Posted by: John Elliott | December 18, 2012

Pakistan minister fuels a bad relationship with India

“I cannot understand the time, energy and cost spent in maintaining a bad relationship”, a leading Indian businessman said in Delhi yesterday when he opened a seminar on building a good relationship with strong economic ties between India and Pakistan, South Asia’s two fractious nuclear power neighbours.

Salman Bashir, a former Pakistan foreign secretary and now the high commissioner in Delhi, told the seminar that it was an “extremely delicate” job to manage the two countries’ bilateral relationship – it needed “vision” and “leadership” in both countries.

Pakistan's interior minister Rehman Malik (left), and India's home minister Sushilkumar Shinde

Pakistan’s interior minister Rehman Malik (left), and India’s home minister Sushilkumar Shinde

That vision and leadership was sadly lacking over the previous three days when Pakistan’s aggressive and voluble interior minister, Rehman Malik, visited India and spent time and energy ensuring that the relationship remained bad.

He came to Delhi to sign an agreement on visas for businessmen, tourists and others that should improve access between the two countries, and he also made various security-related pledges (that Pakistan might or might not honour). But he soured the relationship with repeated jibes and half-truths that played well in the Pakistan media (and probably earned him praise from the army), but infuriated his hosts and enabled India’s sensationalist media and foreign policy hawks to fuel anti-Pakistan sentiment.

Such behaviour at a time when political leaders of both countries are trying to build amicable relations is counterproductive. It strengthens anti-Pakistan public opinion in India, where there is deep distrust about the real motives of the country’s army and intelligence agencies.

The weekend’s events graphically illustrated the good and the bad in relations between countries, whose people have strong family and emotional ties, despite three wars and one near-war since 1947 plus potentially nuclear confrontations, and multiple deaths caused by a disputed border in Kashmir and Pakistan-generated terrorism.

Both countries’ top leaders, businessmen, and many others, want to move ahead and normalise relations, probably accepting that the primary issue of the disputed Line of Control quasi-border in Kashmir is unlikely to be settled in the foreseeable future. Informal talks in 2007 produced a soft-border solution with a withdrawal of troops and a degree of devolved government on both sides, but that was never approved by the army and other hard line lobbies in either country. It is not feasible now because India could not accept an open border when Pakistan is wracked by Taliban terrorism.

Economic potential

In India, Manmohan Singh, the prime minister has been saying for more than two years that India “cannot realise its full [economic] development potential unless we have the best possible relations with our neighbours – and Pakistan happens to be our largest neighbour”. That has led him, in the eyes of sceptics in India’s external affairs and home ministries and elsewhere, to be too accommodating when Pakistan is not taking real action against leaders of groups linked to terrorism such as attacks in Mumbai in 2008 and on the Indian parliament building in 2001.

The prime minister was almost certainly responsible for Malik being invited by Sushilkumar Shinde, India’s new home minister, even though others in the government opposed the visit, agreeing with former home minister Palaniappan Chidambaram’s view that India should not indulge Malik and provide a public platform for his habitual provocative behaviour.

Pakistan’s leaders and senior officials talk about the need to “let’s forget the past” and “put the past behind us”, and say that all the country’s leaders, including the army and military intelligence, see the need for neighbourly peace because of the heavy toll that ideologically based militancy and terrorism has taken on the country. Malik echoed that line in a rambling but carefully targeted hour-long extemporary lecture at Delhi’s Observer Research Foundation on Sunday. He talked about how extremism and terrorism – and a sensitive mix “of religion and poverty” – had begun when Pakistan “wisely or unwisely” joined the America in resisting the Soviet Union’s 1979 invasion of Afghanistan.

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Salman Bashir told the seminar yesterday that Pakistan saw the need for good and stable relations” and that “we have the will to work the relationship” That echoes the views of Hina Rabbani Khar, Pakistan’s 35-year old personable foreign minister,  (right, in Delhi, July 2011) but her charm does not have such a lasting impact on Indian public opinion as Malik’s brash approach.

From the moment he landed in Delhi, Malik made a series of provocative statements. He inexplicably linked the Mumbai terror attacks with the 1991 demolition of a Indian mosque at Ayodhya (which sparked anti-Muslim riots), and claimed that an Indian army captain who was captured by Pakistan troops and tortured during a 1999 border war might have died because of the “weather”.

He also obfuscated and misled the Indian government about how Pakistan has handled allegations of masterminding the Mumbai attacks against Hafiz Saeed, leader of the Lashkar e Taiba terrorist organisation, who has been freed from jail by Pakistan courts.

Malik also cast doubt on terrorist evidence sent by India to Pakistan, prompting M.J.Akbar, an Indian editor and columnist, to note that Bashir, when he was foreign secretary, “dismissed Indian evidence provided by Home Minister P. Chidambaram as ‘mere literature’.”

Alongside all this, some progress is being made in normalising relations between the two countries. In addition to the visa agreement, India decided last year to allow foreign direct investment from Pakistan, and is awaiting the implementation of most-favoured national trading status (which it gave Pakistan 15 years ago). Bilateral trade officially totals only some $2.5bn a year, plus perhaps another $3bn in informal links routed through the Gulf.

There is a target of $6-8bn, but that is unlikely to be realised because policy decisions are rarely implemented fully or quickly and there are only two cross-border airline flights a week – a fact that illustrates the tortuous relations. Movement on other initiatives such as opening bank branches is slow, despite big demand in both countries for the other’s goods, as has been shown by the brisk business when Pakistani companies attend trade fairs in India

The best that can be expected in the foreseeable future is an improvement of these sort of people-to-people links and economic ties. There is no chance of the Line of Control being agreed in the foreseeable future, and military sensitivities on both sides make it difficult to settle two isolated border issues at Sir Creek on the maritime border (between Gujarat and Sindh) and the Siachen Glacier in the Himalayas.

