Union Budget 2016-17

Arun Jaitley presented his 3^rd budget – a “purposeful” one - today &, perhaps, his best till date; “big bang” it was not & hence comparison with Manmohan Singh’s budget of 1991 or Chidambaram’s “dream budget” of 1997 would be odious. A “Thomas Piketty” budget it was widely assumed to be but finally turned not. Sekhar Gupta in an article in the Business standard calls Modi a reformer who believes in improving efficiency of the govt. & not necessarily a true liberalizer; perhaps, that description is apt & his imprint on the budget is obvious.

The street, though, was delighted that Fiscal deficit was pegged at 3.5% next year, as committed in the roadmap unveiled last year. The bond market is relieved & there are now rising expectations of a rate cut from the RBI. While 4 rate cuts, cumulating 125 basis points were announced, in 2015, only 50 basis points are transmitted till date. Deposit rates which were 50 basis points higher before the first rate cut are 75 basis points higher now & lending rate spread has increased from 200 basis points to 275 basis points.  Spread between the 91 day T bills & the repo rate dropped after the first 3 rate cuts but has reversed after the Oct cut; call rate which was below the repo rate after the first 3 rate cuts too & this too is now threatened. Easing of liquidity, therefore, is a better strategy & the RBI governor should be allowed to have his way.

The Monetary policy committee which is being pushed, through, envisages clipping of the RBI governor’s wings & providing a greater leeway to the govt. to push through its agenda. It would be interesting to see how this transition plays out. The FRBM review however is in order. 

FRBM mandates state debts to be restricted to 3% of GSDP. Since electricity reform under “UDAY” involves states taking over bad debts of discoms on their books, FRBM targets shall be breached. With states like AP asking for either the “special status” promised in the reorganization act to be implemented or be allowed greater FRBM leeway, a review was necessary. This also means that the central govt. is preparing grounds for loosening the fiscal deficit target for FY 2017-18 -  ordained at 3% - in the financial sector road-map unveiled some years ago. One only hopes that it will not lead to greater fiscal profligacy though.

India is growing at 7.6% with a Consumer Price Inflation (CPI) rate of 5.4%. Exports have dropped by 18% this year & a 14 month sequential fall is unprecedented. The external situation is expected to remain tense with the world economy poised to grow by 3.1% only.  While remittances to India have not dropped last year despite the turbulence in the Middle East one cannot expect that to continue; an oil price drop bonanza similar to the last 2 years is again unlikely. Against this background priming the economy to generate internal demand is an urgent need which the FM has attempted to do within the fiscal constraints imposed by largely concentrating on the two largest employers – agriculture & Construction.

The lack of aggression from the FM on driving revenues though is surprising. The budget figs target a nominal growth in taxes of 11.8% & assuming an inflation of 5% - which the RBI is mandated to achieve by Jan 2017 - translates into a real growth rate of 6.8% only. A more aggressive disinvestment target with the proceeds flowing into an SPV to be used entirely for capital investments would have been a more nuanced political & economic strategy.

Revenues

Annual Budget for the year 2016-17 is pegged at 19.87 lakh crores with 16.31 lakh crores in taxes - of which only 10.6 lakh crore accrues to the centre. Total receipts are 16.32 lakh crores of which 5.71 lakh crores are non - tax revenues.  Revenue deficit is therefore3.54 lakh crore.  The non-tax revenue surge is proposed largely through spectrum auctions which have been budgeted at 0.99 lakh crores – 0.40 lakh crores over last year.

Planned expenditure is 5.5 lakh crore & non planned 14.28 lakh crores. The demise of the planning commission was announced in 2014 & the death of the planned / non planned expenditure this year – 2016-17 being the last year of the 12th five year plan.

Against a BE 2015-16 on tax revenues of  14.49 lakh crore, 14.59 lakh crore is the RE, driven largely by a 50.5% surge in excise due to increase in taxes on oil & introduction of swatch bharat cess; such a bonanza is unlikely this year.  Direct taxes - both corporate taxes & Income tax  - targets for the current year were not achieved & it is unlikely that the targets for next year would be achieved either.  While service tax has surged 25.7% this year a more modest 10% growth has been targeted next year; perhaps this will be breached. Service tax & additional taxes vide the tax dispute resolution mechanism would provide some cushion to the FM to generate further revenues.

