Trading with Pakistan makes sense

Two separate op-eds have been published by Sushant Singh (editor of Pragati) and Vikram Sood (former head of RAW) in the last month in the same paper, Mid Day, arguing basically the same thing. Namely, trading with Pakistan, a country that indeed still supports Islamist terrorists against India, does not make any – or at any rate a lot of – sense.

I disagree and here is a one-line summary of my disagreement:  Moving towards free trade with Pakistan will not solve border disputes or end religious hatred, but trade does make those two outcomes more likely on the margin without hurting India in any realistic scenario.  

(Note: "on the margin" in both bold and italics. Keep that phrase in mind. Nitin similarly argues that the benefits could be large whereas the proposal only "involves modest risks and is reversible". Dr Mahbubhani also made a similar case, although I think he is more optimistic than I am)

Now, Sushant does concede towards the end of his piece "Yes, bilateral trade is the only long-term structural solution for lasting peace between India and Pakistan". I agree, and this post will not repeat the generic benefits of free-trade although I have some sympathy for the greatest free trade advocate alive (Dr Jagdish Bhagwati) when he writes "it is worth recalling what Pierre-Joseph Proudhon reportedly told the Russian intellectual Alexander Herzen: “And do you imagine that once a thing has been said, it is enough?….It has to be dinned into people, it has to be repeated over and over again.”

But back to the specific case of India-Pak trade. Sushant, after conceding that we must trade in the long-term, insists that we only start down that road after the Pakistani military-jehadi complex has been dismantled. The question naturally arises how exactly will the said complex be destroyed? Destroying it from outside seems infeasible as of now – this is not the Second World War, and Pakistan is not a defeated Japan – in that case the country transformed was attacked with nuclear weapons, here the polity to be ostensibly transformed has nuclear weapons.

Maybe the "destruction" of the Pakistani jihadi-military establishment in mind of these authors is a longer-term, more sophisticated combination of diplomacy and covert operations that I do not grasp – and maybe that will work, but what is still not clear is why not trade till then? It is not that the rest of the world is not trading with Pakistan because of significant sanctions – and India's refusal to trade would constitute some kind of tipping point in international pressure against their army. That scenario is neither true nor realistic in the near future.

Next consider this: the idea of "trade after terrorism solved", is mirrored west of Wagah by people like Hafiz Saeed who say (disingenuously) "trade after Kashmir solved", and this is not a co-incidence. He understands that trade with India could reduce Pakistan to a, horror of horrors, "mandi" (a marketplace). The "unbearable lightness" of being peaceful and prosperous haunts Islamists. The ennui that the end of history implies scares them; they just want to continue the clash of civilizations.

As a liberal Pakistani columnist notes, "The kind of dumping he (Saeed) fears, is already done by China. But he isn’t interested in that. Secondly Pakistan’s food inflation is the highest in South Asia and cheaper food items can be a boon. And thirdly, Pakistanis will also sell products in India and bring back profits." She proceeds to quote Tom. G. Palmer, a Cato Institute academic and liberal economist "Trade is like conversation. The whole point of trading is to get things that others can make more cheaply. It creates an incentive on both sides of the border to find common ground for peace. Nations that trade are less likely to go at war. In fact, the bigger the bulk of trade, fewer the chances of a conflict”

Once again, those opposed to trade do not have to fully agree with Palmer, but they do have to clearly explain how instead it harms India? Then, Sushant and Mr. Sood both mention bilateral trade deficits in their pieces. As the latter writes

…trade imbalances such as ours with China and the content of the trade have inbuilt characteristics of a future conflict.

Unfortunately, a bilateral trade deficit is one of the most misunderstood economic concepts, and the venerated authors seem to have fallen for that misunderstanding. What matters is a country's total (not bilateral) trade/current account deficit, and even that is not as important as it sometimes seems if a country has a floating currency and a decent FDI/FII ratio (But let us for a moment concede that the total deficit does matter a lot for I do not want to get very technical here)

Then, Mr Sood goes on to write

Wars have been fought globally over trade and resources for centuries and continue till today" (emphasis mine)

Let us leave out the "resource" bit, and focus on the "trade" part. Where are wars being fought in the name of trade today? I am sure there could be a couple of recent cases tangentially relevant, but how could India and Pakistan be more likely to fight a war because of trade? Or India-China, China-America, Taiwan-China etc? Mr. Sood seems to be confusing the times of imperialism when countries were forced to export resources and import finished goods with mostly voluntary trade of today's times. This confusion, as a side note, unfortunately also lead a free India's first leaders towards autarky.

And then of course the classic strawman:

The current mantra is that trade between India and Pakistan is the magic key that will transform India-Pakistan relations and lead to eternal peace.