But above all, there is a need for Pakistan to show it is dealing with those involved with terrorism in India, especially the Mumbai attack – as Manmohan Singh bluntly told Malik during a brief meeting. That might seem over-optimistic at a time when Pakistan is unable to quell terror attacks in its own cities, but Indians will not trust the Islamabad leadership till it demonstrates that it is sincerely doing its best.

Malik’s visit and prevarications had the reverse effect because he appeared to be taunting India. There seems therefore to be no end to what Sunil Munjal of the Hero group called “the time, energy and cost spent in maintaining a bad relationship”.

There has been a lot of heat and tension in India’s parliament over past week as the government has won grudging approval for its foreign supermarkets investment policy – a measure that is of little immediate economic importance but has led to accusations that Wal-Mart has been corruptly lobbying for it in India.

While parliament has been focussed noisily on this and various banking and other financial sector reforms (with the cabinet clearing more land and investment  initiatives today), the most important event that could affect India’s politics for a decade or more is taking place in Gujarat. Voting began there today (and continues next Monday) in the state’s assembly election. When the votes are counted on December 20, we will know whether Narendra Modi (below), the state’s chief minister, is likely to be the Hindu-nationalist Bharatiya Janata Party’s prime ministerial candidate for the general election due by 2014.

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The bigger his expected victory, the more likely it is that this controversial figure, whose reputation is blighted by his widely suspected role in encouraging, or at least allowing, Gujarat’s Hindu-Muslim riots in 2002, will push aside more moderate BJP leaders and opponents and become the potential prime minister.

Modi’s time as chief minister is seen (with the help of a US-based international public relations agency) as having been good for the state’s development, though his focus has been directed more at urban areas and the emerging middle class than at including the rural poor in economic growth. His only real problem in Gujarat is a BJP splinter group that could reduce his vote and prevent him improving on the party’s current 117 seats in the 182-seat assembly.

Rahul Gandhi confusion

It is also beginning to look as if Rahul Gandhi really will emerge as the Congress Party’s prime ministerial candidate, though he will have to show more commitment to public life than he has so far if he is to be taken seriously. He spent one day on the Gujarat hustings – in his usual style of flitting in and out of political events that does his reputation no favours, though his minimalist role suited the Congress Party’s wish to shield him from any blame for Congress’s expected defeat.

A Congress spokesman said three days ago that Rahul would lead the general election campaign and that his mother, Sonia, currently Congress president and leader of the governing UPA coalition, would act as “patron” and “supreme leader”. That seemed to seal Rahul’s role, but it was contradicted a day later by another spokesman who said that Sonia would remain president and that the election campaign would be run jointly. Such is the confusion caused Rahul’s shilly-shallying over what he plans to do with his dynastic inheritance!

Rahul Gandhi’s formal party job was expected to be announced soon after a government reshuffle at the end of October, but that did not happen. The reshuffle was significant primarily because Kamal Nath was made parliamentary affairs minister in addition to his existing role at the urban development ministry. This was a clever appointment because Nath’s wide-ranging contacts and skills at handling all aspects of political and policy persuasion and fixing, have been widely recognised for years. He has not always been appreciated by Sonia Gandhi and prime minister Manmohan Singh, but now they need him.

He proved his skill when, working with the prime minister and others, he brokered deals to secure enough support the pesky supermarkets investment policy – officially known as FDI in multi-brand retail. The measure won votes in parliament’s lower and upper houses mainly because of tactical voting and walkouts by two Uttar Pradesh parties that had more to do with policy and other inducements offered to them than anything to do with retail FDI. For example, the Bahujan Samaj Party led by Mayawati won controversial low caste concessions for its Dalit political base, so voted for FDI in the Rajya Sabha (upper house), where the government would have lost without its support, having merely abstained (by walking out) two days earlier in the Lok Sabha.

Manmohan Singh staked the government’s political future on this measure, even though it will have only minimal economic impact for several years because investments will take some time to emerge and not all states will become involved. The measure is immediately significant only because it sends a message internationally about the government’s reawakening and determination to try to drive reforms.

This has been backed by Sonia and Rahul Gandhi, who have abandoned (or shelved) their ambivalence about reforms and have publicly backed the FDI and other measures. That enabled the prime minister to move ahead, but the government’s political problems mean that the international reaction has been marginal – the rupee remains stuck around a historic low figure of around Rs55 to the US dollar, though the stock market has recovered.

Wal-Mart’s troubles

The accusations about Wal-Mart bribing Indian policy makers arose after the American company filed a routine report with the US Senate that it had spent approaching $25m on various lobbying activities including “enhanced market access for investment in India”. That was instantly picked up by Indian politicians and others who blurred the line between legal lobbying and illegal bribing and claimed that Wal-Mart must have broken the law.

Kamal Nath, who would have been a lobbying target when he was commerce minister from 2004 to 2009, announced in his new parliamentary role that an independent inquiry would look into the activities of Wal-Mart, which is partnered in India for its wholesale and retail activities with the telecommunications-based Bharti group. Wal-Mart is already being investigated for breaking regulations with a $100m investment with Bharti. It also has an internal inquiry in progress in the US looking into possible corrupt dealings in various countries including India where some senior executives were suspended last month.

This shows two things, First, it is perhaps unfortunate that a company as internationally controversial as Wal-Mart, which is renowned for being tough with farmers and other suppliers, is at the forefront of supermarket FDI developments. Second, any hint of possible corruption grabs instant headlines.

When – as seems quite possible – India has to decide whether it wants the abrasive and controversial Modi to be prime minister, it will have to take account of his reputation as a rare non-corrupt politician.

This article appears on Asia Sentinel, a Hong Kong based news website – http://www.asiasentinel.com

Posted by: John Elliott | November 26, 2012

Writing in the wild at Kipling Camp

For a four-week writing retreat out of the chaos – and smog – of Delhi, it’s hard to beat Kipling Camp, a wildlife resort situated right in the middle of India adjacent to the Kanha national park.
That’s where I stayed from the end of October till four days ago, not writing my blog (which I am turning into a book), and not missing much in terms of real news in Delhi where the future leadership of both Congress and the BJP is still unannounced, and where endless controversies such as telecoms licences and the futile political crisis over retail FDI, trundle on.