Tax disputes amounting to 5.5 lakh crores are pending; perhaps the FM is counting on at least 20% of those disputed amounts to flow in this year. The retrospective tax issues that beguiled companies like Vodafone, Crain etc. has now been addressed by proposing a waiver of interest & penalty in lieu of payment of the disputed tax amounts & closure of arbitration proceedings – a proposal initially made by Chidambaram some years ago. While these announcements now are welcome, Jaitley could have announced these proposals in his first budget itself; reversing the “retrospective’ tax to a “prospective” one would have sent the right signals.

Expenditure

The FM has proposed pump priming the economy through an investment of 2.18 lakh crores – 0.97 lakh crores in roads & 1.21 lakh crores in railways. However fine print reveals that of the 1.21 lakh crores, gross budgetary support is 0.45 lakh crores only – higher by 0.13 lakh crores over RE. Of the 0.97 lakh crores, 0.55 lakh crores is the central contribution – 0.30 lakh crores over RE - & 0.19 lakh crores flows through the Pradhan Mantri Gram sadak Yogana. Since 0.15 lakh crores is proposed to be raised through NHAI bonds & the rest is the state govt. contribution, central contribution is 1.2 lakh crores only.

Since urban demand is decent while rural distress is palpable, NREGA has been revived with a proposed spend of 0.38 lakh crores. Perhaps, the PM who announced on the floor of the house that he shall keep NREGA alive as a living monument of the UPA’s failures is retracing his objections.

Expenditure shall be higher than the projected figs. Against a fig of 1.18 lakh crores in food storage for the year 2014-15 & 1.4 lakh crores for 2015-16, only 1.38 lakh crores is budgeted for 2016-17. Unless backed by a fool proof scheme on subsidy reduction through DBT transfers, this target shall be breached.  Likewise, the 7^th Pay Commission recommendations do not seem to have been factored into the budget although 0.65 -0.68 lakh crores is reported by TV channels as unofficially claimed by the govt. sources to have been included; OROP through has been included to avoid any controversy.

Individual & Corporate expectations belied

Since last year’s budget proposed an incremental reduction of the corporate taxes to 25% with a concurrent reduction in exemptions, a 1% drop from 30% to 29% was expected this year which was belied since it would lead to a 0.15 lakh crore dip in corporate taxes. The benefit was restricted to companies with a turnover not exceeding Rs 5 crore in FY 2014-15. New manufacturing companies incorporated on or after 1.3.2016 were given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.

It would be prudent for FMs to think through consequences before making promises & if made to stick through the roadmaps for the sake of maintaining credibility. Likewise, when the talk is about removing exemptions, extending the Benefit of section 10AA to new SEZ units which commence activity before Mar 31^st 2020 is abhorrent; it would be interpreted as a measure to boost exports though.

100% FDI in food processing sector though is welcome as much is the 10% rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident. Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by one year while the commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017 is on, which marks some consistency.

Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles & SUVs is an environmentally conscious choice as is doubling the coal cess to Rs 400/- per tonne which would involve a 0.12 paise per unit increase in electricity costs as per Piyush Goel.

Individual tax payers were harried since they were not rewarded with an increase in tax slabs perhaps with an intention to increase the direct tax payer count which today is abnormally low; a minor benefit of a tax rebate of Rs 5000/- against Rs 2000/- earlier, for income upto 5 lakhs was announced this year.  Similarly, a deduction of Rs 60000 against Rs 24000 earlier for people living in rented houses was also announced. Together they account for a benefit of Rs 6600/- in the lowest tax bracket & hence is unlikely to enthuse the middle class.

In case of superannuation funds and recognized provident funds, including EPF, the norm of 40% of corpus to be tax free will apply in respect of corpus created out of contributions made on or from 1.4.2016 – like NPS – through logical could cause employee angst.

DDT (dividend distribution tax) at the rate of 10% of gross dividends in excess of Rs 10 lakh per annum  is equitable as is the surcharge of 15% - increased from 12% earlier - on persons, having income above Rs 1 crore. This segment will also be hit by the TDS of 1 % on purchase of luxury cars exceeding value of Rs 10 lakh and purchase of goods and services in cash exceeding Rs 2 lakh.

Stock Markets

The stock market was spooked by rumours – before the budget - of an increase in the LTCG (Long term capital gains) on listed securities from 12 months to 36 months in line with the same change incorporated for unlisted securities last year. Non announcement of the same provided relief to the market but the long term definition for unlisted securities was reduced to 24 months, perhaps, as intimation that a similar treatment awaits listed securities next year.

