The Perilous Road to the Market-The Political Economy of Reform in Russia, India, and China.(Book Review)


Journal of Economic Issues; 9/1/2004; Reardon, Jack



The Perilous Road to the Market-The Political Economy of Reform in Russia, India, and China, by Prem Shankar Jha. London: Pluto Press. 2002. Paper, ISBN 0745318517, $24.95. 300 pages.

Prem Jha, a journalist for The Hindustan Times, understands the evolution of market economies; his first footnote is from Karl Polyani's The Great Transformation. Market economies do not spontaneously arise, Jha writes, but "the market has to be created first and the state is the irreplaceable agent of its creation" (p. 5). The theme of this important book is that a strong, viable state with a dependent source of revenue is necessary to implement supporting market laws and institutions.

Russia, China, and India, with 39 percent of the world's population, are emerging from failed statist policies and implementing market reforms. Russia implemented shock therapy in 1992, which destroyed the economy and almost destroyed the state and its ability to influence economic reform. China, responding to underemployment and agricultural stagnation implemented gradualist reforms in 1980 and India reacting to a stagnating industrial sector and a deteriorating balance of payments implemented gradualist reforms in 1991. But gradualism, Jha argues, can also weaken the state if reforms are enacted without supporting regulatory institutions as in China; or if reforms are implemented too slowly, as in India.

In Russia, orthodoxy assumed that if the socialist state were dismantled and resources were privatized, a market economy would spontaneously arise. But this assumption was based on a fundamental misunderstanding of the role of the state in market economies. The results were disastrous. Privatization of state-owned resources stripped the state of its socialist dominion, while demonetarization--implemented to reduce inflation and make imports more competitive--devolved the economy into a primitive barter system. The state was deprived of resources, and its citizens were impoverished. In the resulting vacuum, Russia's regional governors assumed political power while oligopoly capitalists assumed economic control.

In 1998, Yengeni Primakov, Russia's newly appointed prime minister, began rebuilding the "edifice of state regulation" (p. 75). This, along with the decision to remonetarize, dramatically improved the economy. The restoration of the state continued with the election in 2001 of Vladimir Putin, who has deliberately confronted the power of the regional governors and the oligopoly capitalists.

Unlike Russia, China did not privatize its state-owned enterprises (SOEs) since this would have thrown approximately 100 million people out of work. China implemented gradualist reforms in agriculture and stimulated industrial supply by creating tax-free foreign trade zones. The reforms were successful and led to sustained annual growth rates of over 6 percent, which (after adjusting for systemic overvaluation) still is among "the most impressive the world has ever known" (p. 118).

Burgeoning tax free zones, however, forfeited China's tax revenue and caused the tax/GDP ratio to decline from 35 percent to 11 percent, a decline almost as steep as Russia's. This, coupled with the China's obligations to the SOEs weakened the state's ability to influence reform. As an interesting example, during the 1997 Asian crisis, China was lauded by the international community for not devaluing its currency, which was linked to the dollar. But Jha argues that this decision was based on economic weakness rather than international responsibility: if China devalued it would have increased its debt service (in yuan) of SOEs and hastened their descent into bankruptcy (p. 145).

More problematic, however, is that Chinese reforms were implemented too quickly without the requisite laws and supporting institutions, particularly in banking and finance. This resulted in overaggressive bank lending, ill-advised private sector investment, and a nontransparent stock market. This is the real cause of China's problems, not overcapacity, which is a symptom, not a cause. An important lesson here is that even gradualist reforms can be implemented too quickly, if not accompanied by the proper sequencing of reforms and the requisite laws and regulatory institutions.

As a response to India's problems in 1991, the IMF suggested shock therapy. Perhaps shock therapy could have worked, Jha speculates, since India, unlike Russia, possessed fundamental market institutions such as property rights, commercial law, a stock market, a banking system, and a thriving entrepreneurial class. But as a democracy, India had to consider the needs of its citizens and not just the demands of international financiers. India opted instead for gradualism. Initially successful, momentum stalled when the government encountered domestic opposition, partially caused by the government's tendency to proffer every reform to the press for popular debate. But isn't this the essence of democracy? Jha doesn't specify what India could have done to expedite reform, other than to lament that India "with the shortest distance ... travel[ed] the shortest" (p. 245).

To reduce inflation, the Indian government raised interest rates, which resulted in a severe recession that lasted until 2000. India, however, refused to cut subsidies and sell SOEs and given decreasing tax revenues, a resultant increased budget deficit forced India to curtail fixed investment, particularly in defense and energy.

A noticeable omission in Jha's analysis is a discussion of the effects of Indian religion and politics on democracy and economic reform.

A troubling question, at least for this reviewer, is, given the need for a viable state, is democracy compatible with reform? Or should democracy itself be a sequenced goal? Jha blames democracy for stalling India's reforms, while China responded to increased privation associated with market reforms by clamping down on political and religious dissidents. And Vladimir Putin, in a recent New York Times article, commented, "if by democracy one means the dissolution of the state, then we do not need such democracy" (Steven Lee Myers, "In Russia, Apathy Dims Democracy," November 9, 2003, section 4, pp. 1, 5).

Deng Xiaoping likened his brand of incremental reform to "fording the river by feeling the stones" (p. 118) while India's reforms, "developed little by little, through the constant interaction of economic compulsions with political constraints" (p. 177). India, however, unlike China is a democracy, and although India has made mistakes, its general approach to reform is commensurate with the instrumental value principal, a central tenet of institutionalism which "neither directs nor implies movement in the direction of a preconceived set of institutional forms" (Tool 2001, 298-9). Russia, by contrast, seduced by orthodoxy, implemented shock therapy with the teleological objective of quickly creating an idealized market economy without considering popular needs.

The Perilous Road deserves a place in the pantheon of reform texts. In addition to a superb historical analysis of the problems facing Russia, China, and India, the book offers a recipe for successful reform firmly grounded in institutionalist principles. The Perilous Road elucidates the crucial role of a viable state in the evolutionary growth of market economies while disparaging the orthodox claim that markets spontaneously arise. I recommend this book for specialists contemplating future market reform in other regions of the world, while, at the same time, it is well-suited for a place in the economics curriculum.

Reference

Tool, Marc. The Discretionary Economy: A Normative Theory of Political Economy. New Brunswick, N.J.: Transaction Books, 2001.

Jack Reardon

University of Wisconsin-Stout

COPYRIGHT 2004 Association for Evolutionary Economics

AN ISLAND OF TRANQUILITY

Prem Shankar Jha

Another 933 million dollars flowed into India's coffers last week, raising the country's foreign exchange reserves to $77 billion. This is $23 billion higher than they were 25 months ago, and far more than a year's worth of imports. International investors are expressing their confidence in the Indian economy, and they are doing it with what matters most to them -- their money. But the vote has less to do with the performance of the Indian economy than with the steady darkening of economic prospects in the rest of the world. While India's economic performance in the last year has been unremarkable, that of the min industrial economies, and several of the high flying newly industrialised countries , has been dismal. What is more, politically, India has emerged as an island of tranquility in an ever more uncertain world. It is this, more than economic considerations , that is drawing an increasing portion of the world's investible funds to India.
The main reason for gloom and uncertainty in the world market is the poor performance of the US economy. For the entire decade of the nineties, as Europe and Japan struggled with their structural rigidities, it was the bounding American economy that drove international economic growth. Labour productivity grew, between 1993 and 1999, at between 3 and 4 percent per annum. Unemployment fell to a thirty year low of 3.9 percent, and inflation remained virtually non-existent. This growth engine helped the world economy to weather the shocks of the east Asian ,and then the Russian meltdown, in 1997 and 1998, and the Brazilian near-collapse in 1999.
Today the US economy is firmly in the second dip of a 'double-dip' recession. Unemployment has risen to 6 percent, the highest in 30 years. This has come on top of a decline in the average number of working hours in the week, in overtime work and, prhaps most serious of all, in the number of people who have either given up looking for work or no longer qualify under US law, to be classified as unemployed. Factory orders have fallen steadily through out 2002-2003. Perhaps most disquieting has been the steady loss of confidence in the dollar as a reserve currency. Last year, foreign investment in American securities fell by a whopping 85 percent to $62 billion. This was reflected in a depreciation of the dollar in relation to the Euro and the Yen. Confidence waned further when it became apparent that the Bush administration was not interested in balancing its budget, and preferred to run up a $400 billion deficit rather than go back on its promise to cut taxes on the rich. The uncertainty generated by the Iraq war , and cuts in interest rate to buoy up the economy, completed the disenchantment with the dollar. As people increasingly chose to keep their savings in Euro or the Yen, in one year the dollar depreciated 20 percent, from $0.93 to $1.12 per Euro.
The US is thus in no position to act as a driver of growth. But for almost the first time since the onset of economic globalisation thirty year ago, no other country, or group of countries, is in a position to take its place. In the seventies, as the US and most European economies faltered in the wake of the oil price shocks, Japan and Germany took over as the drivers of world growth. In the eighties, as the US economy went into a deep recession followed by a weak recovery, and as German growth fell victim to high interest rates and recession, Japan was joined by the south-east Asian tigers. In the late eighties and early nineties, as Japan fell victim to a financial -cum-structural crisis, China took its place..
In 1998, China too fell victim to a crisis of over-investment caused by the emergence of a huge speculative bubble. While the Chinese continued to claim a seven to eight percent rate of growth, the fact that its energy consumption fell by 12.8 percent in the next three years suggests that its actual growth turned negative. This nagging awareness is reflected by the 30 percent overall decline in share prices around the world in the past three years. Today everyone is waiting for the US economy to turn around, and the US is stubbornly refusing to oblige.
It is against this that India's performance looks good. The GDP has grown by more than five percent per annum even in the years of recession and stagnation since 1997. Its inflation rate has hovered around three percent since 2000 ( even today when it has touched 6 percent the core rate is still only 2.5 percent). It is running balance of payment surpluses, and the rupee is appreciating against the dollar. Politically the country is stable. There are no war clouds on the horizon and democracy is visibly working. India is a large island of calm in an unquiet sea.