Kipling was the first private wildlife camp in India when it was opened in 1982 by Bob and Anne Wright, best known for running Calcutta’s Tollygunge Club. Its name is appropriate – Rudyard Kipling featured the area in The Jungle Books, although he never actually went there.
Now completing 30 years, the camp caters for Indian and foreign tourists, who mostly head out at dawn to see tigers and other wildlife in Kanha, which is five minutes jeep drive away. Guests usually stay only for two or three days and then rush back to work, or continue their holidays elsewhere, but Kipling is worth much longer.

There is far more to be seen than the national park, which now can be difficult to enter because of a rigid booking system that limits the number of jeeps.
There are marvellous nature walks with birds to watch and photograph in adjacent forests and across the nearby Banjar River, plus day trips to forts and gorges, and Baiga tribal dancing some evenings (below). Cheetal wander through the camp and occasional alarm calls warn that a tiger or a leopard might be approaching.
On two nights while I was there, both appearedve  – the story is on Kipling’s new and very active blog:  “Around 11 pm, a large male tiger sauntered through the village fields and the forests around the camp. He stopped by our gate and we watched him by torchlight – he seemed very unperturbed ! The next morning we saw his pugmarks going in the reverse direction, as he walked by the camp and beside the village (right).
“During the day there had been a noisy and very busy marai (tribal fair) in the village – which goes to show how tolerant these big cats can be of human habitation, at least at night when they move about largely unseen and unnoticed.

“The following evening we were doubly surprised to find a leopard sitting on the road by the camp gate, its eyes shining like car headlights. Unlike the tiger, the poor leopard was pestered by cheetal alarm calls throughout the night.”
In the camp there’s Tara (left with me, and below), a 55-year old elephant made famous as Mark Shand’s companion in Travels on My Elephant, that takes visitors to afternoon swims in the river. Also Kim, a yellow Labrador that was a gift from Mark Tully and comes from a distinguished Tollygunge pedigree.
Just down the road is Mocha village with a few small bazaar-type shops, and a bustling rural market every Wednesday that has grown enormously in recent years as a few of the benefits of Kanha-related tourism have trickled down into the local economy.

The camp is now run by Anne and her daughter Belinda, who founded the Wildlife Protection Society of India (WPSI) – a link that gives Kipling a strong conservation theme.
They do not do much publicity or pr, so this blog post is aimed at helping to fill the gap, and to tell you all what you are missing if you haven’t been there.
As I said, don’t rush in and out, desperate to spot a tiger, but take a leisurely holiday in this idyllic forest haven in central India – and maybe even negotiate a long stay to write a book or some other task worthy of retreat.

Posted by: John Elliott | October 24, 2012

Happy Dussehra – marking the Triumph of Good over Evil !

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It’s the festival of Dussehra – ironically  marking the triumph of good over evil on an evening when India’s tv news channels have wall to wall coverage of the BJP president’s alleged corporate fraud – see my post below!

Ravana has just gone up in flames in Golf Links where I live in central Delhi – here are some pictures.

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Happy Dussehra ! And have a marvellous festive time up to the Divali festival of lights, which this year is on November 13. 

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India loves tamashas and Delhi loves political gossip, and both forms of entertainment have been in full supply over the past couple of weeks when the reputations of top politicians and others have been publicly attacked, mostly by Arvind Kejriwal (below), a politically ambitious anti-corruption campaigner. This flood of allegations – and the prospect of more to come – has widespread ramifications because it seems to be open season to reveal the suspected wrongdoings of the rich, famous, and powerful, using right to information laws.

A vast proportion of those who run the country’s government at all levels down to villages, plus people in business, are assumed to have done illicit deals during their careers, which they have successfully kept hidden – so far.

The main thread running through many of the allegations involves powerful people acquiring land far below market value, often for government projects, and then reaping large profits when the land is sold to private developers that are often involved in corrupt irrigation, real estate and other deals

The main target has been Robert Vadra, a brass ornaments trader who 15 years ago became the son-in-law of Sonia Gandhi, leader of the Congress Party and India’s governing coalition. Vadra has accumulated surprising wealth through land deals in the state of Haryana and elsewhere, often with DLF, a leading well-connected real estate developer.

Other targets include Salman Khurshid (two photos down), the Law Minister, whose usually urbane style collapsed under pressure when his wife’s charity for the disabled was accused, following a sting operation mounted by an India Today group television channel, of misusing Rs1.31 crore ($250,000, £150,000) funds. Kejriwal took up the allegations, and Khurshid said he would fight with “blood”, appearing to threaten him with physical harm and even death. A Congress spokesman advised those involved to be “careful in the use of language”.

Sharad Pawar, a veteran Maharashtra-based politician and government minister who is famed for using his wealth as a big investor in real estate and other business projects, has been accused along with his daughter and other relations, who are also in politics, of various land and irrigation scandals including Lavasa (bottom photo), a controversial countryside township project developed by the Hindustan Construction group.

Accusations of fraud and crony links, some involving Pawar, have also been made against businesses (including a string of apparently fake companies) associated with Nitin Gadkari, the president of the Bharatiya Janata Party (BJP), who comes from Maharashtra.

Even Rahul Gandhi, Sonia’s son and heir apparent, was dragged into one of his brother-in-law Vadra’s (left) land deals, where it was alleged he too had benefited from under-valued land.

The media has not escaped. Naveen Jindal, an MP and leading steel industry businessman, who has been accused of corruption over coal mining licences, staged a sting on an extortion-seeking television channel, Zee TV. The channel was allegedly offering to abandon a damaging news report if Jindal bought Rs100 crore (approx $20m, £11.5m) of advertisements – a widely practised form of corruption in the Indian media.