The increase in STT on future options from 0.017% to 0.05% was however a surprise.

Disinvestment

Renaming the department is a precursor to some proposals on divestment translating into investments elsewhere. However divestment proceeds have trended between 0.14 – 0.25 lakh crore during the last few years – against much higher targets - & the general feeling is that it could be no different this year. However, with RFP for IDTC hotels, supposedly, raised & the FM sneaking through a proposal of reducing the stake on IDBI to less than 50% one has reasons to be optimistic.

There are 235 CPSE of which only 44 are listed and account for 12% of market cap. Value unlocking can be achieved through listing & a start is being proposed for listing the general insurance firms. Perhaps, more would follow in due course including LIC – making disinvestment targets a cakewalk.

Banking

While the street was disappointed with the capital infusion of 0.25 lakh crores only, it was consistent with what the govt. promise under project” Indradanush” & sticking to a promise needs appreciation. Either the FM could have infused more funds into the banking sector & expected them to lead the charge on economic revival or do it himself through infra spends; he has wisely decided on the latter since the private sector – plagued by excess capacity in many sectors – is unlikely to have taken advantage of more liquidity in the banking sector; likewise infra companies reeling under huge debts & stresses assets would be loath to take advantage of a more liquid banking sector.

With a Bank board under Vinod Rai appointed, a more comprehensive strategy of revamp would be underway.  Passage of the insolvency & bankruptcy act would aid recovery. While amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold up to 100% stake in the ARC and permit non institutional investors to invest in Securitization Receipts has been announced it might not help for none in the PSU banks would sell assets at a discount to an ARC & risk incurring charges of corruption later. While there are plans afoot to redraft the prevention of corruption act (PCA), the “twin balance sheet” problem can only be addressed in the medium term.

Conclusion

Freeing the passenger transport sector from constraints, incentivising gas discovery and exploration & providing a legal framework for dispute resolution and re-negotiations in PPP projects and public utility contracts are welcome measures. Likewise, GoI's proposed contribution of 8.33% for of all new employees enrolling in EPFO for the first three years of their employment is a better directed incentive to boost employment as compared to  offering geography or industry based exemptions. Model shops & establishments bill advocating shops remaining open, 7 days a week, through advisory in nature, is transformatory. The task force constituted on rationalisation of human resources in various Ministries if successful would lead to “minimum government, maximum governance”. Likewise, the launch of a pilot on DBT on fertilizers announced could be a medium term solution to harness the fertilizer subsidy of 0.70 lakh crores & automation facilities to be provided in 3 lakh fair price shops by March 2017 could end pilferage & the menace of bogus customers

Therefore though the overall budget seems lacklustre at first glance it could still be retrieved though better execution of the proposals listed. The key to economic revival is the new policy for management of Government investment in Public Sector Enterprises, including disinvestment and strategic sale. Hope that fructifies.

Railway Budget 2016 -17

Post presenting an impressive medium term “Strategy budget” last year, Suresh Prabhu’s 2^nd railway budget, was “workman like” without any “fare increases” to the delight of the common man. Do not however be surprised if tariff increases become a non - budget feature; premium pricing for select services is a strategy already adopted.

The announced plan to set up a Railway Planning & Investment Organisation (RPIO) for drafting medium (5 years) and long (10 years) term corporate plans & a National Rail Plan’ (NRP-2030) was surprising; wasn’t a “medium term plan” launched last year? Will RPIO plan operationalization of those plans?

“It is an infrastructure-led and employment-generating budget.” said PM Modi while Dinesh Trivedi felt that “It doesn’t have any vision,” Reality, as usual, lies between these two extreme views.

Budget speeches should focus on the macro picture rather than dwell on operational issues on how many bio toilets shall be installed, what food items shall be provided in the menu et al. However, Intention to improve “customer experience” is always welcome.

The Minister avers that Rs1 invested in national railways leads to Rs. 5/- increase in national output; transformation of railways & making it the driver of national growth is therefore a natural corollary.  He will however be constrained by the 7^th pay commission pay-outs & the headwinds of a tepid industrial demand effecting freight receipts. Railway Model share dropping from 46.6% in 1980 to 36% in 2012 is therefore a cause for concern especially when it accounts for about 2/3^rd of revenues.

Railway Revenues.