WANTED, A BIT OF IMAGINATION

Prem Shankar Jha

On the first day of his visit to India, the Pakistan Prime minister, Shaukat Aziz, invited about two dozen Indian editors and columnists for breakfast. Departing from precedent, he stated at the outset that nothing he was going to say was off the record. I am devoting this column therefore to informing readers of the central issues he raised and his very clear vision of where India-Pakistan relations should go in the coming years. The central point that he drove home repeatedly was that India and Pakistan had to stop thinking of their relations in tactical terms and start to think strategically. Both countries had immense economic potential, and perhaps the best stock of ‘human capital’ in the world. But neither country had used it to serve its people as they deserved to be served. Our per capita incomes were low and our human development indices were among the poorest in the world. Our mutual hostility was to a great extent responsible. Ending it would open the way to a much fuller realisation of our potential.
Within the constraints of diplomacy, he could not have rejected the past basis for Pakistan’s policies towards India more categorically, for these were exemplified by a constant search for tactical advantage on virtually every issue, large or small. He urged India to do the same.
Mr. Aziz made it clear that Pakistan sought the change out of self interest. It had pulled itself back from the edge of bankruptcy five years ago to a point where foreign exchange had ceased to be a constraint on decision making. It had recorded a 6.4 percent growth last year and was set to achieve between 6 and 7 percent this year. He believed 8 percent growth was attainable in the near future. This would enable Pakistan to establish a position of leadership in its immediate region. Economic ties with Afghanistan would deepen and with the gas pipeline, which Pakistan would build to meet its own growing energy needs regardless of whether India joined in or not, its ties with Iran and Qatar would increase dramatically. Geography had also given Pakistan a pivotal role – that of an anchor for ensuring stability in the middle east and a portal for parts of central Asia. That could not be wished away. Pakistan could play this role fully only if reinforced by a powerful and friendly India at its back.
Applying this vision to current Indo-Pak relations he said that there would be no cherry picking of issues from among the ones that had been included in the composite dialogue. Pakistan would like to address all of them, including Kashmir simultaneously. He emphasised that the negotiations were a process and cautioned, indirectly, that especially on Kashmir, looking prematurely for solutions was not the way to go. He made it clear that General Musharraf’s iftar ‘proposal’ had not been aimed at India but had been made at a Pakistani gathering to obtain reactions from those who were present there.
These remarks took away the sudden focus that had developed in the last three weeks upon looking for solutions based on exchanges of territory, and opened the way to looking for solutions that met the needs of the people of Kashmir. Mr. Aziz’s views on the way ahead in Kashmir reinforced this approach. He referred more than once to Kashmiris as being stakeholders in the peace process. He emphasised that they needed to be consulted, their wishes taken into account and their welfare safeguarded. But he stopped well short of suggesting that any organisation claiming to represent them be made a party to the discussions. This approach is not very different from the people-centred approach that Dr. Manmohan Singh has been advocating.
Mr. Aziz was also flexible in his listing of Kashmiri organisations that needed to be consulted. He described Hurriyat as an important organisation in Kashmir whose views needed to be consulted, but not as the sole organisation. This may have reflected his realisation, at the dinner hosted by the Pakistan High commissioner the previous evening, that Syed Ali Shah Geelani was the only Kashmiri leader who did not support the peace process, and opposed incrementally building links between the two parts of Kashmir as a way towards a lasting solution. As that dinner progressed it became increasingly clear that Mr. Geelani reflected not the views of Kashmiris but at most those of the Jamaat-i-Islami in Kashmir. Significantly Mr. Aziz did not also rule out the mainstream parties as being representative of sections of opinion within Kashmir.
His forthright remarks cleared the overburden of misunderstanding and mistrust that had accumulated because of the grindingly slow progress of negotiations and the consequent tendency of the media to pounce upon, and often repeat out of context, every unguarded remark by the leaders of the two countries. The positive and forward looking proposal that Mr. Aziz brought with him was to jointly construct the gas pipeline from Iran and Qatar. Contrary to the way in which his remarks have been represented by MEA interlocutors, he did not present this in a confrontational manner. On the contrary he emphasised the benefits that both countries would obtain from the project and asked the Indian government to treat it sui generis and not tag all kinds of other ‘conditionalities’ onto it. He said that Pakistan was already an energy importer and if its growth accelerated it would have to build the pipeline, with or without India. ‘But a 24 inch pipeline’ he remarked, ‘would be far better than a 12 inch one’.
Although Aziz played down the pipeline , the importance he attached to it was apparent from the time he spent on it and the fact that he had brought his Petroleum minister with him. The pipeline provides an excellent opportunity for India to break the logjam of past mistrust through a deliberate act of trust. Some such act is necessary for only trust can beget trust. One hopes that New Delhi will seize the opportunity that the gas pipeline provides.

AN EXCESS OF CAUTION

Prem Shankar Jha

In a television programme aired on the evening of Dr.Manmohan Singh’s visit to Kashmir, Omar Abdullah, the President of the National Conference, asked,” What did the prime minister say during his visit that every prime minister of India has not already said? The answer, regrettably, is “ not very much”. Since the militancy began every one of Dr. Singh’s predecessors has announced an economic package, has exhorted the Kashmiris to embrace peace and has promised to ease the draconian rule of the security forces and make them more accountable for their actions. These promises have turned out to be inflated, and have done little to ease the uncertainty and fear in which most people in the militancy affected parts of the state live.
Most of the Rs. 24,000 crore package consists of projects that have already been sanctioned and are at various stages of implementation. Dr. Singh’s offer amounts mainly to a promise that New Delhi will not let the perennial shortage of investible funds, which has littered India with incomplete infrastructure projects, stand in the way of speedy implementation.
No one in Kashmir doubted Dr. Singh’s sincerity and good will, but to them his emphasis on peace looked like a plea to the Kashmiri people to accept the status quo and get on with their lives. Peace, the Prime Minister clearly implied, would facilitate the revival of economic activity. That was the only road to economic security and prosperity. The response to this was given by Mirwaiz Umar Farouq, who warned Indian listeners on the eve of the prime minister’s visit that if he confined himself to offering economic sops Kashmiris would think that he was trying to buy their loyalty to India. That, regrettably, is pretty much what he did.
Dr. Singh also reiterated , as Mr. Vajpayee had done, that he was prepared to talk without pre-conditions to anyone whose object was to restore peace. But this too did not satisfy the Hurriyat which has long objected to being lumped together with political parties that accept the union with India and are prepared to work within the framework of its constitution.
Perhaps most important of all, Dr. Singh’s visit to Kashmir did not address the central concerns of the Kashmiris. Every last Kashmiri knows that he or she will never know genuine peace till Pakistan and India cease to dispute the final status of their state. Now that the two countries have at last begun to negotiate seriously with each other, they are desperate to be taken into confidence about how the talks are progressing, and how India and Pakistan view the future. Above all, they do not want a repeat of 1947 when they were treated as cattle to be traded between the two dominions. It is their future that Pakistan and India are discussing. So they want to have a say in it.
Dr. Manmohan Singh did make several statements that touched, tangentially, upon these concerns. He repeated that New Delhi could not consider a solution that would weaken India’s secular fabric (short for cause a backlash against Indian Muslims). This should satisfy the vast majority in the valley, including separatists, who are openly against any further partition of the State. He also said that India was against any change of boundaries. While this negates one of the proposals that Gen. Musharraf has made, it leaves others open. Finally as a way of signalling a departure from the past, he offered Kashmir peace with honour, a phrase so far used only by the Hurriyat. This is admittedly a vague promise. But at this moment, when the real engagement with Pakistan is about to begin, it would have been difficult for an Indian prime minister to be more precise.
But most Kashmiris are incapable of understanding these subtleties. As far as they are concerned Dr. Singh offered them no assurances, made promises so vague that it would be impossible to hold New Delhi to them, and in sharp contrast to Pakistan which has been talking even to the moderate Hurriyat leaders who openly oppose any merger of Kashmir with their country, made no special effort to involve Hurriyat in the peace process.
Despite these limitations, the visit has done some good. By confirming that India will reduce its troop strength in Kashmir he has signalled a measure of trust in both Pakistan and the Kashmiris. One consequence is Hurriyat’s decision, being taken even as I write, that it will probably meet the prime minister when it visits Delhi over the weekend.
If Hurriyat does so it will pave the way for Dr. Singh to let them visit Pakistan and POK, to talk to not only with the government there but, more importantly, to the militant organisations that are still clinging to the dream of jihad in Kashmir.
In the coming days Dr. Singh also needs to spell out an alternative to changing boundaries to resolve the Kashmir dispute. The history of Europe during the past half century shows that boundaries do not need to be changed if their importance can be diminished progressively till they lose their emotive significance. That is the direction in which India has been trying to steer the negotiations with Pakistan, but Pakistan has been dragging its feet because it suspects this to be a method of foisting the status quo upon it by the back door. This is the gap in trust that the two countries need to bridge in their future talks. The Srinagar to Muzaffarabad bus link would be a good starting point.

THE KINGDOM OF FEAR

Prem Shankar Jha

George Bush has won, and he has won by a decisive four million votes. To understand the transformation of American politics that this represents, one needs only to remember that four years ago he received half a million votes less than Al Gore , and only won because his brother Governor Jeb Bush and the US Supreme Court , between them, handed him the 27 electoral college votes of Florida. This time he has gathered almost five million votes more than a much stronger Democratic rival, John Kerry, despite having an almost unblemished record of failure as a President. This complete disconnect between performance and reward is the most ominous indicator of where America is likely to go in the next few years.
By the time the voting took place, I had been in the US for two weeks. I had spent at least two hours each day discussing the coming election and another two hours surfing the TV channels and the internet to get an idea of how Americans were thinking. But revelation finally came only hours before the vote began to be counted, in a mens' changing room. Two white American men who heard me and my companion discussing Kerry's chances began to sniff audibly. Bush , they said when we brought them into the conversation, was bound to win and deserved to do so. Kerry was a coward and a liar who was unfit to lead the nation when it was 'at war'. When I asked them how they knew he was a coward, they said, "Because we are Americans. We know".
That single remark, which they made repeatedly to two people whom they believed to be naturalised Americans, summed up the ocean of frustration, envy and fear that has driven this election. Frustration and envy because non-white immigrants are taking more and more of the top jobs, and the prize places in their colleges and universities and marginalising the 'real' Americans. Fear because their world , which was already getting more and more insecure because of the collapse of the trade unions, the disappearance of blue collar jobs the replacement of white collar ones by the computer, and the assault on small business establishments by giant trading conglomerates like Walmart and Best Buy, has been turned into a truly frightening place by the 9/11 attack.
When I pressed them on how precisely they knew Kerry was a coward, they said, "He has refused to allow his military record to be opened". This was a piece of Republican 'disinformation' but I let it pass and remarked," But Kerry at least went to Vietnam and fought. Bush dodged the draft". "That doesn’t matter", they said in chorus. "With Bush you know where you stand. He is not pretending to be what he is not".
For good measure they extolled his tax cuts. " I have been able to hire two extra men because of them and I will hire more" one of them said. "But what about the deficit. Bush is running the nation into bankruptcy"" My friend asked. " The deficit does not matter", they replied. "What about the 500 billion dollar balance of payments deficit ?" we persisted. "That doesn’t matter either" came the stock reply. "We can keep running balance of payments deficits forever. The world will keep buying dollars". I let that pass too.

What struck me most forcefully was their utter disregard for facts and their lack of interest in holding Bush accountable for the mistakes he had made. It was a frame of mind that I had obtained glimpses of in chance conversations, overheard remarks, and in TV debates. But only on November 2 did I appreciate its true power. A spate of revelations had shown that the Bush administration had deliberately manouevred the country into an unnecessary war that had killed nearly 1200 Americans and permanently disabled three to four times that number. It had failed to capture Osama bin Laden and instead created a huge new recruiting ground for Al Qaeda in Iraq. The economy had a million fewer jobs than four years earlier. Five million more people could not afford health insurance, which meant that when they were forced to buy medicines they paid ten times as much as their insured peers. Two percent more of America had slipped under the poverty line.
But none of this mattered. For it was in the industrial 'rust belt' of the Midwest, which had suffered the most, that Bush took the maximum number of votes away from the democrats. Ohio, which finally decided the outcome of the elections, had actually suffered the most under Bush, for fully one quarter of the jobs lost were concentrated there.
In the end this election was not just a battle between two political parties, but an epic conflict between reason and fear. Bush played skillfully and cynically on the peoples' paranoia, and Reason lost. But it was not solely the skillful use he made of fear that propelled the Republican victory. That only served to push an overwhelmingly white and predominantly male component of the American population that believes that America is being stolen from it in a dozen different ways by 'foreigners', into endorsing a return to Christian fundamentalism at home and a mindless confrontation with foreigners abroad.
When fear defeats reason democracy is imperilled. That is the sword of Damocles that half of America and the rest of the world will have to live under for at last the next four years. It could be a lot longer.