No significant group of serious people believes that. This is, I am sorry to say, just lazy analysis. We are all guilty of it from time to time, but it had to be pointed out here. As I wrote at the beginning, deeper trade engagements are likely to help at the margin. That is, things could well be worse tomorrow, yet they would still be less worse off as compared to no trade at all.

Mr. Sood continues

The only difference today is that Pakistan, is in the middle of an economic slump. It faces an acute power and energy shortage, a low growth rate and rising deficit, high inflation and low investment, would want to temporarily shed the Kashmir-first slogan and get over its economic plight before reverting to form…

Very much possible, indeed likely. So what? They are looking after their interests as they see it. We must look at ours. Yes, the Pakistani military has a strong control over the local economy – and significant trade with India can only weaken that control, not strengthen it and that is in our interests. Trade looks only at price and quality and I would posit that a more open market would find out that the Pakistani generals are not very good at multi-tasking.

Regarding the various modalities, Mr. Sood makes a valid point:

What would happen to the visa regime – security related issues relating to destinations, frequency, ports of entry and exit, mode of travel…

These issues must be handled gradually and carefully. But one must also realize that not all terrorists enter India legally anyway. Yes, their reconnaissance supporters may do, but to prevent that we have already made our visa procedures so draconian for everybody that we are losing out on executives, entrepreneurs, students and volunteers of all nationalities. Port security, visa system has to be continuously upgraded by India anyway, and if required we can do this unilaterally.

India will not be required to resign to terrorism because of trade any more than whatever is already true. At worst, these issues may not get resolved at all as the above authors say – but they certainly will not get any worse. On, the other hand there is absolutely no harm in encouraging a group within Pakistan who do not mind seeing their country as a prosperous, peaceful and secure "mandi". If the aim of the trade-with-Pak skeptics was to douse any potential optimism, I am with them. But if their voices slow down the trade liberalization process itself, I am not. I am afraid they have overstepped from the former to the latter.

What matters is debt service to GDP ratio, and its sustainability

In this Mint piece, the authors rightly say that the Central debt to GDP ratio (and to an even greater level the overall debt to GDP ratio) rose under the NDA and fell under the UPA. While the 2012 numbers (numbers towards the right end in the below chart will be proven far too sanguine within a few days), the underlying point is indeed true. How is this so? Has not the UPA been fiscally irresponsible. Indeed, it has been. Let us crack this mystery.

Where is the money coming from under the UPA for the falling debt to GDP ratio? If you tax your citizens almost twice what you officially say you do (govt's official tax ratio is a bit above 10 percent of GDP, but inflation – a very real tax – is also almost at 10 percent) then yes the debt will come down proportionately. During NDA's time both growth and inflation were lower – therefore, nominal growth of GDP was much lower (and the citizens were effectively taxed lower too). Now, both the numbers have been higher.

Hence nominal growth rate fo 15 percent has been the norm in the last few years. If economy goes from 100 to 115-116, and debt from 70 to 78-79 as has been happening (including state/oil deficits etc), then yes your debt to GDP ratio will come down by about two percentage points every year. Nothing to pat the government for. They are just taxing – excuse me, inflating away – our wealth. In other words, if your (nominal, not real) income rises faster than your overall (nominal, not real) debt such that your debt to income ratio actually falls – that is not exactly fiscal doomsday.

Yes, but if Sharma and Mehra want to be even more accurate – what matters is not debt to income ratio, but debt service to income ratio, and its sustainability. That is, what percentage of your annual income goes away in interest payments. If interest rates fall in a sustainable manner (as opposed to "temporarily" being driven to fall such by central banks) by enough of a margin, that a higher debt to income ratio means a lower debt service to income ratio, such a state of affairs is indeed welcome.

While the debt to GDP ratio was around 3/4ths say during NDA times, now its around 2/3rd. But by 2003-04 ,the 10 year bond rate was 5 percent, slightly more than half than of today (graph below). Moreover, the yield curve is right now inverted (that is the short term yields are even higher than the long-term ones, around 9 and 9 percent respectively – and a big chunk of India's debt will roll over before the next 10 years)

Therefore, interest payments as a fraction of the economy was lower then. And, this without significant quantitative easing (which the West is doing, and now the RBI through OMOs or Open Market Operations at  a smaller level – and any printing-induced lower rates cannot be sustainable for long, especially if the name of your country does not being with U and ends with A – and even then as they say "nothing lasts for ever")

To conclude, whatever you spend you will take it out of the populace through taxes, borrowing, inflation, regulatory fiat etc. What matters is what you do with the expenditure. Here the article is even more disappointing. The best way remains long-gestation infra spending in India's case (as opposed to say China, where enough of this has already taken place). The bond markets in India, despite not being very developed, have their own mind and are forward-looking. They reduced the long-term yields under NDA then while have increased it under UPA as is very clear from below. Hence, to repeat, as a proportion of the economy the NDA was paying lesser in interest payments than the UPA.