Ispat Industries, a company that was owned by a brother of Lakshmi Mittal, the world’s biggest steel maker and has now been taken over by another branch of the Jindal family empire, has been accused by the Hindu newspaper of bribing Virbhadra Singh, a former steel minister who is also accused of falsifying his apple orchard accounts with unsourced income.

The media has leaped with glee on the accusations, accelerating the development of stories and escalating the sense of crisis with continuous coverage on 24-hour tv channels. Many of the stories have already been known about, or suspected, but the media has never had the nerve to publicise them  – though the Vadra allegations did appear once in The Economic Times in March last year.

India’s Outlook news weekly magazine ran the Vadra story a week after The Economic Times and mentioned a point that has become headlines in the past few days – that leaders of the Congress Party and the BJP seem to have an understanding that they will not attack the personal affairs, including corruption, of each others’ leaders and their families.

Outlook wondered whether the BJP had not taken up the Vadra story because it did not want a counter-punch based on the widely gossiped business dealings of Ranjan Bhattacharya, who is married to the daughter of a close woman friend of Atal Bihari Vajpayee, a former BJP prime minister, and is recognised as his foster son in law. Bhattacharya grew from working as a hotel manager to an owner of hotels and other real estate between 1998 and 2004 when the BJP was in power.

Such an understanding not to attack each other has now been confirmed by Digvijay Singh, a senior Congress Party general secretary, who said on India’s CNN-IBN tv channel that Congress had evidence of corruption against Vajpayee, and against his L.K.Advani who was then Home Minister, but would “never use this”.

Currently, Congress leaders have refrained so far from attacking Gadkari outright over his company fraud allegations, though the government’s ministry of corporate affairs has started a “discreet inquiry”. The risk for Congress is a BJP counter-attack on the far more sensitive Vadra accusations.

One significant aspect of the Kejriwal revelations is that he has been prepared to challenge the Gandhi dynasty in public, albeit mainly with an attack on a not-very-respected son-in-law. Since she entered politics at the end of the 1990s, Sonia Gandhi has drawn a much tighter cloak of secrecy and silence around her and her family than earlier members of the dynasty ever managed. She has been criticised publicly, as has her son Rahul who has yet to prove himself as a potential leader, but this has generally been focussed on their political performance, not any suspected corruption.

Dipankar Gupta, a sociologist, has suggested in an article that the Vadra attack indicated the collapse of a “taboo” in Indian politics, though he only used “R for Robert” to indicate what he was writing about and did not use the words Vadra, Priyanka (his wife), Sonia or Gandhi dynasty, choosing instead rather curiously to refer obliquely to a “particular family”.

‘Code of silence’

Yogendra Yadav, a political pollster and pundit and member of Kejriwal’s India Against Corruption organisation, praised the revelations because they had “violated a code of silence observed in Delhi’s corridors of power”.

It remains to be seen however whether taboos and codes have indeed been broken. If they have, the dynasty could face trouble, and Congress’s defeat at the general election due by 2014 would become a certainty compared with the near-certainty that it is now.

Leading Congress government ministers including Palaniappan Chidambaram, the finance minister, and Salman Khurshid leapt to Vadra’s defence on television when the accusations were first made, but they backed off as details emerged of land and property deals that he had struck with loans and other help from DLF. Their silence since then is perhaps more indicative of the dynasty’s attitude to Vadra’s dealings than their early attempts at defence, which they presumably thought sycophantically would please Sonia Gandhi.

Kejriwal has been involved in civic and social campaigns for about 12 years, initially with an ngo called Parivartan focusing on local issues such as governance in a poorer part of Delhi, and on the right to information which eventually became law in 2005. By 2010 he became involved in anti-corruption campaigns and was one of the top activists with Anna Hazare, the Mahatma Gandhi look alike, who lead demonstrations that dominated politics last year Kejriwal has now split from Hazare and is planning to set up a political party.

The second and broader issue is what will happen next and what the revelations are doing to the fabric of India’s government and society, given the pervasive depth and breadth of corruption across government at all levels and the public and private sectors.

It seems unlikely however that these events will change the extortion, fraud, and crony-capitalism that has fuelled India’s economic and commercial success in recent decades, though it might make those involved more cautious. Many of Kejriwal’s leaks and accusations do not stem from any concerted attempt to seek truth and justice. Frequently they come from family or company rivalries or upsets – a family that tires of one of its members, an ex-mistress who feels snubbed, a revenge-seeking sacked employee, or a disgruntled ex bureaucrat are among rumours (not all correct) on the current disclosures.

Shoma Chaudhury, editor of Tehelka, a campaigning weekly magazine, suggests that the accusations against Vadra and leading politicians mean that a moat has been breached and that “something is shifting in Indian democracy”.

Kejriwal’s campaign is certainly significant if it is seen as a second and more focussed stage of last year’s Hazare anti-corruption campaign that drew massive support from India’s angry middle class and was primarily aimed at creation of a Lok Pal (corruption ombudsman), which has not yet happened. Much of last year’s fervour however has been dissipated, and many people are uneasy about Kejriwal’s guerrilla tactics, fearing maybe that their own secrets might be revealed.

Corruption is however now a major topic that cannot be swept away as individual scandals have in the past. But it will take years to introduce the changes that might significantly reduce it. A revamped judiciary (often itself corrupt) is needed so that cases are cleared quickly instead of taking 20 years or more.

Nandan Nilekani a former head of the Infosys information technology company who is introducing a biometric data base for the government, has produced a list of things to be done using technology plus regulatory and institutional reform to change the way government relates with the private sector as a buyer (defence and other equipment and services), seller (such as licences for natural resources) and regulator (telecoms and other industries).

That will be a very long haul.