FEAR IS THE KEY

Prem Shankar Jha

The American Presidential election, due to be held in two days, is like no other election ever held. Eighteen months ago, on a cold February morning, an estimated 30 million men and women joined hands in 60 countries to protest against the impending invasion of Iraq. It was the first truly global protest that transcended national boundaries, and was contemptuously ignored by the governments of the US and the UK on the grounds that they and they alone were the custodians of 'national security'. A similar groundswell is driving unprecedented international support for challenger John Kerry today. Surveys by the Pew Research Center have shown that across Europe, between sixty and eighty percent of the respondents want Kerry to win. Many wish they had a vote in the American election because its outcome is going to affect their lives. This is the second indication in two years of the way that globalisation is knitting the world together not only in the realm of economics, but of politics as well.
The support for Kerry is being driven by fear. The full, threatening, implications of America's new National Security Doctrine, which was unveiled by Bush in 2002, have at last sunk in and with it, the main pillar upon which peace and security in the international order rested has been shattered. For more than three centuries peace had been maintained by the doctrine of deterrence. This permitted a country to declare war on another only if the latter first took action that threatened its territory or some vital interest. This gave the people of small countries abutting powerful neighbours a great deal of psychological security, because it meant that the power to decide to go to war or maintain peace rested with them and not with their powerful neighbour. All they had to do to remain secure was not take any aggressive action against the neighbour.
The doctrine of deterrence was itself based upon an even older and more powerful idea-- that of a just war. In Europe this was based upon the writings of Christian theologians like Augustine and Thomas Aquinas, who had declared that war was justified only when it was a response to harm done. It was enshrined in international law by Grotius in 1620. Together, the belief in national sovereignty, deterrence and war as a last resort gave Europe a hundred years of peace between 1815 and 1914, and the western world another fifty years between 1945 and the end of the Cold War. This is the doctrine that Bush swept away in June 2002. The new National Security doctrine replaced deterrence with not even preemption but prevention. Bush explicitly claimed that in order to fight 'terror' ( an abstract noun) America had the 'right' not just to preempt an imminent attack from particular country, but to prevent any country from developing the capacity to threaten the US at any time in the future. To make matters worse, by invading first Afghanistan and then, less excusably, Iraq the US showed that it , and only it, would determine which country became eligible for preventive attack, and when. Since the Iraq war it has threatened Syria , then Iran, and more mutedly North Korea. In all probability it also threatened preventive attack on Libya. No one knows on whom America will train its sights next.
European countries are especially perturbed because more and more people no longer feel that they are exempt from the US' baleful scrutiny. Most of them have sizable Muslim immigrant populations. All of them have seen terrorist cells sprout among these communities. All of them fear that American unilateralism is feeding instead of crushing terrorism. And nearly all have suffered from terrorist attacks after the invasion of Iraq, either in Iraq or at home. To say that Europeans feel insecure would be an understatement.
Fear is also the key to understanding the unprecedented interest that Americans are taking in their election. The Republicans are aware that in terms of achievement the Bush Presidency has been, to quote Al Gore, a 'catastrophic' failure. The labour force has shrunk by one million, against an increase of 21 million during Clinton's Presidency; 13 percent of the people are now living below the poverty line against 11 percent four years ago; the number of Americans without health insurance has risen by almost six million; tax breaks for the very rich and for corporations have combined with sharply increased military spending to push the budget deficit into the stratosphere and sap confidence in the dollar. Republicans have therefore been driven back upon their weapon of last resort. This is to terrify the voters into bringing back a 'strong war president'. As a result they have left no stone unturned to heighten the threat from terrorism, to depict Kerry as a weak man incapable of taking a strong stand against terrorism, and therefore certain to invite attacks by Al Qaeda if he is elected. These tactics are working. A large proportion of the American population is now impervious to reason. It does not mind that it has been lied to, and that in the name of security, safeguards for individual freedom enshrined in the American constitution are being whittled away. All that it wants is to feel safe.
Lastly, fear of a different kind is also the driving force behind the democratic campaign. No one in the party has forgotten that although Al Gore polled half a million votes more than Bush in 2000, a Republican administration in Florida and a Republican majority in the Supreme court stole the election from him. And no one in the party is unaware of how that has changed history. The democrats are determined not to let it happen again and have deployed thousands of lawyers and human right activists in virtually every constituency in the dozen or more 'battleground' states that will decide the outcome. All things considered there has seldom been a more dismal , fear-laden and yet portentous election in human history.

WHY IS THE BJP STOOPING SO LOW ?

Prem Shankar Jha

Was it only two weeks ago that I warned readers about the way in which serious flaws in the criminal procedure code, that allow the police to keep any resident of India in jail without filing any charges for long periods, have become instruments in the hands of unscupulous politicians and businessmen to harass their rivals and opponents?
Well, it has happened again. And this time it is not the hapless chief executive and legal adviser of a German firm who have been hounded out of the country by an estranged collaborator, but a union cabinet minister who is being persecuted. I am , of course, referring to Shibu Soren of the Jharkhand Mukti Morcha. The motive on this occasion is quintessentially political, but it is a mean and dirty politics that has brought Indian democracy to a new nadir of shame.
Sometime in the middle of July the state unit of the BJP, which currently rules Jharkhand, decided that its best chance of getting re-elected lay in timing the state assembly elections to coincide with those to be held in Bihar in six months. The plan to discredit Mr. Soren, who is easily the most towering personality in Jharkhand politics, and if possible to hound him out of the elections altogether, was hatched shortly afterwards.
To do so, the Jharkhand government has dug into its case files and pulled out a flimsy charge, that had lain dormant for 29 years! This was that on December 26, 1975 Soren was one of 70 persons who had hacked to death 11 people in the village of Chirrudih, and burned their houses. The charge was easy to formulate because at that time the JMM was a semi-insurgent group fighting for separate statehood within India. But for precisely that reason, it would be virtually impossible to uphold in any court of law. Which is why, like innumerable cases against Naga, Mizo, Akali and Kashmiri dissident leaders, it had never been pursued.
But the BJP was not on a belated search for justice. All it wanted was an excuse to arrest Soren, disgrace him, hound him out of office, and make his image in Jharkhand lose some of its lustre. On July 19, therefore, the Jharkhand government issued an arrest warrant for Soren. Not only was this against a union cabinet minister, but the action itself was unprecedented because technically the court had first to issue a summons to Soren to appear. The arrest warrant should only have been issued when he failed to appear and was declared an 'absconder'. No summons had been served on Soren before the arrest warrant was issued.
What followed demonstrates how easy it has become to use what passes for 'Law' in India as an instrument of persecution and, on occasion, state terror. On the same day, which was a Monday, Soren applied for bail before the Jharkhand magistrate's court. But somehow, the court could not find the time , or the guts, to listen to the appeal, let alone grant it. On hearing of the arrest warrant, the Union Home Minister, Mr. Shivraj Patil, made a specific inquiry from the Jharkhand government whether Soren had been declared an absconder. The Director General of Police made the mistake of telling him that this was not the case. The very next day Munda transferred him from his post, and put in a more pliant police officer. Shades of Narendra Modi ?
Two days later, the Jharkhand police descended on Delhi and posted an arrest warrant declaring Shibu Soren to be an absconder, on the wall of his house! They did not feel it necessary to inform the Delhi police, or to seek its permission to carry out a law and order function on its territory. One wonders how many people realised how deeply this contempt for the union government, and for union territory, has undermined the already fading preeminence of the Centre in the Indian federal polity. They will realise it when a large state , like Tamil Nadu, follows Jharkhand's lead.
Even that is not the end of this dismal tale. One week later, the magistrate's court in Ranchi had still not heard Mr. Soren's bail application! It had also refused to hear his petition that all cases against him filed when he was leading the JMM's struggle for separate statehood should be quashed. That left Soren with no option but to offer his resignation from the union cabinet. Round one thus went to the BJP.
Round two, however, will almost certainly go to the JMM and the Congress, for the Indian electorate has shown , time and again, that those whom the State hounds for partisan reasons become its darlings. But the BJP would never have gone to the lengths it has if the remorseless erosion of habeas corpus that I described two weeks ago, had not made it so temptingly easy.
At its core lies the political establishment's toleration of the police's systematic abuse of its powers of arrest. In every civilised country in the world a magistrate issues a warrant for arrest only after he or she is satisfied that there is a prima facie case against the defendant. But in India magistrates have been in bed with the police from the very beginning. Their utter complaisance has encouraged the police to arrest suspects first and leave them to rot in hellish jails while it goes about trying to put together a case against them -- usually through the brutal use of third degree methods. And since this hit-or-miss tactic has usually missed , in order to give themselves more time the police has obtained changes in law that now enable it to keep its 'suspects' for upto 60 days in prison without trial.
Against this background, it would have been better if Dr. Manmohan Singh had not let Soren go, but used this blatant abuse as a launchpad for much needed police and judicial reform, instead.

A SOCIAL CHARTER FOR SOUTH ASIA

Prem Shankar Jha

Over the past five decades relations between the principal countries of South Asia -- Pakistan, India Bangladesh, Nepal and Sri Lanka -- have been marked by a level of acerbity that is not to be found in any other part of the world. To be more precise, it is the relations of each of the four smaller countries with India that have been strained to varying degrees at various points of time. The fact that all of them (except Sri Lanka) share long land borders with India but not with each other, may be part of the explanation. Another probable cause of friction is the fact that four of the five countries were carved out of the British Empire, which was a single economic zone and a single administered territory till 1947. The breakup of this empire, like the breakup of the Ottoman empire a quarter of a century earlier and the breakup of the Russian Empire in 1992, created political, psychological and economic problems that continue to bedevil us till today.
For the past decade, it has been increasingly apparent that the prickly, often negative, nationalism that it has given birth to is a luxury that none of us can any longer afford. For in an increasingly competitive and pitiless world, South Asia is being left behind. The beggar-thy-neighbour economic policies that we have followed now pose a threat to our security from an altogether different direction – that of economic failure and social upheaval. The trigger for such an upheaval, were it to occur, would most likely be rising unemployment, growing desperation among the youth, extremism and a challenge to the State. The all-pervasive poverty of the region will morally legitimise violence against the state and against individuals and families seen as allied to the State. This process -- a degeneration born out of despair -- is already far advanced in several pockets of South Asia. It could easily spread to others.
The trend needs to be reversed and we do not have much time to do it in. This paper does not have any instant solutions to offer. But its theme is that the right kind of economic cooperation, backed by the right kind of regional institutions, could even now spell the difference between inclusion in the new globalised world market and therefore assured economic viability and growth in the future, and exclusion from globalisation and a spiralling descent towards state failure.