Against the Budget Estimates (BE) of revenues for the year 2015-16 of Rs. 1.83 Lakh crores, IR has achieved 1.67 lakh crores with BE of freight receipts being Rs. 1.21 Lakh crores & Revised Estimates (RE) 1.11 Lakh Crores.  Freight & passenger revenues were 50% each in the mid 70% & it is prudent to revert to such levels, although analysts would interpret it as political hara-kiri.

However, Prabhu has pegged the revenue target, for 2016-17, at a modest 1.84 lakh crores, freight at 1.17 Lakh crores, Passenger revenue 0.51 lakh crores, coaching Rs. 0.06 lakh crores & sundry receipts Rs. 0.09 lakh crores.

IR though has done well on expense reduction. Against a BE of 1.19 lakh crores on expenses the RE  are Rs 1.10 lakh crores achieved through inventory management & austerity measure which include controlling variable costs &  contingent expenses. Expenses though have been conservatively projected at 1.23 lakh crores with pensions for the 13.79 lakh retirees increasing from 34500 crores to 45500 crores. While Ordinary Working Expenses (OWE) grew by 32.5% in 2008-09 due to the impact of the 6th Pay Commission pay-outs, restricting it to 11.6% for 2016-17 is ambitious; expenses in all likelihood shall be higher leading to a worse operating ratio.

Against a targeted operating ratio of 88%, RE are 90% for the year 2015-16 & are budgeted to deteriorate further to 92% for the year 2016-17, worse than the 2014-15 fig of 91.3%.  Clearly IR is in distress & in deep need to raise the top line. Non - tariff strategies is the long term solution to address railway woes.

Non - tariff strategies

Prabhu plans to increase Non - Tariff revenues from the current 5% of revenues to 10-20% in the medium term by monetizing the traffic on the IRCTC website, exploiting advertising potential of trains, stations & land tracks & also partaking in e-commerce. Catering business of IRCTC is also being strengthened by extending e-catering services from existing 45 large stations to all 408 ‘A-1’ and ‘A’ class stations & segregating food production & distribution. With digitalization of railway land done, monetization through horticulture and tree plantation & solar energy generation is planned which shall also address the problem of encroachment.

Current parcel policies would be revised to open the sector to container train operators to effect a quantum jump in IR’s share of the national CEP (Courier, Express and Parcel) market. IR also plans last mile logistics, perhaps, with an intention to re-deploy some of its excess manpower into a high rise sector especially when retrenchment is a hot potato that no political party can attempt.

IR also plans monetization of data pertaining to passenger preferences, ticketing patterns, commodity flows, train running and information on various services and operations without compromising on customer privacy. However all these are medium term strategies & tariff shall continue to be the short term revenue driver.

Tariff Strategies

Dinesh Trivedi – the Railway Minister during the UPA regime - had critiqued last years’ freight price rise & had advocated a tariff drop to increase model share which the Minister seems to concede now when he says “current tariff structure of IR has led to out-pricing of our services in the freight market.” He has announced rationalization of tariffs, appointment of Key customer managers to liaise with major accounts & “evolve a competitive rate structure vis a vis other modes, permit multi-point loading/unloading and apply differentiated tariffs to increase utilization of alternate routes. The possibility of signing long term tariff contracts with our key freight customers using pre-determined price escalation principles will be explored which would provide predictability of revenues to IR and of costs to our customers.”

For the reserved passenger three select train services – Humsafar, Tejas and UDAY have been announced to ensure cost recovery by way of tariff and non-tariff measures. While Humsafar would be fully air-conditioned third AC service with an optional service for meals, Tejas, will showcase the future of train travel in India. Operating at speeds of 130 kmph and above, it will offer onboard services such as entertainment, local cuisine, Wi-Fi, etc. Overnight trains, Utkrisht DoubleDecker Air-conditioned Yatri (UDAY) Express - with the potential to increase carrying capacity by almost 40% -shall be introduced. Clearly, premium pricing is the route Prabhu is exploring to shore up passenger revenues apart from tightening Tatkal ticketing to remove disintermediation.

Additional revenue streams

88% of the current freight receipts are from 10 bulk commodities only & IR, therefore, has decided to expand the freight basket. Rationalising the tariff structure and building terminal capacity apart from creating a rail auto hub in Chennai to capture automobile traffic is planned.

