Weekend reading links

1. China is using the Covid 19 pandemic to push through a legislation that would allow it to establish national security institutions. The legislation, which would by-pass Hong Kong's Legislative Council and be an annex to the Basic Law, the city state's constitution. It would allow the government to target people indulging in "splitting the country, subverting state power" etc.

A similar attempt in 2003 to insert a new national security law, Article 23, was shelved after massive pro-democracy protests.

2. Pakistan has awarded the first phase of the construction of the Diamer Bhasha dam project in Gilgit-Baltistan in occupied Kashmir to a joint venture between Power Construction Corporation of China and Pakistan Army's Frontier Works Organisation. The total project, estimated to now cost between $8.77-14 bn, will be funded from Chinese loans drawn from the China-Pakistan Economic Corridor (CPEC). The project is estimated to finally generate 4.5 GW of power and store 8.1 million acre feet of water.

3. The NAR reports of threats from China to retaliate against US actions on Huawei,

"Based on what I know, if the U.S. further blocks key technology supply to Huawei, China will activate the 'unreliable entity list', restrict or investigate U.S. companies such as Qualcomm, Cisco and Apple, and suspend the purchase of Boeing airplanes," said Hu Xijin, editor-in-chief at the Chinese Communist Party-affiliated Global Times, which published such a report Friday... After U.S. intentions to double down on its Huawei ban had become known in March, Huawei's rotating chairman Eric Xu said he does not think "the Chinese government would sit and watch Huawei be slaughtered" and warned of rippling ramifications if Washington went ahead with such a move.

This would effectively trigger the start of a tit-for-tat round of actions, whose end-game can be very unpredictable.

For a start, such retaliation will almost certainly force President Trump, facing an election, into even greater belligerence. And in the short and even medium-run the costs to China can be prohibitive. Besides, it would further entrench the new Cold War mentality in the US as a bipartisan consensus.

4. The China diversification game is easier said than done. Even as President Trump is urging US companies to diversify away from China, Apple appears to be yoking itself even deeper into China. In what is being seen as an attempt to diversify its supply-chain dependence on Taiwan's Foxconn, Apple has been propping up a fast growing Chinese competitor, Luxshare ICT.

Apple has advised one of its Chinese AirPods assemblers to make a major investment in an iPhone and MacBook metal casing provider, a move the California tech titan hopes will create a formidable alternative to another of its longtime suppliers, Taiwan's Foxconn. Luxshare-ICT, a fast-rising Chinese tech company known for its aggressive growth strategy, has been in talks with Catcher Technology, the world's second-largest metal casing provider, for more than a year and has recently entered a deeper round of negotiations... The deal, if realized, would give Luxshare the ability to produce high-quality metal casing as well as access to smartphone assembly know-how, which would take it a step closer to becoming the Chinese version of Foxconn -- a single company with operations that span nearly the entire electronics supply chain. Such a move could ultimately help Luxshare grab a share of iPhone production, which ships around 200 million units each year. Foxconn, the world's largest contract electronics manufacturer, has long been Apple's biggest supplier, accounting for more than 50% of iPhone production since the device's debut in 2007. 

5. Graphic details of Chinese encroachments into Indian territory gradually over the years by Phunchok Stobdan. This article by Sekhar Gupta has a nice description of the Chinese strategy on the border. 

Everything, from 1962 to Doklam, fits a pattern: Deliver a message, add leverage, and return. All the stand-offs after that, including recent ones such as Chumar, Depsang Plains, and Doklam, have ended the same way. The message is, see, who’s the boss out here.

6. Saudi Arabia's $325 bn SWF, Public Investment Fund (PIF) is on a bargain hunting spree to invest in the assets distressed by the pandemic.

This is even as the country is facing a fiscal crunch from low oil prices, which has forced deep cuts in government spending, new debts, painful austerity measures and a tripling of VAT to 15%.

7. How quickly food tastes change, from the US yogurt market,

Greek yogurt occupied 1 percent of the yogurt market in 2007; that jumped to 44 percent by 2013.

