Monday, November 25, 2013

MPSC prelim 2014 Paper 1 प्रश्नमंजुषा

                                                         प्रश्नमंजुषा

) इंग्लंड चा राजा दुसरा चार्ल्स याच्या विवाह प्रसंगी पोर्तुगीजांनी कोणते बंदर त्यास भेट म्हणून दिले ?
) कालिकत
) मुंबई
) कोचीन
) पोन्डिचेरी
) इस्ट इंडिया कंपनी ची स्तापणा केव्हा करण्यात आली?
) १६७०
) १६००
) १८५७
) १७००
) स्वातंत्राचा पहिला शेवटचा भारतीय गवर्नर जनरल कोण होता?
) लॉर्ड मौन्त्बेतन
) चक्रवर्ती राजगोपालचारी
) लॉर्ड कॉन्वालीस
) लॉर्ड डलहौसी
) खालील पैकी कोणत्या इंग्रज अधिकाऱ्याने बादशाह कडून व्यापारी परवाने मिळविले?
) रोबेर्त कलाइव
) लॉर्ड कॅनिंग
) थोमस स्तीवेन्सेन
) सर थोमस रो
५) इस्ट इंडिया कंपनी ची स्तापणा कोणी केली?
१) राणी एलिझाबेथ
२) रोबेत क्लीवे
३) लॉर्ड कनिंग
४) दादाभाई नओरोजी
६) ब्रिटीशांचा भारतातील शेवटचा व्ह्य्सेरोय कोण?
१) लॉर्ड कनिंग
२) लॉर्ड स्टालिन
३) वोरण हस्तिंग
४) लॉर्ड मौन्त्बतेन
७) भारतात नागरी सेवा सर्वप्रथम कोणत्या गवर्नर ने सुरु केली?
१) लॉर्ड रीपोन
२) लॉर्ड बतिंग
३) लॉर्ड दल्होउसिए
४) वोरण हस्तिंग
८) बंगाल मध्ये दुहेरी राज्यव्यवस्था कोणत्या गवर्नर ने सुरु केली?
१) लॉर्ड कुर्झान
२) रोबेर्त क्लीवे
३) वारेन हस्तिंग
४) लॉर्ड डलहौसी
९) पेशवाई चा शेवट कोणत्या वर्षी झाला?
१) १८००
२) १८८०
३) १८१८
४) १८४८
१०) साय्मोन कमिशन केव्हा नेमण्यात आले?
१) १९२७
२) १९३०
३) १९१९

४) १९३५

Today's Editorial 26 November 2013

                                Troubled times


Source: By Meghnad desai: The Financial Express


The linkage between economics and politics is an eternal subject for debate. Engels was left with the job of interpreting Marx as he became an oracle after his death. In Marx’s work, there is a constant interplay of the economic and the political, as his three pamphlets on France will show. But Engels was like a Father of the Church asked to give his imprimatur to all and sundry schemes of revolution. So, he said while economics and politics interplay dynamically, the economic is in the last analysis dominant.

That ‘in the last analyses proved to be the get out clause. But even in these post-Marxist days, there is a temptation to assign political problems an economic rationale. Three examples may suffice.

The logjam in American politics—the Tea Party and the split among the Republicans, the weakness of the Obama Presidency both in domestic and in foreign policy are not just accidents. The American economy has had a deep recession. It got away with a weak welfare state all the years of prosperity but now the inadequacy of the welfare provision is obvious just when the country can least afford to make it more generous.

The longer run dynamic has been the flatlining of wages. The first twenty-five years after the war were the best for American workers when a family could have just one working adult, usually the man. His wage packet could afford the family a car, many durables and a house. This was normally manufacturing job where strong unions made annual real wage increases routine. When the Oil Shock came in 1973, the American economy, like most other Western economies, began to de-industrialise as manufacturing moved to Asia where labour was cheaper. There were jobs in services but for manual unskilled or semi-skilled workers the wage was way below that in manufacturing.

Families adjusted by two adults working but even that was not enough as wages stopped rising. Soon families had to borrow. When credit became cheap in the 1990s, families borrowed to the hilt. After 2008, the credit shrank and families find themselves with mortgage foreclosed and money tight. They resent this. White families believe in the American dream and blame the government for their woes.

The Tea Party reflects this voting bloc but, of course, they are financed by the very-rich who want to dismantle the welfare state and have lower taxes. The black and Hispanic workers have always depended on the welfare state. The divide is sharp and across the two political parties. Neither have enough votes to defeat the other. Stalemate will continue.

Economic stagnation has taken its toll on European politics. Angela Merkel is now locked in what seem to be difficult negotiations with SPD for a coalition. She just fell slightly short of absolute majority and her previous coalition partners the Free Democrats did not win any seats. The Greens and the Far Left have stolen seats from the SPD. The membership of the SPD is wary of joining coalition because they may have to do difficult things to stave off worse crisis in the Eurozone.

Elsewhere, the stagnation is the worst and so is politics. Italy is limping along having put Berlusconi in his place and yet the government is not effective. Greek politics lurches between extreme Right and Left while just holding on to power. But it cannot tackle the economic challenges. Things are no better in Spain or Portugal. Just when effective action is needed, it is not available.

