How Can India Contain China

The Chinese ingress into the DoklamPlateau in the Sikkim-Bhutan-Tibet tri-junction seems to be a reaction to the Indo-US joint statement issued after the Modi -Trump meet last month; while China was unmentioned, the call for ensuring "freedom of navigation, overflight & commerce" in the Indo-Pacific, resolution of "territorial & maritime disputes peacefully" & regional connectivity vide "responsible debt financing instruments" while ensuring "respect for sovereignty & territorial integrity" - an endorsement of the Indian Position on CPEC(China Pak Economic Corridor" -  was a severe indictment of China. The eyeball to eyeball confrontation of about 3000 soldiers each supported by the belligerent media of their respective countries was a logical consequence, that has upped the ante forcing the intervention of diplomatic corps to strive for a face saver for both sides. The current confrontation would end – since the Indians enjoy tactical superiority in the current geography – but with the border delineation still unclear & undecided, the possibility of a confrontation in some other sector in due course cannot be discounted.

Brief History of the Indo-China Border dispute

While India reiterates the colonial British stance that the McMahon line is the official Indo-China border, the Chinese have rejected the Shimla agreement of 1914. Post the Indian independence, sovereignty disputes persisted in the eastern sector of Arunachal Pradesh (Tawang) & the western sector of J&K (Aksai Chin). Chinese Premier, Zhou Enlai, in 1959, proposed an Indian concession on Aksai Chin in lieu of a Chinese concession in Tawang to settle the boundary dispute which was rejected by India; the subsequent “forward post” policy implemented without military rigour led to the 1962 war humiliation; the diplomatic blitzkrieg failed since the super powers were involved with the more pressing Cuban Missile crisis then. India lost the entire Aksai Chin to Chinese occupation. Skirmishes recur & in Sept- Oct 1967 at Nathu La & Cho La & in 1987 at Sumdorong Chu, in Arunachal Pradesh, the Indians gave the Chinese a bloody nose buttressing Defence Minister Arun Jaitley’s argument that India of 2017 is not the India of 1962.

Why the Doka La Incursion?

The pronunciations of the Chinese think tanks alludes to 3 strategies: Put India on notice that any hobnob with the US to challenge the Chinese in the Indo-Pacific would be countered; force Bhutan to establish diplomatic relations with China & emerge out of the Indian security cover consequent to the 2007 agreement; & to snub & prevent the rise of a potential challenger – India. The Indian intervention is strategic for allowing the Chinese to own strategic heights overlooking the "Chicken's neck" - the Siliguri corridor - our only gateway to the North East is perilous & pregnant with consequences. While the current standoff would subside, the peaceful rise of China is an oxymoron considering the disputes in the East & South China Sea; therefore, a long term plan to contain China is a dire need.

Long term plan

 (1)Bharat Mala

Strategic expert Ajai Shukla indicated that the Chinese initially send herders into disputed areas, followed by the PLA (People Liberation Army) personnel to build watch towers & bunkers & finally seal the “creeping acquisition” vide building infrastructure.  China, intelligently, thus continues to gain territory without firing a single bullet or a missile.  India should therefore accelerate the construction of the “Bharat Mala”

For details see http://meetrk.blogspot.in/2015/05/geopolitics-of-infrastructure-indias.html

(2)Disproportionate focus on Air Defence

China has a military strength of 2.3 million against India’s 1.3 million; if Pak’s 0.6 million is added India faces foes enjoying a 2:1 advantage in conventional military terms; rational to assume that equipment advantage too shall be proportional although the relative advantages could differ in each category.

China is a $11 trillion economy & India 1/5^th that no; it is reasonable to assume that military budgets are proportional to the size of the economy. Thus while China cannot annihilate us – just as we cannot finish off Pak – since all are nuclear powers, we simply cannot wish away a military superiority in a  2 front war despite the brave averments of our Army Chief, Bipin Rawat, that India is ready for a 21/2 front war – the last half referring to the Maoist insurgency.

A disproportionate focus on the air force, air defence & missile strength should be the medium term plan to protect the land borders; in the absence of good border infra, mobile airlifting of defence forces to forward posts at lightning speeds should be our strategy which demands activation & renovation of border helipads/landing sites. Sea denial in the Indian Ocean is contingent on availability of 3 aircraft carriers & a disproportionate submarine superiority which we lack; India has 13 submarines - all nearing the end of their lifetime of about 25 years - while China has about 50 submarines; they have a higher no of nuclear submarines that can stay undetected under water longer. They have entered into an agreement to sell both Pak & Bangladesh their indigenously built subs encircling us further. 

However, there is one saving grace; the Chinese Armed forces are notorious for huge corruption in arms acquisitions, running private enterprises & nepotism in promotions affecting the capability matrix. While President Xi has been trying to mend the same, it is a long torturous process which can be exploited by India & its allies.

(3)Trade

China exports & imports to India are worth about $60 billion & $10 billion respectively; indian exports have been dipping & imports galloping increasing the trade deficit. Squeezing China on trade is difficult despite the deficit since exports to India account for only about 2.5% of Chinese overall exports. Trade sanctions even if implemented will ensure that the goods find their way into India vide a third country courtesy their pricing superiority. China supplies cheap telecom & power equipment & barring their imports shall lead to increased consumer expenses in those sectors. Furthermore, sanctions would be an anachronism in a scenario where India is a supporter of “free trade” under the WTO (World Trade organization) aegis. Efforts should, therefore, be more concentrated on reducing trade deficit & gaining greater market access in China.