The NDA also managed to "charge" us less of an inflation tax (though not by much), and taking tough reforms (privatization) and infra-spending without having a 1991 or 2008 moment (although to be fair to the UPA, the nuclear tests and Kargil war in 98/99 did pressure the NDA somewhat to reform). The UPA just benefited from these reforms and infra investments, and a global liquidity boom in the middle of the last decade. To imply, and I am not saying the authors of the Mint piece necessarily implied that, the UPA 1 and 2's fiscal and economic management has been better than the NDA is simply not true.

 

Hindutva: Some personal thoughts.

I have been receiving a lot of feedback on my article against Hindutva in last month’s Pragati. Not just through blogs and social media, but also through emails – positive and negative. So I am pasting here a somewhat haphazard, long and personal email reply I sent to a gentleman I respect a lot (edited to protect his privacy, and also edited so as to not be too politically incorrect).

Dear …..

Let me tell you about one of my closest friends. He hails from an orthodox Jain family. And he does not like to be called a Hindu. Now he loves the usual Indian icons, his mother wears beautiful sarees and his father looks and talks like any other Hindu gentleman. But still my friend is indeed offended by the BJP not recognizing Jainism as a separate religion in Gujarat etc. Similarly, two of my other very, very dear friends are a Malayali Christian and a half-Kashmiri Muslim. But let us concentrate on the Jain friend for now – as Jains, Sikhs, Parsis and Buddhists are not perceived by many Hindutva-waadis as, to put it bluntly, “hostile”.

Now, my friend may be right or wrong. Maybe all Jains are Hindus, and if it makes him feel better maybe all Hindus are Jains! Maybe if the state did not interfere in our education, temples through quotas, subsidies, regulations (and indeed the census) – then this distinction of Hindu-Jain could have been irrelevant and a lot less controversial.Yet the basic incontrovertible fact remains that he is a proud Indian, and does not like being called a Hindu.

As you know very well, my political sympathies lie with the BJP. But my ultimate loyalty is to India and the idea of India – an idea which is for peace, pluralism, and yes unabashedly for prosperity too. I think the Hindutva critique of the fake or pseudo secularism of the Congress/JNU crowd has been very well-received and is a critique that I fully support. One need not look beyond the recent antics of Mr. Khurshid and Mr. Gandhi Jr. to understand and recognize this. But I believe that Hindutva is not the answer. Yes, it is true that intellectuals that I have enormous respect for (like Mr. VS Naipaul and the late Mr. Nirad Chaudhuri) have supported some of the most controversial aspects of the Hindu Nationalist movement – the Ayodhya movement, in this case.

I too understand that sentiment. One need not be a parochial Hindu to feel repulsed by what happened at Ayodhya, Somnath etc over the centuries. Being human is enough. Indeed Ataturk got Turkey’s most important mosque (formerly Hagia Sophia, the Christian basilica) converted into a museum because religion must signify mutual co-existence and not superiority – something that some religions have a tough time grasping. But even here – in the Ayodhya case – what we have is above all a property dispute in a strict legal sense, and not a civilizational/religious dispute.

You and I know that “Hindutva” at its best (and this is important, “at its best”) is actually supportive of  liberal nationalism and cultural (non-denominational) pride. It is not about slapping professors, or beating women, or killing minorities. My question then is – why call it Hindutva? Why not, say, Bharatiyata? I know this question is not new – but I am yet to witness a convincing answer to it.

Is it just a semantic ego issue (I almost typed Semitic ego issue, and that may have been a suitable Freudian slip). I do not want to expand on the India-Hindu conflation point, as I have written at length on this aspect in my Pragati article.

(I have also written another Pragati article earlier – “The Sanctimony of Statists” about liberating Hindu temples, and all places of worship, from the Indian state. You may wish to peruse that here http://pragati.nationalinterest.in/2011/08/the-sanctimony-of-statists/ I have also written about the liberal part of BJP’s agenda in Minthttp://www.livemint.com/2010/01/13200318/The-liberalism-in-BJP8217s.html ).

The question now is do we have the courage to consign this divisive term “Hindutva” to history?

Tony Blair had to overtly drop references to socialism, a hugely emotional issue for the Labor Party – but he (and Gordon Brown, if not UK itself eventually) gained from such pragmatism. Bill Clinton too explicitly accepted markets and welfare reduction. The Christian Democrats (the religious center-left in continental Europe; I am thinking of the Swadeshi/Saffron Left movement as I type this) has also accepted markets and de-emphasized Christianity.

The BJP has given very good governance (relatively speaking, of course) at the Center, and continues to do so in the states. Muslims and Christians benefit in an economically rising Gujarat, while their co-religionists suffer in my state of socialist Bengal – a state that used to be the vanguard of progress in India. So, why not drop the term Hindutva and openly stand for federalism, freedom and fraternity? (We can stand for “faith and family” too – but that should be for any faith, not a specific faith.)