Contrast these woeful tales with the most recent meeting of the Chinese Communist Party. There was a perception that even though the economy is growing at 7.5 %, its continued growth at that pace cannot be taken for granted. The Chinese economy can no longer be driven by exports since its traditional markets are stagnating. It needs to give its citizens a better life and stop financial repression which has led to over-saving and much wastage of capital in its investment choices.

China has not always found it easy to reform. Despite authoritarian rule, it has often chosen the easy way out as Hu Jintao showed. When the new team of Xi Jinping and Li Qekiang came to power, some analysts were predicting a stalemate between the ‘princelings’ and the apparatchiks. It is early days yet but it would seem that the new team has grasped the nettle and begun a radical reform of the economy. The demographic challenge has been faced and the one-child-policy reversed. Property rights in land have been clarified which will bring the market to the countryside (just as the UPA2 is busy putting huge obstacles in the land markets in India). Enterprise reform has been promised. China’s record of economic success over the last fifteen years has made the new reforms easier though there are still issues of environment such air pollution and water shortage. India has been failing economically. Will its politics result in reform or regression?

Sunday, November 24, 2013

Today's Editorial 23 November 2013

                                                                 Poverty puzzle

Source: By JAYDEV JANA: The Statesman
We think sometimes that poverty is only being hungry, naked and homeless. The poverty of being unwanted, unloved and uncared for is the greatest poverty. We must start in our own homes to remedy this kind of poverty. ~ Mother Teresa

Poverty signifies deprivation. Yet the expression is largely misunderstood. At one level, it could mean no food, no clothes, indifferent health, and inadequate shelters, amenities, and services. At another remove, its connotation can be elusive and slippery; it slips through the fingers of those who manipulate figures and reel off statistics.

Objective measurement of poverty is based on income and expenditure. It is dependent on data, and can be susceptible to errors of recording, aggregation, and interpretation and reporting.

Within India’s academic circuit, there is a thriving industry that routinely churns out poverty estimates.  Amartya Sen has asserted that criterion is the primary requirement for the calibration of poverty. Which segment of the population should be the focus of our concern? The conventional approach specifies a cut-off ‘poverty line (PL)’, defined as the level of income, below which people are described as poor.  In 1876,  Dadabhai Naoroji in his paper entitled ‘Poverty of India’ provided the first set of PLs for various regions.   The first rigorously formulated poverty line was defined in 1962, when a Working Group constituted by the Planning Commission came up with a PL of Rs. 20 per month at 1960-61 prices for people living in rural India with a view to assessing how much it costs to get enough calories to live on.

Initially, the PL was just a statistical benchmark, one that was used widely for tracking poverty over time as also for comparing poverty levels in different regions of the country. In recent decades, however, the PL has been transformed from a non-controversial statistical benchmark to a controversial instrument for real-life social divisions. It is officially used for targeting ‘Below the Poverty Line (BPL)’ households for distribution of social benefits. The official PLs were based entirely on the recommendations of the Lakdawala Committee of 1993. The Lakdawala PLs were based on calorie norms and suitably indexed by taking care of changes in the price level to derive those lines for the subsequent years in such a way that anyone above them would be able to afford 2,400 and 2,100 calories worth of consumption in rural and urban areas respectively, in addition to a subsistence level of clothing and shelter. While the Planning Commission used Lakdawala PLs to count the poor, the Ministry of Rural Development used a different method to identify them. This was the beginning of a series of conceptual flaws leading to exclusion and inclusion errors in BPL census and divisions among the populace. Given the change in consumption pattern since 1973-74, the Planning Commission set up another committee with the late Suresh Tendulkar as chairman in 2009 to suggest a modification of the Lakdawala PLs. The committee moved away from anchoring the PLs to ‘calorie intake norm’ and adopted four key elements in an essay towards redefinition. (1) It chose to test the actual food expenditure near the poverty line; (2) It recommended a uniform PL basket for rural and urban areas unlike in the past; (3) It suggested a price adjustment procedure; and (4) It incorporated a provision for private expenditure on health and education. After extensive consultations and careful analysis, the committee concluded that while those living above the Lakdawala urban poverty line continued to be able to afford 2,100 calories, the rural poverty line needed an upward adjustment so as to be aligned to its urban counterpart.

This revised PL was termed as the Tendulkar PL which forms the basis of the latest poverty estimates of the Planning Commission. Accordingly, the PL for 2011-12 has been estimated at Rs. 816 per capita per month in rural areas and Rs. 1000 in urban areas.  This would mean that a  five-member family, subsisting on the edge of poverty, would have to survive on Rs. 4,080 per month in rural areas and Rs. 5,000 per month in urban areas. However, the Tendulkar Committee report further complicated matters by claiming, for the first time, that their estimated PL was suitably accurate in order to cover all necessities.  This is  both a mockery and a fraud; it has been rejected by its opponents.

However, the PL has two objectives.  It is being used as an instrument for measuring our shame ~ the number of people who are below what we, as a nation, consider to be an acceptable standard of consumption. In accordance with the Gadgil formula, policy-makers, particularly those in the Planning Commission, use poverty estimates as an important parameter for resource transfer to States. The Centre tends to underplay poverty. The States are motivated to keep their poverty numbers high in order to spread the allotted revenue resources thinly over a large section of the population and thus fortify the vote-bank. The second objective is that it is used as an instrument for targeting the poor in the task of combating destitution. Using the PL to define who is poor has resulted in exclusion of a large section of the poor from being entitled to benefits of anti-poverty programmes.