(4)Challenge the “One- China” Policy

As per strategic expert Brahma Chellaney, India should use the 3T’s – Trade, Taiwan & Tibet – to tame the Chinese. Trade sanctions are suicidal but imposing non-tariff barriers to force China to the negotiating table would be wiser counsel.

China can’t be overtly prickly about its sovereignty while being insensitive to Indian concerns on CPEC (China Pak Economic Corridor) passing through POK (Pak Occupied Kashmir). China should be gently reminded about the same & other fault lines.

Hong Kong was ceded to China in 1997 by the British & this region has been governed under the “One Country, Two Systems” principle bequeathing its citizens greater democracy. However China has been slowly wresting greater control & President Xi was welcomed by demonstrators when he visited it as part of the 20 year celebrations recently.

Fault lines, in China, that can be exploited include Tibet, Taiwan, Manchuria, Inner Mongolia & Xinjiang - which account for about 58% of the total area - post factoring in a Chinese response: support for Maoists & North eastern rebels; & supporting the  independence of Sikkim. Support for the Muslim Uighur rebels of Xinjiang would be a wrong strategy since it would willy- nilly mean supporting Muslim fundamentalism pushing the Chinese to support insurgency in J&K. When the Dalai Lama was allowed to Arunachal Pradesh this year, China reacted by renaming 6 areas of Arunachal; expect, therefore, an Indian action to be responded by a severe reaction from China. China persists with issuing staple visas to the inhabitants of Arunachal & J&K which they deem as "disputed areas"; an Indian retaliation on similar lines is in order.

(5)Military co-operation US-India-South Korea-Japan-Vietnam-Australia

India gained greatly during the Bangladesh war of Independence in Dec 1971 courtesy the treaty of Peace, Friendship & Co-operation signed in Aug, with the Soviet Union the same year; else President Nixon was keen on the US intervention in the war on Pak’s behalf & only the fear of a Soviet support for India held him back; the USS Enterprise - of the 7th fleet - however did sail towards Indian waters.

To take on the Chinese behemoth a US-India-South Korea-Japan-Vietnam-Australia “string of pearls strategy” is in order; these countries would come together courtesy their common grouse against an aggressive China in the East & South China Sea.

For Details see http://meetrk.blogspot.in/2015/07/disputes-over-islands-in-east-south.html

While being part of Obama’s “Pivot to Asia” made eminent sense, prudence now demands that we should be wary of Trump’s eccentricities & “deal” prone nature.

(6)Bide for time

China’s “One Child Policy” has 16 retirees per 100 today which is projected to increase to 64 by 2050; a greying population has its own strategic challenges; social strains in the absence of a good social welfare net are inevitable.

In the unlikely event of China declaring war, Indian media along with the world media - including those operating from Hong Kong - would start beaming stories that could elicit war protests forcing the intervention of the UN. While Chinese media would only play the official line, news from Hong Kong, Taiwan & the Chinese diaspora would trickle to the mainland leading to a stock market crash killing the prospects of the soft landing of the Chinese economy which has been kept afloat through govt. intervention; flight of capital would accentuate the process.  Indian economy too would suffer collateral damage though. India should therefore bide for her time; strengthening cyber warfare capability to infiltrate Chinese weapon designs & future power projections should therefore be our short term ploy.

Conclusion

China is too large to be taken on alone. Shunning Chinese products as advocated by rabble rousing twitteratti is not a completely thought through solution. Planning to grow the economy at a rate at least 1.5 times our Northern neighbour for the next 2 decades & strengthening our defences simultaneously would be a better strategy. In the intervening period following our “string of pearls strategy” advocated earlier would be a better alternative.  

China still prides itself as the “Middle Kingdom” around which the entire world revolves; perhaps, it believes that it is the only civilization that has forced its way back after an interregnum unlike the Indians, Mongols, Greeks or Romans. The Indian civilization too demands a similar glory & a peaceful rise of the Asian neighbours based on the principles of “Panchsheel” is always a preferred option. India’s ascent is not at the expense of China’s rise; however, if our actions are interpreted as a challenge, so be it.

Modi – Trump Meet: The Takeaways

Prime Minister, Modi’s  5^th sojourn to the US since 2014, was a “getting to know ” President Trump visit; that it passed off without any hiccups is a credit to foreign Secy. Jaishankar who was there much earlier to plan smooth optics. The Indian side was perhaps working on three strategies: entice “Businessman” Trump with defence deals & reaffirm India’s commitment to help him achieve his election pledge of “job creation”- about $6 billion dollars’ worth of arms deals were concluded during the visit; don’t irritate him by raising the H1B visa issue; & get into Trump’s inner circle by inviting a family member to visit India – in this case Trump’s daughter Ivanka for the entrepreneurial summit this fall which was readily accepted. Though achievements were few, that nothing went wrong gave the diplomatic corps some relief who, therefore, touted the visit a success.