A quick glance at the structure of the five economies shows what a high price we have paid for our lack of cooperation. First, even after forty years of planned attempts to break the grip of poverty, four of the five countries – those of the subcontinent -- are among the very poorest in the world,. According to a World bank ranking of the per capita Gross National Products of 133 countries, Nepal was the ninth poorest country in the world in 1991; Bangladesh was the 13th poorest; India the 27th, and Pakistan the 35th . In the past decade, India, with a six percent growth rate has almost certainly moved up Bangladesh, which has averaged more than 5.5 percent growth has caught up with Pakistan. But these minor changes cannot hide the fact that the South Asian subcontinent is , collectively , one of the poorest parts of the world.
With the exception of Sri Lanka, the larger countries of South Asia are also among the most miserable in the world. Bangladesh ranked 146th among 174 countries in the UNDP’s Human development index for 1998; Nepal ranked 144th, Pakistan 135th and India 128th . Only Sri Lanka with its long standing human development-oriented approach to economic planning, stood halfway up the ladder at 84th. A decade later not much had changed. India had moved up to 124th;Pakistan had slid down to 138th, Nepal was 142nd. And Sri Lanka had deteriorated marginally to 88th.
Another bleak feature that all the countries share is that in all of them the State is virtually bankrupt. Pakistan is worst off in this regard. In 2000, its public debt was 106 percent of its GDP; servicing this debt swallowed 75 percent of its current revenues. These current revenues were among the lowest in even the developing countries -- 11.5 percent of its GDP against 16 percent for the central government in India. The high public debt is a product of persistent Fiscal deficits that have forced the central government to borrow from the banking system to square its accounts. The central government’s fiscal deficit has ranged between 5.5 to 7.3 percent throughout the nineties. In its attempt to keep the deficit under control the government has cut back its developmental and social spending till there is nothing left to cut. As a proportion of GDP this has come down from 9.4 percent in 1980-81 to 3.4 percent in 1999-2000.
Perhaps most serious of all is Pakistan’s inability to prevent the internal public debt from continuing to grow. The cost of debt servicing, and that of general administration now add up to just about 100 percent of its current federal revenues. Thus even after cutting all social spending to the bone, it is forced to borrow year after year to meet its military spending. In the second half of the nineties virtually the entire defence spending, amounting to around one third of current revenues and 27 to 28 percent of expenditure, has been financed by public borrowing. Since it is not feasible for Pakistan to cut its military spending drastically it is squarely in a debt trap.
India’s fiscal state is better in degree but not in kind. The combined debt of the central and state governments has climbed to 85 percent of the GDP, of which the State governments have accumulated fully one third, largely by simply ignoring the Constitution of India . Till the end of 2002 the central government was teetering on the edge of a debt trap. Its interest payments swallowed 51 percent of the total revenue. Another 21 percent went in salaries and pensions and 26 percent on defence. These three irreducible items , over which the government had almost no control, account for 98 percent of all revenues. This meant that all, literally all, of its budgetary support to its own and the state government plans, to centrally sponsored schemes, and to specific state schemes such as rural electrification, came from borrowed money. Bangladesh too has a rising, and unmanageably high public debt, and has run up a string of high fiscal deficits in the nineties. In 2000 its fiscal deficit was $2.1 billion or about 7 percent of GDP.

When per capita income stagnates the powerful start preying upon the weak. Not surprisingly income inequality has worsened and the proportion of those below the poverty line has risen. In Pakistan, in June 2001, it stood at 40.1 percent. In absolute terms, 56 million Pakistanis were living below the poverty line. This was 15 million more than two years earlier . Bangladesh has fared much better, with the proportion of people below the poverty line having fallen from 78 percent in 1972 to 48 percent today, but this still remains one of the highest poverty ratios I he world and underlines how many miles we have still to go. In India the share of population below the poverty line has fallen from 38 percent in 1982 to between 26 and 27 percent in 1997 . But according to a recent exhaustive study by Robert Cassen, Tim Dyson and Leela Visaria, even if 6 percent growth continues, there will still be 190 million people below the poverty line in 2026 .



The time bomb of unemployment

The most serious problem that all countries in South Asia face is rising unemployment, especially educated unemployment. I can speak with geeatest confidenc about India. It is up to people rom the other countries to compare their experiences with ours. In India we have had slow, jobless growth for the last six years ( till march 2003). During this period employment in the organised sector has actually declined by 1.3 million. Another four million or more young people have come looking for jobs and found none. In the meantime, poor farm labour families and marginal farmers have withdrawn eight million children from the agricultural labour force and have sent them to school in the hope that this will enable them to get non-farm jobs when they grow up. This is a time bomb waiting to explode, and the fuse is becoming dangerously short.
According to Pakistan’s Labour Force Survey, the rate of unemployment ( probably defined, to exclude all categories of underemployment) rose from 6.8 percent in 1998-end to 7.8 percent in 2000 . This meant an absolute increase of 800,000 in two years. All-pervasive unemployment among the youth is a prime cause of rising Islamic fundamentalism and the resultant threat to the Pakistani State. I gather this is a source of growing unease in Bangladesh as well.
The problem of unemployment is especially acute in Bangladesh and Nepal. Bangladesh exports its manpower, legally to countries like Malaysia the Persian Gulf, and Saudi Arabia, but illegally to India. Nepal does the same. While estimates of the number of immigrants must be treated with caution they add up to well over ten million on the most conservative reckoning. There are estimates that run four times as high. I do not mention this as a criticism, but only to remind all of you of our interlinked future. So far the influx has created no animosity in the Indian people. But for obvious reasons this happy state of affairs cannot last forever. So we need to act together to tackle the root causes, and we are running out of time.



Enhancing Economic Security

It is against this dark horizon that the 12th SAARC summit stands out as a beacon of hope. We spent much of yesterday discussing the many ways in which the agreements signed were relatively unadventurous. But it does constitute a clear recognition that we are like Siamese twins, with a common, linked future. This was enshrined in the Charter signed on January 5.
The terms of the charter are admittedly vague -- so vague in fact that it can easily be dismissed as pious hot air. Key paragraphs commit SAARC nations to establishing "a people-centred framework for the social development and to build a culture of operation and partnership, and to respond to the immediate needs of those affected by human tragedy". They also stress cooperation in poverty alleviation, health issues, education, human resource development and youth mobilization, promotion of the status of women, promotion of the rights and well being of the child, population stabilisation and drug de-addiction, rehabilitation and re-integration. And they enjoin upon the nations to develop their national policies within the "broad parameters and principles for addressing common social issues and developing and implementing result-oriented programmes in specific social areas".
These are not only very general commitments but, what is more important, their fulfilment or neglect depends upon the domestic policy of the SAARC nations. Despite the fact that in areas such as human rights, sovereign States have begun to bind themselves to achieving certain minimum goals in their relations with their own subjects, the extent to which the Social Charter can be deemed as binding upon the SAARC signatories remains in doubt. What it has done is to spell out a set of shared goals and aspirations. There is no way in which the failure of a country to achieve a declared objective within its frontiers can be considered a violation of its international obligations.
Despite this, the Charter marks an important step forward in relations between the SAARC countries. For the least that it does is to bind them to not taking steps unilaterally that will make it more difficult for the others to achieve the goals to which they have all jointly subscribed. It also requires the signatories not to deny such cooperation and consent unreasonably. It is in this spirit that I present this paper.

So far SAARC has concentrated almost entirely on freeing trade within the region. This is understandable because trade is the area in which gains can be most immediate. It is also appropriate that India should have taken the lead in offering unilateral concessions in 1998 as a prelude to SAPTA and SAFTA, for the lack of complementarity between the South Asian economies today can largely be traced to India's rigid economic autarchy, with its plethora of import bans and high tarriff barriers, between 1957 and 1998. Nepal was by far the worst sufferer, for all of its river valleys open into India and all of its natural transit routes run from north to south into India. India was the natural market for everything it produced, but indigenous raw material content rules fixed in 1950 prevented it from exporting anything but raw materials and the simplest of local manufactures to India. Nepal's failed industrialisation, and to a considerable extent the Maoist uprising that threatens the state are therefore a product of Indian policies. This is the moral justification for India offering non-reciprocal concessions to other SAARC countries now. It needs to be better understood , particularly within the Indian bureaucracy.
Freer trade will lower import costs for all SAARC countries and increase the purchasing power left in the hands of consumers. It will permit, among other things, regional specialisation in agriculture. The 70 percent of south Asians who live off the land will be the prime beneficiaries. But trade can give South Asia only a part, perhaps the lesser part of he benefits that can flow from cooperation.. The experience of other free trade areas has shown that free trade proves most beneficial when it accelerates the industrialisation of the poorer country and provides the richer with a source of cheap labour. This means that trade must be complemented by investment. Capital then moves from a capital-rich member country to a capital poor country to take advantage of the low wages in the latter in order to produce for the entire Free Trade Area and the world market as a whole. This leads to the rapid industrialisation of the poorer countries, an increase in consumer welfare for all and an improvement in the competitive power of the concerned enterprises in the world market. Whether you look at ASEAN, NAFTA, or the EEC ( now EU), in every free trade area created so far it is the low income, usually smaller countries that have benefited most.
Within the European Union such trade generating investment flows have gone from the richer and bigger countries to Spain, Portugal, Ireland and more recently, Greece. In ASEAN the search for low wage production bases is what motivated the incorporation of first Vietnam and then Myanmar into the Association. The creation of the North American Free Trade Area (NAFTA) has led to an increase in investment by American firms in Mexico and Canada to produce goods, components and raw materials for the American and the world markets.
In SAARC , by contrast, not only are there no capital-rich countries or enterprises in search of low wage production platforms in other countries, but inter-country investment is barred, or at any rate severely inhibited, by the prickly, somewhat dog-in-the-manger nationalism that all countries of the region display towards one another. That leaves only trade. And trade between countries at the same level of development can be employment displacing. The very least that true free trade would do is to force some industries in each country to shrink, perhaps wither away, under the impact of imports, while others expand as they take over markets in other member countries of the FTA. Even when an industry does not wither away there is a great deal of turmoil within it as some of the products become uneconomical and others thrive. This leads to product specialisation, expensive fresh investment and retraining of the work force. In the long run when all the changes in industrial structure have been completed the entire region may emerge industrially much stronger than before. But there is a great deal of transitional dislocation and considerable uncertainty about the final outcome. This deters poor or politically fragile countries from making the effort. Unwillingness to do away with trade barriers is not therefore irrational. For it is possible for the immediate cost of dislocation and the discount on future gains because of their uncertainty makes the change not worth the risk. SAARC has recognised this by carefully staggering the move to free trade over 13 years.


The future lies in infrastructure development

Where investment is both most urgently needed and will pay the largest dividends in terms of employment is in the development of infrastructure. The two most often cited reasons for investors’ lack of interest in South Asia are the political turbulence of the region, and its primitive infrastructure. The former is a legacy of history and cannot be simply wished away. However hard we may try, (and after SAARC XII I know we will) we will have to live with political disputes and disagreements, and with a measure of distrust for many more years to come. But our economies cannot wait. What we must therefore devise is an economic strategy that will insulate its economic development from its politics. By far the most promising area of economic cooperation is one that has been almost completely neglected so far. This is the joint development of the economic infrastructure of the region in order to make it more attractive destination for foreign direct investment. If the South Asian countries can find a way to develop their infrastructure jointly, they will at one stroke remove both the hurdles that discourage foreign investment today. They will demonstrate that they are capable of keeping their political disagreements insulated from their economic policies, and they will modernise the infrastructure of the region and make it an economically attractive destination for investment.
Even a short checklist of the projects that have been proposed and vetoed for one reason or another quickly develops into a litany of missed opportunities. Till as recently as four years ago not only was Pakistan not prepared to sell India any gas from its Sui Gas fields, but it had turned a cold shoulder to proposals to allow an oil and gas pipeline from Central Asia via Afghanistan and Pakistan to serve India in addition to Pakistan. This despite the fact that not allowing it to do so would greatly reduce, perhaps destroy, the economic viability of the project .In an ironical reversal of roles, today it is Pakistan that is keen to allow a pipeline to go through to India across its land, and it is India that is dragging its feet on security grounds. This is how beggar-thy-neighbour works.
Bangladesh’s President Begum Khaleda Zia is similarly under tremendous domestic pressure not to sell any gas from its newly discovered Gas fields to India, but to keep it ‘bottled up’ inside the earth till Bangladesh can make use of it in its own downstream industries. This despite the fact that the consortium of American companies that proposes to develop the gas fields has told the government that they will become unviable if some of the gas is not sold to India. Begum Zia has postponed the resolution of this poblem till an accurate assessment is made of how much gas there really is. But Bangladesh is in no hurry to make the determination.
In the central region Nepal sits on the greatest Hydroelectric potential in the world but fifty years of discussions with India on how to utilise it has yielded very belatedly one sole and highly controversial project agreement. Nepal and Bangladesh have suggested more than once that the gilock can be broken by adopting a regional approach to the development of water and power resources. India is only reluctantly comin around to this view.
The other river system with awesome hydroelectric potential is the Brahmaputra. The complete inability of India and Bangladesh to agree on a single project that could meet their joint needs, because of dog-in-the-manger nationalism ensures not only that this project is not even discussed but that the Brahmaputra continues to flood one third of the arable land in Bangladesh in every other year.
An alternative proposed by India , that would greatly ameliorate the flooding caused by the Brahmaputra and at the same time recharge the Ganges as it flows into Bangladesh, is the oft proposed Ganga –Brahmaputra link canal. This canal can perform the functions of both irrigation and flood control because the Brahmaputra floods in May and June, at a time when the discharge of the Ganges is at its lowest point. Such a canal would enable Bangladesh to augment the supply of irrigation to its north-western districts while reducing the flooding of the northeastern districts. This project has been vetoed time and again by Bangladesh on the grounds that allowing India to control a canal that passes across Bangladesh and is vital to its agriculture would be detrimental to its national security.
Bangladesh had similarly, for decades, vetoed repeated suggestions to allow India to develop a waterway to the North east up the Padma and the Brahmaputra and thus link the region, now land –locked and rife with terrorism and armed extortion, to Calcutta and the rest of the world.
Lastly, India is actively pursuing a rail link through Myanmar with Thailand , Malaysia and Singapore, i.e with ASEAN, but Bangladesh is not part of the plan because it will not allow a rail link across its territory for India. There are scores of other projects that are technically feasible but have not even been thought of, because of the prickly nationalism that pervades South Asia.
This is not the place ofr a disquisition into the causes of this kind of negative nationalism. What cannot be denied is that, no matter how well grounded its causes may be, it has made economic security a victim of the search for political or military security. It has done this by replacing the threat of war or military coercion by a large neighbour with the more insidious threat of internal disruption, the breakdown of law and order, the rise of extremism, economic exclusion from the global production and marketing system, and eventually the failure of the state itself. Every step that the countries of South Asia can take away from this dire eventuality is one that none should spurn.