Many BJP leaders know this and understand this in their hearts – Gujarat’s inclusive as well as rapid growth under Modi post-2002 show this. Jaitley’s “wikileaks” (though partially misrepresented in the media) confirm this. Vajpayeeji of course was a genuine moderate. LK Advani’s and Jaswant Singh’s measured praise of Jinnah seal the issue.

We have the opportunity to make a bold stand. An historic opportunity akin to, forgive an American metaphor too many, Obama’s race speech in 2008. We must be bold – Tabligh 2.0 and Word of God 2.0 must be met with Shuddhi 2.0. It should be a battle of ideas, volunteer strength, financial capacity, and sheer determination. Then we can go out and shout at the top of our voices to ban religious quotas and subsidies and minority appeasement – whether in a St Stephens or in a UP/AP clerical job. Then we can be consistent – we support free conversions, but on a level playing field.

Similarly on issues of free speech. We can shout about Rushdie and Nasreen if we do not have skeletons in our closet. I have met ABVP members who openly boast about slapping Professor X and Student Y. Yes, the Ram Sena may have fielded candidates against the BJP – and yes, the media is hypocritical, biased and bought off – but the larger movement still has repeatedly tried to become India’s moral vanguard. And that is simply not acceptable to a New India. As I wrote in a blogpost ( http://swaraj.nationalinterest.in/2011/06/17/whither-the-hindu-right/ ), “Nagpur, we have a problem”

There is indeed a clash of civilizations – but the answer to that is a tough, strong but small and secular state. Tough against terrorism, violently coercive conversions, browbeating of authors, loudspeakers that cross the decibel limits, etc. Most Hindus do not want a theocracy. We all know that. Indeed, it is tough to know what a Hindu theocracy would be. Kill Hindus who like beef? The very idea is laughable. Yes, we just do not like double standards. Do not appreciate the pseudo-seculars and the fake liberals.

But why do we oppose the genuine secular and liberal activists and writers (secular and liberal here in the classical European sense)? Young people who do not follow politics want to be labeled liberal and secular increasingly – why do we give up the terms without a fight?

You are absolutely right – Marxists and Nehruvians have sought to label Hindutva as Brahmanical, fascist etc. Anything that divides and confuses Hindus, basically. They have labeled it anti-women and anti-modernity. But the problem is, and here is where I perhaps disagree, that on the ground they are indeed partially right (And one must give credit to Nehru for reforming Hindu personal laws – something that was opposed by the Jan Sangh, although of course Nehru did not have the courage to go the whole distance when it came to other communities)

To conclude, the high metaphysics of Hindutva maybe at its core libertarian, but that matters little if its followers are uncouth goons.

You are also factually correct, if not politically correct, that it is because of Hinduism that India is secular, not because of Nehru’s epiphany. MJ Akbar acknowledges this and I have mentioned this in my articles. Moreover, Hindutva has to its credit strived to be against the caste-system – and this is also deliberately misrepresented as you write (Speaking of castes, while I am against caste quotas – there is a difference between caste and religious quotas. You cannot change your caste, but you can change your or at least your to be child’s religion. Hence religious quotas are indeed more dangerous and illiberal – as they end up becoming a de facto jaziya).

At the end of the day, the biggest problem in this country – our biggest shame – is poverty. That will go away only and only by free-market reforms. That, along with democratic decentralization and good governance – has to be BJP’s agenda. Being against appeasement of any community (minority or majority) is something we must of course always stand against, and we must also take pride in our history and culture. But the latter is more the task of society, not the state (A reading of “Common Sense” by Paine would help our leaders a lot, if I may be arrogant enough to say so)

Let us not underestimate the maturity of our populace – no matter how economically unprivileged and bereft of formal education they are.  I fundamentally agree with almost everything you have written. But I believe we must take the logical next step, and get rid of this semantic albatross.

I remain very sanguine about the future of Hinduism. It has suffered a lot worse. What I am impatient about is our country’s poverty. I want to see it extinct before I die.
Regards, Harsh.

On Red Toryism

My good online friend, Prasanna, had earlier sent me these essays by Phillip Blond. These were my first thoughts (edited from our email conversation) based on a quick read of the above essays:

Free markets are not incompatible with a communitarian ethic. The actual source of hyper-individualization today is the left’s welfare state. Why have as many kids as earlier in western societies when you have social security ? Why stay in a joint family when the NREGA gives work per house in every Indian village (irrespective of whether a joint family or nuclear family lives there)

In so far as “Red Toryism” calls for a “Big Society” based on not just markets but decentralization and families too, this is correct. Indeed, the atomization complaint can seem to have some “street-cred” what with Mrs. Thatcher having infamously said (paraphrasing) “There is no such thing as society”.

Although of course the context of Thatcher’s remarks was that the constant invoking of society as this abstract entity that should help and redistribute took away from individual responsibility because this invoking happened not through NGOs and religious platforms but in the sphere of politics where any redistribution is perforce by force.