The otherwise flamboyant Modi made other concessions in a bid not to irritate the unpredictable Mr Trump: gala rock star concerts of the Madison Square kind were replaced by quieter close door meets with the Indian diaspora & industry; no reiteration of the Paris accord or repudiation of Trump’s castigation of India receiving “billions of dollars” in lieu of being a signatory to the same accord. Modi was advised rightly to steer clear of these otherwise prickly issues & he followed the script. At India’s instance, no questions were invited by both the leaders during the Press meet to avoid controversies.

Trump however was not quite as generous: a committed germophobe he was visibly uncomfortable with Modi’s bear hugs vis a vis his proactive hug to the Japanese PM Abe a few months earlier; he insisted on the trade deficit being brought down & spoke about his efforts to negotiate a higher price for gas supplies to India deviating from the prepared text.  While Shinzo Abe of Japan, Angela Merkel of Germany & Xi Jinping of China were hosted in Trump’s private resort Mar-a Logo, Modi had to be content with a meeting at the White house – a subtle allusion to the priorities accorded. Indian interlocutors were happy at Trump’s pompous concession that “PM Modi & I are world leaders in social media” & fervently hoped that Trump’s pride would not be hurt since he has 32.9 million followers on his personal Twitter account, compared to Modi's 31 million.

Indian gains were few: designation of  Syed Salahuddin of the Hizb-ul-Mujahidin as a “Specially Designated Global terrorist” – negating in the bargain the nuanced difference between home grown liberation fighters & Pak based terrorists;  & a generic support for the Indian stand on CPEC(China Pak Economic Corridor). China’s ingression into the Doka La plateau in the China-Bhutan-India tri-junction & the subsequent sabre rattling is perhaps a consequence to the CPEC allusion in the joint statement.  The rest of the joint declaration covering issues like Afghanistan, terrorism, intelligence sharing and defence co-operation were a reiteration of existing positions.

Trump’s “America First” policy runs counter to Modi’s “Make in India” & perhaps that is the reason the transfer of the F16 assembly line to India was absent from the joint statement. Trump’s “Buy American, Hire American” signed in April overhauled the H1B visa system negatively impacting India which was a large beneficiary of the policy. Trump is a consummate “deal maker” who used the Taiwan issue to seek concessions from China on trade but is now uncomfortable that China has not been able to rein in North Korea; transactional in his vision & bound by his electoral pledges he can never be counted on staunch support. His views on India changed quickly from his campaign promise to give India "a true friend in the White House" to what The Washington Post described as Trump’s way of using “job creation and the Paris climate accords to cast India as an unscrupulous negotiator and a threat to American workers”.  It is, therefore, in India’s interest to be on guard & tread with care.

MODI@3 Years

Modi the name was transformed into an acronym by Union Minister, Venkiah Naidu, who explained it as “Making of developed India”.  This is reminiscent of Congress President D K Baruah, eulogizing Indira Gandhi as ‘Indira is India & India is Indira”. Personality cults are wonderful electoral weapons but could deteriorate into authoritarianism & hence “eternal Vigil” is the price we need to pay for democracy. As the NDA - II govt. completes 3 years in office, on May 26^th  it is time to dissect its performance.

Impressive Headline indices: The GDP growth rate of 7.1% for FY 2016-17 & a slightly higher fig of 7.2% announced in the Budget speech by the Finance Minister for FY 2017-18 makes India the fastest growing large economy in the world; it is this reputation that has ensured the highest ever FDI Equity inflows of $43.47 in FY 2016-17 & the similar trajectory is expected in FY 2017-18 too.   The fiscal deficit has been progressively reduced to 3.5% & CAD to 0.3% for FY 2016-17 & inflation has been projected by the MPC (Monetary Policy Committee) at 4.5% for H1 & 5% for H2 FY 2017-18.  

Disciplined Bureaucracy: Central Ministers do not speak at cross purposes now & the bureaucracy has been disciplined with punctuality instilled; forced retirement to inefficient bureaucrats has been served vide the Rule which states that compulsory retirement in public interest can be served on achieving the age of 50/55 or 30 years of service; this is a double edged sword though, for assured tenures could induce slack but, perhaps, promote independent decision making.  

Military Modernization: The UPA’s tenure was marked by Defence Minister A K Antony – in a bid to maintain “Mr Clean” image - blacklisting foreign suppliers whenever an accusation of corruption arose; this affected the pace of modernization of the armed forces. Modi govt. has substantially implemented the OROP (One Rank One Pension) & has accelerated procurement vide the G2G(Govt. to Govt.) contract route to avoid bribery allegations; actual receipt of capital equipment, though, is 3-5 years away, though, since the gestation periods in this sector are high. Reviving the 2008 UPA proposal of private sector participation in Defence Production attempted by this govt. will serve us well; however instead of having only one private sector player per sector across 4 priority sectors – fighter aircrafts, helicopters, artillery & Submarines – it would be prudent to have at least 2 of them competing with govt. entities.

Reforms: Attempts to make India an insured society – thereby creating a safety net - vide Rs 12/- paid by the insuree for an accident insurance of 2 lakhs & Rs 330/- for a life insurance of 2 lakhs along with the Atal Pension Yogana for the sexagenarians are indeed welcome. Focus on renewable target of 175 GW – 100 GW for solar & 75 GW for wind et al - for making India energy independent along with the UDAY scheme for reforming state power companies, Ujwala scheme of pushing LED lighting for energy efficiency & auction of coal blocks to eliminate graft - as ordained through a Supreme Court ruling - is a remarkable achievement.