The latest poverty estimates released by the National Sample Survey Office (NSSO) showed that the number of people below the official PL in the country had shrunk to around 269 million or 21.9 per cent of the population in 2011-12. In terms of the rate of decline, the poverty level averaged out at 37.2 per cent in 2004-05. It dropped to 21.9 per cent in 2011-12.  The 15.3 percentage point decline in poverty  over the seven-year period seems to be remarkable given that the decline was 8.1 percentage points in the previous 11 years (1993-94 to 2004-05). In absolute terms, the number of people surviving precariously on the edge of poverty had dwindled from around 40.71 crore in 2004-05 to around 26.93 crore in 2011-12. This fall in poverty estimates was orchestrated as a world record. Economists attribute the record decline in the poverty figures to the substantial impact of growth rates and the sharp increase in wages under the Mahatma Gandhi NREGS. Poverty has many aspects. The ‘subsistence’ factor includes low income, poor consumption of food, and use of household goods etc. Its ‘inequality’ aspect involves poor access to public services such as clean drinking water, sanitation, healthcare and education.  The ‘externality’ factor implies the discomfort and cost to the community ~ indeed, the problem of poverty for those who are not poor.   As the former US President, John F. Kennedy once famously said:  “If a free society cannot help the many who are poor, it cannot save the few who are rich”.

Today's Editorial 24 November 2013

                                                        Grabbing farm lands

Source: By Devinder Sharma: Deccan Herald
More than 60 per cent of the acquisitions are happening in countries faced with problems of hunger and malnutrition. During his recent visit to China, prime minister Manmohan Singh invited China to set up Special Economic Zones (SEZs) and industrial parks in India. He is expecting Chinese Foreign Direct Investment (FDI) to boost manufacturing output, already sluggish because of surging cheaper imports from China. 

Some years back, the deputy chairman of the Planning Commission Montek Singh Ahluwalia had in a visit to Oman, invited Omani firms to farm in India for producing crops that can be exported. At a time when food prices have hit the roof, and any measure to limit domestic production should raise concerns, Ahluwalia is seemingly not concerned. 

Well, here is another shocker. Foreign companies from UK, US, Austria and Thailand have concluded 36 deals to buy agricultural land in India in the States of Gujarat, Orissa, West Bengal and Andhra Pradesh. Seven of these deals have already been completed allowing 13,105 hectares to be acquired. This is based on an excellent detailed insight provided on the web site called Land Matrix.

India’s shrinking agricultural land is up for grabs. So far you had read that Indian companies were buying land in Africa, Asia and South America. Of the 848 land grab deals concluded globally since 2008, about 80 involve Indian companies that have invested in 65 deals to grow foodgrains, sugarcane, oilseeds, tea and flowers. And as a news report computed, Indian companies have already bought land abroad nine times the size of Delhi. Isn’t it interesting? While Indian companies are buying land abroad, foreign companies are buying land in India.

Every second an area equivalent to that of a football ground (0.72 hectares) is being acquired in the developing countries. Among those who are investing in such land deals are not only MNCs, big business, hedge funds, venture capitalists, but even universities. More than 60 per cent of the acquisitions are happening in countries that are faced with a serious problem in hunger and malnutrition, and that includes India.

At this rate the day is not far off when increasingly more and more people will become landless in their own country. The US National Academy of Science calls it “a new form of colonialism” while mainline economists term it as a model of economic growth. However, the fact remains that land grab has become a major investment activity over the past few years. To me this is simply frightening. It has grave human rights implications, and would impact global food security to say the least.

Trade negotiations

Imagine wherever you are living you being in close vicinity of fenced land purchased by foreign companies. Imagine the flag of the country from which the company hails from is fluttering in your neighbourhood. Maybe more than one flag. But don’t laugh it off. It’s actually being worked out. Under the ongoing Trans-Atlantic trade negotiations between America and European Union, America is demanding that its corporations be given the status of a nation state.

As said earlier, the land sharks are now eyeing India. The country seems to be up for grabs. No wonder, soon after passing the new land acquisition law that makes it easier for companies to acquire land, rural development minister Jairam Ramesh had said: ‘We will not need land acquisition law after 20 years.’ So true, isn't it? After all, there would be hardly any land left to be acquired by then.

While the United Nations or the World Bank is mute to the increasing grab of farm lands, and have only proposed a code of conduct to be followed by the land sharks, the only word of caution has actually come from the Chinese Prime Minister Wen Jiabio, who in 2011 said: “Farmers’ land property rights can no longer be sacrificed to reduce the cost of urbanization and industrialization, given the country’s much higher level of economic development.” He went on to say that farmer enjoy legal rights of land contracts, land use and collective income distribution as basic protection, no matter if they have moved into the cities or stayed in the countryside, and no one has the powers to deprive villagers of these rights.

