India- U.S Relationship: Triumph of Diplomacy or Demise ?

“Diplomacy is an art of conducting relationship for gain without conflict”. It is the chief instrument of foreign policy. The goal of diplomacy is to further the nation’s interest as dictated by geography, history and economics. Diplomacy is vital in international relations to safeguard the nation’s independence, security and integrity. The triumph or failure of diplomacy is subject to achievement of both short term and long term objectives. India’s relationship with the United Sates has always been subject of debate. The recent developments show signs of transformation in relations between world’s largest democracy “India” and world’s oldest democracy “U.S”. The changing perception of U.S administration about India’s capabilities and its desire for restoring peace & security, economic growth has helped them work together. At times like this when terrorism coupled with nuclear proliferation is matter of global concern, U.S considers India as a responsible partner to help him in restoring balance in Asia. The interest of U.S in India is also because of its strategy of balancing Chinese power and other axis of evil in Asia. The intricacies involved in this new found relationship of India and U.S needs a thorough understanding to assess correctness of diplomatic stance taken by India.

It is now well accepted fact that the India will soon become global economic power, next to only China and U.S in coming years. Therefore, it is but natural that developed nations must acknowledge the role that India wish to play in shaping global economics and politics. United States has geo-political interest in Asia in general and economic interest in India particularly and to pursue these interests it has forged diplomatic ties with India. On the other hand India too has vision for itself in global arena and it is probably the best of the times for it to give meaningful shape to those dreams and thus it has changed its diplomatic stance in resent years. India has forged couple of agreements with U.S in resent years. Assessing some of the key strategic agreements between India and U.S and there implications can be taken as the proxy for understanding the stance taken by Indian diplomacy. The strategic implication of India and U.S relationship has three most significant facets namely Economic, Defense and Political.

Case I: 123 Nuclear Deal

The Indian Interest in civil nuclear deal can be at best understood as:

ECONOMIC GAINS:

· Growing demand for energy, for sustainable high economic growth but at the same time respecting Kyoto Protocol and thus providing access to Nuclear energy as viable source of clean energy

· India’s desire to enhance and advance in strategic areas like Nuclear R&D, Pharmacy, Healthcare and Science and Technology

POLITICAL GAINS:

· Nuclear waiver leading to elimination of psychological barriers, thus India is de-facto recognized as Nuclear power state that would mean now, India’s desire to have permanent seat in U.N (means increased say in international geo-politics) is not far from reality

· Increase soft power to pressurize Pakistan and make him rethink its policies towards India

· Increased ability to keep China in check and to be able to counter China, as it claims over a portion of Arunachal Pradesh and has secretly developed advanced warfare in recent years

DEFENSE GAIN:

· Diversification of military hardware supplier, over last 40 years Russia had been the most reliable supplier but presently he too had become money minded. Therefore, now India can access the advance hardware form other countries such as Israel and France.

e.g: Airborne warning and control system (AWAS) which India has recently got it from Israel is a direct outcome of 123 engagement

· Enhancement of military R&D capabilities in coming years and making India self reliant.

U.S INTEREST:

What U.S got from this deal, is access to our defense market and expects to grab half of the Nuclear power plants projects which are to be awarded, to fall in his kitty. India, as strategic partner to counter increasing power of China in Asia and a low cost outsourcing hub for U.S auto parts and pharmaceuticals industry. Major chunk of oil supply to U.S passes through Indian Ocean Sea lanes. Sea pirates pray on commerce as this portion is unprotected. Indian cooperation can help in keeping sea lanes clear.

Case II: 26/11 Mumbai Attach

It is a case which throws light on United States geo-political interest in South East Asia and India’s diplomatic ability to pressurize Pakistan.

………………………………. In part II

Union Budget 2009-10... Analysis

The Annual Budget is a statement by the government about its policies, priorities and goals. The crux of a good budget or fiscal policy lies in striking a balance between revenue and expenditure side vis-a vis achieving Distributive justice, Allocative efficiency and Stabilization in the economy.