Getting the FDI limits increased & pushing much of it into the automatic route except in 11 sectors  & the dissolving the FIPB (Foreign Investment Promotion Board) & getting the GST passed – through opposed by the BJP while in opposition – are important milestones achieved by this govt. Likewise use of the JAM (Jan Dhan – Aadhar – Mobile no) trilogy to reduce duplication & hence subsidies have led to impressive savings; going forward attempts must be made to use Aadhar creatively  but after addressing privacy concerns.  Attempts to redistribute LPG savings by issuing new connections to 5 crore BPL families is a sound social & environmental policy objective which deserves praise.

However, concerns remain on other vectors.

While Headline figs. are indeed impressive, it has not been sufficient to coax a rating upgrade; perhaps international rating agencies still see the dropping exports, anaemic credit growth, weakening savings & investment rates as concerns. We are left to vicariously take pleasure from a ratings downgrade, of China, by Moody’s.

Jobs: India needs to generate 12 million jobs a year & the figs for the last 3 years are less than 5% of the target; as an example only 2.1 lakh jobs were generated in 8 key sectors for FY 16-17. Saudi Arabia had announced that no expatriate worker would be in govt. service by 2020; it is reasonable to expect similar directives from other countries in the Middle East where about 7 million Indians earn their wages; the anti-immigrant & xenophobic rants in the US, UK & other Western democracies would mean more of Indians returning home, imperilling the $62 billion remittances that we secured last year thereby effecting India’s external account. This could effect India’s CAD in the medium term & return of workers from abroad would worsen the already deteriorating domestic job market. Vast job cuts in the IT & Telecom sectors is but a precursor of many more to come.

Rise of Vigilantism: The hacking of Akhlaq in UP, Pehlu Khan in Haryana, lynchings in Jharkhand  & the Hindu Yuva Vahini imposing morality codes in UP, creates a unease in society which could fuel violence & give space to organizations like Al-Qaeda, ISIS  et al to thrive; countries like Pak could add fuel to such fires; attempts to clear – hold – develop areas currently under Naxal occupation – though welcome -  would lead to reactions of the Sukhma kind & all forces inimical to India could possibly unite. A strong law & order machinery, supported by pinpointed intelligence, working without fear or favour is therefore necessary to maintain India’s internal security.

Foreign Policy: The policy of “Act East” & “Link West” is broadly on the right trajectory. However inability to manage Pakistan or Chinese hegemonistic designs – of the BRI (Belt Road Initiative) kind – is a cause for worry. While relations with Bhutan & Bangladesh are on an even keel, the deteriorating relations with Sri- Lanka & Nepal & the lack of improvement of our strategic depth in Myanmar & Maldives is a cause for concern. The Russia- China – Pak nexus would in the medium term give us much headache squeezing us out of Afghanistan & Central Asia.

Financial Architecture:  Capacity utilization in the industry is at 72%; investment rate is seeing a steady fall from the 2008 peak; the exhilarating GDP growth rate hides the fact that credit for the year 2016-17 has growth by only 5.08% - the lowest since 1953-54 - & NPAs of the banking sector continue to rise.  A cogent strategy of tackling the “Twin balance sheet” problem – as advocated by the Chief Economic Adviser - has not seen much traction.  “Made in India”, “Smart Cities, “Digital India” etc. would remain mere slogans without adequate investments.

Conclusion

The Modi juggernaut is running unabated with electoral successes in critical states like UP – even post demonetization - & creative politicking has helped them form governments in states like Goa & Manipur. Social schisms generated along with a nationalistic narrative - by keeping Kashmir on the boil - could serve their electoral fortunes well. However, using of the “caged parrot” – the CBI – on the opposition leaders alone would serve to unite them against a common foe.

Going forward, the economic situation would worsen courtesy a further increase in Bank NPA’s, retrenchments in sectors beyond IT & Telecom & return of Indian immigrants. Desperate economic situations generally lead to the escalation of crime & social schisms shall only accentuate the process. A deteriorating neighbourhood & Trump’s impetuous strategies shall keep the Indian Foreign & Military establishment on its toes.

In short the next two years would be trying for the govt.; perhaps, massive public investments in infrastructure & NREGA spends in rural could be the saviours.

Movie Review “Bahubali 2 – The Conclusion”

Post a 2 year hiatus Rajamouli is back with the sequel of Bahubali 1 – the 3rd largest grosser in Indian movie history; Bahubali 2 - looking at the teeming crowds at theatres & the crashed servers of online ticket booking sites – could very well turn out to be the largest grosser; while a Rs. 800 crore is a given, Rs 1000 crore has been fixed as the target; the satellite, music & overseas rights have already been sold for about 350 crores. Release in 9000 screens – 6500 in India, 2500 abroad - is also a milestone.

The magnum opus has no dull moments; & off course the intriguing question “Why did Katappa kill Bahubali” which inspired many memes & parodies & now also trending as #WKKB is finally revealed.