When communitarian-ism is voluntary and not forced, then the real benefits of a big society start to pour in. Maybe I should not provoke that Hindu by deliberately killing cows in the open if many charitable non-denominational schools are funded by a lot of Hindu (if agnostic) billionaires, and not by the state? Maybe I should not burn the Quran in my locality if the local genuinely decentralized school’s PTA has a higher-than-national-average of Muslim parents? Now, of course buring books and eating animals will remain my “right”. But my incentives will now change.

But guarantee welfare benefits along with liberal individual rights and you have the inevitable fraying of society. The sexual revolution need not be subtle anymore, it can now indeed be about “summers of love”. Why should it be otherwise? The state guarantees my healthcare and education till I am (say) 25 and then there are employment benefits anyway! No restraints in the name of (a very predictable, monotonous and conforming) individualism.

A better way to understand how terribly misguided the critique of Red Tories (or Compassionate Conservatives, Christian Socialists or Hindu Swadeshi supporters) is to look at the writings of two individuals – the American Paine and the Frenchman Tocqueville.

Paine categorically differentiated between state and society. Tocqueville noticed that the grassroots and non-redistributive democracy of America actually contributed to voluntary associations unheard of in even then statist France. In India, a Gurumurthy or indeed even an Advani – when they say they reject the absolutism of both the market and state, they are simply repeating a canard. It is a false choice for anybody at this level of intellectual discussion.

Markets need a very strong state to function. But a very limited state too.

We need many police officers internally and many army officers externally. Pakistan is not getting a lot of FDI despite having less business regulations than India according to some reports – for obvious reasons. Then we need that brilliant statist creation – quick and fair courts. My family may prefers business deals only within the North Indian Agarwal Bania community not because we dislike other communities but what if that Tamil dude reneges on our verbal or indeed written contract? Within our community, we can name and shame. What do I do about somebody in Chennai or Ludhiana? A good legal system supports accretion of social capital and free market efficiency.

Finally, to talk about class monopolies and inequalities is neither here or not. Yes a static snapshot will reveal great stratification, but what is infinitely more important is a dynamic observation where class mobility and opportunity is real. And even if normatively we agree on the same level of state benefits, much better to provide them through choice competition and decentralization. Red Tories or their equivalent may not object to this in principle, but in practice their instinctive aversion to markets can lead them to oppose, say, privatizing the social security system in India through the NPS (Yashwant Sinha’s call for guaranteeing returns recently in NPS!) and similar opposition in the West etc.

Indeed, I would highly recommend books by Theodore Dalrymple – especially “Life at the Bottom” to understand why Britain and other countries need less communitarianism of the statist variety. The book is sharp, sad and funny. Hands down one of my best reads. For a more 101 overview of the issue in the British context – more data-intensive, but less inspiring – read “The Welfare state we are in”.

India’s over-spending

This is the latest piece in Mint (by myself and Rajeev Mantri)

India’s road to fiscal ruin
 
The government’s bacchanalian populism has resulted in the destruction of public finances

“My appetite is infinite and my greed is more.”

These words were uttered not by a banker or CEO from the top 1% of the income pyramid, but by finance minister Pranab Mukherjee. He was exhorting his officials to ramp up tax collection, according to a June report by the Press Trust of India. His government’s addiction to ever-increasing spending is decimating the nation’s balance sheet. India now is on the dangerous trajectory of persistently high inflation, increasing taxes and slowing growth.

The combined central and state receipts in 2004-05 were around Rs. 5.87 trillion , whereas those for 2009-10 are nearly twice as much at Rs. 11.83 trillion. Yet government spending has more than doubled from Rs. 8.34 trillion to Rs18.30 trillion. The Union government is more at fault here because while its earmarked share of total receipts grew more slowly, central spending actually increased faster.

As a share of gross domestic product (GDP), net central taxes under the United Progressive Alliance has hovered around 7% whereas the state’s revenues (through grants and local revenues) has been around 8% – for a combined tax-to-GDP ratio of 15%. But combined spending has gone from around a fifth to a fourth of the economy, resulting in a consolidated deficit of around 10%.

Fertilizer subsidies have more than tripled from Rs. 16,000 crore to Rs. 52,000 crore. Pension and other retirement benefits increased from Rs. 55,000 crore to Rs.132,000 crore. Yet annual disinvestment increased haphazardly from Rs.17,000 crore in 2003-04 to just Rs. 26,000 crore in 2009-10, despite rapid development of the capital markets and the capacity of the private sector to absorb state assets over this period.

In the midst of this runaway spending, there is only one major sector where allocations haven’t increased much – defence services. Expenditure went up from…

For more, read here

Errata: Defense numbers should be Rs. 76,000 cr to Rs. 136,000 cr.

