The Indian Government has asked the Pakistan Government to extradite some of the top extremists, including Dawood Ibrahim and the LeT chief Maulana Masood Azhar, wanted in India for terrorist attacks on Indian soil. The Pakistani Government has predictably enough refused. Both countries have taken public stances on these issues and effectively boxed themselves into two corners from where a modus vivendi appears remote. The public quibbling over the veracity of the evidence incriminating these extremists is clearly a smokescreen to paper over the reality. We have a classic foreign policy stalemate.
Let us analyze the stalemate. In the face of mounting public opposition and evidence linking the Mumbai attacks to Pakistan, Indian Government has little choice but to demand action against the perpetrators, now freely moving within Pakistan. The continuing strong influence of the army and the counter-intelligence agency ISI in the domestic political balance of power in the country, ensures that it will be impossible for any Pakistani Government to hand over these terrorists to India. In fact, given the long and dirty history of the army and ISI using these extremists to forment civil strife in India, it will be suicidal for any Pakistani establishment (now or later) to hand over them.
In other words, India wants action taken against these terrorists while Pakistan cannot afford to let India lay its hands on these terrorists. These are core realities that cannot be wished away. We have a classic game theoretic framework, where two agents are facing each other with each one expecting the other to blink first. India threatens to go to war if its demand is not met, while Pakistan refuses to hand over the extremists. Any solution has to be achieved keeping in mind this contextual framework.
The only solution appears to be one where Pakistan puts these extremists under trial and take strong action against them (including if need be execution), without handing over them to India. This could satisfy both countries, without compromising on their core public positions. If the Pakistani Government is reluctant to put them under trial within the country, then they can be tried in a third country (like US). The trial and punishment to these elements will also go a long way in helping Pakistan make a break with its unsavoury past.
Incidentally, the army and intelligence agencies within many countries have a tried and tested method for disposing off such past friends who have now become liabilities - bump them off! Such instances, where the trial of rogue elements whose testimony can create domestic political problems within a country, highlights the utility of a formal international mechanism to facilitate secret trials in third countries.
All of this ofcourse pre-supposes that the Pakistani Government is no longer involved in supporting extremist activities in India. If Pakistan is continuing to provide material support for terrorism on Indian soil (and if this is true, then we can safely conclude that the army and other rogue elements are running the Pakistani State and the civilian Government is a mere facade), then it is different matter and it will be naive for the Indian Government to expect that diplomacy will achieve the desired objective. A military solution (either directly or through the US) will be the only alternative left. The other alternative would be for a Noreiga-style abduction of these extremists from Pakistani soil by Indian intelligence agents!
As an afterthought, by prevaricating and delaying, India may have closed the option of airstrikes on targets in Pakistan. This option was open, without too much international outcry, only in the immediate aftermath of the terrorist attacks. A surgical strike in the first couple of days could have passed through without mch international opposition.
Friday, December 5, 2008
Thursday, December 4, 2008
What should be India's forex reserves?
Arvind Subramanian thinks that India should target $ 1 trillion so as to provide self-insurance to cushion against all possible outflows, including the external debts ran up by private sector. Accumulating this can be done only by running up current account surpluses, which in turn requires a competitive exchange rate. He writes,
"Maintaining a competitive exchange rate requires policy and structural reforms but it is rendered difficult, if not impossible, when there are large inflows of capital. Such inflows may have long-run benefits, but from a self-insurance perspective, they are a double whammy: they increase the vulnerability to crises but also make self-insurance against crises more difficult because competitive exchange rates are less easy to maintain. Self-insurance therefore requires a mercantilist slant to exchange rate policy and caution about capital account opening.
But self-insurance is not without costs even as insurance. This strategy will increase reliance on exports and foreign markets for sustaining growth. Export-to-GDP ratios will increase, but the flip side is that India's exports and growth will become more vulnerable to growth slowdowns in foreign markets. So, what a country gains from self-insurance on the swings (protection against financial contagion) it loses partly on the roundabouts (vulnerability to trade contagion). Policy-makers will have to trade-off these benefits and costs."
Poverty causes conflicts?
Ted Miguel and Ray Fisman claim that in Africa an income drop of 5% increases the risk of civil conflict in the following year to nearly 30% and suggests that aid agencies could help prevent war by targeting short-term emergency aid towards countries hard-hit by adverse commodity price movements or weather shocks. This is in keeping with their claim in their recently released book "Economic Gangsters: Corruption, Violence and the Poverty of Nations" that poverty (or more exactly decline in incomes and slide into greaetr deprivation and poverty) creates conditions attractive for civil strife and violence.