The film starts as a flashback with Amarendra Bahubali (Prabhas) – the Prince, ordained for coronation, taming an elephant that has gone wild during a ritual – followed by his simpleton acts - while travelling incognito across kingdoms to understand ground realities.  He falls for the charms & heroism of Princess Devasena (Anushka Shetty) of Kuntala. The Pindari attacks on the small kingdom force him to reveal his true self, just as Arjun revealed himself while staying incognito in King Virat’s kingdom when attacked by the Kaurava forces. The battle scenes by Peter Hein are outstanding; bulls with their horns on fire - as an impromptu innovation to fight a much larger force - or crashing a dam to flood out the intruders form breath-taking visuals. Bahubali making Prince Kumara Verma (Subbaraju) of Kuntala understand his true potential seems an inspiration from the Mahabharata where Arjuna does the transformation act in Prince Uttar Kumar.

In the meanwhile Prince Bhallaladeva (Rana)  & his father Bijjaladeva (Nasser) plan to poison the ears of Queen Sivagami (Ramya Krishnan) to ensure that the former becomes king; Bijjaladeva - a cripple - is a replica of Dhritarashtra - who was denied the throne because he was blind - & fancies the throne for his son; he doesn’t mind killing his wife too in the bargain.  When spies reveal the soft corner of Bahubali towards Devasena, Bhallaladeva, hatches a conspiracy & seeks the latter as his bride which his mother acquiesces, ignorant of Bahubali’s feelings.  A marriage proposal sent to Kuntala is rejected by Devasena which forces an angry Sivagami to order Devasena to be bought captive to Mahismati; palace intrigues force Bahubali to accomplish the task which he does after promising Devasena to protect her honour.  Bahubali bringing Devasena to Mahismati in a ship has the replication of the famous Titanic scene on the deck.

Misunderstandings persist; given an option to choose between the bride & the crown, Bahubali chooses Devasena & becomes the Senapati or military head- a deputy to the king Bhallaladeva; however popular support still vests with Bahubali much to his cousin's chagrin.  As part of the continuous palace intrigues, during Devasena’s baby shower ceremony, Bhallaladeva relieves Bahubali of his duties under the ostensible reason of allowing him to stay closer to his wife; Devasena protests with Sivagami the unjust act accentuating the confrontations in the family further, Later, when Devasena is brought to the court in chains for cutting off the fingers of an official for groping, Bahubali steps in & beheads the tyrant; accused of insubordination to the crown, the couple are initially banished from the Palace & later under the mistaken impression that Bahubali had planned the assassination of Bhallaladeva vide Kumara verma, Katapppa is ordered a hitman job by Sivagami.  Forced under oath of loyalty to the throne given by his forefathers, Katappa is compelled to oblige. Katappa’s character is akin to Bhishma in the Mahabharata where his loyalty to the throne & throne alone forces him to fight for Duryodhana even though he intrinsically knew that Dharma was on Pandavas’s side. Later, Sivagami realizes her mistake & announces Mahendra Bahubali as the new king & in a bid to save the infant’s life sacrifices her own; Devasena is imprisoned & put in chains. Katappa’s loyalty, shifts to Mahendra as he was ordained the new king.

Mahendra Bahubali’s revenge saga forms the remaining part of the film. That pride hath a great fall is poetically revealed when Bhallaladeva’s statues tumbles, breaks & his severed head lands at the bottom of the waterfall at the feet of the giant Shiva Linga; his body is burned to cinders too.

The climax seems rushed for much of the 2hours 47 min of the movie was spent on a flashback.  A more detailed battle sequence, at the end, rather than showcasing only the two main protagonists – Bahubali & Bhallaladeva – alone would have been more prudent. Tamannah has only fleeting presence in the movie. Perhaps, criticism from women activists regarding the virtual disrobing of Tamannah by Prabhas during a dance sequence - viewed akin to eve teasing -  in the prequel, forced the director from refraining to go down such a path in the sequel which is welcome; however women too being shown fighting the epic final battle would have been a true tribute to the women lib movement.

The prequel had more iconic sequences – Sivagami carrying the prince in one hand wading through a tiding river, Bahubali lifting the huge Shiva Linga, Katappa’s sword fight, Sivagami vanquishing her opponents in the court revolt, Katappa’s placing the feet of Mahendra Bahubali on his head in a rain drenched night etc.  While Katappa & Sivagami shone in part 1, part 2 belongs more to Bhallaladeva; his menacing looks & his buffed up body makes one love the villain too.  VFX is decent. The musical score by MM Kreem is good but gets overshadowed by the extravagant visuals. The sets by Sabu Cyril are the real heroes of the movie & Senthil’s cinematography makes the opulent sets come alive.

In short see the movie for its extravagance, reminisce Amar Chitra Katha & see the epic of sibling rivalry unfold.

Indian Foreign Policy: At the Cross Roads

China has responded to the Indian dare of allowing the Dalai Lama to Tawang by rechristening 6 towns – on April 14^th - in Arunachal Pradesh, perhaps, to de-legitimise the Indian claims on the same region – a policy they have followed earlier in the East & South China Sea.  Meanwhile in the summit meeting between President Trump & Xi, the latter surprisingly acquiesced with the US concerns on the whopping trade deficit of $350 billion by alluded to work on the same as part of a strategy to reduce inflation in their own country– a first during their bilateral talks till date; clearly, Trump appears to have stirred the Taiwan pot & challenged the “one China” policy for a brief interlude, only as a negotiating-bait & appears to be succeeding. The contrasting treatments meted out to India & China is an eye opener; while China has cleverly avoided being branded as a “currency manipulator” – a Trump election promise - India is at the receiving end of H1B visa curbs, likely pressures on IPR (Intellectual Property Rights) especially on pharma as well as Custom duties – 100% duty on Harley Davidson bikes being specially mentioned.  