Bypassing Politics

It is this writer’s belief that the fears that have been expressed in other SAARC countries, especially Bangladesh and Nepal that India would misuse the power it acquires over the territory or economy of its smaller neighbours through such joint projects is greatly exaggerated. The standing refutation of this fear is the Indus waters treaty of 1960. Although India is the upper riparian state in this treaty, and although India and Pakistan have fought three wars since it was signed, the release of water under the treaty has not been disrupted on even a single day.
The Ganges water sharing agreement with Bangladesh over Farakka, is another example. Bangladeshis believe that India is abusing its status as an upper riparian country and doing them out of water. But the fact is that although the Ganga flows for 800 miles through India and only 150 miles through Bangladesh, the agreement gives half the water at Farakka to Bangladesh. The truth is that while Bangladesh complains about India's capture of Ganga waters, it has too much of it. While the average water availability in India is 2,000 cu.metres a year in Bangladesh it is 20,000 cu.m. a year. It is against this background that the the Vajpayee government's River linking project needs to be examined.
Contrary to fears expressed in Bangladesh, and despite the directive handed down recently by the Indian Supreme Court, the future of this project is exceedingly uncertain. The sums required for its execution, presently estimated at Rs. 550,000 crores, but bound to rise to three or even four times this figure, simply do not exist. Its environmental impact and technical difficulties have also not been exhaustively studied so far. However, while the project in its entirety, and especially one of its main goals -- to transfer 'surplus flood waters from the north Indian rivers to the increasingly water short, Deccan plateau-- may never be implemented, the blueprint does give the countries of the South Asian mainland a document on the basis of which to plan the joint development of their water and Hydro-electricity resources.
By far the most important component is the joint development of the water and power resources of the eastern region. This involves taming the Brahmaputra and its tributaries, augmenting the lean -season flow of water in the Ganges, and harnessing the immense monsoon period surplus of the two river systems to do so. Viewed against the commitments made in the social charter, the failure of the Vajpayee government to make Bangladesh and Nepal at least, a party to the river linking scheme constitutes a violation of its spirit. By the same token the charter has also removed the justification for Bangladesh and Nepal to adopt endless filibustering tactics to further postpone the joint development of the eastern waters.

However it would be too much to expect encrusted attitudes and fears to melt away overnight. That is why the collective effort of the countries of SAARC should be focused on creating instruments that would be able to attract foreign capital into such infrastructure projects while at the same time taking shielding them from the arbitrary influence or control of any one country.

One way to do this would be to create a Joint Infrastructure Development Authority under SAARC to which all the SAARC countries would provide seed capital in proportion to their size and GNP. This authority could be entrusted with the task of preparing feasibility reports for existing and proposed regional infrastructure projects, finding international investors, determining the share of each of the concerned countries in its share capital, the tariffs to be charged for the services or products supplied to the beneficiaries, and do whatever else is required to implement the project. It, or a parallel organisation also created by SAARC, could administer the infrastructure facilities so created, much as the original Common Market Secretariat in Brussels did in the sixties and seventies.

HEADING FOR CHAOS

Prem Shankar Jha

On September 9, three years after the terrorist attacks on the World Trade Centre and the Pentagon, George W. Bush clamed that everything he had done in Iraq was right and , given the need, he would do it all again. The war on 'terror' was being won; the world had become a safer place; three quarters of the senior cadres of Al Qaeda who were at large three years ago were now either dead or behind bars. Iraq had been liberated from the clutches of a monster, and its people were well on the way to democracy. America, he said, was at war, and America was winning. What should we make of this incredible string of brazen assertions? Are they the desperate claims of a beleaguered President who feels the ground slipping from under his feet? Or does Bush really believe what he is saying? Unfortunately, it is becoming more and more likely that Bush has so completely lost touch with reality that he actually believes what he is saying. And that makes one fear for the future of the world.

For the incontrovertible, damning truth is the exact opposite. The war on terror is not being won. It is being lost. And the longer the US takes the world down the destructive path it blazed on March 19, 2003, the more dangerous will it become.
Let us see where we stand today. Saddam Hussein is gone, and has developed a passion for gardening. But with each passing day it is becoming clearer that despite all he did to consolidate and maintain his hold on power, he was a force for peace and stability in the middle east and not the opposite. Contrary to what Messrs. Bush and his demented vice President, Dick Cheney, still keep insisting, he had no weapons of mass destruction and had not been attempting to build any after the early nineties. So he was no longer any threat to his neighbours. On the contrary, he had not merely contained Iran during the most explosive period of its revolutionary fervour, but also shut out the Sunni fundamentalism that the Wahhaby religious establishment in Saudi Arabia has exported to virtually every other Islamic country in the world (Ironically, the only other exception is that other enemy of the US, Syria). He had therefore kept Iraq completely secular. This was reflected in the full representation of women in the work force, the near complete absence of the veil and the Burqa, in secular laws and a secular education.
Today that secularism has been replaced by a nationalist rage that is fusing with both Sunni and , more dangerously, Shia fundamentalism to turn Iraq into a hellish cockpit of violence and terrorism. As ever obedient to their masters, the major anglo-Saxon media have turned an elaborate blind eye to the escalating violence in Iraq. Each day they report, almost in passing , the number of persons killed by Iraqi suicide and other terrorist attacks. American deaths are now simply not reported. When American helicopters bomb, rocket and machine gun Iraqi houses they are invariably militant hideouts. When they fire on crowds, they are invariably insurgents.
But European and Arab media tell a different story. It is one of American soldiers never risking their lives by going out on the ground, where it is easier to distinguish friend from foe, but staying safely in tanks, armoured car and helicopters and blowing away anything that moves. Nine out of ten of the people they kill are, as a result, innocents and, as happened at Tel Afar, a small town halfway to the Syrian border early last week, many of them are women and children. Reports are sketchy, but some, gathered from hospitals by news agencies like Reuters and the Associated Press, and by the Brookings Institution, suggest that such civilian deaths now exceed a thousand a month!
This lack of concern for Iraqi lives now pervades all American thinking. John Kerry did not even consider it worth his while to raise the issue during his campaign. Only the Iraqis Killed by Saddam matter to the US and its allies. After the war every mass grave that the occupation forces came across was exhumed, and we were told ( never later confirmed) that there might be up to 15,000 bodies buried there. All in all Saddam was supposed to have killed 300,000 of his own people during his 35 year reign.
But what about the American record ? According to John Pilger, as early as March the number of Iraqis killed during and after the war was in the neighborhood of 55,000. By that estimate it has now risen over 60,000. From the Iraqis point of view, even without the bursting prison at Abu Ghraib and elsewhere and the ubiquitous officially sanctioned torture practised in them, George Bush is beginning to resemble Saddam Hussein more and more every day.
Finally what about peace and democracy? As Larry Diamond, by no means a Saddam lover or peacenik, has written in the latest issue of Foreign Affairs, by consistently refusing to give Iraq any kind of election, even to form a constituent assembly, and by putting in one puppet government of Quislings after another the US has managed to convince Iraqis that it did not come to liberate but to conquer them. As a result three separate anti American streams of sentiment have developed -- among the Sunnis, the Shias and the Kurds. Two are beginning to merge and the third might do the same in order to first get rid of a common enemy and prevent its puppets from entrenching themselves. After that it is becoming more and more likely that Iraq will collapse into civil war and disintegrate.
Iraq has gone out of the Americans' control and will most probably emerge as a failed state and the new home of Al Qaeda. But instead of learning something from this truly epic debacle, the US is plunging on down the path to destruction. Today, it and its faithful henchman, Israel, are training their guns on Iran. All that they are waiting for is some kind of censure of Iran's nuclear programme by the UN, to give them the cloak of justification for attacking that country. If they do that the entire middle at will go up in flames and Al Qaeda will start receiving tens of thousands of Shia recruits as well.
That is the President and regime the American people are on the verge of re-electing.