India’s over-regulation

This is the second piece Rajeev and I penned for our new column in Mint

Unshackling India’s domestic capital base
The fact that the India story is simultaneously losing its sheen both at home and abroad compounds the need for worry – if foreign investors turn sour on the India story and India’s blue-chip companies start focusing on global expansion, how will India find domestic investment needed to sustain economic growth?

India’s economic growth has been achieved on the back of sustained investment and improved capital allocation in the economy made possible by structural reforms. However, we are once again approaching a scenario where India may be heading into an investment famine, which would then translate into sub-par growth.

But India is being starved for investment just when several domestic institutions have significant investible capital but are barred from deploying this capital in the economy as equity investors. Recently, HDFC chairman Deepak Parekh said that thanks to lack of clarity on the policy front and poor governance, India’s blue chip corporations are all looking to invest abroad. Mr Parekh has also remarked that India is unable to come up with world-beating products because of the paucity of risk capital for investment in innovation.

The fact that the India story is simultaneously losing its sheen both at home and abroad compounds the need for worry – if foreign investors turn sour on the India story and India’s blue-chip companies start focusing on global expansion, how will India find domestic investment needed to sustain economic growth?

For the rest of the piece, continue here

India’s over-sized cabinet

In September, Rajeev Mantri and I started a (as of now, fortnightly) column in Mint.

Here was the first piece:

Why does India have 77 Union ministers?
India needs a leaner government with fewer ministries to dramatically curb corruption and make governance more efficient

Food, steel, communications, aviation, agriculture, petroleum, renewable energy, shipping, chemicals, tourism, coal, power, science & technology, broadcasting, textiles, mining, and housing.

These are not just some of the fast-growing sectors in the Indian economy, but also the names of Union government ministries. Each has its own budget, its own minister, and often a junior minister too. More importantly, in a narrow bid to protect its turf, every ministry becomes the biggest impediment to reform in that sector. Worse, government-granted monopolies in key sectors such as rail transport and coal mining are an unseen but substantial drag on the growth of the economy.

Major public sector enterprises such as Nacil (that owns Air India), HPCL and BPCL have been running up massive losses and are functioning only because of continuous taxpayer support. The only long-term, fiscally-sustainable solution is for the government to completely divest its shareholding in these companies and transfer management control to the private sector. But this is easier said than done and requires strong political will.

During the BJP-NDA government, attempts made to privatize the three entities were scuttled for one reason or another. In 2001, Prime Minister AB Vajpayee went to the extent of shifting coalition partner JD(U)’s chief Sharad Yadav out of the Civil Aviation Ministry because he was against privatization. The government came close to divesting Air India to a Tata-Singapore Airlines group for about Rs.12,000 crore, but the transaction was shelved when the global economic environment changed after the bursting of the dot-com bubble. In 2003, civil society activist Prashant Bhushan filed a PIL against the divestment of BPCL and HPCL in the Supreme Court, which directed the government to obtain parliamentary approval for the policy, thereby stalling the privatization of the oil PSUs.

Since then, just these three companies have absorbed over Rs. 2.25 lac crore in taxpayer funds. This isn’t a notional loss, and exceeds even some of the annual estimates of losses caused by government corruption. It’s also unclear how much more money these organizations would require to continue operating in the coming years. Besides being a huge drain on public money, these public assets are subject to abuse too – petrol pumps and gas agencies are doled out to acolytes by powerful politicians, and Air India flights have been known to be delayed at the whim of government officials.

For the rest of the piece, continue here

Most Indians, irrespective of political or economic ideology, would support some combination of spending more on social welfare and cutting taxes for the middle class instead of funding white elephants like Air India, especially when umpteen private airlines already ply our domestic and foreign routes.

Dowry: Decriminalizing X != Supporting X

Having just been labeled a "pro-dowry activist" (ahem) by @Vidyut, I am forced to come out of my blogging shell. Here is her ostensible set of reasons why dowry should be criminalized. I had a brief twitter "conversation" with Vidyut yesterday in which she responded to my saying that dowry should not be prosecuted so long as there is no violence with a "NO". As a general rule, you should avoid arguing with people who are far too liberal with caps locks, but the more marginalized one's position the greater the potential effect of one's writings.

Of course, I write this very aware that pathos will almost invariably win over logos for most readers in such a sensitive debate (and even the ethos part of that Greek trio of persuasive powers is not in my favor on this issue – my XY chromosomes unfortunately assure that). I also do not know the blogger's name, so I shall refer to the blogger by her twitter handle – Vidyut.

Vidyut starts off her piece with this assertion:

Dowry is violence.

Now, I am personally not in favor of dowry. A man marrying for money tells me that he has shown the proverbial white flag when it comes to (a) finding love, (b) earning enough for himself and his to-be family. I can only imagine a few things sadder than that.