The installation of the THAAD missile system in South Korea & deployment of a nuclear submarine to protect its ally against the North indicates that the US is unlikely to dump its allies & carve out geographies with China under a G2 format; however, demands for greater contributions – from NATO as well as countries like Japan, Korea etc. - for providing a security architecture would definitely follow; the “pivot to Asia” strategy might not have been dumped but relations with India would become more transactional or quid pro quo; India, therefore, needs to hedge its bets & perhaps the next stop of Arun Jaitley to Moscow (Apr 25-27^th) from Washington (Apr 21-23^rd) along with the PMs visit to Israel, in July, is part of the overall strategy of protecting her interests without leaning too much on any one international power. However the Russia- China - Pak axis might put pay to such plans. US-Russia working together would have provided us much more strategic space; the impending relationship appears to be at the crossroads, though, post the US Tomahawk missile attack on a Syrian airbase followed by additional sanctions as a reaction to a purported chemical attack on civilians.

While some elements of our nationalistic belligerent media would like us to believe that we are squelching Pak in the International forums & thumping her into a pariah status, the truth is that Pak has moved closer into a Chinese embrace & is gaining from the $46 billion CPEC(China Pak Economic corridor) lifeline; Russia too - a cold war enemy - has opened up to Pak as a counter to an Indian tilt towards the US & has conducted joint military exercises & is planning arms sales; clearly a Russia-Pak-China axis is emerging, burnished by an increased desire to squeeze India out of Afghanistan.  If the CPEC joins the OBOR, Pak would be the strategic partner for all land locked central Asian republics – burnished further by the Muslim brotherhood logic- & serve as a gateway to the Arabian Sea enhancing their geo-political status further. The solution is to rake up the demand on POK & Gilgit – Baltistan through which the CPEC passes; the consequence of such action is no talks with Pak & therefore a volatile valley; additionally, India needs to instigate the Balooch rebels & prevent the completion of the Gwadar port. Perhaps, India is working on both these strategies; the PM, unprecedentedly, has spoken from the ramparts of the Red fort on the Baloch issue while Kulbhushan Yadav too was purportedly arrested from Baloochistan.

Pak’s economy is 1/8^th the Indian one while India is 1/5^th the Chinese behemoth & it is reasonable to assume that the military spends are a function of economic strengths; spends however are no reflection of the numerical strengths; Indian military (13 lakhs) is about 50% China’s (23lakhs)just as  the Pak army (6.2Lakhs)is only 50% India’s; all the 3 players are nuclear powers & can wreck the other if faced with imminent annihilation; thus it is unlikely that China would replay 1962 despite India pulling out the  “Tibet card” to express irritation to the Chinese opposition to Indian membership of the NSG or preventing  Masood Azhar from being branded by the UN as international terrorist. However, since pestilence on two fronts – Western & northern – if not a war is a highly likely outcome a rapid roll out of Bharat Mala – the infra to match the Chinese on their side of the border should be accelerated.  Land & rail connectivity vide Bangladesh & activating more of the dormant air strips in the North east is an urgent need. A more broader engagement with the North eastern insurgents to maintain peace is critical.

For details see.http://meetrk.blogspot.in/2015/05/geopolitics-of-infrastructure-indias.html

India’s “neighbourhood first” policy seems to be in doldrums since relations with Nepal & Sri Lanka are deteriorating while those with Maldives shows no improvement. In the 1990’s India made a bid to cosy up with Iran & hence the Shia block with some success & Iran reciprocated by supporting the Indian stand in the OIC on Kashmir; attempts now to reach out to Saudi Arabia & UAE – the Sunni block – has led to the Shia side being miffed; no support on the Kulbhushan Yadav issue buttresses the assessment.  Since about 7 million Indians work in the Gulf – largely in Saudi (2.8Million) & UAE (2 million), Kuwait (0.75Million), Oman (0.7Million), Qatar (0.6 Million)  - & contributed about 60% of the 62 billion overall remittances last year, a GCC tilt is understandable; however this would mean that Iran too - which has a strategic depth in Afghanistan - would work towards evicting us from the region. Pursuing the Chabahar port development & spends on creating infra to link Afghanistan & Central Asia vide this port is therefore strategically illogical & hence should be dumped.

Ideally, a democratic India should have been logically a partner to western democracies post-independence; however, since Pak was the UK creation & because of the then Indian leadership’s own enchantment with socialism we moved closer to the USSR – a relationship that served us very well though. Brexit would ensure that even countries like UK support India more lured by a trade deal; however, the rise of right wing leaders in Europe, in the impending elections, is likely to unravel the EU & Indian diplomacy should rise up to the challenge.

With Europe on the boil, Africa & Latin America should be the continents that Indian diplomacy needs to concentrate hard on. The Chinese have made deep inroads here already & our resources do not permit a headlong attack; use of soft power – like the US - would be a better alternative. The US attracted the best students from across the world to its Universities & the goodwill thus generated helped when they returned to their home countries & rose to important positions in the local govt. India needs to pursue a similar path but if criminal attacks on African students continue & we refuse to acknowledge them as “racial attacks’ the African project would unravel leading to an insurmountable damage; the PM should persuasively speak about this issue at length in his “Man ki Baath” & follow it up with ground level strategy.  Tapping the NRI base in those countries should be the other strategy.