Before making any judgment about the Union Budget 2009-10, it is vital to understand the conditions under which it is presented. Current economic scenario of global economy is bleak as global trade is shrinking, industrial output is falling and stock markets are at substantially low level. The scenario at home is quite better, as our industrial output has started to show signs of recovery. The good news for Indian economy is, it grew by over 5 percent when most of the world economies are contracting. The sad news is fiscal deficit had grown by 5.5 percent of GDP because of fiscal stimulus targeted to promote and protect domestic production and consumption.

The Union Budget 2009-10 is clearly an “aam aadmi Budget” with focus on development and inclusive growth. Some of the beneficiaries of Budget are: Infrastructure, agriculture, education and rural development. The key features of the Budget are following:

• An aim to reach and sustain 9% growth which had earlier slipped to 6.7%
• A present acknowledgement of a fiscal deficit of 6.2%
• A focus to improve infrastructure and PPP (Public Private Partnership)
• Stimulus package for print media
• Benefits to exports (includes services like Software)
• Focus on Inclusive development and rural reforms (might include a specific allocation for telecommunication and access in rural sectors)
• UIADI (Unique Identification Authority of India) to setup an online data base.
• Centralized processing Centre (CPC) at Benagluru - moving towards E-Governance
• Implementation of GST by 1st April, 2010
• No changes in corporate taxation policy
• Fringe Benefit Tax eliminated
• Deduction fo 150% on expenditure incurred on in-house R&D
• MAT (Minimum Alternate Tax) increased to 15% of book profits from 10%.
• Tax disputes resolution Mechanism for international transactions

****Sectoral specifics are:

Infrastructure Development

• IIFCL to refinance 60 per cent of commercial bank loans for PPP projects in critical sectors over the next fifteen to eighteen months. IIFCL and Banks are now in a position to support projects involving total investment of Rs 100,000 crore (US$ 20.61 billion).

Highway and Railways

• Allocation to National Highways Authority of India (NHAI) for the National Highway Development Programme (NHDP) increased by 23 per cent over B.E. 2008-09 in B.E. 2009-10 and allocation for Railways increased from Rs 10,800 crore (US$ 2.23 billion) in Interim B.E. 2009-10 to Rs 15,800 crore (US$ 3.27 billion) in B.E. 2009-10.

Urban Infrastructure

• Allocation under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) stepped up by 87 per cent to Rs 12,887 crore (US$ 2.65 billion) in B.E. 2009-10 over B.E. 2008-09.

Power

• Allocation under Accelerated Power Development and Reform Programme (APDRP) increased by 160 per cent to Rs 2,080 crore (US$ 429 million) in B.E. 2009-10 over B.E. 2008-09.

Gas

• Blueprint to be developed for long distance gas pipelines leading to a National Gas Grid to facilitate transportation of gas across the length and breadth of the country.

Agriculture Development

• Target for agriculture credit flow set at Rs 325,000 crore (US$ 67.14 billion) for the year 2009-10. In 2008-09 agriculture credit flow was at Rs 287,000 crore (US$ 59.3 billion).

Restoring Export Growth

• Adjustment assistance scheme to provide enhanced Export Credit and Guarantee Corporation (ECGC) cover at 95 per cent to badly hit sectors extended upto March 2010.

Health

• Allocation under National Rural Health Mission (NRHM) increased by Rs 2,057 crore (US$ 424.3 million) over Interim B.E. 2009-10 of Rs 12,070 crore (US$ 2.49 billion).

Education

• Rs 2,113 crore (US$ 436.32 million) allocated for IITs and NITs which includes a provision of Rs 450 crore (US$ 92.91 million) for new IITs and NITs.
• The overall Plan budget for higher education is to be increased by Rs 2,000 crore (US$ 412.86 million) over Interim B.E. 2009-10.

Budget Estimate 2009-10

• Budget Estimates provide for a total expenditure of Rs 10,20,838 crore (US$ 211.1 billion) consisting of Rs 695,689 crore (US$ 143.81 billion) under Non-plan and Rs 325,149 crore (US$ 67.31 billion) under Plan registering an increase of 37 per cent in Non-plan expenditure and 34 per cent in Plan expenditure over B.E. 2008-09.
• Total expenditure in B.E. 2009-10 increased by 36 per cent over B.E. 2008-09.