 

There has been a stream of articles in India’s newspapers over the past week marking the 50th anniversary of country’s humiliating defeat by China in a brief Himalayan border war that shattered India’s self-confidence so devastatingly that the country has yet fully to recover. Headlines have included “The war we lost – the lessons we didn’t learn” and “Lessons from 1962 – India must never lower its guard”.

Yet India’s guard is still lowered and lessons have not been learned about anticipating an unexpected invasion – not just by the People’s Liberation Army (PLA) taking up positions on India’s side of mountainous borders, but more importantly by Chinese telecom companies possibly planting leaky and crippling bugs in networks and communications systems.

In a neat coincidence, just as India’s defence pundits were revisiting the failings of the early 1960s, the US Congress’s intelligence committee issued warnings in Washington that two Chinese telecom companies – Huawei and ZTE – were a threat to national security. The report said the companies could disrupt information networks and send sensitive data secretly back to China. Neither company had cooperated fully with the investigation, and Huawei had “provided evasive, non-responsive, or incomplete answers to questions at the heart of the security issues posed”.

Although Huawei and others suggested this was a protectionist ploy encouraged by American telecom companies to beat off low-cost competitors, the report triggered fresh complaints and renewed inquiries. Other countries are also worried, including Canada, Australia and the UK.

India is clearly vulnerable to these security risks from a country that is its biggest long-term defence threat.

Concerns that could one day lead to war include a 50-year old row over the 4,000-kms border (left – Outlook magazine photo and above) that China will not resolve, plus disputes over access to river waters and potential differences on sea lanes and other issues.

Over the past 10 years, Huawei has become a leading telecom provider in India, along with ZTE. It has a five-year $2bn investment plan and is the second biggest provider of networks after Ericsson, with a 25-30% market share, supplying all of the country’s top telecom operators such as Bharti Airtel, Vodafone, Reliance Communications and Tata Teleservices. It also supplies telecom systems to companies, and has a substantial share of the market for devices such as data cards and phones, and has a large research centre in Bengaluru (Bangalore).

It is not just telecoms where China is gaining a significant hold on India’s business and economy. Two-way trade currently stands at $60bn, heavily in China’s favour, making it India’s largest trading partner. The target for 2016 is $100bn. Orders for potentially sensitive power plant equipment exceed 44,000MW, triggering protective tariff demands by Indian manufacturers. There are also security concerns about Chinese bids for Indian power transmission grids. Other areas include engineering and construction projects.

There are also growing financial links. China has taken some of the pressure off the heavily indebted Reliance Group run by Anil Ambani. A $1.2bn loan was secured from Chinese banks in January this year to refinance a convertible bond at Reliance Communications. In 2010 Reliance Power ordered $10bn equipment from Shanghai Electric Group financed by Chinese banks, plus $1.9bn for telecoms refinancing.

The Indian government is publicly in denial about the security risks, though the army’s senior signals officer has apparently expressed some concerns. “Chinese manufactured telecom equipment are suspicious as you cannot know what’s inside. You cannot decode the units manufactured by them and thus pose higher risk and threat,” Lt Gen SP Kochhar is reported to have said at a communications seminar in Delhi last week. That echoed worries earlier in the year when Chinese hackers were reported to have invaded Indian Navy computer systems. Three years ago, there were worries when it was discovered that government-owned Bharat Electronics (BHEL) was sourcing encryption communications equipment from China for the Indian Air Force.

I have asked various officials and policy pundits about the risks in recent weeks and most duck the issue, offering no solution. Most take the same line as India’s telecom operators – that the products are irresistible because Huawei’s total costs of ownership are 25-30% lower than rival companies such Alcatel-Lucent,  Ericsson, and Nokia Siemens. India’s telecom imports from China in 2010-11 totalled $6.7bn, ranging from phones and attachments to networks.

India stopped BSNL, a government owned telecom operator, buying Huawei and ZTE equipment in 2009-10 because of security concerns, but then allowed purchases by the private sector companies after Huawai co-operated with testing and certification of equipment and offered access to sensitive electronic source codes. Speaking last week after the US report was published, India’s telecommunications secretary, R Chandrashekhar, said the telecommunications department “has no problem” because the two companies were working within Ministry of Home Affairs guidelines. He has recently presented an award to ZTE as India’s top broadband infrastructure company.

Shashi Tharoor, an MP and writer, who was previously a foreign affairs minister and a senior United Nations official, told me he was impressed not only about the low costs, but especially because Huawei had been more willing than their European rivals to give then government access to its source codes. He thought however that such manufacturers might need to be restricted for national security reasons – for example they are excluded from some critical networks and sensitive border states, especially in north-east India.

The Economist had a cover story headlined Who’s afraid of Huawei? in August that acknowledged Huawei’s ability “to sneak in malware and sneak out sensitive data”. Westerners fretted that its networks were “used by Chinese spooks to eavesdrop during peacetime and could be shut down suddenly during wartime” and saw the firm as a “potent weapon in China’s burgeoning cyber-arsenal”.

But, unsurprisingly for a free market journal,  it said that “techno-nationalism” was not the answer to fears of cyber-espionage. Noting that Huawei is a $32bn company operating in 140 countries with 140,000 employees, it said it “commands respect by delivering high-quality telecoms equipment at low prices”. It added however that, “given the power of the state in China’s version of capitalism”, the west was “right to be vigilant”.

That hits the point because China’s version of capitalism means that companies owe primary allegiance to Beijing, whether they are in the private or public sector, and will surely do the government’s bidding. Some supporters point out that the PLA, where Huawei’s founder, Ren Zhengfei, used to work, had severed any ties (including possible equity stakes). But a company does not have to be tied to the PLA to obey Beijing.

It is however hard to know what can be done, especially since European manufacturers source components from other Chinese suppliers that might be harder to check than Huawei and ZTE.

‘Too late to eliminate Huawei’

John Gapper, a leading Financial Times columnist, was probably right last week in an article headed It is too late for America to eliminate Huawei. He said that “the time to declare telecoms a strategic, protected industry like defence, was 20 years ago; now is the time to make a deal”.