8. The Economist has a profile of Princeton economist Leonard Wantchekon,

In 2014 Mr Wantchekon founded the African School of Economics in Abomey-Calavi, Benin. Its aim is to offer African students the highest standards of mathematics and economics teaching, ensuring they can compete with graduates overseas. It is refreshingly drab, with no splurging on a flashy campus or needless technology. The 100 or so students pay $2,400 per year, about the same as at a public university. “This is not about doing something grandiose,” says Mr Wantchekon. It is a model that can be replicated. Another campus was opened this year in Ivory Coast. The school draws on several influences. The name nods to the London School of Economics. Princeton is one of more than a dozen “academic partners”.

This is a mighty impressive achievement. The School has campuses in Benin and Cote d'Ivoire.

This is a good example of what reputed academic researchers based in US universities can do for their native countries - promoting academic pursuits there, instead of just using them as platforms to promote their professional careers. 

9. Has Covid 19 ushered in the return of the permit raj in India? The number of notifications and guidelines issued by the central and state governments in India is 4890 and counting. Naushad Forbes has a good listing of the new regime faced by his company here.

10. Good chronicle of a migrant student's misery in a journey from Ahmedabad to Warangal on the Shramik Special train. Sensitivity is not a trait that Indian state shows even in best of times. For sure, there are reasons. But the reality cannot be denied.

11. The Economist has a fascinating article on overseas Chinese diaspora billionaires. 

According to The Economist’s analysis of data from Forbes magazine, last year more than three-quarters of $369bn in South-East Asian billionaire wealth was controlled by huaren (a Mandarin term for “overseas Chinese” who are citizens of other countries). A lot resides in Singapore, a rich majority-huaren city-state. But plenty is spread from Indochina and Indonesia to the Philippines. Malaysia’s Robert Kuok oversees an empire that spans everything from sugar to Shangri-La hotels. In Indonesia Lippo Group, owned by the Riady family, is active in banking, property and health care. On last year’s list 15 of 17 Filipino billionaires were ethnic Chinese; SM Group, run by the Sy clan, has high-end malls across China. Myanmar is too poor for billion-dollar fortunes, but many of its leading businessmen are Chinese-Burmese, like Serge Pun of Yoma, a property-to-banking concern, or Aik Htun of Shwe Taung Group, with interests in infrastructure and real estate...

Although Chinese settlers first arrived in South-East Asia in the 15th century, many founders of today’s top huaren business dynasties fled south to escape poverty and violence in the early 1900s. Most assimilated culturally and, like Chia, took local names. They prospered first as traders, then in some cases by cosying up to power. Liem Sioe Liong of Salim Group, a noodles-to-finance conglomerate, enjoyed famously close ties with Suharto, Indonesia’s dictator from 1967 to 1998, picking up lucrative monopolies and licences in areas from flour-milling to clove imports. Around the region such links helped the tycoons build vast, vertically integrated groups as Asia boomed in the 1990s. Together these constituted what has sometimes been described as a “bamboo network” of firms with Chinese roots, united by Confucian values of diligence and thrift. Trading and feuding with one another in turn, their bosses ended up dominating industries from farming to finance.

And as with everything that has a Chinese connection, there is plenty to be concerned about,

The Overseas Chinese Affairs Office was recently folded into the Communist Party’s shadowy United Front propaganda division. Many suspect that Mr Xi Jinping wants to muddy the distinction between huaren and huaqiao (Chinese nationals living abroad). Some huaren business leaders are handed roles on Chinese state bodies, such as the Chinese People’s Political Consultative Conference, a talking shop. Politicians in South-East Asia worry in private about “influence operations” from Beijing.