NO NEED TO PANIC
Prem Shankar Jha
It seems as if the Gods are set on making life as difficult as possible for Dr. Manmohan Singh's government. It is facing what is turning into the worst drought in decades. As if that is not enough oil prices have risen steadily ever since it came to office. The two together had pushed the rate of inflation to 7.5 percent by July 24. And that was even before the full magnitude of the failure of the monsoons had become apparent, and before oil prices touched their present peak of $45 a barrel.
The jump in the inflation rate by one full percent between July 17 and July 24 has rung alarm bells all over the government. The last time that India experienced such a high rate of inflation was back in 1995 when the country was in throes of the strongest industrial boom that it has ever known. Since then it had subsided to around five percent, and, from December 2000, to between three and four percent. In the past year or more, as industrial recovery set in and the world-wide demand for steel picked up, pushing up prices within India as well, the inflation rate had inched back to a little above five percent. But the 7.5 percent of July 17-24 was a full two percent higher. It could not therefore be ignored.
On Monday the Governor of the Reserve Bank , Mr. Y.V. Reddy, conceded that the jump in inflation was unexpectedly high and the Prime minister called a meeting to discuss the causes and consequences of the spurt in prices. This set off a flurry of speculation in the financial markets that the RBI intended to raise interest rates. Several banks forecast a rise in the interest rates. This sent Bond prices cashing. One or two, including the HDFC bank raised their lending rates in anticipation of a rise in the Bank .
Fortunately the Finance Minister has set these speculations at rest the next day, by pointing out that the causes of the spurt in prices were all external to the Indian economy, namely the rise in oil prices and the drought. He expected inflation to 'settle down' by September, By implication, therefore , he ruled out any increase in interest rates.
To call this a wise decision would be an understatement.It hardly needs to be stressed that the steps that are needed to contain inflation depend upon its cause. Causes that lie outside the economy need very different remedies from those that lie inside it. Economists differentiate between the two by separating what is called the core rate of inflation from the overall rate. The core rate of inflation for India is the general increase minus the increase in the price of oil and oil products, which are largely imported, and agricultural products, which still depends heavily on the monsoon. It is only when this starts rising that measures to restrain demand by making credit more expensive become necessary.
A study of the weekly statistical data released by the Reserve Bank shows that the core rate of inflation had changed very little in the month ended July 17 ( the last date for which detailed figures are available as I write).. Steel prices, which had risen by 42 percent over the past 12 months, and contributed a great deal to the rise in the inflation rate from four to five percent, had settled down by the middle of June. They rose only 0.5 percent in the month that preceded July 17. Cement prices actually declined by 0.9 %. The overall manufactured goods index, however, rose by 0.5 percent . While not excessive, it reflects the firming up of some commodity prices to which finance minister Chidambaram referred in his interview to the Business Standard. He has rightly pointed out that the remedy to this, in an open economy, is to encourage imports by lowering customs duties.
The main cause of inflation is the rise in fuel prices, which is an exogenous shock. Fuel and power prices have gone up by 4.4 percent since March till July17, but the rise has accelerated since then. The second cause is the erratic monsoon. In the past poor monsoons would lead to hoarding. This used to be tackled by a cocktail of measures that often included the raising interest rates. But the government has so much food, and can flood the market with it so quickly, that no one has indulged in serious hoarding for the last two decades. Today a bad monsoon affects mainly cash crops, fruit and vegetable prices. The latter have risen by 8.1 percent since March.
With the core rate of inflation showing no rise there is no justification for any measure to reduce liquidity in the money market by raising the interest rate. Foodgrain prices can be controlled by selling food from the buffer stocks, and the prices of imports can be moderated by lowering customs duties or allowing the rupee to appreciate. These are some of the measures the government is contemplating today.

THE PASSING OF AN ICON

Prem Shankar Jha

When I read that Mulk Raj Anand had died, I was pierced by a pang of sorrow. I had met him first in Mumbai over thirty years ago when he had deigned to notice the writing of a young journalist in the Times of India. For me, simply meeting the man who had written Coolie had been an overwhelming experience. Here was the man whose passionate nationalism had inspired a generation of Indian intellectuals; whose descriptions of abject poverty, institutionalised injustice and the benign neglect of the colonial power had chipped away relentlessly at the moral foundations of British rule and helped to destroy the hegemony on which empires are built. Later, when he shifted for a few years to Delhi, I had the privilege of being invited to his home, and came to know the other side of his nationalism. For his small house in Hauz Khas and his exquisitely tended garden were full of paintings, folk art and handicrafts. His home fairly shouted that for him, getting rid of the British had been the lesser part of the struggle for freedom. The greater part consisted of rediscovering our pride, and our identity as Indians. The elements from which these could be reconstructed abounded. They lay all around us, parts of an incredibly rich cultural heritage that boggled the mind. Only our eyes had changed, for they could no longer recognise the significance of what they saw. That was the true measure of the damage that a century and a half of British colonialism had inflicted on the Indian mind. That was why, shortly after independence, he founded Marg.
But as the day wore on my acute momentary pang gave way to an abiding sense of loss. For I realised that it had been more than a decade since I had last heard anyone speak of him. The reason for this came to me only gradually. Mulk Raj Anand was no longer a household word for the same reason as Mahatma Gandhi. The India that they had wanted to create had proved stillborn. Its place has been taken by another -- a raw, confused, land whose people do not know what to value and where to go, and have therefore promoted self -interest, materialism and greed to fill the gap. This India is all around us. It is visible in our criminalised political class, our self -obsessed and wholly unaccountable bureaucracy, our collapsing judiciary, the obscene wealth and ostentation of our new rich and the continuing poverty and neglect of our poor.
It is visible above all in our total neglect of our cultural heritage. Am I exaggerating? Look at any new housing colony -- whether built by the government or by a private promoter: Can you find a single feature in the houses, hotels and shopping areas that you can identify as Indian? Why are architects like Charles Correa, Raj Rival, and Satish Grover, who have studied Indian architectural forms exhaustively and sought to incorporate some of their basic elements into their work, now doing most of their work abroad? Why unlike every metropolitan nation does India not have a classical music channel on FM radio anywhere in the country? Why does Doordarshan give its classical arts channel, DD Bharati, such step-motherly treatment and why is it such a resounding failure? Why, in the bookshops of Mumbai, Delhi or Bangalore , has Marg been submerged under an avalanche of new magazines that 'sell' Bollywood and Beauty contests as Indian culture? Why has one newspaper after the other stopped reviewing art and music programmes? Why, with one honourable exception, The Hindu, does none of them consider trends and developments in music, classical dance and the fine arts to be worthy of even an occasional report? Why did Delhi's classical dancers become so desperate a few years ago, that they held a joint press conference to warn the public that dance would die if the neglect in the media continued? And why did their cry of distress only evoke snide reports in the press about which dancer had been badmouthing which one after the conference was over?
Why did the nationalist dream, for that was what it was, die such a speedy death? Ironically, the main cause was the introduction of democracy. Mulk Raj's ideals were those of a small national elite, created by British education, that had defined itself in counterpoint to the colonial power. Universal franchise disempowered that elite within a decade, and replaced it with another that was grown in the small towns and villages, had had little direct contact with British rule, and had only a vague concept of India. This elite felt free to imitate the west without feeling the guilt that its predecessor had associated with aping its masters. By the same token, its members took the traditional art and architectural forms and handicrafts that Mulk Raj and his peers treasured utterly for granted and defined 'progress' -- their own as well as their country's -- by the distance they could put between these and themselves. All this has come to be encapsulated in the term 'Bollywood', for that is where the new elite has both articulated and learned its values.
The break was to some extent inevitable but could have been minimised had the Indian education system emphasised the classics and the humanities , as British education did during the Industrial revolution and as American universities increasingly did during America's rise to global dominance after the second world war. This would have provided the essential continuity of values that a rapidly changing society needed. But from the first days of independence, Free India exalted the 'journeymen trades' of science and technology and treated the humanities as an afterthought. No secondary school board requires students to learn either Sanskrit or Persian, the two classical languages of the country. Till today, almost no Indian university has a strong philosophy or political science department. Very few teach comparative religion, or art history and cultural studies. Does it then come as a surprise that the one goal of all who excel at studies is to learn science, join an IIT or engineering college , and escape from the country?

THE PERILS OF PEACE-MAKING

Prem Shankar Jha

Three sudden developments on the eve of Pakistan prime minister Shaukat Aziz’s visit to Delhi, have highlighted the knife-edge on which Indo-Pak peace process is balanced. The first was Gen. Musharraf’s suggestion, made at an Iftar party some weeks ago, that India and Pakistan could identify seven regions in pre-partition Kashmir, demilitarise some of them and either unite them as an independent territory whose security is guaranteed jointly by the two countries , or turn them into a UN protectorate. The second was Dr. Manmohan Singh’s response that any solution that involved either weakening India’s secular fabric or redrawing its boundaries would not be acceptable. The third was Gen. Musharraf’s riposte at the SAFMA conference in Lahore last weekend that if India stuck to a ‘maximalist?position, Pakistan would be left with no option but to go back to its original demand for a plebiscite to determine Kashmir’s future. With this double rejection the negotiating table suddenly looks bare.
A closer look at the statements shows , however, that these were missteps on an extremely difficult road and not a turning away from the peace process. Gen. Musharraf’s proposal is in essence a version of what was known as the Dixon Plan, which has been around for more than half a century and has been brought up as a possible solution by Pakistani participants in track two discussions from time to time. It would involve separating Kashmir valley from India and the Jhelum valley and adjoining areas in POK, and giving them a quasi-independent status. Dr. Manmohan Singh’s limiting conditions too are anything but new. In fact he mentioned these to Gen. Musharraf in New York.
If the two leaders made a mistake it was in articulating their positions in public. New Delhi cannot be blamed for taking exception to the fact that it came to know of Gen. Musharraf’s proposal through the newspapers. The essence of a negotiating process is that it should be private. Making a proposal public drastically reduces the room for subsequent negotiation and compromise. Confronted by the media, Dr. Singh felt obliged to respond in kind. That, of course, reduced the scope for negotiation still further.
But even Gen. Musharraf’s ‘mistake?was more apparent than real. To understand why, one needs to see it not from India’s but Pakistan’s point of view. For more than half a century Pakistanis have believed that they were wrongly done out of Kashmir. As a Muslim majority area it should have become a part of Pakistan. Pakistan will therefore remain incomplete until Kashmir becomes a part of it. In this perception not only is there no room for an Indian Kashmir, but there is no room for an independent Kashmir either. That is why, for more than half a century, Pakistan has stuck doggedly to the view that there should be a UN supervised plebiscite that gives the Kashmiris only two options, India or Pakistan but not independence. Gen Musharraf’s proposal has formally abandoned both these pillars of Pakistan’s policy towards Kashmir. He has not only given up the demand for a plebiscite ?but has explicitly accepted that Kashmir need not be a part of Pakistan but could be a quasi-independent country.
The break from the past is so great that Gen. Musharraf cannot be blamed for feeling that he could not make it without somehow taking the Pakistani people into his confidence first. His remark at the iftar party was therefore anything but a mistake. On the contrary he may have deliberately chosen to make it on an occasion that was so informal that it could be denied or dismissed as a light-hearted suggestion, if it aroused a storm in the country.
Had New Delhi seen it from Gen. Musharraf’s perspective, Dr. Manmohan Singh might not have felt it incumbent upon him to make a public response. If unsourced leaks from the Indian prime minister’s office are to be believed, the balance may have been tilted in favour of a public statement by US Deputy Secretary of State Richard Armitage’s cautious, but again public, endorsement of the proposal. New Delhi would have seen this as pressure that reduced the scope for negotiations still further.
The entire series of misunderstandings reveals how difficult it has become for governments to make radical departures of policy in the information age. Today neither the Indian nor the Pakistani government enjoy the freedom to broker deals that they would have enjoyed even half a century ago. Constant harassment from a media ever hungry for something to feed its viewers and readers forces policy making relentlessly into the public domain.
If a mistake was indeed made it was to try to short circuit the process of confidence building and start discussing a solution straightaway. That was what Gen. Musharraf’s iftar proposal amounted to, and it accurately reflected the constraints under which he is working. Delhi needs to appreciate this. But the fact remains that at the current level of mistrust between the official establishments of the two countries, any attempt to broach the final status of Kashmir would be premature.
If there is any single irreducible requirement for a settlement of the Kashmir dispute, it is trust. Without trust any solution that one country finds acceptable will be seen as a sell-out in the other. After five decades of high and low intensity warfare trust cannot be built in a day.
There is a long way to go before mistrust is sufficiently allayed to make real negotiations on Kashmir itself possible, let alone fruitful. New Delhi is irked by Pakistan’s failure to respond to the 72-point proposal for developing mutual relations that was given to Foreign minister Kasuri in September. Pakistan has failed to respond even to a 30 point proposal that was given later. This has aroused fears that Pakistan wants to wring concessions out of Delhi on Kashmir that it will make the basis of demands for even more concessions later. Musharraf’s belief that the line of control is Delhi’s maximal position is a case in point. In fact India’s juridical claim, based upon the Instrument of Accession, is to the whole of Jammu and Kashmir including POK and the northern areas. It tacitly agreed to stop demanding the complete vacation of Kashmir by Pakistan only in December 1972 on the basis of the Simla agreement. But for it to cede rights to POK permanently Pakistan had to cede claims to present day Jammu and Kashmir. That never happened. Islamabad’s treatment of the line of control as Delhi’s maximal position therefore exemplifies everything that Delhi distrusts most about Pakistan’s way of doing business.
Islamabad too may be dragging its feet because it continues to suspect that Delhi’s goal in putting confidence building first is to make a settlement based upon the status quo in Kashmir more palatable to it.
It is easy to see how, in the absence of trust a Dixon Plan type of ‘solution?will actually perpetuate tension instead of ending it. In a demilitarised and autonomous Kashmir state, however defined, Delhi will never cease to suspect Pakistan of trying to Islamise it on orthodox Sunni lines, in order to create a constituency for merger with Pakistan in the future. Islamabad , for its part, will regard every road, rail or communication link, every increase in kashmiri trade with India and every seat given to a Kashmiri student in a university, engineering college or IIT, as an attempt to tie Kashmir more closely to India. Uncertainty will breed suspicion, and a new, and not necessarily beneficial, form of competition will develop.
The only way to bring lasting peace is to eschew final goals and concentrate on process. We should open road and rail links between the two parts of Kashmir; open both parts of Kashmir for tourism and trade, give both parts of Kashmir the autonomy that their constitutions nominally contain; allow them to form links with each other, and do all this in step with the normalisation of relations between India and Pakistan. This can only be done in stages and trust will grow as each stage is completed. It is not possible to predict what the final result will be. But so long as all parties see each step forward as a net gain, it will take the process forward towards a lasting peace.