But, I do not know how to do a hop, a skip, and a jump from that to saying dowry per se is violence or coercion! Well, if you take money, gifts or jewelry from the parents of the girls – the act of dowry has been committed and no violence has been necessarily committed. Later on in the piece, Ms. Vidyut declares even "honor killings" to be voluntary! What part of a murder is voluntary escapes me. Therefore, we must with great sadness declare Ms. Vidyut's very first statement to be objectively false.

She then says:

Essentially, dowry is a business deal around the marriage of two individuals

Indeed. And as mentioned earlier, I find such deals to be just plain sad. But I am also very sad about infidelity, the burkha system, alcohol abuse and many other issues. That does not mean that a person's right to cheat, cover, drink and so on should be criminalized. I wish such things never happened – but people voluntarily (happily or not) – commit these actions every day. Therefore, again we are left with the question why should the said deal be criminalized. No answers so far. And if the argument is that something should be criminalized because it is criminalized, people need to go back to logic school.

Then she writes how dowry is related to constraining women's choices and female feticide. Correct on both counts. But the problem here is not dowry, that is just a symptom. The problem is that women have been, and unfortunately to some extent still are, (as she rightly mentions) – considered commodities.

But how will banning dowry (even if you ban it a bit more effectively, as her less self-righteous but still not very rigorous post here gives ideas for) change anything substantial on the ground? Let us not forget that dowry has been banned in India since 1961 (as she herself notices) – what has changed in half a century? Not a lot unfortunately.

You cannot effectively ban dowry if the demand for that system persists. With so much black money around, exchanging cash is very doable but even if the bride's family disproportionately pays for the marriage costs – that is also a form of dowry. Stree-dhan and woman's bank accounts are definitely more preferable, but if the argument is being made that violence is far more common than is reported (this could definitely be the case), then even stree-dhan and bank accounts are not safe from "poaching".

Public awareness and more "stings" are all very good, but they can only work to a point. Latin American druglords now use submarines and militia-gangs to reach and penetrate the United States; if richer and older governments cannot social-engineer despite much more resources, can our government do so? No. But yes, laws do have unintended consequences. Section 498a has been declared as "legal terrorism" by the Supreme Court itself in Sushil Kumar Sharma vs Union of India.

More anecdotally (since Vidyut has not deigned to provide us facts either) I have not heard of one dowry violence case in my extended upper-middle class family and friends'circle living in Kolkata, Delhi and Mumbai – but I have heard of many cases in which wives in marriages at the verge of breakdown (for other reasons) have used various old and new anti-dowry laws to threaten to put her in-laws in jail unless they gave her X amount of money. Feminists may feel frissons of schaudenfreude here, and I share their feeling to an extent, but surely this is not what they intended – poor, uneducated, rural wives still cannot be effectively helped whereas their richer, educated, urban counterparts who are non-victims get to abuse entire families (including other women like the husband's mother, sisters-in-law etc)

At the end of the day, not much is likely to change until women are better educated and financially independent. Then they will have leverage against their fathers, brothers (along with their in-law equivalents) and of course their husbands and to-be husbands.

Until that happens (or until the sex ratio becomes even worse), the father of daughters will give money to the groom's family for various reasons – as a part of the woman's inheritance, as paying for a certain "standard of living" if the woman is not earning, and out of (unfortunately) sheer cultural inertia. Things may "average" out somewhat for parents with a daughter and a son, but indeed not so for those with only daughters, and this is more likely if those daughters do not earn or did not find love themselves.

Those who want to see the end of dowry should re-direct their energies to creating better economic and educational opportunities for everybody, including women, through school choice and free markets.

Else, it would seem they just want to feel good rather than actually do good.

India needs reforms, not a revolution

Corruption and an unresponsive democracy push the middle class to a brink.

The middle class of India, rapidly expanding and no longer as dependent on state jobs as earlier, has grown louder and angrier over the last few months at the corruption of the present Congress government – which has been in power for seven years.

They have found a voice in a 74 year old social activist – Anna Hazare. His group, India Against Corruption, has asked for various demands to be fulfilled regarding a national ombudsman – “Jan Lokpal” – by August 30th, failing which Mr. Hazare will continue his (by then) two week long fast, presumably unto death. The government, probably foreseeing this confrontation, had earlier jailed him on a technicality – but public opinion correctly forced it to release Mr. Hazare.

Yet the Congress government, for all its faults, must think hard before blinking. Mr. Hazare, a well-meaning idealist no doubt, should be free to hurt himself as he pleases, but an agency with unprecedented powers of investigation and prosecution cannot be created exactly according to the demands of any one constituency. Not to mention that passing such a bill in haste could actually increase corruption – any ombudsman risks getting captured by the corrupt; after all the present government managed a tainted appointment to the Election Commission, and almost got away with the same at the Central Vigilance Commission. Moreover, even if the proposed ombudsman remains relatively clean, its prosecutions in a country of India’s size will certainly be selective and colored by political biases – even if not by ulterior motives.