He suggested that such a deal could involve Huawei opening up its very secretive books and ownership pattern by listing on London or New York stock exchanges, and separating its US (and presumably other country) divisions, as America demands for defence equipment manufacturers.

That might be part of the solution, but surely it would be better for India and other countries to ban Chinese high technology companies from all security and communications sensitive networks and gradually ease them out of as many other areas as possible. The chances of a war with China are remote in the foreseeable future, so India has time, if it starts now, gradually to remove the threat as contracts expire and technologies change.

Posted by: John Elliott | October 2, 2012

Ratan Tata and Mahatma Gandhi reflected in anamorphic cylinders

I have also written about this art fair on The Economist’s  Prospero arts blog at http://www.economist.com/blogs/prospero/2012/10/art-india  

Ratan Tata, head of one of India’s largest groups (below), and Mahatma Gandhi, the independence leader whose birth anniversary is today, were two of the leading figures reflected in anamorphic mirror cylinders by Keralan artist Vincent Pallissery at Delhi’s current United Art Fair.

Pallissery was one of some 520 artists showing 2,700 works at the show that was path-breaking because there were no galleries involved. It ran for an opening evening and three full days in central Delhi’s Pragati Maidan show grounds and closed on Sunday.

For sale at about Rs2.5 lakhs, Vincent Pallissery anamorphic works involve flat bases painted with unrecognisable designs that become recognisable images when they are reflected in cylindrical mirrors. Anamorphosis (or anamorphis) was first tried as an art form during the Renaissance.

It was famously used in Hans Holbein’s 15th century painting The Ambassadors and has also be used to transmit espionage and other confidential caricatures and erotic scenes without the carrier knowing what the flat painting depicts.

.Other works at the show, in addition to the one shown on the Prospero blog, included bright red chillies and other sculptures made from old truck and bicycle tyres by Subodh Kerkar from Goa.

There was a fibreglass pickup truck called “loot” by Manish Sharma from Rajasthan (below) that was auctioned for Rs13.5 lakhs (£15,900).

I thought the paintings (above) were very like Paritosh Sen and F.N.Souza but the artist, Vikash Kalra, insisted were his own inspired creations.

There was a recurring theme of road transport. Balbir Krishan, whose figurative paintings on the theme of homosexuality were attacked when they were shown at a public Delhi gallery last January, was also there.

“It’s been a very good opportunity for young artists like me to be with so many other artists from different regions in India, and to see their works and be able to talk,” said Rimsy Chopra, a 24-year old graduate of the Delhi College of Art.

 

Posted by: John Elliott | September 14, 2012

Manmohan Singh responds to critics with symbolic reforms

Stung by increasingly sharp criticism at home and abroad, the Indian government today announced a raft of foreign direct investment (FDI) reforms in supermarkets, airlines and other areas that ended three years of policy inertia. This followed a highly controversial decision yesterday to cut fuel subsidies, triggering a 12% increase in diesel retail prices and restrictions on the sale of cooking gas.

“If we have to go down, we have to go down fighting,” Manmohan Singh, the prime minister, said at the cabinet meeting that took the decisions, anticipating opposition from within his coalition which could reduce the government’s parliamentary majority. It was time, he said, “for big bang reforms”.

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Complaining about the decisions that have caused a political furore tonight, a BJP spokesman said they had been taken “under foreign pressure” – and he was probably correct!

I hesitate to suggest that foreign correspondents based in New Delhi provoked Manmohan Singh into action, but there is no doubt that sharp criticisms in  The Washington Post, The Economist and Time magazine, among others, have struck home.

More importantly, there are growing risks of India being downgraded by international rating agencies because of a high fiscal deficit with economic growth slowing to as low as 5.5%.

The media reports have focused on the prime minister’s lack of leadership and action. Simon Denyer described him in the Post last week as “a dithering, ineffectual bureaucrat presiding over a deeply corrupt government” who “remained silent as his cabinet colleagues filled their own pockets” – a reference to the coal industry and other corruption scandals that have involved government ministers.

Manmohan Singh’s 80th birthday

Today’s decisions mean that the prime minister can look forward to kinder reviews on September 26, his 80th birthday.

They will also help to divert attention from the coal corruption scandal that has dominated the headlines in recent weeks.

The FDI announcements have been widely praised, but they are much more significant for their symbolism and impact on market sentiment than for any rapid direct economic effect. They show that the government is willing to dare coalition partners – notably Mamata Banerjee of the West Bengal-based Trinamool Congress – to oppose the changes and even withdraw from the coalition.

Taken with the fuel price hike, they also seem to show that Manmohan Singh is prepared to do things that may not necessarily meet the approval of Sonia Gandhi, his political boss at the head of the coalition, and her son Rahul, though their views are not known.

Food distribution

The main FDI change is that, after years of debate, supermarket companies (dubbed multi-brand retail) such as Wal-Mart and Tesco can have a 51% equity stake in Indian retail joint ventures. This could have an impact within a few years, but it is not relevant to the immediate recovery of India’s economy. The measure has been opposed by many parties for populist political reasons focussed on the impact that it could have on small shopkeepers and street-sellers.

The real opposition has however been generated by public sector agencies and middlemen, who dominate the inefficient and waste-ridden distribution system between farmers and the shops. These vested interests are the main target of the reform. To placate opposition, the government has said that individual states can decide whether to allow the FDI, which means that it will not happen in perhaps half the states, at least for some time.

There are positive requirements that the joint ventures must spend half their investment on rural-based distribution systems to serve the retail outlets that they are now to be allowed to open, and source 30% of their products from Indian small and medium sized firms.

Indian companies such as Reliance and the Future Group have failed to break the grip of the current distribution operators, so it remains to be seen how successful foreign retailers can be, working with their Indian partners – they will be helped by changes in distribution regulations that states opting in are likely to introduce.