*** Courtesy Economic times and Business Standard

Below is an analysis of each policy and its implications.

The Budget has tried to put money in the hands of consumers by cutting Taxes and increasing spending. The abolition of FBT (which was deceptive in nature) and surcharges on income tax is encouraging. However, the important benefits covered under FBT, such as employee stock options would now be taxed directly at the hands of employee. The introduction of GST by April 2010 will also help in simplifying taxation system, reducing leakages and arbitrage between organized and unorganized sector. The increase in MAT from 10% to 15%, it would hurt corporate profitability. In a way the increase in MAT will widen the Tax collection because at present there are many corporate that are enjoying low tax rate. Overall the Direct Taxes are revenue neutral. On the Indirect Tax front the central excise duty has been increased form 4% to 8% on wide array of goods. At the some time the excise duty on branded jewelry is reduced from 2% to nil, which is an open promotion to great Indian habit of Hoarding.

In times like this when investor’s sentiment is low and investment needs are high for development of Infrastructure. The Budget does reflect upon these needs and rightly allocates considerable amount to their development through its own going various schemes.

• Allocation made to key infrastructure programs is as follows:

Program	Allocation (Rs.)		Increase (%)
Bharat Nirman	454 bn		45
Indira Awas Yojna		88bn	63
Pradhan Mantri Gram Sadak Yojna	120bn		59
Rajiv Gandhi Grameen Vidyutikaran Yojna	70bn		27
JNNURM	129bn		88
ARDRP	21bn		160
AIBP	350bn		75

Continuing its (government) effort to promote PPP projects in Infrastructure, it enhanced the scope and role of IIFCL to facilitate lending to player of this sector. Infrastructure hold key to the sustainable development over long run and in short run as well it has a strong multiplier effect on economy. In short run it provides employment and thus pushing purchasing power upward which leads to improvement in high standard of living. While is medium and long run, the access to markets changes the complete dynamics in rural economy starting from changing crop pattern to access to credit to improvement in social capital formation. Thus investment in Infrastructure is need of the hour and increasing focus on it is a welcome development.
The budget also reflects upon the agenda of inclusive growth and social equity. Moreover, establishment of social equity without imposing progressive taxation further. The sharp increase in allocation to NREGA and its expansion to include more households will ensures increased purchasing power of poor who spends most of their earnings over basic necessity goods. On a lighter note, increase in market size for FMCG companies. Other initiatives like Bill to ensure food security to be moved soon, full interest subsidy on education loans to weaker sections, increase in allocation to rural health schemes and schemes for inclusion of women.

The mid term policy perspective to ensure stability, once economy is again on the track of high growth momentum, would be to bring down deficit in shortest possible time. As most businesses fear that high deficit will crowd out there investment needs by increasing cost of borrowing. Some economist fears that, BoP crisis will once again crop up if deficit is not controlled in time and at times they claim that fiscal deficit in India is more of structural in nature than of cyclical. Thus India needs second wave of reforms to tackle these problems. It is hard to decide the nature of the cause of deficit because of the lack of appropriate indicators. Since times like this demand fiscal stimulus to promote production and consumption demand, hence, the argument of reforms based on size of deficit is logically unconceivable. And the possibility of BoP crisis is also distinct, because since 1990 the Indian economy has undergone drastic change. And at present when investment possibilities in developed countries are limited because of lower interest rates offered and negative business sentiment where as Indian economy continue to grow and offers better returns to investors as interest rates are appropriate to make investment. Thus the fear of drying up of exchange reserves is distinct. But government must push to restore the deficit to lower levels as it does crowd out the medium to long term business needs.

NREGA and Road Ahead...

NREGA may not have made India shine, but it certainly did light the life of most needy in rural areas. NREGA is one such program that has been applauded globally. However, the success of NREGA is contingent upon the sustained economic growth and outcome oriented planning and execution. Factors that contributed to the success of NREGA are both micro and macro in nature. The simple yet powerful idea, transparency, accountability and inclusion of mass are some the striking features of NREGA.