They write, "Drought and the resulting economic hardship turn out to matter a lot for understanding conflict in Africa. In work with co-authors Shanker Satyanath and Ernest Sergenti of NYU, we find that a 1% decline in national GDP increases the likelihood of civil conflict by about 2 percentage points. So an income drop of 5%—a large but altogether common deterioration in economic conditions, especially when the rains fail—increases the risk of civil conflict in the following year to nearly 30%, up from an already-high average probability of conflict in Africa of around 20% in normal rainfall years.
Anjali Bohlken and Sergenti also use rainfall shocks to show that communal riots erupt in India in the aftermath of economic downturns. Using coffee price movements as an economic shock to coffee-growing regions in Colombia, economists Oeindrila Dube and Juan Vargas report analogous findings: when farmers’ incomes collapse along with global coffee prices, local flare-ups in that country’s civil war follow. And in a related study in a sample of African countries, Antonio Ciccone and Markus Bruckner of Pompeu Fabra find that sudden export commodity price drops also make armed conflict more likely, especially in Africa’s less democratic countries."
Their prescription - rapid conflict prevention support - where "organisations like the World Bank and IMF would target short-term emergency aid towards countries hard-hit by adverse commodity price movements or weather shocks like drought, and would do so before famine or war break out. These emergency funds would be scaled back when prices stabilised or the rains returned."
They write, "Drought and the resulting economic hardship turn out to matter a lot for understanding conflict in Africa. In work with co-authors Shanker Satyanath and Ernest Sergenti of NYU, we find that a 1% decline in national GDP increases the likelihood of civil conflict by about 2 percentage points. So an income drop of 5%—a large but altogether common deterioration in economic conditions, especially when the rains fail—increases the risk of civil conflict in the following year to nearly 30%, up from an already-high average probability of conflict in Africa of around 20% in normal rainfall years.
Anjali Bohlken and Sergenti also use rainfall shocks to show that communal riots erupt in India in the aftermath of economic downturns. Using coffee price movements as an economic shock to coffee-growing regions in Colombia, economists Oeindrila Dube and Juan Vargas report analogous findings: when farmers’ incomes collapse along with global coffee prices, local flare-ups in that country’s civil war follow. And in a related study in a sample of African countries, Antonio Ciccone and Markus Bruckner of Pompeu Fabra find that sudden export commodity price drops also make armed conflict more likely, especially in Africa’s less democratic countries."
Their prescription - rapid conflict prevention support - where "organisations like the World Bank and IMF would target short-term emergency aid towards countries hard-hit by adverse commodity price movements or weather shocks like drought, and would do so before famine or war break out. These emergency funds would be scaled back when prices stabilised or the rains returned."
Wednesday, December 3, 2008
The price of greater national security?
The Bombay terrorist attacks have unleashed a "tsunami" of outrage against politicians. The media, especially the electronic visual ones, have led the way in inciting and riding a wave of popular anger against the perceived inability of politicians to assure security to citizens. I have several reservations about this simplistic and naive analysis of the massive challenge that national security is in the present times. It may be a classic example of barking down the wrong tree!
Any meaningful effort at addressing the national security issue has to go beyond the traditional prescriptions of newer security and intelligence institutions (revamped architecture), greater co-ordination among the intelligence agencies and regular police force, additional security personnel, better use of technology in intelligence gathering and policing etc. All these are important but not the most important of decisions to be made.
All the aforementioned can be done with some level of political commitment and making susbtantial investments, both of which may now be inevitable (given the scale of outrage and the electoral compulsion). However, there are limits to putting in place these traditional prescriptions, even with the best of efforts and political and bureaucratic commitment. Even in a US, shaken up by the 9/11 attacks, it has been well documented that co-ordination among intelligence agencies remains largely in paper. Turf wars among intelligence agencies is a common feature across the world. Further, the new Department of Homeland Security has been accused of being politicized and packed with cronies.
The challenge becomes even more immense in India with its huge population and geographical spread, and the massive and growing numbers of sources from which the dangers to national security arises. No amount of additional recruitments and investments in technology can remedy the reality that our first line of defence against public security remains de-motivated, unprofessional, stretched-out and corrupt. In many ways, the national security institutions and personnel will suffer from the same inevitable problems and handicaps (that of a developing civil society), that face the other institutions of the State in our country.