This belated wisdom is dawning on the Chinese leadership after it has been witness to a thousand mutinies over the past few years. As per an assessment China was witnessing on average over 250 protests a day, most of them bloody, over land acquisitions in the recent past. Ironically, while within the country, China is faced with violent riots, it happens to be one of the biggest land grabbers globally. It has already bought more than 9 million acres abroad. In fact, China is also sending its own farm workforce to work in these countries, which means the local population in those countries is not even benefitting from the work opportunities created.

Farm land grab is not only a socio-economic issue but has laid out contours of a political backlash, sooner or later. It is high time the international community woke up the simmering anger and disgust in the rural areas across the developing world. The resulting upheavals may rock the boat of economic growth. It requires urgent attention.

Today's Editorial 25 November 2013

                        Puzzle of high CPI inflation

Source: By Surjit S Bhalla: The Financial Express

There is something strange going on with the Indian macro-economy, especially with inflation. Zyfin’s latest inflation estimates for the GDP deflator for the period October 2012-September 2013 is at a 6.7% rate. GDP growth for the same period is expected to be at a low 4.7%. CPI inflation, the new preferred measure of inflation at RBI, was above 10% in October. There are frightening stories about vegetable inflation, onion inflation, etc, being upwards of 50%. Depressing growth and escalating inflation—what is going on?

The most common explanation (more in the nature of an excuse) for high inflation in India is to take recourse in the high international inflation in 2008, and the subsequent expansion of deficits around the world. But that was a one-year explanation for inflation in the developing world—except India! As the accompanying table shows, Indian CPI inflation has ranged between 8.4% and 12.4% in the last six years. It is not as if this high inflation has gone unnoticed by the experts or RBI. Each year there has been a new explanation for this persistence of inflation. Some of the popular candidates: high fiscal deficits, excess demand (then why is growth so low?), pricing power of Indian corporate (then why is non-food inflation contained?) the emerging middle class eating protein-rich food (then why did cereal prices go up so much?), and rupee depreciation (shouldn’t the cause be the other way?).

Then, there have been explanations as to why inflation should be going down. In case you have forgotten, there is the claim that food output will grow strongly and be at record-highs this year. In the last three months, the rupee has appreciated by more than 10%, but CPI inflation has not declined—indeed has gone higher. And of course there has been the 400-odd basis points' increase in repo rates by RBI; yet each year, and after each increase, CPI inflation has edged higher, and from a high base!

It is true that some food price increases (e.g., onions) have defied weather, or economic logic, but the entire food chain doing so is stretching both logic and imagination. How does one reconcile record food output with the literally spiraling inflation of food? The Congress party does this stating that its policies have engineered growth in the rural areas, and inclusive growth at that.

If incomes in the rural sector are booming, then incomes in the richer sectors must be collapsing to yield a GDP growth rate of only 4.7%. And this number is put in perspective by noting that the last three years of per capita GDP growth in India is lower by a magnitude in the last 20 years— and at 3.3% per year, it is less than half the per capita growth that prevailed during the boom years leading up to the 2009 election.

So, what is happening? The logic of Indian inflation is relatively simple and has been outlined in these columns many times before and was documented in detail in July 2011 in “Indian Inflation—Populism, Politics, and Procurement prices”, available at www.oxusinvestments.com. The table updates these data till 2013.

What happens when the government raises the minimum support price (MSP) of foodgrains, especially that of rice and wheat, two crops that account for almost half of the value of all the crops for which the government sets the MSP. When the government raises the MSP, the prices of factors of production involved in the production of MSP products—land and labour—also go up. Is it any surprise that rural wages have gone up so fast as to cause labour shortages in an economy with relatively jobless growth for the last nine years? For the last six years, rural wages have gone up by an average of 16%. We don’t have reliable data on rural land values but anecdotal data suggest that the price of this factor of production has also been rising faster than most prices in the economy.

So, does this not increase the chances of Congress getting elected in the rural areas? This is mostly why the Congress-led UPA did it—increase rural incomes where the votes are. However, given the state election results of the last few years, this strategy seems to have backfired. One important reason—a dominantly large share of the expenditure of the poor is on food, and food prices have risen much faster than the average CPI increase of 10%, resulting in a real wage increase of less than 3% per year—at best.

The UPA answer to the high procurement prices in the run-up to the 2009 election was that these prices were being increased because international prices of food were going up. As indeed they were—world food prices (FAO data) increased at an average compounded rate of 6.7% per annum between 2004 and 2009; UPA procurement prices increased at an average rate of 9.9%. Since 2009, in the last four years, international prices of food have risen 7.3%; UPA-II price increase per year—9.3%.

The link between procurement prices and CPI is very strong both theoretically and empirically. The accompanying table reports the results of a model which relates CPI-increase to only one variable, the one-year lagged growth in procurement prices. The model is very parsimonious; no fuel prices here, no rupee value, no fiscal deficit, no money supply, no repo rate, no RBI, no purchase of gold, and no current account deficit. Yet, this model explains Indian inflation very well. For each 10% rise in previous years procurement prices, there is a predicted 3.3% increase in the current year CPI. In other words, if there was a zero-rise in procurement prices last year, on an average this year’s CPI inflation would be 4.6%. The estimation is for the period 1978-2007, so all of UPA-II data are out of the sample.