Airlines

A decision to allow foreign airlines to take up to 49% stakes in Indian airlines (subject to regulatory arrangements) also needs to be seen in context. The government is not pushing something it specially believes in. It is partly reacting to market conditions, but has mainly been influenced by a change in the attitude of India’s leading private airlines, notably Jet Airways that has managed to block the initiative for some 15 years.

Jet seems to have withdrawn its opposition, and FDI is now favoured by airlines that urgently need fresh capital, notably Kingfisher which is near to financial collapse, Spice Jet and GoAir. Foreign airlines based in the Gulf are expected to be most interested in exploring possible stakes – led maybe by Emirates which already has a big 20% share of India’s outbound air traffic, and Qatar Airways.

The government also raised FDI limits for broadcasting and introduced it for electricity power trading exchanges, and announced small equity divestment plans of around 10% for five public sector corporations – Oil India, Hindustan Copper, NALCO (aluminium), MMTC (metals trading) and RITES (transport projects).

Rahul Gandhi next?

The next attention-diverting announcement will probably be a ministerial reshuffle, plus Congress Party changes including a new party post for Rahul Gandhi, dynastic heir to the party leadership, whose failure to impress so far has been matched only by that of the government.

This could come next week, according to media reports. It will then be up to Rahul to show whether this appointment is mere symbolism, or whether he can grow sufficiently in stature to become a prime ministerial candidate.

He might also tell people whether he believes in the sort of economic reform announcements made yesterday and today, or whether subsidies and other pro-poor policies are much more important because he thinks they are most likely to help his Congress Party do well in elections.

Posted by: John Elliott | September 11, 2012

India “is looking sticky” as the system crumbles

It is tempting to think that India is heading towards some form of implosion. The parliament didn’t operate for 75% of the monsoon session, doing little business, because of Bharatiya Janata Party opposition tactics.

Two major industries – coal and telecoms – have been swamped with corruption scandals that are blocking development and are primarily focussed on the prime minister Manmohan Singh’s office. Other industries such as aviation and airports, gas field contracting, and highway construction have simmering crony capitalist scandals that have yet to erupt fully. The power sector is in crisis, partly for lack of coal that is unlikely to improve, and its projects are riddled with corruption.

Most leading private sector companies working in such areas are involved on one or more of these scandals, and now there is a fresh possible fraud case emerging that some observers say could prove as big as Satyam, India’s fourth largest software and outsourcing company, which collapsed at the beginning on 2009. Satyam and its allied infrastructure company, Maytas (Satyam spelt in reverse), turned out to be just the tip of a vast iceberg of corporate cronyism based in Hyderabad, capital of Andhra Pradesh. Now Hyderabad’s Deccan Chronicle (DCHL) newspaper-based group  is in serious financial troublewith unexplained massive borrowings and possible charges of fraud.

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Foreign observers are shocked and worried by the degree of corruption and how far and deep the tentacles reach, and about the impact this is having on India’s institutions and its overall performance. An old banker friend, in a superb British under-statement, emailed me yesterday that “India is looking sticky”. I replied: “Sticky indeed, but nothing much that we didn’t know about, just woodwork crumbling a bit and everything crawling out!”

Satyam had a dubious financial reputation for several years before the 2009 collapse, but it did not suit anyone to take much notice in bull market years. The Deccan Chronicle prompters and associates were arousing concerns eight years ago. The 2G telecom scandal that erupted in 2010 had been written about (see my blog) for more than two years. Land allocations and operating review terms in the 2006 franchise won for Delhi’s new airport by Hyderabad-founded GMR, and concern about the handling of Air India’s endless crises, were widely known at the time but largely ignored.

India’s current coal scandal – dubbed “Coalgate” – centres on the government approving licences on a negotiated allotment basis, without competitive tendering. This is not new. There has been a debate for some 20 years over the relative merits of “first come first serve” (introduced in 1957), and similar application-based awards, compared with competitive tendering.

Both systems have advantages and disadvantages in terms of project speed and pricing, and both can be manipulated, though the no-tender system provides more discretionary powers to politicians and bureaucrats, and enables unqualified speculators to win work and make quick profits. That happened on both the 2G “first come first serve” telecom franchises (manipulated to enable the minister’s friends to be “first”), and the coal allocations.

Big government losses

India’s Comptroller and Auditor General (CAG) has highlighted both the telecom and coal procedures, controversially alleging that the absence of tendering led to astronomically high losses for the government.  (It did similarly on the GMR airport deal, though with less political impact).

The CAG’s most recent estimate is that the government has potentially lost as much as $39bn (CAG’s Rs1.76 lakh crores at pre-2012 exchange rates) on coal in recent years. The Rs1.76 lakh crores may well be far too high, but even if the real figure is only a fraction of that, it would be significant.

Coal blocks have been issued to influential people, including politicians, many of whom (as happened on 2G telecom) sold them at huge profits without developing any coal extraction. Other bigger and established companies sat on their blocks, which they were supposed to be developing to provide coal for power and other infrastructure projects, waiting for coal prices to increase so they could sell the coal at a profit. Some of the allocations were done under a mine developer and operator (MDO) scheme that is ripe for misuse.

India’s Central Bureau of Investigation last week filed preliminary criminal cases (FIRs) against five companies and various individuals for criminal conspiracy and cheating – but that is only tinkering around the edges of what is involved.

Manmohan Singh (above) is under attack, with the BJP blocking parliament to demand his resignation (which won’t happen), because the coal ministry came directly under him from 2006 to 2009. The BJP also wants all the blocks cancelled, which would be devastating for the economy, so some way of penalising companies that start projects late while cancelling only the worst offenders is probably needed.

While he was in charge of coal, the prime minister did not take firm enough action to move to competitive tendering, despite proposals from various parts of the government that this should happen. I suspect that he saw merits in the allotment system as a way to speed up urgently needed but slow-moving infrastructure projects – a preoccupation of the prime minister’s office throughout the decade.