India has been accused of being a "soft state", where the Government, under pressure from its electoral compulsions, shy away from actions and legislations that are perceived to intrude into the liberties of the citizens in the name of security. This collective reluctance was prevalent in the American and European societies for a long time. The dramatic increase in Middle Eastern terrorism over the past two decades, climaxing in the 9/11 attacks, led to a realization that some amount of individual liberties will have to be sacrificed as a price for greater security. India stands at the same cross-roads today.
Are we ready for identity cards and citizen profiling that can help ensure effective monitoring of crime and criminals? Are we ready to be inconvenienced by periodic searches of our vehicles and even our properties? Are we ready to give up our privacy by letting big brother snoop on our telephone conversations, internet navigations, and even our bank accounts? Are we ready to pay the higer costs (by way of say, ticket prices) of enhanced security at our public strategic installations like airports and railway stations? Are we willing to amend our Criminal Procedure Code and other policing regulations and provide greater powers to the police while pursuing investigations? Are we willing to condone (or permit) occasions when the human rights of terrorists and extremists get violated - preventive detentions etc? Are all the different institutions of the State, including judiciary and media, willing to exercise the required self-restraint that is vital to the objective? Finally, is our civil society vibrant and cohesive enough to provide the demand side pressures that are necessary to sustain the implementation of such measures?
Most of these are prices which have to be paid by the same opinion makers and upper middle class who have now raised the banner of revolt against the political class. The recent history of our society and polity would suggest that these are troubling questions, which may not elicit affirmative answers. Interestingly, the poor are not likely to come in the way of such interventions as they are in any case being subjected to far more intrusive transgressions of their liberty by the various arms of the State.
Any meaningful effort at addressing the national security issue has to go beyond the traditional prescriptions of newer security and intelligence institutions (revamped architecture), greater co-ordination among the intelligence agencies and regular police force, additional security personnel, better use of technology in intelligence gathering and policing etc. All these are important but not the most important of decisions to be made.
All the aforementioned can be done with some level of political commitment and making susbtantial investments, both of which may now be inevitable (given the scale of outrage and the electoral compulsion). However, there are limits to putting in place these traditional prescriptions, even with the best of efforts and political and bureaucratic commitment. Even in a US, shaken up by the 9/11 attacks, it has been well documented that co-ordination among intelligence agencies remains largely in paper. Turf wars among intelligence agencies is a common feature across the world. Further, the new Department of Homeland Security has been accused of being politicized and packed with cronies.
The challenge becomes even more immense in India with its huge population and geographical spread, and the massive and growing numbers of sources from which the dangers to national security arises. No amount of additional recruitments and investments in technology can remedy the reality that our first line of defence against public security remains de-motivated, unprofessional, stretched-out and corrupt. In many ways, the national security institutions and personnel will suffer from the same inevitable problems and handicaps (that of a developing civil society), that face the other institutions of the State in our country.
India has been accused of being a "soft state", where the Government, under pressure from its electoral compulsions, shy away from actions and legislations that are perceived to intrude into the liberties of the citizens in the name of security. This collective reluctance was prevalent in the American and European societies for a long time. The dramatic increase in Middle Eastern terrorism over the past two decades, climaxing in the 9/11 attacks, led to a realization that some amount of individual liberties will have to be sacrificed as a price for greater security. India stands at the same cross-roads today.
Are we ready for identity cards and citizen profiling that can help ensure effective monitoring of crime and criminals? Are we ready to be inconvenienced by periodic searches of our vehicles and even our properties? Are we ready to give up our privacy by letting big brother snoop on our telephone conversations, internet navigations, and even our bank accounts? Are we ready to pay the higer costs (by way of say, ticket prices) of enhanced security at our public strategic installations like airports and railway stations? Are we willing to amend our Criminal Procedure Code and other policing regulations and provide greater powers to the police while pursuing investigations? Are we willing to condone (or permit) occasions when the human rights of terrorists and extremists get violated - preventive detentions etc? Are all the different institutions of the State, including judiciary and media, willing to exercise the required self-restraint that is vital to the objective? Finally, is our civil society vibrant and cohesive enough to provide the demand side pressures that are necessary to sustain the implementation of such measures?
Most of these are prices which have to be paid by the same opinion makers and upper middle class who have now raised the banner of revolt against the political class. The recent history of our society and polity would suggest that these are troubling questions, which may not elicit affirmative answers. Interestingly, the poor are not likely to come in the way of such interventions as they are in any case being subjected to far more intrusive transgressions of their liberty by the various arms of the State.
Tuesday, December 2, 2008
It is official - US is in recession
The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) formally announces that the US economy has been in recession since December 2007, making the present downturn already longer than the average for all recessions since World War II.
The NBER defines a "recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion."