Particularly galling and adventurous and destructive were the UPA administered procurement price increase of 11.5% in 2011 and 16.2% increase in 2012. In 2012, the price of rice was increased by 16%, coarse cereals by 20%, sugar by 17% and wheat by 5%. The model predicted a 10% increase in CPI in 2013; the actual result—10%! The average forecasting error for the out of sample six years—only 1% per year.

Six-year CPI inflation, in 2008-13, has been the highest since 1950—10 percent per annum, matching the 10.1% rate achieved in the six years ending 1975. For the six years ending 2012, the MSP increase has also been the highest—average of 12.5% per annum. A lag of one year as per the model. The UPA will say coincidence, I will say rank stupid populist policy which did not help rural India (except land-owning farmers), lost them (the Congress party) the state elections, and lowered the GDP growth far below its potential, and below anyone’s imagination.

The author is chairman of Oxus Investments, an emerging market advisory firm, and a senior advisor to Zyfin, a leading financial information company.

Saturday, November 2, 2013

Today's Editorial 03 November 2013

                                                       Security Council expansion

Source: by S. Nihal Singh: The Tribune

While there are a complex set of factors involved in Saudi Arabia's rejection of the rotating United Nations Security Council seat, it has done a great service to India and other aspirants to a permanent seat. It has, in effect, pointed the way to break the logjam in the composition of a Council that represents the past, rather than the present or the future.

First, we must look at Saudi motives for a move that is both unprecedented and has stunned the world. Riyadh had given increasing signs of its frustration as the Syrian civil war has raged on and the Security Council was paralysed by continuing Russian and Chinese vetoes even as the Saudis were aiding anti-Assad groups. And when the Council did act on a Russian initiative to count and destroy Syrian chemical weapons, the US withdrew its threat to attack Syria with cruise missiles.

Indeed, recent events have been going against Saudi interests. Its main regional rival Iran has been trying to cosy up to the United States and is engaged in serious talks on its nuclear programme with world powers for the first time in years. The rivalry between Saudi Arabia and Iran is also along the increasingly dangerous Sunni-Shia fault line.

In rejecting the UN seat, Saudi Arabia charged the UN with practising double standards and faulted its work methods that prevent it from properly shouldering its responsibilities. Apart from the UN's inaction on Syria, Riyadh charged the organisation with failure in resolving the Palestinian-Israeli conflict and inability to free the Middle East of means of mass destruction. The last was a swipe at Israel, the only nuclear power in the region.

The surprise, of course, was that the Saudi ambassador to the UN had welcomed his country's success in winning a seat after three years of hard lobbying. Obviously, the rejection decision was taken at the very top in Riyadh amidst reported impending changes in the country's foreign policy hierarchy.

Inadvertently, the Saudi enunciation of its dissatisfaction with the UN opens the door for India to make its own dissatisfaction with the status quo in the Security Council plain more dramatically than by issuing demarches. The nub of the problem is that despite support from powerful countries, the ‘have’ powers are content to let matters rest as they are, with a European-majority permanent membership enjoying veto powers. The only concession made thus far is to count Germany as an informal permanent member under the 'P 5 plus one' formula.

As long as countries like India and other deserving nations to the rotating Security Council seats based on regional caucuses are content to lobby and compete for these seats, the permanent five countries are happy. While expressing lip service for enlarging the permanent slots, they maintain the status quo.

The reactions of some of the permanent members are revealing. Russia reacted with barely concealed anger, recognising that the Saudis threaten to open a Pandora's box in challenging the right of veto for the permanent members. Realising that part of the anger is aimed at Washington on its reluctance to act militarily on Syria and President Obama's peace overtures to Iran, the US has sought to shrug off the Saudi move.

The French, always original in their contribution to world affairs, have supported the Saudi move for reform of the Security Council, suggesting that there should be no veto on issues involving ‘mass crime’. The UN Secretary-General, Mr Ban Ki-Moon, has refrained from making substantive comments while waiting for an official notification of the Saudi move, with perhaps a faint hope that Riyadh might relent. Among the regional powers, Turkey, which has been strident in its anti-Assad policy, said through its President Abdullah Gul that that the Saudi move should be treated with respect and that he shared Riyadh's perceptions on UN inaction on Syria.

India can make its own substantive move to jog the process of a speedier reform of an outdated Security Council by declaring that it would forswear contesting a rotating seat in its regional caucus as a mark of protest against the immobility in effecting substantive reforms in the Security Council. India would, of course, remain an active member of the world organisation in other respects.

Of the countries that had banded together for an expansion of the Council's permanent membership, Germany is perhaps satisfied with the half a loaf it has received as an honorary member of the ‘P 5’. But New Delhi should consult Japan and Brazil and other countries in forming a joint front in forswearing contesting rotating seats in their regional caucuses. It would then send out a signal to the ‘have’powers to end their delaying tactic in reforming a key institution of war and peace in the world organisation.

If the Saudis persevere in their rejection of the rotating seat, what comes next? It is an unprecedented situation, UN officials privately acknowledge. The Afro-Asian caucus will presumably have to go back to the drawing board to pick a new member for the tenth rotating seat. That will be the time for India to declare that it would forthwith decline to seek a rotating seat in solidarity with Saudi Arabia's justified complaints about the anachronistic nature of the Security Council.