NREGA is modeled on the basic needs framework. Basic needs were first time targeted through various programs of fifth five year plan, but success in true sense could only be felt in eleventh five year plan and that too only in the NREGA program. It is largely because of the faster economic growth in recent years and increased focus and orientation towards development of rural India. From planning to effective execution, like any other programs its success too was contingent upon supply of resources, accountability and transparency and a framework that takes care of nitty-gritty. The shear magnitude of the program makes it imperative to include local bodies for achieving desired goals in stipulated time.

NREGA aimed at creating a social safety net for the vulnerable by providing a fall-back employment source, when other employment alternatives are scarce or inadequate. It creates a right based framework for wage employment in time bound manner; this makes Government accountable for providing employment. The tasks that are chosen and prioritized under it emphasis the creation of durable assets and potential for sustained development of agriculture based economy. By decentralizing the operations it let local authorities accountable to community and created a virtual governance model based on the principles of transparency.

How far NREGA could achieve its stated objects (distributive justice) is a moot topic and indeed requires through auditing of it at national level. The work allocated in first phase of NREGA was more of Keynesian type “digging hole and filling it up”. In the second phase of NREGA, it must focus on following:

· Quality work allocation that lead to development of infrastructure and thus promote sustainable development in rural areas

· Percentage of women participation

· Elimination of inefficiencies and leakages

Quality of work allocation calls for decentralized planning, where in lowest level of organization would identify work based on certain predefined criterion and the intermediate level will judge the merit of it and highest level would plane finances for the same. The predefined criterion should be such that they fall in sync with requirements of sustainable development and poverty elevation.

Distributive justice would not be achieved unless, women participation in work force increases, as they are the one that are involved in subsistence farming and contribute to the disguised unemployment in rural areas. Moreover, economic empowerment leads to social justice and thus it makes imperative to ensure women participation to the maximum possible extant.

I hate writing about inefficiencies and lack of transparencies because these are the $@#@ of our backwardness.

Bottom of the pyramid is calling!

    It would not be wrong, if we call the last few years as the years of unipolar market or monopsony market centric to America. The virtually low interest rate in America made cheap/easy money available to its citizens. This resulted in hoarding of assets which were otherwise not easily accessible. But ever since the financial meltdown triggered the consumers in America have learnt their lesson, an indication of it came when US government made its first move to stimulate demand/market by transfer payment of $80 million to its citizens but they spent as little as $12 million. Fed has still not figured out the solution for the troubled assets of banks and quarter after quarter they (US Banks) are declaring mammoth losses. The fiscal policy is also out of shape. What would have happened long time ago has happened now, it is time when financial investors would pull their money out of volatile markets and may start investing in emerging markets and more importantly India and China. Last year (2008) saw largest flow of FDI’s after several years.

“India‘s economy is driven by one half of the population. The other half is mute witness to what is happening in India. If the other half also becomes a part of the driving forces of the growth, India’s economy will not grow by 8-9 percent; rather it will easily grow between 10-11 percent.” These are the words of honorable finance minster - Mr. P Chidambaram

Towards the faster and more Inclusive growth this is the theme for our eleventh five year plan and yes, there can be no better time then this when we must act.  We must understand the fact that the largest market of the world is right here in our villages not anymore in US. It is time when we must innovate and let the bottom 40% of population participates in socio economic development. It is quintessential for us to let them have access to money, banks and institutions. It can only be possible when we pillars (educated class of Thinkers, Leaders, Technocrats, Entrepreneurs and Teachers )   of the nation focus on the development of  human capital vis-à-vis  development of small scale labor intensive industry  in these villages. By doing so we as a nation will be in better shape and position to fight this war if competitive advantage triggered by forerunners of Liberalization, Privatization and Globalization (LPG).