12. Jean Dreze argues in favour of a dramatic expansion of the NREGS and making it a true demand-driven program,

This situation calls for large-scale opening of NREGA works on a proactive basis. Every village needs at least one major worksite, where a good number of people can work at short notice (with adequate distancing precautions). Ideally, workers should be allowed to enrol at the worksite... Much can be done to facilitate this: expanding the list of permissible works, hiring more gram rozgar sevaks (employment assistants), simplifying the implementation process, mobilising para-teachers for work application drives, and so on. And of course, top-down orders to expand the scale of works could work wonders... It is also worth considering a return to cash payment of NREGA wages, at least as an option for the duration of the crisis. This would not only help to ensure timely and reliable payment of wages, but also spare workers the ordeal of extracting their wages from overcrowded banks or business correspondents. Further, cash payment of wages would act as a tremendous incentive for rural workers to demand NREGA work, whatever it takes. 

13. Business Standard has an article examining the case for private prisons. This is an area where the tide has already turned in countries ranging from US, UK, Australia etc, as stories of problems with prison privatisation mount. An editorial in the Financial Times, no less, threw in the towel on privatised prisons last year. Another example of how trends which have played itself out and become discredited in developed economies continue to enjoy credibility among commentators in India (developing countries).

14. Finally, there is growing evidence of Indian lenders becoming over-cautious due to the mounting Covid 19 distress and turning away borrowers. 

Weekend reading links

1. Elizabeth Warren's tour de force examination of Wells Fargo Chairman John Stumpf's accountability in the cross-selling scandal, which created more than two million bank and credit accounts without customers consent, is a must watch! It is a great example of well-reasoned and well-researched polemic.

Unfortunately, Ms Warren's scathing attack and having to squirm through it may be the only punishment that Stumpf may have to endure. 

2. Zero Hedge points to this incisive presentation by Stanley Druckenmiller, where he charts the excesses that have been building up the US economy. This representation of the skewed nature of the corporate resource allocation during the ongoing business cycle says it all - $2 trillions spent on buybacks and acquisitions in US in 2015 against $1.8 trillion on R&D and office equipment!

The irony is the equity market boom despite all the adverse headwinds,

The corporate sector today is stuck in a vicious cycle of earnings management, questionable allocation of capital, low productivity, declining margins, and growing indebtedness. And we are paying 18X for the asset class.

3. Mohamed El Erian points to this graphic about IMF projections since the global financial crisis which captures the growing pall of gloom surrounding the world economy.

4. George Perkovich has a summary of the options available for India following Pakistan's latest foray,

India could... consider limited air and special forces strikes on known terrorist facilities and Pakistani military installations in the part of Kashmir that Pakistan controls. The campaign would surely produce television images of destruction that could satisfy (temporarily) the Indian desire for revenge. But a restrained use of force could signal lack of Indian resolve, thereby emboldening the Pakistani military and providing it with little incentive to crack down on anti-Indian groups. More daringly, Modi could send planes through Pakistani air defenses to bomb militant groups’ facilities in the heartland of Punjab—assuming that India had credible evidence to link Sunday’s attack to those groups. But such an action would likely prompt Pakistan to mount counterattacks on India, again risking escalation whose potential destructiveness would be out of proportion to the injury India has suffered. 

India could, and probably will, increase the intensity of covert operations to foment disorder in Pakistan, particularly in the restive province of Balochistan. Such activities would certainly harm the interests of the Pakistani military. But they would also bolster Pakistan’s effort to portray India as morally and politically equivalent to Pakistan in the use of terrorism, a label India has long sought to avoid. India will also justifiably seek to mobilize the world against Pakistan as a state-sponsor of terrorism, which is increasingly difficult to deny. But the long history of Kashmiri resistance to Indian rule and the fact that the target of this weekend’s attack was a military installation—not civilians—complicates the Indian narrative.

The last one is clearly the most prudent option, though it would require escalating the rhetoric against Pakistan at international forums to higher level. The flip side to this would be that India would be spending its scarce diplomatic capital combating Pakistan, at the cost of other more strategic issues. Exactly what China would want - leave India's diplomatic energies expended fighting Pakistan. 

One way to manage the challenge is to respond asymmetrically - leave the junior-most Indian diplomat stationed with the UN Mission respond aggressively to the Pakistani Prime Minister, no less. This was brilliant. Unfortunately, there are limits to such opportunities. 

