krishna Hegde, P.V. Naramsimha Rao, Pranab Mukherjee, , Madhu Dandavate, K C Pant and Jaswant Singh, who could skilfully deal with chief ministers and top industrialists alike.
However, not everyone accepted the diktats of the plan panel happily. Two years back, ," Tamil Nadu Chief Minister J Jayalalithaa, sarcarstically told journalists, "We have come to Delhi just to be told by the Commission how we should spend our own money.”
Critics also pointed to the waste and lack of monitoring by the planning body. Bridges which were to have built by the Third Five year plan, were found to have remained unbuilt even after the lapse of 8 more 5-year plans!  Panel members gave themselves a Rs 35 lakh toilet and the panel’s deputy chairman Montek Singh Ahluwalia spent a daily average of Rs 2.02 lakh during a six month period in 2011 on foreign tours, even as the Commission recommended that people could live on Rs 28 a day!

Monday, August 11, 2014

Should We Celebrate World War I ?

Comic strip on the war
The War to end all Wars  - That is how leaders of that era sold the war to people at large !  It did not of course, end all wars. Not even in Europe where it was largely fought. 

This is a year when many people around the globe are celebrating the memory of that war. However, as nations pay homage and hold grand ceremonies to commemorate the `Great War' and the generation which fought it, many forget the reasons why the war  was fought in the first place.

Was it about naval rivalry? National Pride? Naked German aggression ? The inherent conflict between European royalty, all of whom were closely related to each other, triggered by the assassination of one of them in distant Sarajevo ?

All these were certainly factors, but the underlying reason for most wars are economic. The First World War too was no different. The war in truth, was a conflict over the spoils of colonialism.

The first world war was preceded by a mad scramble  to occupy Africa. All European powers joined in the race to claim bits and pieces of the `Dark Continent' with its immense riches. The major European powers had already carved up the Americas and much of Asia in the centuries before and in the process increased the per capita income of their citizens manifold. This was the last habitable bit of Earth which could be had to add to Imperial `estates.' In this battle for land and influence, as first movers, France and Great Britain, had an advantage over late comers like Germany and Austria and that triggered the tensions which transformed into a World War. 

The rivalry between the two camps – newly arrived Germany and land-locked Austria-Hungary  on the one hand and older sea-borne colonial powers – was not just for colonies, but also colonial trade, trade routes and privileges.

An insight into the scramble for colonies can be had from the two Moroccan crisis which occurred  just before the Great War began –
In 1904, France had concluded a secret treaty with Spain partitioning Morocco and agreeing not to oppose Britain’s moves in Egypt in exchange for a free hand in the till then independent kingdom of Morocco.  The next year, German emperor Wilhelm II visited Tangier and declared for Morocco’s independence, not really in support of an oppressed people, but because he wanted to parley with fellow European kings over colonial rights and needed a bargaining chip.

This `First Moroccan Crisis’, was resolved in January–April 1906 at the Algeciras Conference, where German economic rights in the region were upheld, while the French and Spanish were entrusted with the policing of Morocco.
The World Carved Up Among European Powers

The Second Moroccan Crisis sparked in 1911,  when the German gunboat Panther was sent to Agadir  ostensibly to protect German interests during a local uprising in Morocco but in reality to cow the French. This “Agadir Incident” sparked a flurry of war talk during that year, but international negotiations continued, and the crisis averted with the conclusion of a convention in November 1911, by which France became `protector' of Morocco and, in return, Germany was given strips of territory from the French Congo. Obviously, the local people were never consulted when they were bought or sold!
Map of the proposed railway

However, the Germans had ambitions further afield, which included nebulous control over the newly found oil wealth of Mesopotamia. A Berlin-Baghdad railway line was planned which could be later extended to Teheran. Germany would be supplied by oil and other supplies from the east, by this railway, while the Ottoman Empire which controlled Baghdad would gain a railway network for quick military mobilization into the Balkans were they were facing up to Russia's expansionist threats. The problem was that a German railway up to Baghdad or Persia, was just a step away from India !

Let me quote the American Orientalist Morris Jastrow, to explain what was at stake : "It was felt in England that if, as Napoleon is said to have remarked, Antwerp in the hands of a great continental power was a pistol leveled at the English coast, Baghdad and the Persian Gulf in the hands of Germany (or any other strong power) would be a 42-centimetre gun pointed at (England's dominion over) India."

Europe readied for war. The older colonial powers – France, England, Russia and Italy to protect their colonies and trading privileges, the newer ones – Germany and Austria, hand in glove with a  threatened tottering power – the Turkish Ottomans, in search of fresh colonies and trade routes. The assassination of Archduke Ferdinand  of Austria at Sarajevo by Serbian-Bosnian rebels in 1914, was merely an excuse for the war to begin.