The international situation is fluid & calls for a long term strategic direction & tactical intervention which calls for a larger diplomatic corps which is work in progress; with Trump cocking a snook at the UN, we are likely to see the revival of bilateralism & a weakening of international institutions; in such a scenario a foreign secy. on a one year extension & a Foreign Minister who is not in the pink of health post the kidney transplant would not help.

In the light of an unpredictable US, a South Korea-Japan-Vietnam-Australia-India axis during the next 20 years would serve India well; beyond such a period we need to plan to stand on our own feet rather than lean on others. Rather others should be encouraged to lean on us.

Manipur & Goa Elections & After: The Lessons

The high voltage assembly elections to the 5 state assemblies of UP, Uttarakhand, Punjab, Goa & Manipur ended with emphatic victories for the BJP in UP & Uttarakhand & for the Congress in Punjab; Goa & Manipur gave fractured verdicts but with the Congress being the single largest party in each case touted it as a 3:2 victory. They were ingloriously pipped to the post by the BJP which in all likelihood would laugh away with an eventual 4:1 victory.

Lesson 1 for the Congress: Learn agility & not take any victory for granted.

The Congress argues that the precedent set by R Venkataraman in 1991 – of inviting the single largest party to form the government - should be followed. Such a position is repudiated by others who aver application of the same principle, in 1996, by Shankar Dayal Sharma, led to the BJP being voted out in 13 days. A pre poll coalition with a majority or a post poll coalition that could bestow stability should be invited, they argue. Incidentally, the latter principle was followed in J&K (2002), Jharkhand (2005) & Delhi (2013).

Chastised by the swift movements, the Congress approached the honourable Supreme Court with a prayer to put on hold the appointment & swearing in of Manohar Parrikar as Chief Minister, Goa; they also requested for a composite floor test to be ordered only to be rebuked by the SC for not approaching the Governor first nor submitting an affidavit of support by the non- Congress legislators as proof of enjoying majority support. The Court balanced out its judgement by pre-poning the floor test to Thu the 16^th of Mar.

Lesson 2 for the Congress: Selective application of precedents shall not help; a legal battle without diligent field work would be futile.

Constitutional Expert Subhash Kashyap argues that the governor instead of invoking article 164 should have applied article 175 instead; the end result would have been just the same but it would have been constitutionally more prudent.

Lesson 1 for the BJP: Hasty grab of power without paying attention to constitutional niceties would invite ridicule.

The BJPs actions, perhaps, could pass the legal test but fail the moral one.  Prabhakar Timple who resigned from the Presidentship of the Goa Forwards Party in protest against his party deciding to support the BJP govt. despite the mandate being against it was scathing in his criticism calling it in an interview to rediff the “BJP Political Mafia raj”; he also feels that post grabbing power the BJP would attempt to lure Congress legislators & thereby break the party.  He also feels that the Dhavalikar brothers -- Sudin and Dipak of the Maharashtrawadi Gomantak Party -- have always been with the party in power & they have been doing it since the last 20 years.

Lesson 2 for the BJP: Respect the peoples’ verdict

It could be argued that the BJP was in power in Goa & being reduced to 13 members in a 40 member house is a sign of voter non- confidence; a similar logic shall apply to the incumbent Congress which was reduced to 28 members in a 60 member house in Manipur. Perhaps, neither of the parties was keen to respect the mandates.  

Post the Bommai judgement in 1993, sanity, largely, was restored to polity with a decreased use of article 356 & a greater respect for mandates. The BJP’s action in Uttarakhand & Arunachal was a regression & the current actions would create further schisms in the polity.  It needs no soothsayer to predict that the Congress would reciprocate similarly if & when it rides back to power. Clearly, we are sowing the needs of a more rambunctious democracy & that surely is not music to ones ears. 

Budget 2017: The Reality

The FM presented the first Budget of Independent India where the Railway Budget was subsumed with the General budget; the segregation between Plan & Non - Plan expenditure has been dumped. It is a workmanlike budget without flourishes; no bad news is good news, sighed the market, relieved that a LTCG (Long Term Capital Gains) Tax has not been introduced & rewarded the FM with a rally.

The FM leaned on the IMF data that predicted the world economy to grow by 3.4% next year vs. 3.1% this year & India 7.2% next year & complimented himself for achieving an inflation rate of 3.5%, CAD of 0.3%, FDI of 1.45L crores in H1 (36% growth)& $361 billion reserves. He then proceeded to lower Fiscal deficit to 3.2% for next year & promised lowering debt to GDP ratio to 60% progressively to keep the rating agencies happy; lowering the borrowing target for next year to 3.48 lakh crores is a signal to the RBI to drop interest rates. In this tight rope walk, the Budget, however, has shrunk in size as a % of GDP next year as compared to this year, laying bare the promises of a “Modi Stimulus” blared on national TV from the last few days.

The FM quietly sneaked in listing of the PSUs in his budget speech without mentioning the divestment target of 72500 crores which would have invited accusations of selling family silver during the impending state elections. If he does achieve the same, it will be truly transformational. Abolishing FIPB, though welcome, does not mean that everything is under an automatic route as clarified by Economic Affairs Secy. Shaktikanta Das; sectors like Telecom, Defence etc. would still need approvals. That the rules governing FDI, would be released a few months hence indicates that the govt. still continues to make announcements before thinking through the fine-print.