TOWARDS A MORE CHAOTIC WORLD

Prem Shankar Jha

What does the Bush victory portend for the world and for America? If Bush follows in the footsteps of Ronald Reagan he will make an effort to set right the mistakes that he made during his first term but could not admit before the election. He will also spend a good deal of time healing the rifts in American society and in the global polity that his policies have caused. While miracles do sometimes occur, it would be wise not to count upon any of this to happen.
By any yardstick there is a lot of repairing to do. In Iraq, the US is caught firmly in a quagmire. It can neither defeat the insurgency nor pull out of the country without appearing defeated and further inflaming Islamist violence. At home the so-called economic recovery has been weak. Income differentials have widened rapidly. Five million more Americans cannot afford and therefore do not have health insurance. Such is the humanity of American capitalism that when they fall seriously ill they have to pay ten times as much for the drugs they need than their insured counterparts. Two percent more of the population has slipped under the poverty line, And there are a million fewer people employed to day than there were four years ago.
The Budget deficit is out of control and the balance of payments deficit , which now exceeds half a trillion dollars a year is no longer being funded by other countries willing to accept greenbacks instead of commodities in exchange for their exports. As a result the dollar as fallen by 40 percent in the last 30 months.
The US needs the help of the rest of the world to stabilise Iraq and find a way out of it. It also needs to curb its fiscal deficit and thereby regain the confidence of is creditors in the stability of the dollar. But none of this is likely to happen. For if there is anything that the elections have shown, it is that a decisive majority of the American voters simply do not consider any of these issues to be important. Despite his administration’s appalling record, Bush won by 3.6 million votes, the largest margin any President has ever received. And he has received it primarily because of two factors that have nothing to do with reason and everything to do with fear and faith.
Many of the findings of exit polls tallied with those of 2000 and earlier elections. 61 percent of those who attended church at least once a week, 57 percent of those who were married, and the bulk of those who lived in suburbia, small towns and rural areas and earned more than $50,000 a year, voted for Bush. The two new factors that tilted the scales decisively in Bush’s favour were renascent Christian fundamentalism, about which a great deal has been written in recent months, and plain old fear. 22 percent of the electorate considered moral values – abortion, gay marriages and the like -- to the most important issue. Another 19 percent admitted that terrorism was their overriding concern. 82 percent of these two groups voted for Bush. Reason played no part in this decision. The first was based upon ideology. The second was fed by relentless Republican propaganda that Bush had made America safer than it was before, and Kerry was too soft to keep it that way.
Reason can seldom defeat emotion. Kerry and his team were unable to generate a fear that would overwhelm the fear that Bush had instilled into the people with his constant diatribes against evil, his war against terror, and his frequently voiced conviction that he was doing the work of God. But since Bush won upon Christian ideology and an unreasoning belief that he would keep Americans safe, he is under no compulsion to moderate his positions in order to reach out to the other side. On the contrary he will be under severe pressure from within his party to continue pandering to both emotions. His own belief that he was brought back from alcoholism by God to fulfil a grand purpose will do the rest.
It is far more likely, therefore, is that in the next four years Bush will attempt transform the face of America and establish a new international order based upon unquestioned American supremacy, that will raise international tension to previously unattained levels. Some of its elements will be the following :
Within weeks Bush will replace the ailing Supreme Court Judge, William Rehnquist, with another conservative. In the coming years two more liberal judges are likely to retire. They too will be replaced by conservatives. The Supreme court will then have only two ‘liberal’ judges left. If the Reagan –Bush (senior) period is anything to go by Bush Junior will elevate young judges to the bench. All the hopefuls that the media have identified are in fact in their fifties and early sixties. This will lock the Supreme court up for the next twenty years if not longer.
The first result of this change could be the overturning of a landmark judgement by the Supreme court in 1973 (Roe vs, Wade) which made abortion legal. In the intervening three decades as America has drifted to the right , more than half the 50 state legislatures and judiciaries have chipped away at the judgement by introducing amendments. The time is therefore ripe for a frontal assault on the woman’s right to choose.
For good measure the administration is also certain to appoint scores of conservatives to the federal circuit and appeals courts. In the past four years no fewer than 175 such appointments were made. The next four will see a heavy reinforcement. This will affect the quality of judgements handed out on everything from property disputes to environmental and drug related offences. One of the first casualties will be the attempt to legalise gay marriages. But a far more significant effect will be on the school education system where the republican administrations have been chipping away steadily at the separation of church from state. The next four years could see religious prayer introduced or at least permitted in public schools and state support for religious , private schools.
Bush is also certain to see his victory as a vindication of his war on terror and more particularly his invasion of Iraq. This means that the National Security doctrine by which the US arrogated to itself the right to invade or attack any country that it judged to be sheltering terrorists has now come to stay. We should not therefore be too surprised if one day very soon, Mr. Bush takes Mr. Rumsfeld by the arm, leads him to a back room and asks him, “ Donald, what plans do we have for Syria?”.
For those who understand the nexus between the White House and the media in the US, it is apparent that Syria is next on Bush’s list. In the past few weeks there have been a succession of reports in the American press about the alarming rise in the number of militants operating in Iraq, now numbered at 20,000, and the fact that at least 1,000 of these, who are Islamic Jihadis and arms and money has been flowing into Iraq through Syria.
There is also a very real possibility that the next few months could see an Israeli air strike on the Bushehr nuclear reactor in Iran, According to the Israeli newspaper Haaretz, the UD transferred bunker buster bombs to Israel some months ago. All that they are not sure of is whether these will go deep enough to cripple the Bushehr power plant.
All in all, reason and good sense are likely to retreat further in the next four years and the chaos in the international system is likely to deepen.Many in India have quietly welcomed Bush’s victory. They may however find that living with the America he is creating will be harder in the long run than living with the one that Kerry would have tried to fashion.

THE COMMON MINIMUM PROGRAMME

Political mish-mash or a new beginning


T
he Common Minimum Programme of the Congress-led United Progressive Alliance has become one of the most troubling documents of recent times. No other declaration of policy by an Indian government has aroused such conflicting emotions, part alarm and part hope. And no other document has threatened to split the country between the 'haves' and 'have-nots', quite as sharply as this one has done.
But why should it have done so? Isn't it just another hastily drafted and vaguely worded compromise document put together by political parties with little in common but their quest for power? And if election manifestoes are best forgotten after the elections are over, as Dr. Manmohan Singh once said in a light-hearted moment in 1991, why should the CMP not have been treated the same way once it had served its purpose?
The answer is that the while the CMP may have been conceived in haste the issue it has sought to address is one that capitalist societies have been forced to confront, ever since the birth of capitalism. Put simply, it is the need to reconcile the interests of the winners and losers in a society whose organising principle is competition. Failure to do this has in the past led to anarchy, rebellion, and war. In India this issue arose with a new vigour in 1991when the country abandoned the command economy of the previous decades and opted to become a market driven economy instead. The conflict has becom acute during the past six years of slow growth.
That is why the government has no intention of allowing the CMP to be forgotten. President Abdul Kalam's inaugural address to Parliament was only a slightly more elaborate and marginally modified repetition of its contents. Dr. Manmohan Singh followed it with a letter urging his ministers to observe the CMP in letter and spirit. And Mr. Chidambaram described the contents of his budget as the first steps towards its implementation. For better or for worse, the CMP has become the United Progressive Alliance's tablet of fire.
The CMP has aroused alarm in corporate India because although it has made ritual obeisances towards secularism, communal harmony, womens' rights and opportunities , dalits, Other Backward Classes and tribals, in its essence it is a powerful statement of economic policy. It has come at a critical moment for the country. The economy is poised at the edge of a boom, but it would take very little to make it falter. This is the last thing India needs. The stagnation that had gripped it ever since 1997 ended in June 2003. In the next nine months the share price index had risen from below 3,000 to a peak of over 6,100. Industrial growth had from 5.2 per cent a year earlier to 6.9 percent for 2003-4, and had scaled 9.6 per cent in April. This had come on top of the best harvest in living memory. All of India has breathed a sigh of relief and is looking forward to several years of high GDP growth and an increase in the availability of employment.
As a result private investment has come back to life after a gap of seven years. Since the last quarter of 2003 there has been a public offer of new shares virtually every fortnight, and nearly all issues have been heavily oversubscribed. All that the government therefore needs to do to sustain the gathering impetus of growth.
But instead of simply endorsing the quest for growth ( and by implication economic reforms) without qualification, the CMP has raised a second objective, that of social justice through redistribution. Given India's past experience with a 'socialist pattern of society', in which the government curbed industrial growth in the name of equity for decades through industrial licensing, and given the very large body of 'alternative' literature on economic growth , ranging from the works of Paul Streeten, Mahbub-ul -Haq and Dudley Seers in the seventies , to the later work of Amartya Sen and Jean Dreze, that explicitly gives a higher priority to improving the quality of life and generating employment, than to GDP growth per se, corporate India cannot be blamed for fearing that the two goals were incompatible and that if it comes to a choice, the govrment will give priority to redistribution over growth..
When it was released, the Common Minimum programme did very little to resolve the conflict. Its central goals were:

• To preserve, protect and promote social harmony and to enforce the law without fear or favour to deal with all obscurantist and fundamentalist elements who seek to disturb social amity and peace.
• To ensure that the economy grows at least 7-8% per year in a sustained manner and in a manner that generates employment so that each family is assured of a safe and viable livelihood.
• To enhance the welfare and well being of farmers and farm labour and assure a secure future for their families in every respect.
• To fully empower women politically, educationally, economically and legally.
• To provide for full equality of opportunity particularly in education and employment for Dalits, tribals, OBCs and religious minorities.
• To unleash the creative energies of our entrepreneurs, businessmen, scientists, engineers and all other professionals and productive forces of society.