The only lasting solution to corruption – as un-sexy as it sounds – is economic, administrative, and political reforms. Consider the economics first. There is a very clear correlation across countries between economic freedom and less corruption. Indeed, many of the recent scams – about spectrum, land and other natural resources – have been because discretionary allotments were employed instead of transparent auctions. More chronic, retail-level corruption is also because of the state being involved in almost all areas of the economy. Indian politicians, twenty years after its first major economic reforms, still cannot give up on the easy patronage networks provided by, amongst other things, the hundreds of mines, hotels, textile units, banks, colleges and hospitals which are either directly run by the state or so over-regulated that you cannot run it without political “friends”. It is as if the “new public management” theories of where and how the state must interfere – adopted by even many center-left politicians of the West – never hit Indian shores.

Unfortunately, the Congress has completely stalled on economic liberalization, and instead is pushing for universal entitlements on employment, food, education and healthcare. Invariably, these programs are centralized, statist and averse to leveraging private competition for delivery. While fiscal deficits because of the global slowdown has forced the government to partially modernize these programs with better technology, the underlying push remains leftward. These schemes would need many more unionized bureaucrats and teachers, and with their salaries much higher than their private sector counterparts – corruption becomes inevitable in the various layers of their recruitment chain, incentivizing the successful ones to recoup their “investments” and angering the losers at the unfairness of it all.

Then consider the political incentives for corruption. Individual politicians are not allowed to spend more than three cents per voter for campaigning! While parties can spend more, they still have to raise it in dubious ways as lobbying is not legalized. As a result, some have called for state funding of elections – but that is likely to make the situation worse by entrenching incumbents and not hitting at the root cause of corruption, which is the arbitrary and centralized power amongst Delhi’s politicians to dole out policy favors.

Also, the unresponsive nature of the Indian democracy precipitates brinkmanship. In a mature democracy, a government can defuse any shrill demand by simply introducing the relevant bill in parliament and letting members vote according to, amongst other things, their constituents’ wishes. In Mr. Hazare’s case, that would have forced his supporters to pressure individual representatives and the movement’s real strength would have been tested. Unfortunately, Indian democracy – while most certainly not being a sham – is a shallow one. There is no democracy within parties and an anti-defection law empowers party bosses to regularly force its members, at the risk of being expelled from parliament, to vote according to their whips. This gives the executive significant power, while parliament becomes toothless to hold it accountable.

Mr. Singh cannot now introduce the demanded bill and be seen as not issuing a whip just for this bill. A fact worth noting here is that one of the authors of the anti-defection law, a law which was also – surprise – meant to reduce corruption, is now one of Mr. Hazare’s prime backers. Good intentions can indeed have some very unintended consequences.

In the short term, the government must involve the opposition to send a unified message to the public about the dangers of passing radical institutional upheavals overnight. The debate needs to be expanded to all parties and constituencies – not just Mr. Singh’s government and Mr. Hazare’s group.

Our colleges need democracy

In Wall Street Journal – India Journal, Yavnika Khanna and I penned a piece in support of more, not less, democracy in campuses across the country. Here are a few extracts:

In the 2014 general election, there will be around 100 million new eligible voters. That is almost the equivalent of throwing the entire population of Mexico into India’s electorate. Almost all of these new voters will have been born after the three major milestones that have defined the nation’s politics for the last two decades: the 1991 economic reforms; the Babri Masjid riots; and the first Mandal reservations’ drama. What does this new, “post-liberalization” generation value? What are its ambitions, its political impulses, and its socio-economic outlook?…

About half the nation is below the age of twenty-five, but many of our “tallest” political leaders are above the retirement age in most private firms. This is because those who genuinely want to be honest politicians face roadblocks such as lack of campus democracy as springboards, and lack of internal democracy in our parties even if they somehow get a foot in the door.

We at the Liberal Youth Forum conducted our own research study in collaboration with a think tank, Civitas Consultancy, on student participation in campus democracy and governance in India. The study takes into regard various aspects of campus democracy by dissecting and analyzing the opinions of students, student leaders, student organizations, faculty, management and other stakeholders. The study covered 77 institutions (both government and private) across various disciplines, including arts, science, commerce, management, law, medical and engineering.

Most of the institutions in the study (especially government colleges) have statutory provisions for the formation of student councils through an election or nomination. In reality, we found that arbitrary nomination systems are often implemented by college authorities as a measure to curb political activity around campus elections.

Nearly half of the colleges surveyed used nomination systems as opposed to elections. Contrast that with another finding: That 69% of students and 52% of faculty surveyed said they preferred elections and democratically-elected student representations.

There is an urgent need to provide young leaders platforms for voicing the youth’s concerns. Campus democracy empowers them as stakeholders rather than as anti-establishment agitators…