The last quarter results of our giant public and private firms were clear indicators of how whole world has came so close because of globalization. The domino effect of financial crisis has not left single industry unturned but agriculture in India. It would be unjustified to think that our economy will be least suffered from global crisis because of our exceptionally large service sector. Though, the share of services (approximately 53%) in our GDP is largest but it is still smaller than global average of 69%.

A deeper look at services sector will unveil the depth of this sector and it’s potential. Largely services can be classified in four categories: trade and hotels, transport and communication, finance, real estate and housing and community services. Trade and Hotels are looking gloomy as tourism is hit globally people is saving more and spending less. Transport is hit maximum as short term credits are not available for most of the auto manufacturers and their sales is down too. Communication is certainly has large potential for growth now more so after allocation of 3G bandwidth. Real estate and housing is touch rock bottom and clearly have no sign of getting back on track in short and medium term. 

Agriculture (18% of GDP in 2007-08) is the only sector that is poised to show positive results year -after -year continuously form past seven years (Thanks to good monsoon). It has been growing at 4% annually and has been insulated form global meltdown. Ironically eleventh five year plan yet again underestimated its importance and has allotted too little for this sector which provides employment to 70% of Indian population.  

Jaagoo India jaagoo!, too much for too little and too little for too many will not make India   a superpower/an economic giant by 2020- the so called millennium goal of India is at the verge of failure like our every other five year plan.

 

 

Global Financial Crisis

   This is third time after “The great depression of 1930” that a significantly larger (in terms of its geographical span) financial crisis has triggered. Though the previous crises were somewhat geographically local in nature and were of different era. Banking Crisis of Japan in 1990 followed by collapse of Tiger Economies of Asia in 1997 were the prominent ones.

This crisis is no different than previous crisis of either 1990 or 1997 it differs only in its magnitude (financially) and spread (geographically). Globally so far many analyst and economist has predicted the longevity vis-à-vis shape of the curve for coming quarters of economic cycle. The Index of industrial Production (IIP) fell steeply in giant economies like Germany, Japan, US and China. The liquidity crisis of financial markets has paved its way into  capital goods industry and exposed its vulnerability and too much reliance on short term credit.

This crisis will be a real test for Big 4 currencies (Dollar, Yen, British pound and Euro ) and they will soon see parity check. Going by the current global scenario, exchange rate movement if happened vis-à-vis interest rates in these big 4 then the large gainer will be those nations who could isolate their economy from the global meltdown. In other words investors will seek safe markets where in they can place/park their money for short duration of 1 to 3 years. Euro will face the biggest test of its time as most of the European nations are already hitting high unemployment rate  and not all European nations have huge pockets (International reserves) like Germany. Grease, Spain and Italy are already finding their arsenal short of tools to tackle this unprecedented crisis. To make matter worse for European nations global warming has been on the centre stage too.

In times like this to relinquish the philosophy of creating free trade regime would prevail. An evidence to this is WTO’s Doha round once again ended in imbalance. The surprising fact is almost similar mistakes were done at the time of 1930s great depression. In order to protect domestic industries huge trade barriers and quotas were created in Europe and US. It was the time when most of countries where facing both Internal and external trade imbalance. Thanks to the flexible exchange rate system this time the crisis might not impact Balance of Payment devastatingly.  

Well one thing is clear that the giant economies will probably take it long time before they will actually learn (if they wish to) from their mistakes. During great depression Keynes exposed weakness of capitalist economies and called for an end of laissez faire. He argued in favor of strong public interventions to restore the equilibrium in market. Clearly Fed was traped in the systemic chaos and hence failed to take measure which non but only it could take. Rather it remained silent and left the market to the mercy of invisible hand of Adam Smith.  An interesting thing would be look at how Reserve Bank of India outperformed at times when too much of greed was contaminating the market.  RBI acted shrewedly and kept the interest rates high and increased CRR to keep the liquidity intact/checked. It was the real test for RBI, when most Indian Industries were asking for rate cuts. Too much of greed and reliance on complex mathematics of securities has exposed the hollowness and vulnerability of global banking system. This crisis has shown how banks were focusing more on off-balance sheet activities.