Introduction of the “Thin Capitalization” rule means that company’s interest cost in excess of 30% of EBITDA cannot be tax deductible; this could induce better financial prudence from companies & help Govt. net a higher tax revenue too; highly geared companies would face an uphill task, though, in the short run.

The overall impact sector wise:

Industry

96% of these companies were rewarded with a reduction in the corporate tax (CT) rate from 30% to 25% which could spur investments & job creation. The MSME sector accounts for 45% of the GDP & 80% of the workforce; thus all MSMEs & more would benefit since the rule applies to all companies with a turnover of under 50Crores. CII which had demanded a CT to be dropped to 18% were miffed but the Govt. gains in shedding the tag of “Suit Boot Ki Sarkar”

3.96L crore capital expenditure, with a major 2.41 Lakh crore in the transport sector (Railways: 1.31L; Roads: 0.64L) though welcome, might not unleash the animal spirits of the economy.

Agriculture

The FM, incredulously, promised that agricultural growth would continue to grow by 4.1% without unveiling the plans. Plans to double farmer incomes in 5 years too are still unknown. About 50% of the population are dependent on agriculture although it accounts for only 14% of the GDP; this data point, though, is sufficient, to indicate that this is crying for investment.  Enhancement of farm loans to 10 Lakh crores, apart from the PMs announcement on 31^st Dec of a 60 day interest waiver were the only concessions. While a muted rise in MSP during the last few years has kept inflation in check, a strategy to achieve the BJP’s manifesto promise of a 50% increase in farmers’ incomes in 5 years is yet to be unveiled; advise to farmers to diversify incomes by adding animal husbandry, pesi-culture etc. are not helpful enough. E-NAM to connect mandis to ensure that farmers access a national market, though welcome, is a slow burn. The govt. has now recommended removal of perishables from the ambit of the APMC; states like Bihar have rightly abolished the APMC but that strategy alone has not helped agriculture become profitable. While Investments are an urgent need for this sector, the budget merely promises to circulate a contract farming model act to the states.

Against a budget of 38500 crores, for NREGA, the Govt spend 47500 crores in FY 2016-17, possibly to cushion the distress of demonetization, negating the PM’s stand against the ACT in Parliament earlier. A further increase this year to 48000 crore, with a promise for more, along with a shift towards asset creation, is welcome. The UBI (Universal Basic Income) thought triggered by the Economic Survey would cost about 5% of the GDP while the NREGA costs only 0.3%. NREGA has the advantage of self-selection too; UBI would be a dole transferred to the account of a poor man without any need to work while a poor man would have to work to get NREGA wages.  

Transferring, however, the 2.3L crore of subsidies - Food, Fuel & Fertilizers - through DBT (Direct Benefit Transfer) to the recipients, is welcome since it would be more directed & would also eliminate leakages. Subsidies account for about 1.7% of GDP & along with NREGA 2%.

Services

No specific measures to the service sector in the budget. An increase in the ST rate to 18% was not announced, perhaps paving the way for multiple service tax rates in the GST; the budget too expects a 11% increase in service tax revenues this year as against only 5% for excise.

The reduction in the lowest slab of IT (2.5 - 5 Lakhs) would be welcomed by the 1.95 crore people who file taxes in this bracket since it translates into Rs 12875/- gain. The FM announced that the reduction in tax would lead to an outgo of 15500 crores; 2700 crores, though, is recovered through a 10% surcharge on the salary bracket between 0.5 – 1 crore, translating into a minor stimulus of about 12800 crores which coupled with the OROP rises, 7^th Pay commission wages & the likely wage increases to be announced by the states could spur consumption.

The reforms in political funding mooted by the FM include Electoral Bonds & mandatory disclosures - of contributions received beyond Rs 2000/- against the current norm of Rs 20,000/- - is nothing but hogwash. Political funding smacks of quid pro quo & anonymity helps the culprits which calls for greater transparency. It is also true that ruling parties target the funders of their opposition who might therefore demand anonymity. The solution suggested by the FM neither supports anonymity nor transparency; banks that issue electoral bonds would have the data regarding the identity of the funder & the parties who have redeemed the bonds which if accessed by the govt. of the day would continue harassment. Lowering of the disclosure norm to Rs 2000/- would only increase the workload of the accountants who would now show 10 times the no. of funders.  Transparency in elections is a sine qua non & all political parties should be mandated to reveal every paisa received as funding; simultaneously, mandatory disclosure of expenses at the booth level by all political parties, monthly, regulated by the EC & open to a hawk eyed opposition shall bring a genuine transformation in our polity. 

Conclusion

To circumvent the twin balance sheet problem – banks loaded with NPAs & the private sector gasping for breath because of a debt overhand – a huge increase in public spending & an aggressive FDI invite were needed. The budget, unfortunately, fails to give a massive push to investment in a bid to retain fiscal prudence; a larger disinvestment target to fund investments while still retaining a fiscal deficit target of 3% would have been a better choice. Treat this budget, therefore as more of consumption & less of a massively Investment driven one; it is a political budget which pressed all the right buttons to influence the impending state elections. Only time will tell if the govt. has indeed achieved its economic & political objectives.