Staying on the same issue, the mainstream western narrative of "Kashimiri resistance" to "repression by Indian security forces" that the likes of Perkovich peddle is as much a trivialisation of the debate as the populist incendiary rhetoric in mainstream Indian media. After all, Kashmir since independence has always been ruled by Kashmiris. 

5. Andy Mukherjee points to the maladies of corporate governance in India and how the equity markets have become the quiet platform for its most egregious excesses. The case in point is the merger of Max Life Insurance and HDFC Standard Life to create India's second largest insurer, albeit at just 6.75% of market share. The fine print of the merger involved a $127 million payout from the merged entity as non-compete fee to Mr Analjit Singh, the promoter of Max Life Insurance. This is despite Mr Singh continuing to own a 6.5% stake in the merged entity. 

Who cares if Singh started India's 25th life insurance company? As many as 14 of the existing two dozen players control less than 1 percent of the market each, while Life Insurance Corp. of India -- the former state-owned monopoly -- still collects 70 percent of all premiums. With a 6.75 percent share, the bulked-up HDFC Standard Life would have nothing to worry about if Singh did decide to start a rival. He would be crazy to want to. Besides, it isn't just Singh and his family who are being compensated. Even his private investment vehicles, such as Mohair Investment & Trading, will collect a part of the $127 million, leaving little doubt about the true nature of this side payment. Had this been a regular takeover of the business by HDFC Standard Life, the stock-market regulator would have said no to the sham noncompete. But since the deal has been designed as a merger, it's up to the other shareholders to try to block the payout.

6. Fantastic graphical presentation of the spectacular improvements in global health indicators over the past two centuries. This one on the improvements in life expectancy is truly impressive.

7. Finally, one more from outstanding Twitter handle of Ian Bremmer, this time an illustration which captures the staggering complexity of power dynamics in the Middle East. Maybe Israel should relax!

More realpolitik for India's foreign policy

The US drone strike that killed Mullah Akhtar Muhammad Mansour, the Taliban leader, a few months back, while driving across Pakistan's Baluchistan Province, may have interesting consequences. A few observations.

1. The "violation" of Pakistan's airspace and the Pakistanis being unaware of the strikes may signal more strains in an already tenuous relationship. That Mullah Mansour was close to Pakistani military and intelligence establishment lends further credence to that view.

2. This victory for the Americans may be short-lived since Sirajuddin Haqqani, who is expected to succeed Mansour, is close to the Pakistani ISI and is a more hardline opponent of the peace process. 

3. For India, the US policy towards Pakistan is a teachable moment in realpolitik. The US are actively engaging with Pakistan, even willing to provide them military assistance, despite their soldiers suffering at the hands of terrorists supported by Pakistan. They see no problem with the apparent contradiction and neither do continuously complain about Pakistan's duplicity. They realize that the Pakistan army and intelligence apparatus are largely outside the control of the country's elected government. But engaging with the government at least leaves them with the best possible lever to influence the trajectory of developments in the country. Further, the weapons supply also helps them exercise some influence over the all-powerful Pak military establishment.

India needs to emulate the US foreign policy calculus in its dealings with both China and Pakistan, especially the latter. In contrast to the Americans' (public) nonchalance with the recurrent stream of Pakistani-supported Taliban attacks on its soldiers in Afghanistan, India makes a very public remonstration and suspends talks after every attack. I am not sure whether this even contributes to keeping Pakistan on the backfoot at international platforms. Playing to the domestic audience, maybe, but this trend has predated the rabble-rousing 24X7 media channels.

There is nothing inherently odd about juggling contradictions - deepening engagement even as we stave off the insurgents. The US foreign policy revolves around a marriage of Wilsonian idealism and George Keenan's realpolitik, although it sometimes throws up ugly contradictions. In dealing with nations, India's national interests dictates that we imbibe a dose of realpolitik. 

Weekend reading links

1. Polio is the new cross-border threat for India from Pakistan,

Experts warn that neighboring India, which succeeded in shedding its label as a polio-endemic nation three years ago, could face serious cross-border infection.

As immunization efforts flounder in Taliban-controlled northwest regions, the number of Polio cases reported have been growing, thereby raising the specter of cross-border infection. Yet another reason why India needs a stable and developing Pakistan.