There has been one grudging reform of the Security Council in terms of expanding its membership, but the permanent five — the US, Russia, China, Britain and France — have retained their privileges unaltered. China remains the sole permanent member from Asia and has a vested interest in warding off the addition of two other major powers, India and Japan.

There are any number of other spoilers such as Italy and Pakistan, countries aware of their own limitations in making the grade. Thus it comes about that many vested interests combine to frustrate matching the key organisation with today's and tomorrow's world. The point is simple: How long will New Delhi tolerate a distorted membership of the Security Council merely chanting the need for reform?

Today's Editorial 02 November 2013

                                                      Stagflation at the door

Source: by Jayshree Sengupta: The Tribune
The financial markets have been pleased about the Reserve Bank of India’s transparent and predictable policies. As expected, the Reserve Bank has raised its repo rates (the rates at which commercial banks borrow from RBI) by 25 basis points on October 29 to 7.75 per cent. This will raise interest rates also. By raising repo rates twice since his becoming the RBI governor, Raghuram Rajan has proved to be a conservative monetarist who regards inflation control as the biggest problem of the economy. Inflation has been a long-term problem now and is troubling the middle classes and people with low and fixed incomes immensely.

In September, food price inflation reached 18.4 per cent which was the highest rate in 38 months. WPI (Wholesale Price Index) was also at 6.46 per cent and the Consumer Price Index, which reflects retail prices that common people have to pay, was at 9.84 per cent. An alarming forecast of the RBI is that the retail price inflation or CPI will remain around 9 per cent next year.

The fact thus remains that even though the entire government machinery has been deployed in the past to control food prices, yet it has not been able to do so. Onion prices have shot up by 322 per cent. That inflation is still not under control is a de facto failure of past monetary policies of the UPA government.

How are other BRICS countries coping? China has the lowest inflation and India has the highest. All the members of BRICS have been suffering from the monetary easing policy conundrum of the US in recent times when FIIs left in droves to go back to the US. Now they are again returning after an assurance from the US Federal Reserve that its monetary easing policy will be continued and even India is getting FIIs back as a result of which the rupee has recovered.

But why has the RBI now lowered the growth forecast to 5 per cent for 2013-14? Recently, the Finance Minister had declared that the low GDP forecast (4.25 per cent) by the IMF about India was wrong and an underestimate. An important reason why growth forecast is lower than expected is the below-average growth rate of industry which is slated to be only at 1.3 per cent. It was 0.6 per cent in August 2013. This is ominous for future job creation in the country. Low growth and high inflation is a dangerous cocktail known as stagflation which affects the whole economy and is difficult to get rid of.

Agricultural growth however has been forecast higher at 3.7 per cent due to better monsoon this year. But it is not enough to pull up the GDP growth rate or to reduce the food inflation. Low business confidence and poor state of infrastructure are also responsible for a lower GDP growth outlook. FDI has also slowed down and domestic investment is at a low point. India has slipped three notches and has been ranked at number 134, according to the World Bank’s index of “Ease of Doing Business”.

It is a serious situation except that the economy is “too big to fall” and many people in the middle classes and higher income groups have enough savings or black money to go on shopping for gold and other luxury goods during festivals and weddings. Looking at the shoppers in the metro cities one would think that all is hunky-dory and people are buying as before. But sales are down, businesses are failing and shops are shutting down. To rev up the economy, much will have to be done to revive investment which will create higher manufacturing growth and jobs. For investment to rise, interest rates would have to be lower.

The RBI has however eased liquidity which is good for business. It has cut the Marginal Standing Facility (MSF) rate by 25 basis points. MSF is an overnight borrowing rate for banks and a cut in the rate eases cost of funds for lenders which can lead to higher credit growth. It could lead to lower short-term rates for home loans and other EMIs could also remain the same.

The RBI had earlier jacked up the MSF by 200 basis points in July when the rupee sagged sharply and it was felt that liquidity had to be controlled to curb speculation. But then RBI rolled it back by 75 basis points in its September 20 review and another 50 points in early October. Now the MSF is at 8.75 per cent, which means it is 1 per cent higher than the repo rate which is considered normal. The RBI has, in effect, doubled the borrowing limit of banks against their cash positions with the immediate effect of increasing liquidity in the system.

The RBI expects the current account deficit to widen at first and then come down. It will widen to 4.4 per cent of the GDP in the first quarter of 2013-14 because of low export growth of 3.8 per cent. Later the current account deficit is supposed to shrink to 3.5 per cent. The rupee’s value against the dollar would get better as a result and also because more dollars are already flowing into the market due to return of the FIIs. The RBI’s Swap facility for Foreign Currency Non-Resident (Banks) –under which banks have been permitted to swap fresh FCNR (B) dollar funds for a minimum of three years at a fixed rate of 3.5 per cent per annum— and an increase in banks’ overseas foreign borrowings, have led to $10.1 billion inflows. Yet the rupee has not gone back to its previous level.

The idea behind the RBI’s latest policy move is not just to control inflation only but also to curb inflationary expectations. The fiscal deficit has been predicted to be around 5 per cent by the RBI, which is higher than the expected 4.8 per cent. Any increase in the government’s market borrowing is bound to be inflationary.

How far inflation control will be successful, only time can tell and we have to wait and watch. Inflation control is important because high food prices will lead to lower nutritional intakes of food by the poor which is alarming. But inflation cannot be controlled by interest rates alone.