Should resign

But, as happened with telecoms, he failed to tackle the underlying corruption and crony business political links. There is no suggestion that he gained any personal financial benefit, though critics say he should have resigned rather than preside over such a system.

What all these events and scandals indicate is that India is now paying the price for two decades of economic growth that has been based heavily on illegal collusion between big business, politicians and bureaucrats – especially where scarce natural resources such as land, minerals, telecom space have been involved, plus other areas with government licences such as airports and ports privatisation and development.

There has of course been corruption-free growth, notably in software and information technology (apart from Satyam) and areas such as the auto industry where there is little government or public sector involvement. But even there, as the problems with the Deccan Chronicle group appear to suggest, corruption breeds on the greed and ambitions that have only had free rein for just over 20 years.

There is no end to this in sight – no end to the corruption itself, even though some of those involved may be more cautious, nor to the exposure of scandals through India’s right to information legislation backed by strong media and political interest. This is not implosion, but the system is beginning to crumble – and that needs strong government leadership that is sadly lacking.

See also https://ridingtheelephant.wordpress.com/2012/03/27/indias-coal-industry-under-attack-at-home-and-abroad/


Posted by: John Elliott | September 3, 2012

Make Sonia the Prime Minister – and change the BJP Opposition

Out of the Box (Off the Wall?) solutions for India’s political mess

Here are two ideas for breaking the current deadlock in India’s politics – make Sonia Gandhi the Prime Minister, and change the Opposition.

The first idea is mine and is unlikely to happen because it would be too much of a gamble for the Gandhi family, though my argument throws up some dynastic issues.

The second idea came from a frustrated foreign stockbroker and banker based in Mumbai, who wants an early general election, even though he knows it will probably lead to an even more directionless coalition government, because it would (probably) get rid of the debilitating Bharatiya Janata Party as the main opposition in parliament.

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It is a measure of the plight facing India, its politics, and its badly led economy, that there is no credible and likely Congress Party candidate to be the next prime minister – hence my idea of Sonia – and that getting rid of the BJP in opposition is maybe the best thing that could happen politically.

Congress has a real leadership crisis, despite the fact that many commentators still believe that 42-year old Rahul Gandhi, heir to head both his family dynasty and the Congress Party, will emerge as a realistic prime ministerial candidate by the general election due in 2014.

Rahul however seems to have no intention of moving sufficiently into mainstream politics and the government job to warrant such a belief – and, indeed, currently has such a downbeat demeanour that it is hard to see him leading anything. He indicated in July that he was ready to play a larger role, but he has been notable since then mostly for his absence from day-to-day politics.

What he is prepared to do might become clearer later this month when long-awaited ministerial and party leadership appointments are expected. But he certainly is not at this time a realistic prime ministerial candidate – and there are no other obvious names, assuming Manmohan Singh, who is 80 later this month, retires in 2014.

“PM that never was; the Oppn that shouldn’t be” pic and caption – of BJP leader Sushma Swaraj and Sonia Gandhi – in Outlook magazine where a revised version of this article appears as a column (see comments below)

Maybe Congress does not need a new leader. Since it expects to lose the 2014 election, it is probably logical for it not to name a prime ministerial candidate, but to go into the election campaign led by Sonia Gandhi, who is 65, and Rahul and current ministers. Then it can decide what to do about its leadership when a coalition government is being formed and it sees who potential partners would prefer to work with as party leader. The family could also decide, after seeing how well Rahul did in the election campaign, whether to bring Priyanka, Rahul’s more personable sister, into active politics as a potential leader.

It would be much braver however to announce – maybe in the middle of next year if not before – that Manmohan Singh is retiring immediately and that Sonia is becoming Prime Minister, as is her right as the president of the party and a member of parliament. When she declined the job in 2004, she arguably did not have the experience to take it on, but she has now gained that experience and would probably do a better job than Rahul, if only because she is in total command of the party and no longer has to prove herself.

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An NDTV poll broadcast last night showed that 46% of respondents thought that Congress would do best to choose Rahul to lead it into the next election, with 33% going for Manmohan Singh and 21% for Sonia.

That is an extraordinary result from the 30,000 people polled (in about a quarter of parliamentary seats across 18 big states) because Rahul has shown absolutely no aptitude for front line day-to-day national politics, rarely speaks on current issues, and has no experience of government.

I wonder whether Sonia’s low support in the poll was mainly because she is not regarded as a candidate for the job, which she turned down in 2004. It could also partly be because she has been ill. She is currently visiting the US for medical tests, one year after an operation widely believed to have been for cancer, and she did not look well when I saw her in a Delhi art gallery ten days ago. But she has shown in the past few weeks that she can perform an active party leadership role both in parliament and outside, so would the opinion poll vote for her have been bigger if people thought she was a possible candidate?

Making her prime minister would also make her answerable publicly for the policies, notably on the economy, that she currently pushes from behind the scenes but never has to defend.

It would however almost certainly be too much of a gamble with the future of the dynasty. Everything that Sonia has done in the past 15 to 20 years shows that she sees her role primarily as a bridge between her late husband Rajiv and their son Rahul. She has worked to ensure that the dynasty survives, and has not tried to become India’s top leader. To this end, she has been much more candid and determined in naming her successor than any earlier member of the dynasty. And  she has virtually every other Congress leader – including Manmohan Singh – joining her chorus for Rahul to get his act together.

Given her Italian origins, that is a logical position. But my hunch is that she is probably Congress’s best chance of avoiding appalling defeat in 2014, despite the Italian issue.

If she failed, it would be a dangerous setback for the dynasty, and could encourage rumblings about Congress having a non-Gandhi leader. That of course would be a good development because near-automatic dynastic rule and family succession is not good for a democracy.

But dynasties don’t take such gambles with their futures, so it almost certainly won’t happen, and will one of those “What If……” questions for future generations – “What if Sonia had shaken off her cautious courtiers and had made herself prime minister by 2014?”

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