Thanks to RBI for saving 1,120 million strong nation.

 

More on privatization, SEZs and balance score card for government policies will be coming soon.

Hazaaron Khwaishein Aisi-मिर्जा गालिब (Mirza Ghalib)

हजारों ख्वाहिशें ऐसी कि हर ख्वाहिश पे दम निकले
बहुत निकले मेरे अरमाँ, लेकिन फिर भी कम निकले

डरे क्यों मेरा कातिल क्या रहेगा उसकी गर्दन पर
वो खून जो चश्म-ऐ-तर से उम्र भर यूं दम-ब-दम निकले

निकलना खुल्द से आदम का सुनते आये हैं लेकिन
बहुत बे-आबरू होकर तेरे कूचे से हम निकले

भ्रम खुल जाये जालीम तेरे कामत कि दराजी का
अगर इस तुर्रा-ए-पुरपेच-ओ-खम का पेच-ओ-खम निकले

मगर लिखवाये कोई उसको खत तो हमसे लिखवाये
हुई सुबह और घर से कान पर रखकर कलम निकले

हुई इस दौर में मनसूब मुझसे बादा-आशामी
फिर आया वो जमाना जो जहाँ से जाम-ए-जम निकले

हुई जिनसे तव्वको खस्तगी की दाद पाने की
वो हमसे भी ज्यादा खस्ता-ए-तेग-ए-सितम निकले

मुहब्बत में नहीं है फ़र्क जीने और मरने का
उसी को देख कर जीते हैं जिस काफिर पे दम निकले

जरा कर जोर सिने पर कि तीर-ऐ-पुरसितम निकले
जो वो निकले तो दिल निकले, जो दिल निकले तो दम निकले

खुदा के बासते पर्दा ना काबे से उठा जालिम
कहीं ऐसा न हो याँ भी वही काफिर सनम निकले

कहाँ मयखाने का दरवाजा 'गालिब' और कहाँ वाइज़
पर इतना जानते हैं, कल वो जाता था के हम निकले.

KAVITA---Neeraj

Swapnjhhare phool se,
meet chubhhe shool se,
lut gaye shringaar sabhii baag ke babool se ;
aur hum khhade-khhade bahaar dekhte rahe |
kaarwaan guzar gayaa, gubaar dekhte rahe !

Neend bhi khulii na thii ki haay dhoop dhhal gayii,
paav jab talak uthein ki zindagii phisal gayii,
paatpaat jhhar gaye ki shaakhh-shaakhh jal gayii,
chaah to nikal sakii na, par umar nikal gayii,
geet ashk ban gaye,
chhand ho dafan gaye,
saath ke sabhi diye dhhuaa-dhhuaa pehan gaye,
aur hum jhhuke-jhhuke,
mod par ruke-ruke,
umr ke chadhhaav ka utaar dekhte rahe |
kaarwaan guzar gayaa, gubaar dekhte rahe !

Kya shabaab tha ki phool-phool pyaar kar uthhaa,
kya suroop thha ki dekhh aayinaa sihar uthha,
is taraf zameen aur aasmaan udhar uthha
thhaam kar jigar uthha ki jo milaa nazar uthha,
ek din magar yahaan,
aisii kuchh hawaan chalii,
lut gayii kalii-kalii ki ghhut gayii galii-galii,
aur hum lute-lute,
waqt se pite-pite,
saans ki sharaab ka khumaar dekhte rahe |
kaarwaan guzar gaya, gubaar dekhte rahe !

Haath the mile ki zulf chaand ki sanwaar doon,
honthh the khule ki har bahaar ko pukaar doon,
dard tha diyaa gayaa ki har dukhii ko pyaar doon,
aur saans yun ki swarg bhoomi par utaar doon,
ho sakaa na kuch magar,
shaam ban gayi sahar,
vah uthi lahar ki deh gaye kile bikhar-bikhar,
aur hum dare-dare,
neer nayan mein bhare,
odhkar kafan, pade mazaar dekhte rahe |
kaarwaan guzar gaya, gubaar dekhte rahe !