2. Livemint has a graphic on judicial vacancies and case loads.

3. Arguably one of the most important macroeconomic debates in recent years has been over the relative superiority of fiscal austerity or expansion in combating economic weakness in developed economies. Two contrasting tales from both sides of the Atlantic.

In Spain, the Conservative Popular Party has pursued a vigorous austerity policy, slashing public spending in the middle of a recession and pushing through a series of labor reforms to improve external competitiveness. It has achieved internal devaluation through wage compression - wages have fallen in nine of the last fourteen quarters since the PP government assumed power. These measures appear to have succeeded, with output estimated to grow by 3% this year, Spanish exports have grown fastest rising from a share of 17% of GDP in 2007 to 23% in 2014, the number of Spanish companies selling abroad has risen 50% in the same period, and unemployment though still high has been declining. In contrast, in Canada, the center-left Liberal Party of Justin Trudeau recently won elections on an avowedly Keynesian platform.

4. Times points to this paper that evaluated the impact of seven cash transfer programs in Mexico, Morocco, Honduras, Nicaragua, Philippines, and Indonesia and found "no systematic evidence that cash transfer programs discourage work" and thereby promote lazy behaviors.

5. Business Standard points to another price transmission problem in India, in piped natural gas (PNG) distribution in cities. An 18% recent reduction in the regulated (by indexation) upstream price of natural gas (from $4.66 mBtu to $3.82 mBtu due to fall in global oil prices) translated to a mere 3% cut in the PNG price for consumers. As of June 2015, India had 2.8 PNG consumers in 11 states. 

The Indian Supreme Court had in July 2015 ruled that the Petroleum and Natural Gas Regulatory Board (PNGRB) had no powers to regulate transmission through CGD network and could only determine tariff for gas transmission through common or contract carrier pipelines. It, therefore, rejected PNGRB's claim to fix retail city gas prices. City gas distribution (CGD) firms are, therefore, currently monopolies and enjoy freedom from price regulation. They have marketing exclusivity for the first five years of their operations. Subsequently, the CGD network would be on "open-access", available to third parties to supply gas as a "common carrier", thereby ushering competition in the closed market. Once they become "common carriers", the PNGRB would have the regulatory powers to fix tariffs. However, the challenge then would, in all likelihood, be to get the incumbent network owners to not sabotage the open access arrangement. 

6. The digital traces left by mobile phones have emerged as one of the most exciting areas of studying human behavior in real-time, with the potential to frame public policy accordingly. Here are a few applications. 

LogAnalysis software developed by Emilio Ferrara and Co of Indiana University analyzes social networks developed from telephone calls (chiefs of gangs makes a few calls to trusted lieutenants who in turn disseminate the same widely and repeatedly) and compares them with crime data to identify (and pre-empt) criminals and crime locations. Adeline Decuyper and Co in Belgium monitored food consumption patterns by superposing an FAO household survey data with mobile phone calls data from Rwanda and found that airtime top ups correlated with purchases of high-value food items. Kevin Kung and Co at MIT used data from Ivory Coast, Portugal, and Boston and found that humans spent an hour daily commuting, independent of distance or mode of transport or the country, thereby validating the old Marchetti's constant (they assumed people's homes as where they made calls in the night and office as the location of calls during working days). Vasyl Palchykov and Co use the duration and frequency of telephone calls from a database of nearly 2 billion calls (age and sex of the callers were available) to tease out the changing patterns of relationships between men and women at different ages. Jameson Toole and Co use mobile data to study the economic and social impact of mass lay-offs by analyzing the changes in people's social networks. 