By being overly hawkish Mr Raghuram Rajan is not going to help industry which is starved of investment. Many industrialists have expressed their disappointment with RBI’s stance because a lot of innovation-related investments need to be undertaken to improve the competitiveness of industry. The capital goods industry needs a revamp. Yet the market’s expectation is for another repo rate hike soon!

Today's Editorial 01 November 2013

                                                 A question of compatibility

Source: By B S Prakash: Deccan Herald

Are ‘Political Islam’ and democracy compatible? This is a provocative question that is being debated by scholars of Islam, students of political theory or analysts in West Asia. It is not a new question, but the withering of the Arab spring adds an element of topicality.

But why raise this question at all, some will ask? Are there not democratically elected and functioning governments in Turkey, Indonesia, Bangladesh, Malaysia and on occasion in Pakistan? Are these not Muslim majority countries and aren’t the governments ‘Islamic’ in some manner? First, a distinction needs to be made between a country with a large Muslim population, whether majority or minority, and an ‘Islamist’ country. Second, the ‘manner’ in which a country is Islamist, whether only in name, or in spirit, or in actual practice and if so the degree of detail and rigour, is at the core of this debate. The current arguments swirl around the Arab world and West Asia region since the ideologues of ‘political Islam’ of various shades have their origins there, in Egypt, Saudi Arabia or Iran. A certain view of the impact of Islam on governance has been developed and we have seen its fierce advocates emanating from that region. The governments in Turkey, Bangladesh or Indonesia may pay obeisance to Islam but are far less involved in an assertion and promotion of the principles of political Islam.

But what is ‘political Islam,’ a much bandied around term these days? By using this term, we are referring not to the individual faith of Muslims, but at a belief - system that seeks to organise the society and the polity based on principles of Islam. Let us look at some examples first before delineating the concept. To run a country according to Islamic beliefs and laws is the objective of Muslim brotherhood, a political party which came to power albeit briefly through elections in Egypt. Another major example is the Islamist Salvation Front (FIS) in Algeria which had won the elections in 1991, but was never allowed to form the government with the argument that if it came to power, it would never again allow other elections. Al Qaeda, to the extent that it is a political system is another example since it claims that its beliefs are derived from Islam, however, repugnant this idea may be to the peace loving. Iran’s polity, with its three decades of continuity too is a form of political Islam. There are other names and labels in Tunisia, Libya, Syria and it should be clear forming these examples that there are different strands under the common rubric.

What are the fundamentals of this world view? Simply stated, that Islam is/ has the answer not only to spiritual impulses or religious needs but for social and political order, as well. Islamism in this sense not only defines and regulates the relation between man and God but equally between man and man (and woman) and this includes the relation between the ruled and the ruler. The adherents also advocate that the ideal society is one in which Holy Prophet lived in Medina and there ought to be a reverting to the practices of that period. Governance according to the Islamic law, the sharia is a central tenet.

Political order
Before we look at the implications of this belief-system for a democratic political order, we need to be clear about what is meant by democracy.’ We need not see it necessarily in terms of a particular model, Jeffersonian, or Westminister, or another; or essentially as consisting of change of governments by elections. We should also keep in mind other features: the space for divergent beliefs, possibility of dissent, assertion of pluralism, minority rights, and individual liberties.

With this understanding, we can look at the interplay between the two nodes in the equation, the ‘Islamist’ and the ‘democratic’ character of the polity. Critics within these countries often contend that their polity is not sufficiently ‘Islamic’ or sufficiently ‘democratic.’ Analysis shows that it is when we move towards the inherent logical extremities of either of these nodes that problems arise.

Adherents of an absolutist form of political Islam contend that answers to all dimensions of life -- personal, social and political -- are already available and should be sought in Islamic texts and pristine practices. There is no room for compromise, mistakes, fallibility of beliefs or dissent in such a view. It must be noted that there are scholars who contend that such an absolutist view is unwarranted and that there is room in the Islamic tradition for interpretation of texts (ijitihad), for consultation (shura), and that in general space exists for accommodation of social practices dependent on contemporary realities. But such views are rejected and a roll back to original, pure, and non deviationist practice is advocated by the strict adherents. This is a debate within Islamism.

Islam does not prescribe a particular form of government. But an absolutist view as described above does not sit well with expectations under a democracy such as compromises, dissent, deviant behaviour that is tolerated, and unconventional personal practices. If by democracy, we mean expression of popular will alone, there is no inherent conflict. If we include respect for all forms of freedom and for all kinds of individuals, problems do arise between the two systems. Issues relating to gender, minorities, blasphemy and punitive code are obvious examples.

Is there a clear answer to the compatibility question, then? The answers will lie in state practice where Islamist governments actually rule and how their governance accommodates or confronts day to day realities. As of now, we have seen too little of such governments -- Iran, and Taliban and Muslim brotherhood for short periods - and their track record is insufficient, to come to conclusions.

Today's Editorial 31 October 2013


A new power triangle
Source: By Sreeram Chaulia: The Asian Age
The relative decline of America’s military, economy and soft power has led to new possibil- ities for restructur- ing leadership. Russia, India and China have been grasping at these new horizons.