While the Committee generally uses the two continuous quarters of declining real economic activity (GDP) as a thumb rule, it does not go by this yardstick alone. Interestingly, the Committee defines recession as "a period of diminishing activity rather than diminished activity".
The NBER defines a "recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion."
While the Committee generally uses the two continuous quarters of declining real economic activity (GDP) as a thumb rule, it does not go by this yardstick alone. Interestingly, the Committee defines recession as "a period of diminishing activity rather than diminished activity".
Consumption nation!
Stephen Roach puts the American consumption binge of the past two decades in perspective with the following set of statistics.
1. As a share of disposable income, the personal saving rate fell from 5.7 percent in early 1995 to nearly zero from 2005 to 2007.
2. According to Federal Reserve calculations, net equity extractions from United States homes rose from about 3 percent of disposable personal income in 2000 to nearly 9 percent in 2006.
3. Household debt hit a record 133 percent of disposable personal income by the end of 2007 — an enormous leap from average debt loads of 90 percent just a decade earlier.
4. A decade of excess consumption pushed consumer spending in the United States up to 72 percent of gross domestic product in 2007, a record for any large economy in the modern history of the world. Consumption growth averaged close to 4 percent annually over the past 14 years.
All the bailouts and fiscal stimulus will only be postponing the inevitable, unless Americans start saving and cut back on reliance on foreigners to finance their deficits. But ironically enough, with the economy plunging into a deep recession, this may not be the right time to start saving!
1. As a share of disposable income, the personal saving rate fell from 5.7 percent in early 1995 to nearly zero from 2005 to 2007.
2. According to Federal Reserve calculations, net equity extractions from United States homes rose from about 3 percent of disposable personal income in 2000 to nearly 9 percent in 2006.
3. Household debt hit a record 133 percent of disposable personal income by the end of 2007 — an enormous leap from average debt loads of 90 percent just a decade earlier.
4. A decade of excess consumption pushed consumer spending in the United States up to 72 percent of gross domestic product in 2007, a record for any large economy in the modern history of the world. Consumption growth averaged close to 4 percent annually over the past 14 years.
All the bailouts and fiscal stimulus will only be postponing the inevitable, unless Americans start saving and cut back on reliance on foreigners to finance their deficits. But ironically enough, with the economy plunging into a deep recession, this may not be the right time to start saving!
Monday, December 1, 2008
The news channels wars
I am on a holiday. Without access to reliable internet connection, blogging was naturally intermittent. However, the rivetting events of the past few days kept me tuned on to the television channels. A few observations from the coverage.
Even as the NSG commando were fighting the terrorists holed up inside the Taj, Trident and Nariman House, another battle was being fought outside by the television news media channels to capture the media space. While the commandos acquitted themseleves with distinction, the same cannot be said of the ultra-competitive media channels. To put it bluntly, the actions of large sections of television channels were disgraceful, insensitive and indecent. Many of them came out as undignified and greedy vultures swooping down on hapless victims of the tragedy.
I had been under the impression that a reporter was meant to report events and even illustrate possibilities, which were then to be analyzed by editors and external analysts. But the events in Mumbai saw reporters throwing all such distinctions to the wind, elevating themselves as self-appointed analysts and media pundits, spraying "wisdom" in all directions. Some of them had even become self-appointed flag-bearers of nationalism and patriotism.
Ironically enough, the anchors and editors who were vituperative in criticising (rightly so) the politicians for using the tragedy to score brownie points, were culpable of falling prey to the same disease. Many of them, with a few honourable exceptions, saw this as an one-time opportunity to make and enhance reputations, and flagellate as popular opinion makers. What spouted out as informed analysis was the routine denuciations of the usual suspects - Politicians and Pakistan - and simplified band-aid solutions to a complex challenge.
Traumatized victims (especially foreigners) released from the clutches of terrorists were hounded for soundbites (despite polite refusals), and politicians (like spokespersons of political parties) were accused (even abused) of being responsible for the tragedy in a manner bereft of any dignity. The middle class sentiments were sought to be aroused by playing to the galleries through a brazenly artificial exposition of the courage and bravery of the soldiers and commandos and public catharsis of the released victims and their relatives.
If there was poignancy, it certainly was not evoked by most of these journalists, including the superstar ones (who even professed to conveying poignancy), reporting on it. The ruthless and insensitive nosing for news was disgraceful, to say the least. If this was an attempt to whip up national pride and stand up for our armed forces, please, don't ask us to be subtle about it!