7. Andres Velasco points to the findings of Tulane University's Commitment to Equity Institute, which examined the impact of various fiscal policy instruments (direct taxes, indirect taxes, direct transfers, indirect subsidies like food and energy prices, and in-kind transfers like education and health care services) on inequality and poverty for Brazil, Chile, Colombia, Indonesia, Mexico, Peru, and South Africa,

The largest income redistributive effect is in South Africa and the smallest in Indonesia. Success in fiscal redistribution is driven primarily by redistributive effort (share of social spending to GDP in each country) and the extent to which transfers/subsidies are targeted to the poor and direct taxes targeted to the rich. .. South Africa’s result can be attributed to the combination of a large redistributive effort with transfers targeted to the poor and direct taxes targeted to the rich... While fiscal policy always reduces inequality, this is not the case with poverty. Fiscal policy increases poverty in Brazil and Colombia (over and above market income poverty)... meaning that a significant number of the market income poor (nonpoor) are made poorer (poor) by taxes and transfers. This startling result is primarily the consequence of high consumption taxes on basic goods... 

The marginal contribution of direct taxes, direct transfers, and in-kind transfers is always equalizing. The marginal effect of net indirect taxes is un-equalizing in Brazil, Colombia, Indonesia and South Africa. Total spending on education is pro-poor except for Indonesia, where it is neutral in absolute terms. Health spending is pro-poor in Brazil, Chile, Colombia and South Africa, roughly neutral in absolute terms in Mexico, and not pro-poor in Indonesia and Peru.

They calculate the marginal contribution of a tax or transfer (as the difference in inequality gini with and without the intervention) and the total redistributive effect (difference between market income gini and disposable or post-fiscal (disposable income plus indirect subsidies minus indirect taxes) incomes gini). 

Several counter-intuitive findings stand out - regressive taxes in Chile and South Africa are equalizing or neutral; the marginal contribution of contributory social security old-age pensions is un-equalizing in Chile, Mexico and Peru. 

Given this heterogeneity, to the question of whether direct taxes or indirect taxes and direct transfers or in-kind transfers are more effective at lowering inequality or reducing poverty, one can only say that "it depends" on its interaction with the other fiscal policy instruments already in operation. 

The head start from the "accident of birth"

An excellent video and infographic captures how inequality gets baked into your life  from the accident of birth through massive 6000-hour early childhood learning gap,

By the time they reach 6th grade, middle class kids have likely spent 6,000 more hours learning than kids born into poverty. Learning time is a resource that is unequally distributed, and disadvantaged students suffer the consequences. While middle class children learn to read, create, persist, and problem-solve at home and through after-school and summer experiences, parents stressed by poverty are far less likely to be able to ensure those opportunities for their children.  

Update 1 (13/9/2014)

Nicholas Kristof and Sheryl WuDunn have this nice essay on the benefits of early childhood interventions and good parenting on long-term life outcomes of children.

India and South Asian Region

Mostly Economics points to an IMF working paper that examines the trends in inter-regional trade within South Asia and the impact of India's economic growth on her neighbours.

Government transfers from India, both grants and loans, especially to the smaller countries like Bhutan, Nepal, and Maldives are significant. However, the level of private sector integration - apart from remittance flows of migrant workers in India, especially of workers from Bangladesh, Maldives, and Nepal - has remained small. A major source of spill-over from India is in human capital formation arising from students studying in India, administrative capacity building, and Indian support for health and education sectors in these countries.

The estimation suggests that an increase in growth in India by 1 percentage point is correlated with a rise in growth in South Asian Countries (SAC) economies by 0.37 percentage points... (other studies) show that a 1 percentage point increase in GDP per capita growth in South Africa is correlated with a 0.5–0.7 percentage point rise in growth in the rest of Africa for the period 1980–99. They also find a 1 percentage point increase in China’s growth is correlated with an average of 0.5 percentage point increase in the growth of the rest of the world for the last two decades, with potentially larger effects for Asian countries.

India's trade, both as a share of global trade and in absolute volumes, has multiplied in the last decade and half. However, even as its trade with all emerging economies and regions have grown dramatically, its trade with its neighbours has remained stagnant.



The Southern African Customs Union (SACU) has aided the closer integration of the five regional economies and helped the smaller countries benefit from South Africa's economic vibrancy. In fact, since trade is tariff-free within the region, South Africa accounts for more than 80 percent of the imports of the smaller members of the South Africa Region (SAR). But they have been also able to build solid export markets outside South Africa. In contrast, the share of trade of India's SAARC neighbours has been very small. While the trade shares of Afghanistan and Pakistan are understandable, the relatively small share of trade that Sri Lanka and Bangladesh have with India is surprising.