We, Indians, had no say in the war at all. Most Indians wanted only one thing - independence. Not rule by  King George V or by Emperor Wilhelm II. However, without any strong national leadership, Indians joined in the war effort in large numbers for the pay and job opportunity which came their way.  Boys from rural India fought bravely and possibly won the larger part of the war in the Middle East. Damascus, Palestine, Jerusalem, Gaza, Haifa, Kut-Al_Amara, Baghdad, Basra and Tigris, all figure in the battle honours list of the Indian Army. (Lawrence of Arabia and his motley crew of supporting Sheikhs, were considered by many as merely extras in that battle for Arab lands. The real muscle power was mostly Indian.) More than half of the Indian brigade thrown at Gallipoli died in a brave but futile attempt to take on Turkey's brilliant General, Kemal Pasha, side by side with the ANZAC (Australia and New Zealand) troops, though in the national memories of the West, that epic folly of a battle is associated with Australians alone. In all some 65,000 Indian soldiers died fighting the King's war. The Sub-continentals won some 13,000 gallantry medals including 12 Victoria Crosses, the highest gallantry award the British gave to a fighting man.
Recruitment Poster

Quite rightly, we need to celebrate our boys' bravery and mourn those who died. However, should we really celebrate this war which was not ours ? There is after all a distinction to be made in celebrating our own people’s bravery and someone else’s victory.

Neither was the victory ours nor the defeat. It was a white man's war fought also by brown and black boys, who were not allowed to be promoted to officer ranks nor get the same pay or perks that their white brethren received. The 140,000 Indian soldiers rushed to defend France were sent in without adequate winter clothing or footwear ! Despite that they fought and were decisive in the battles of -Ypres, Givenchy, Neuve Chaplle, Festubert and Loos.  Modern medi-care was given to the Indian wounded, but in segregated hospitals on the English coast. Barbed wire surrounded these hospitals and sepoys were not allowed into town un-chaperoned ! Even in matters of food they were discriminated.

An Indian soldier’s daily ration during the Great War consisted of :

14 pounds (lb) meat
(Non-meat eaters received 2 ounces of gur (coarse, unrefined sugar made from sugar cane juice) or sugar or 3 ounce (oz) of milk in place of 4 ounces of meat); 18 lb potatoes; 13 oz tea; 12 oz salt; 1 12 lb atta (raw flour); 4 oz dhal (dried lentils or peas or beans); 2 oz ghee (clarified butter); 16 oz chillies; 16 oz turmeric; 13 oz ginger; 16 oz garlic and 1 oz gur (unrefined sugar)
While  a British soldier received :

1 & 1/4 lb fresh or frozen meat, or 1 lb preserved or salt meat
1 & 1/4 lb bread ; 4 oz. bacon; 3 oz. cheese
5/8 oz. tea; 4 oz. jam ; 3 oz. sugar ; 1/2 oz salt ; 1/36 oz. pepper
1/20 oz. mustard ; 8 oz. fresh or 2 oz. dried vegetables ; 1/10 gill lime juice (if fresh vegetables not issued);
1/2 gill rum (at discretion of commanding general) ; up to 2 oz. tobacco per week (at discretion of commanding general)

Britain is right in celebrating the first World War. It was  indeed her hour of glory. Britain is also right in apportioning some credit (belatedly?) to the 1.4 million Indians who donned the colours to fight for Britain.

This leads me to the logical question, could we  in any way be described as part of the victors' party? I would not hesitate to say `No'. Please remember Indians were not even allowed to enter certain streets and clubs inside India at that time or aspire to most of the higher ranks of service within their own motherland. India's revenues were being used to finance British colonial wars in all parts of the world - ranging from China to Africa and even to the European theatre, without our  agreement, and by beggaring our people in the process. During World War I, Britain stripped India of 3.7 million tonnes of supplies worth 80 million pounds and 146 million pounds of revenues for the war effort, the largest contribution by any country's colony.  To understand the value of that contribution at today's rate multiply the figures by 340 and that gives you the mind-boggling figure of  76.84 billion pounds or Rs 783,760 crore. This happened even as teenagers were being jailed for reciting `Vande Mataram' and hung for fighting for India's freedom. 

Landmarks in our nation's history - the Komagata Maru  incident - happened in May 1914, while - the Jalianwala Bagh massacre - happened in 1919.   Should we not commemorate those sad milestones in India's freedom struggle from Britain, rather than applaud a victory in an European war, which merely deprived us ?

India's First Flying Ace : Indra Lal Roy
First Day Cover to Commemorate India's first flying ace

Indra Lal Roy, India's first ace pilot, was born in Calcutta on 2 December 1898. Despite initial prejudices against him, Roy, a schoolboy at St Paul’s, London,  managed to win a commission in the Royal Flying Corps in 1917, at the young age of 18, within three months of joining the Corps. Credited with 10 kills including 9 in a span of just 14 days over the skies of France, he died a hero in 1918, to be  posthumously awarded the Distinguished Flying Cross.

The citation in the London Gazette on 21 September 1918 praised Roy as 'a very gallant and determined officer' whose 'remarkable skill and daring' had enabled him on occasion to shoot down 'two [enemy] machines in one patrol'.