I vividly recollect a bewildered Chinese looking chef of the Taj, who was hardly able to scramble through the fusillade of questions hurled at him by one of our superstar television journalists, apart from sticking to the safe, if monotonous, "no" to whether he had seen or heard anything. Questions on issues as weighty as who was responsible for the terrorist attacks and how many were killed and injured (something which even the intelligence agencies of the government were yet to figure out!) were thrust on the poor man who had just escaped the hotel. The poor lad was relegated to the backstage, even without as much as a sympathetic remark for the difficult ordeal he had been through, and obvious obscurity for even "not having heard a bomb explosion".
This particular "superstar" also "distinguished" himself in his other reports by constantly bombarding his "victims" with his non-stop barrage of questions which appeared to have the objective of eliciting a particular answer than the correct answer. Some of the antics of our popular television news anchors were clearly cheap attempts at imitating western media personalities like John Simpson and Christian Amanpour.
The most garish omission obviously was the near total lack of sympathy or coverage of hapless victims, who being lesser mortals" lost their lives in the oblivion of the not so "iconic" CST. So skewed was the coverage that a viewer could be excused for not knowing that the largest number of casualties and biggest "human tragedy" took place at the crowded railway station.
The last straw that broke the camel's back was undoubtedly the injured claim on the last day on how "the shocked victims would hardly speak to the journalists who had been patiently waiting for them outside".
Even as the NSG commando were fighting the terrorists holed up inside the Taj, Trident and Nariman House, another battle was being fought outside by the television news media channels to capture the media space. While the commandos acquitted themseleves with distinction, the same cannot be said of the ultra-competitive media channels. To put it bluntly, the actions of large sections of television channels were disgraceful, insensitive and indecent. Many of them came out as undignified and greedy vultures swooping down on hapless victims of the tragedy.
I had been under the impression that a reporter was meant to report events and even illustrate possibilities, which were then to be analyzed by editors and external analysts. But the events in Mumbai saw reporters throwing all such distinctions to the wind, elevating themselves as self-appointed analysts and media pundits, spraying "wisdom" in all directions. Some of them had even become self-appointed flag-bearers of nationalism and patriotism.
Ironically enough, the anchors and editors who were vituperative in criticising (rightly so) the politicians for using the tragedy to score brownie points, were culpable of falling prey to the same disease. Many of them, with a few honourable exceptions, saw this as an one-time opportunity to make and enhance reputations, and flagellate as popular opinion makers. What spouted out as informed analysis was the routine denuciations of the usual suspects - Politicians and Pakistan - and simplified band-aid solutions to a complex challenge.
Traumatized victims (especially foreigners) released from the clutches of terrorists were hounded for soundbites (despite polite refusals), and politicians (like spokespersons of political parties) were accused (even abused) of being responsible for the tragedy in a manner bereft of any dignity. The middle class sentiments were sought to be aroused by playing to the galleries through a brazenly artificial exposition of the courage and bravery of the soldiers and commandos and public catharsis of the released victims and their relatives.
If there was poignancy, it certainly was not evoked by most of these journalists, including the superstar ones (who even professed to conveying poignancy), reporting on it. The ruthless and insensitive nosing for news was disgraceful, to say the least. If this was an attempt to whip up national pride and stand up for our armed forces, please, don't ask us to be subtle about it!
I vividly recollect a bewildered Chinese looking chef of the Taj, who was hardly able to scramble through the fusillade of questions hurled at him by one of our superstar television journalists, apart from sticking to the safe, if monotonous, "no" to whether he had seen or heard anything. Questions on issues as weighty as who was responsible for the terrorist attacks and how many were killed and injured (something which even the intelligence agencies of the government were yet to figure out!) were thrust on the poor man who had just escaped the hotel. The poor lad was relegated to the backstage, even without as much as a sympathetic remark for the difficult ordeal he had been through, and obvious obscurity for even "not having heard a bomb explosion".
This particular "superstar" also "distinguished" himself in his other reports by constantly bombarding his "victims" with his non-stop barrage of questions which appeared to have the objective of eliciting a particular answer than the correct answer. Some of the antics of our popular television news anchors were clearly cheap attempts at imitating western media personalities like John Simpson and Christian Amanpour.
The most garish omission obviously was the near total lack of sympathy or coverage of hapless victims, who being lesser mortals" lost their lives in the oblivion of the not so "iconic" CST. So skewed was the coverage that a viewer could be excused for not knowing that the largest number of casualties and biggest "human tragedy" took place at the crowded railway station.
The last straw that broke the camel's back was undoubtedly the injured claim on the last day on how "the shocked victims would hardly speak to the journalists who had been patiently waiting for them outside".
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