Infrastructure, especially energy, railways, and telecommunications, offers exciting opportunities for co-operation between these economies. The smaller economies could benefit immensely from leveraging India's expertise in these sectors. While the Indian government will have to facilitate the strengthening of this mutually beneficial partnership with long-term loans and other forms of aid, India's private sector may have to seize the opportunities that are slowly emerging in these countries. Some form of strategic diplomacy to deepen such links is the need of the hour

Closer economic relationship will not only add another, probably critical, growth dimension to these economies, but also help alleviate the mistrust that characterize political relationships among countries in the region. For India, it will lay the foundation for smoother relationships in its "near abroad" so that its more ambitious global ambitions can be pursued.

Saving Pakistan from itself?

The time may have come (I suspect, it has been on us for atleast a year now) for a paradigm shift in India's foreign policy with Pakistan. We cannot afford to oppose Pakistani government, because perversely enough, the same Government may be our only remaining hope.

In an analogy reminiscent of our times, it is instructive to compare Pakistan today with the problem facing global financial institutions. It has been famously said that if one borrows Rs 100 from a bank, then they have a problem. However, if one were to borrow Rs 1 million from the bank, it is the bank that needs to be concerned! To extend the parallel - a politically destabilized Pakistan is its problem, but a civil war torn and failing Pakistan is also its neighbors problem!

The Taliban victory in Swat valley, Lahore bombing on Sri Lankan cricket team and the attack on the police school, all of them in quick succession, should be taken as the most definitive indicator that Pakistan has crossed the Rubicon that separates political instability from full-fledged civil war, one which marries the deadly cocktail of Jihadist, radical Islam and terrorism. It may not be off the mark to claim that Pakistan is now clearly the decisive battlefront in the "new clash of civilization" - the war within Islam itself, the one between moderates and radicals. Terrorism and violence have emerged as the primary political instruments of radical Islam, and nowhere is this on more prominent display than Pakistan's lawless northern frontiers bordering Afghanistan and increasingly within the country at large.

The momentum generated by the recent events, its attraction and effect magnified by the acrimonious squabble among the present ruling establishment, threatens to unleash a tsunami that could catapult the Al Qaeda backed militants to power in the country, directly or indirectly. In the circumstances, to rephrase Churchill, the present civilian government in Pakistan is the best alternative except for all others!

India's Pakistan policy has to be tailored keeping in mind this reality. Any political grandstanding within India to score political brownie points by flagellating anti-Pakistan rhetoric is bad for India. Given the circumstances, it would leave the Pakistani government with no alternative but to respond in kind, so as to score over its militant opponents. In fact, our only hope, and this remains a small sliver, is for the relatively moderate democratic establishment within Pakistan to prevail. Policies to weaken and isolate the moderate elements will only further boost the resurgent militants.

The Obama administration appears to have realized this, as is evident in its newly unveiled Afghan policy (full text here). In a classic carrot and stick diplomacy, the Obama administration seeks to gently incentivize the Pakistan government towards clamping down strongly on militancy in return for American aid. It hopes that the Pakistan government will consider this as its best chance of survival and respond positively, to the benefit of everyone concerned.

India would do well therefore to jettison its traditional foreign policy baggage of blanket opposition to US assistance for Pakistan, and support the Obama administration's initiative. This will involve abandoning the zero-sum prism through which India sees US-Pakistan and Indo-US relationships. In the present context, for those at Foggy Bottom, far from being a counter to neutralize India, Pakistan is a growing liability whose adverse effects need to be effectively contained.

A NYT op-ed makes the case for strategic communications in the fight against radical Islam, and advocates the setting up a Radio Free Swat Valley to mobilize mass support for the Sufi dimension of moderate Islam and rally against the excesses of radical Islam.

Update 1
NYT has an excellent article, Can Pakistan be governed?.