Action plan is to capture traffic through either containerization or new delivery models e.g., Roll-on Roll-off & to run time-tabled freight trains; a time-tabled freight container, parcel and special commodity trains on a pilot basis. Container sector would be opened to all traffic barring coal and specified mineral ores and part-loads would be permitted during the non-peak season & all existing terminals/sheds would be granted access to container traffic, where considered feasible.

10 goods sheds shall be developed by Transport Logistics Company of India, to create a paradigm shift in IRs role as a national logistics provider. This shall have a cascading effect for rail side warehousing would also encourage development of cold storage facilities on vacant land near freight terminals.

Plan size

Against a plan size of 1 lakh crores last year Prabhu has projected a fig of 1.21 lakh crores this year. Unlike a GBS (gross budgetary support) of 0.40 Lakh crore & an actual of 0.32 lakh crores for the year 2015-16, budgetary support for the current year is 0.45 lakh crores. With 1.5 lakh crores promised by the LIC for the next 5 years, we can reasonably expect about 0.30 lakh crores to flow in this year. Expecting actual GBS to be 0.40 lakh crores & combining that with the LIC’s largesse still leaves a gap of 0.5 lakh crores to be filled,  which the Minister has planned through formation of joint ventures with states, development of new frameworks for PPP, scouting international markets for Rupee bonds by multilateral and bilateral agency engagement or co building of assets with the help of Ministry of coal, NTPC SAIL etc.

Partnerships have received in principle approvals from 17 states, out of which 6 MOUs have already been signed & this year 44 new partnership works are indicated covering about 5,300 kms and valuing about Rs. 92,714 crore in the Budget documents.  Assumption that these projects shall be completed in 3 years, adds 0.30 lakhs crore as capital expenditure per annum. With 124 MPs already contributing MPLAD funds & some CSR contributions, it is reasonable to assume that Prabhu shall achieve his target.

Increased Rail speeds & Capacity

Building on the plan announced last year of raising speeds of freight trains to 75 Kmph & empty freight trains to 100 Kmph & passenger trains to 160-200 Kmph, the current budget announces modest target of 50 Kmph & 80 Kmph respectively for the current year; the plan is to eventually double freight speeds & increase passenger train speeds by 25 Kmph in the next 5 years. Surely, Prabhu is realizing what he is up against & advocating a more nuanced strategy of incrementalism.

Increased speeds calls for decongestion of existing high traffic tracks which dedicated freight corridors can address. Prabhu has announced Dedicated Freight Corridor project contracts worth Rs. 24,000 crore on the Delhi - Mumbai & Delhi - Kolkata routes apart from a plan to have additional corridors: North-South connecting Delhi to Chennai, East-West connecting Kharagpur to Mumbai & East Coast connecting Kharagpur to Vijayawada. This is indeed a welcome step although the timelines for closures are humongous when compared to neighbouring China.

Track up-gradation – a costly exercise - & employing a tech innovation of better engines or train sets is the other solution to enhance speeds.  Two locomotive factories are being built in Madhepura and Marhowra in Bihar with GE and Alstom with an order book of Rs 40,000 crore. Locomotives with auxiliary load  now being manufactured by IR will enable elimination of power cars, thereby replacing them with passenger coaches which will enhance the carrying capacity of trains and significantly reduce travel time, noise level, fuel consumption and carbon footprint.

While the last year plan was to have axle load capacity of 22.8T, this has been increased to 25T this year which is welcome with an intention to target 10-20% of traffic this year on such vehicles & increase it to 70% by 2019-20

Corporatization of railways

While the Minister did not specify quite as much, corporatization seems likely with plans to shift to an accrual based accounting from the current cash based one & a transition from single entry to double entry system to make IR accounts transparent. Plans to strengthen the Railway board & to make the Railway board Chairman the virtual head of the company by creating firewalls between the Ministry & IR would enhance efficiency. Consolidating 14 railway companies under one holding company has long term implications especially in making raising of finances easier contingent on a strong balance sheet. Introduction of a KRA system for personnel & signing of MOUs with zones is an attempt to inbreed efficiency.

If all goes as per plan, IR, perhaps, could be listed on the NSE, which will force quarterly results to be announced that shall help the company transform.

Conclusion

Prabhu is known to be an efficient technocrat minister & seems earnestly at work. While the Bibek Debroy committee’s vision was alluded to in the speech, some of the measures suggested like hiving off IR schools to Kendriya Vidyalayas, Hospitals to state hospitals, Railway protection force to CISF etc. to make IR leaner have not been implemented. That would have been truly transformational.