Unleashing the creative potential of India's scientists and entrepreneurs, i.e. encouraging the growth of the modern sector of the economy was placed last on the list. But the substance of the document as even more alarming. For although it promised to raise the growth rate from the last five years' average of five per cent to between 7 and 8 per cent, but said very little about how it would do so. In sharp contrast, two thirds of it was devoted to describing programmes designed to alleviate poverty and guarantee jobs under public programmes. In particular it made precise commitments to double loans to agriculture, double expenditure on health and education and create an all-India rural employment guarantee scheme that would cost Rs 68,000 crores over five years, but made only a vague commitment to the raising investment in the infrastructure.
The most serious lacuna I the CMP was the lack of balance between expenditure and revenue. While the promises of added expenditure on health and education alone amounted to three percent of GDP, and the added expenditure on agriculture and employment to another two percent , there was not a hint in the CMP of how the government would increase the rate of savings in the economy by this amount to facilitate the investment. Every one knew that the only sure way was to cut subsidies, but there was barely a mention of the subject in the CMP, other than a promise to submit a road map for cutting unproductive government expenditure within 90 days.
Even if the road map was successfully implemented and succeeded in raising the rate of saving, it had already earmarked virtually the whole of the extra money for redistribution, so where would the added investment in the public sector and the infrastructure come from?
The other alarming feature iof the CMP was its apparent readiness to ignore the dismal experience of five decades of spending on health, education and rural development. Rajiv Gandhi had warned the country in 1985 that eighty five paise in the rupee was ending up in the pockets of intermediaries as a result of graft and fraud. Today, according to some estimates, the ratio has risen to 95 percent. But the CMP did not make administrative reform a precondition to larger entitlements. Instead all of the additional money seemed to be earmarked for the same discredited state government agencies that had swallowed literally millions of crores of Plan funds in the past five decades without leaving a trace. There was no mention anywhere of giving a more prominent role to the private sector or of encouraging private initiatives backed by public funds.
The common minimum programme also conveyed the impression that after ten years of loosening its stranglehold on the economy the Indian state was about to reverse direction towards a command economy, once again. It promised not only to make privatisation of public enterprises the exception rather than the rule, but to set up or revamp no fewer than nine government agencies and programmes to oversee the government's redistributive spending
The apprehensions raised by this seeming change of direction made the SENSEX, the Bombay Stock Exchange's share price index, drop by a thousand points, a drop of 17 per cent between mid May and the beginning of June.. Bond prices also crashed, causing interest rates to rise. The volume of shares traded daily on the stock exchanges went down in June two barely to thirds of what it had been in early May. All over the country investors had begun to turn some of their assets into cash, and were waited to see whether the budget would redress the balance in favour of growth once again.
Corporate India's impatience with the Congress and the CMP was therefore understandable. But its assumption that the latter was the product of an opportunistic political compromise could not have been more unfounded. The elections had come at a crucial moment in India's economic development for quite another reason: In November 1996 industrial growth had collapsed from a four years sustained average of ten percent per year to a mere three percent and remained at five percent for less for the next six years. This slow growth in industry and the GDP virtually stopped the growth of employment in the organised sector. And that had happened even while a revolution of rising expectations was occurring in the countryside, which could only be met by creating many more jobs in the non -farm sector than ever before.
The statistics were alarming. Between 1996 and 2003 employment in the organised sector had declined by 1.3 million whereas in a similar period in the seventies and eighties it had risen by over 4 million. At the same time farm labourers and small landholders had withdrawn eight million children between 1994 and 2003 from the fields and sent them to school instead. The majority had sent them to private schools and were somehow paying Rs. 50 to 250 a month to ensure that they got an education that included knowledge of English. They were raising the resources by deliberately having fewer children. Independent studies by demographers had shown that as much as two thirds of the decline in fertility in the 'nineties had occurred among illiterate women. When questioned this was the answer that they gave to the surveyors.
All over the country, desperation was taking hold of the poor. The growing presure of jobseekers was relentlessly lowering entry point wages even for the fortunate few who were able to find jobs in the organised sector. For the rest, the struggle to survive had reached a critical point. This was reflected , at its extrmes in the rising spate of suicides among farmers. For at the same time that industry got locked in the grip of stagnation, the rains began to play truant with the farmers year after year. Agricultiural growth, which had averaged 4.2 percent a year from 1992-3 to 1996-7, fell to 1.2 percent in the next five years. Betrayed by a succession of droughts and a falling water table, farmers who had sunk all they owned into a gamble with new seeds , new crops and an endless search for sub-soil water, began to commit suicide in growing numbers.
Very little of this came out in what was now an entirely urban and middle class oriented press and television. All that he media could see was the rising income in the cities, the newly affluent professional classes , and the bounding profits of the new sectors of the economy. That was how the BJP was misled into launching its 'shining India' campaign. What it saw was the glittering new Malls and multiplex cinemas, and the plethora of new models of cars and other consumer durables on the market. These hid the growing misery of the poor in both town and country.
The shining India campaign tore the scab off rural India's wound, and greatly magnified the anti-incumbency vote against the NDA in the states where it was in power. For the Congress , which had steadily become the party of choice for the poor, there was no going bck to the belief that growth and economic liberalisation would by themselves solve all of the problems of equity in the country. Henceforth economic reform would have to go hand in hand with measures to ensure that the benefits of growth reached the poor. The Common Minimum Programme was born out of this understanding.
India has crossed a watershed. The greatest virtue if its corrupt but highly sensitiv democracy is that it has given early warning , time and again, of emerging challenges and crises. That is what the surprise results of May 14 did. The clock cannot therefore be turned back. The minimum challenge before any future government will be to find an economic strategy that ensures greater equity even while it ensures growth.
Dr. Manmohan Singh's government is fully aware of the challenge it fasces. On 8 July, in his budget speech the finance minister P. Chidambaram gave the country its first inkling of how it intended to reconcile the two objectives. Chidamabaram left no one in doubt that this was a stopgap budget. By the time parliament passed it, almost half of the fiscal year would be over. He therefore used it to make a statement of how the government intended to achieve its twin, and seemingly irreconcilable objectives.

By far its most important feature was that the budget did nothing to dampen the spontaneous recovery that is taking place in industry. By April indusrial growth had risen to 9.6 per cent. With a large amount of private investment in the pipeline, there was every reason to expect industrial growth to average between 8and 9 percent at the very least. Chidambaram did nothing to put a brake on the momentum of growth.
On the contrary, he lowered import duties, brought down peak rates of domestic indirect tax making them converge on the VAT rate of 16 pe rcent, raised the minimum exemption limit for the income tax to take account of inflation, closed a few loopholes in taxation and marginally increased the tax rate on services. None of this was either unexpected or destabilising. "We had already discounted all of this in our calculations before the budget was presented," said industrialist Subodh Bhargava, a former president of the Confederation of Indian Industry.
Where Chidambaram broke new ground was in the plans he unveiled for the future. He made it clear that while being committed to the United Progressive Alliance's promises to provide water sanitation, education and health for all and to repair the neglect of agriculture, he would not be throwing money at the schemes and agencies that were entrusted with these goals. He was fully aware that the problem in these areas was not a lack of money but neglect, a lack of accountability, and corruption. Thus nearly all the schemes he announced involved merging several existing schemes to find the money and targeting them better at the intended beneficiaries.
The reform of administration that is needed to achieve this consolidation and improve the targeting of social services presents a daunting task, especially as most of the subjects — education, health and agriculture — fall within the purview of the state governments. Chidambaram therefore made it clear that his government does not intend to do things in a hurry. Achieving these goals, he said, would take the full five years of the UPA's term in office. His decision not to rush into the Employment Guarantee scheme till its past weaknesses had been thoroughly understood, and to merge the added investment in education with an enlarged midday meal programme were examples of his innate fiscal conservatism.
Finally, Chidambaram left no one in any doubt that the goal of generating sufficient employment could not be achieved without stepping up the rate of industrial and agricultural growth. This required a sharp increase in investment to sustain the growth of demand in the economy. Chidambaram made it clear that the government would step up public investment sharply, and would do so by reducing infructuous government expenditure , ie, the revenue (current account) deficit.
He paved the way for this by notifying, and thereby turning into law, an act of parliament passed by the previous government that requires the central government to reduce the revenue deficit to zero by 2008-2009. This, he said, would create ' fiscal space' amounting to three per cent of GDP — the permissible fiscal deficit under the new law, to increase investment under the five-year plans. The lion's share of this would be devoted to upgrading and breaking bottlenecks in India's antiquated infrastructure.
A close look at the budget estimates shows that thanks in part to reforms made by the previous government, both he revenue and fiscal deficits have come down by one percent. The latter came down from 4.4 per cent of the GDP for the central government in 2002-2003 to 3.6 per cent last year. Chidambaram had vowed to bring it down to 2.5 per cent this year and a close look at the revenue and expenditure forecasts shows that were it not been for the drought that now threatens the country, Chidambaram would have been well on track to fulfill his promise. Drought has made his task much more difficult, but if he can bring down the revenue deficit as he plans to, it will release around Rs. 30,000 crores for investment in the infrastructure next year.
In the coming years, success or failure in the attempt to combine growth with equity will depend on whether or not the economy can generate enough new jobs. It is here that the team that Dr. Manmohan Singh has put together will face its greatest challenge. The challenge will lie in persuading its allies on the Left that it is only rapid growth that can create the required number of jobs. The clash between capitalist growth and equity that the Left is so fond of citing exist largely in its imagination. The controversy over this issue should have ended in 1991, but so far only a handful of economists have grasped the full implications of the data for labour productivity in the OECD countries from 1820 to 1970 published by the world famous statistician, Angus Maddison, in 1991.
Correctly interpreted, they explain why the industrialised countries never suffered from permanent (as opposed to trade cycle) unemployment throughout their entire histories till the late Seventies. They also lay to rest the controversy over how to generate employment — whether through ‘gung ho’ growth or a ‘direct attack on poverty’ — that has bedevilled developing countries since 1971.Maddison’s data show that the major industrialised countries suffered from constant, long-term, labour shortages and had to import vast numbers of immigrants because labour productivity in industry and agriculture always grew by two-and-a-half to three times the productivity in the service industries. As a result, the ‘distribution and servicing’ of the output of the same number of workers in industry required the employment of many more workers in the services sector.
The policy prescription that follows is ‘go hell for leather growth in industry and agriculture. Employment will take care of itself’. That is exactly what happened between 1992 and 1996. Although overall employment growth in the organised sector fell from over 2 per cent per annum in the Seventies and Eighties to just 0.98 per cent in 1993 to 2000, during the period 1992 to 1997 there was, surprisingly, no increase in the number of job-seekers on the live register of unemployed. The explanation of the mystery was a 2 per cent annual growth of employment in the organised private sector. Unlike sarkari jobs which are already service sector jobs, private sector employment growth in the organised sector is fully matched by employment growth in the unorganised sector, for that is where the service sector for its output mostly resides.
Not long after he took charge Dr. Manmohan Sigh remarked that 'there can be no equity without growth'. Taken together the Common minimum Programme and the budget show that the UPA will try to turn this perception into policy. One can only hope that the Left will join in the endeavour and allow it to succeed.

INDIA'S NEGLECTED NEIGHBOUR-1

Prem Shankar Jha

For fifteen years India has been so engrossed with the threat to its nationhood emanating from a nuclear -armed Pakistan bent upon waging a proxy war in Kashmir, that it has almost completely ignored he threat that has slowly developed from its east. This originates in its slowly deteriorating relations with Bangladesh.
Indians tend to react with perplexity and irritation when they are confronted by the hostility that many Bangladeshis feel towards their country and the apparent lack of cooperation by their government on issues vital to India's security. Did India not aid in the birth of their country? Did its troops not behave in an exemplary manner while they were there, and did Mrs. Gandhi not withdraw them in record time? Given that building the Farakka barrage was a mistake, did India not make