Two back to back diplomatic summits between India and Russia, followed by India and China, are manifestations of an altered world order where major nonWestern actors are pooling resources and strategies. Although Indian Prime Minister Manmohan Singh’s meetings with Russian President Vladimir Putin and Chinese President Xi Jinping are exclusive of each other and bilateral, they play into a broader dynamic of intensifying linkages and coordination that has ushered in a world with multiple power centres.

While the Brics (Brazil, Russia, India, China and South Africa) formulation has captured attention over the last decade, a parallel “RIC” grouping comprising just Russia, India and China has existed since 1996. RIC was the first front that sparked questioning about the unipolar, US-dominated international system of the post-Cold War years.

More explicitly anti American coalitions like the Shanghai Cooperation Organisation (SCO) arrived after RIC had sown the seeds of a multipolar world.

At the time of its founding, RIC sounded like bravado with no concrete basis to challenge an American-dictated world. But the relative decline of the US military (exemplified by its defeats in Iraq and Afghanistan), the US economy (since the financial crisis of 2008) and US soft power (its form of governance and conduct in world affairs have lost attraction) has thrown open new possibilities for restructuring leadership and steering international affairs. Russia, India and China — each in varying degrees— have been grasping at these new horizons.

Russia, whose economic interdependence with the US and exposure to Western commercial exchanges are the least among the trio of RIC, is the most consistent critic of Washington’s foreign policy. Mr Putin articulated the case for moving on from an American-led dispensation by writing in a much-cited New York Times article that “millions around the world see America not as a model of democracy but as relying solely on brute force.” Russia’s forceful diplomacy to avert a direct American military attack on Syria has lent weight to the general sense that the US is no longer the sole arbiter of key international conflicts. Even as Russian economic growth has stumbled lately, the boldness with which Mr Putin has emerged as a power broker and problem solver has come at the expense of a US whose own economy is in shambles.

Compared to Russia, China is economically enmeshed with the US and hence quieter in its anti-American posturing. However, China makes up for its verbal reticence in frontally attacking the US through other means, viz. aid and energy diplomacy to challenge American influence in Africa and Latin America, and a steady campaign to overthrow the hegemony of the US dollar as the global reserve currency.

Last month, the Chinese Renminbi or Yuan entered the league of the world’s 10 most traded currencies, jumping from number 35 to number nine in the standings in less than one decade.

At such a dizzying speed of ascent — provided China liberalises its capital account, issues Yuandenominated sovereign debt, and universalises trading agreements that are Yuan-based — the Renminbi could rise to number one by 2020.

America’s high and worsening debt-to-GDP ratio and its serialised horror show of domestic political wrangling over budgets and spending have, in the words of US President Barack Obama, “encouraged our enemies and emboldened our competitors.” The most emboldened of all competitors is China, whose state-run Xinhua news agency recently issued a clarion call for a “de-Americanised world” whose cornerstone would be “introduction of a new international reserve currency that is to be created to replace the dominant US dollar.” Nonetheless, the entrenched economic symbiosis between China and the US means that Beijing cannot be as stridently anti-American as Moscow is.

India is the farthest within the RIC triangle from going on an offensive against the US’ position and performance in world affairs. Although multipolarity is an official pursuit of the Government of India, many of its elites nurse a somewhat time-warped notion that America is still the “sole superpower” and that we need its partnership to counterbalance the Chinese threat to our borders and to our rise in Asia.

Indian power consciousness has crawled slowly from a sub-continental to a larger continental Asian mindset, implying that it still does not envisage a global foothold and force projection. The chances of India colliding with the US outside Asia are presently low because New Delhi limits its strategic ambit and asset deployment to its own expanded neighbourhood and does not think in terms of worldwide sway, unlike Beijing and Moscow.

Yet, India is a participant in some ambitious new ideas that cement multipolarity and work against American preferences. For instance, Mr Putin’s dream of a “Eurasian Union” that would forge a common economic front of all the former Communist bloc states, is viewed by New Delhi as an opportunity for us to associate with for expanding our exports in Central Asia and beyond. Where concrete material gains are in the offing, India has not kowtowed to American will, which is absolutely negative towards the Eurasian Union concept.

In 2012, the then US secretary of state Hillary Clinton bluntly revealed that America is “figuring out effective ways to slow down or prevent” the Eurasian Union from materializing. Undeterred, the Kremlin disclosed on the eve of Prime Minister Singh’s visit to Russia this week that India will be engaging in talks to “develop privileged strategic links with the Eurasian Union.” Similarly, India has invested in building the International North South Transport Corridor (INSTC) that can open a land trade route from South Asia to Europe via Iran, Russia and Central Asian space.

This project is expected to intersect and connect with China’s “New Silk Road” blueprint, which, in turn, is a challenge to the US’ separate scheme of reviving the ancient Silk Road by keeping Iran out.

Despite remaining ambivalent about attenuating American power, India is enacting its own role in the RIC strategic triangle by joining economically beneficial multilateral initiatives which may hurt American interests. Dr Singh’s latest bilateral visits to Russia and China contain plenty of nitty-gritty deliverables on energy, trade and defence cooperation. One could get lost in the density of details contained in these specific agreements and lose sight of how the sum total of interactions in this triangle is reshaping the world.