The Budget speech pushed further the govt. pet initiatives like “Swatch Bharat” &“Make in India” Introduction of Antyodaya Express, a long-distance, fully unreserved, superfast train service,  addition of two to four Deen Dayalu coaches in some long distance trains for unreserved travel to enhance carrying capacity for the masses, 33%  reservation benefits for women passengers & additional facilities for the elderly were perhaps an attempt to dry clean the smear of a “suit boot ki sarkar” – a legitimate political act.

Railway budgets have outlived their utility & it is time the ritual of a colonial past is put to rest. Corporatization of Railways & listing on the stock exchanges shall make announcements of quarterly results mandatory that shall help end this antediluvian exercise. Raising the 8.56 lakh crores needed for capital expenditure shall also be easier then, provided the balance sheet is transparent & healthy. Hopefully, the Minister is working on this objective.

Indo Pak Relations: The Sartaz Aziz Interview

Karan Thapar’s interview with Sartaz Aziz, the foreign affairs adviser to the Pak PM, Nawaz Sharief aired on India Today TV this week was insightful. It is reasonable to deduce the following takeaways from the interview

(1)Aziz revealed that Mazood Azhar – the Jaish e- Mohammed Chief & the Pathankot attack accused – was under detention.  When probed further he gave an evasive answer that it was as stated to him by the concerned agencies. 

Aziz was the NSA (National security adviser & Foreign affairs adviser until Oct 2015, when his wings were clipped at the Army Chief Raheel Sharief’s insistence & General Janjua was appointed in his place. Perhaps this was a way of punishing him for the Ufa Statement bungling where the K word went missing. The Pak Army clearly wants to have control over foreign affairs & would protect strategic non state assets like JeM - created & nurtured by the ISI. Therefore it is reasonable to assume that Aziz is not sure about Azhars status; his statement is a mere parroting of an official doctored line.

(2)The Indian Defence Minister, Manohar Parrikar, during his interview with Thapar about a week ago stated emphatically that the Pak team constituted to investigate the Pathankot  attacks would not be allowed entry into the same military premises come what may. Aziz however avers that the Indian side is open to a visit to the location. Clearly one of them is clueless.  If it is the Indian Defence Minister, it is definitely a cause for worry.

(3)Aziz insists that Pak has asked for additional evidence, in Sept 2015, for expediting the 26/11 Mumbai attack case against Lakhvi but there has been no response – despite reminders - from the Indian side till date. Is that the reason the Indian state has shown enormous alacrity in pardoning Headley in lieu of turning approver in the case?

(4)Even if the above were true, Headley’s disclosures to Indian Courts are not new - known as they were to US & Indian authorities long ago - & has no evidentiary value in a Pak court especially when Aziz is convinced that the statements of a “double agent” cannot be believed. He categorically asserts that Headley would not be called in by a Pak court to record his statements either.  He is equally evasive on trying Lakhvi under the Military courts of Pak - created under the 21^st constitutional amendment in Jan 2015 - which means that Lakhvi shall never get convicted.  The rants on national TV that Pak is not doing enough shall be our only consolation.

(5)From Aziz’s statements it is clear that Pak is keen to steer the discourse away from terrorism – which India is interested in solely - to a solution on Sir Creek, Siachen & to enhance Trade. With 10 Indian soldiers dying in Siachen in Jan 2016 & 124 Pak soldiers dying in 2012 & roughly 20000 soldiers from either side perishing in the lofty snowy heights in the last 3 decades, a solution on Siachen seems achievable, provided there is willingness on both sides. However Pak insistence on the 1984 status & not the current one – since India holds a location advantage - would torpedo talks.

(6)Aziz’s exasperation on the slow velocity of talks with India is discernable & he speaks passionately about the changing world order – especially on trade & the Middle East crisis.  He is particularly concerned about the launch of the TPP (Trans Pacific Partnership) which would have an enormous effect on world trade & which could affect both India & Pak negatively & therefore calls for strengthening of SAARC as a counter which is logical.

The interview gives a fair idea on the likely issues that Pak is interested in in its dealings with India & the negotiating position on that Pak is likely to adopt in the foreign Secretary level talks. Either way any dramatic end to the current logjam in Indo-Pak relations is unlikely especially when there is a trust deficit on both sides.