ISAS Insights 2010

ISAS Insights 2010

ISA S Insights No. 100 – 12 May 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Socio-Economic Roots of Maoism post-1980 S. Narayan1

‘More than Maoism: Rural Dislocation in South Asia’ is an ISAS research theme focusing on socioeconomic, political and security dimensions of “Maoist movements” in South Asia. The institute conducted a closed-door workshop on the research theme, and the presentations are being put together as a series of ISAS Insights and ISAS Working Papers. This is the first paper in this series.

Abstract Economic and political factors have alienated populations in tribal areas and given a fillip to the Maoist insurgency. They include inefficient and corrupt governance, skewed economic growth and heavy handedness of the state. The genesis of the movement can be traced to two developments in the 1980s. The first was the setting up of public sector units in tribal areas; the second, the Forest Act of 1980. The two developments alienated large sections of the tribal population.

With heightened concerns about security and terrorism, there has been an active debate about the measures required to combat it. Faced with insurgency in the north-east, militant Maoists in several states and the blasts in public places, India’s state governments have been rethinking the security paradigm and redefining the roles of different agencies and institutions. Several states have passed anti-terrorist laws that provide for preventive custody.

Recently, the Chief Justice of the Supreme Court of India, Justice K.G. Balakrishnan, has warned the country about the dangers of lawmakers in several states introducing such 1

Dr S. Narayan is the Head of Research and a Visiting Senior Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He was the former economic adviser to the Prime Minister of India. He can be reached at snarayan43@gmail.com. The views reflected in this paper are those of the author and not of the institute.

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legislation and using it in a high-handed manner. There have been instances where these laws have been used against those who have opposed industrialisation programmes of the state by highlighting the interests of the poor. There have also been instances, much debated in the media, about arrests on flimsy grounds of waging war against the state. The approach of picking up people for questioning, holding them without charges and bringing the cases to trial constitutes a major violation of human rights. Media and intellectuals have repeatedly been highlighting these issues before the public, yet the jails are full of inmates that have been held on flimsy evidence and have spent years without being charged. With increasing security concerns, the public is merely told that a suspect has been picked up and little is heard of the trial or conviction. That these laws are used to settle political scores and that they invariably work against the interests of the poor; has been established again and again in specific instances covered by media. There is adequate evidence that the population of these tribal areas feels that economic development has marginalised their livelihood patterns.

Two important developments took place in the eighties that could have some relevance to the increased alienation of the tribal populations from the mainstream of development. When Prime Minister Indira Gandhi came back to power in 1980, the country was facing severe shortages in power generation and infrastructure. Existing power stations were not getting adequate coal and the shortages were quite severe in northern India and Punjab. The new Government decided to invest heavily in opening up new coal mines and establishing power stations based on coal. The activity was taken up entirely in the public sector, with Coal India, the National Thermal Power Corporations, and other governmental agencies nominated as executing agencies. The large-scale mining operations taken up during 1980-84 involved the resettlement and rehabilitation of millions of people in Chattisgarh, Jharkhand (then Bihar), Madhya Pradesh and southern Uttar Pradesh. The Singarauli and Pench coal fields were opened up during that time along with the Talcher and IB Valley fields in Orissa. Close to a hundred million tonnes of coal per annum was targetted from these fields and there was a frenetic pace of project execution. These were also the places in which there was a density of tribal population – economically marginalised people who, depending on traditional activities, were dislodged from their centuries-old traditions and moved from mine sites. This was perhaps the largest movement of the impoverished that development programmes of the Government had mandated and the signs of resentment can well be traced back to this period.

A second development that took place was the enactment of the Forest Act in 1980. This legislation was an attempt to protect flora from being exploited in the name of projects and commerce. The Forest Act followed the Wildlife (Protection) Act of 1972, which attempted to protect biodiversity in the country. This was also the time when the proposed Silent Valley project in Kerala was being criticised for damaging eco-diversity, Rachel Carson’s Silent Spring (1962) was still influential, and suddenly the importance of nature had dawned on everyone. The 1980 Forest Act was, in some senses, a strong piece of legislation; it gave enormous powers to the forest officials to prevent encroachments, and indeed, habitations within declared forest areas. As areas were delineated as reserve forests, traditional 2

occupations of even gathering twigs (‘lops and tops’ in the forester’s language) was forbidden. People who earned their livelihood through access to forest resources in a sustainable manner suddenly found themselves outside the law. Further, this Act did not distinguish between habitations that existed within the forests for generations; the habitants suddenly found themselves to be encroachers on their own traditional land. For the Forest Department, it was inconceivable to allow tenancy rights within the reserve forests after the 1980 Act. This has perhaps been a major contributor to the disenchantment of the tribal populations living in forests with the entire development process. At the same time, encroachments on the fringes continued, with the rich and powerful eating into forest areas on expanding plantations. It was only in 2008, nearly three decades after the damage of the 1980 Act, that a revised legislation – one that recognised traditional dwellers’ rights within forest areas – was enacted. This legislation, though somewhat flawed, sought to provide some protection for traditional dwellers and their rights.

It is argued by those working with indigenous people in Jharkhand, Orissa and Chattisgarh that want of resources – due to a lack of access to traditional means of livelihood and total neglect by the state – has been at the bottom of the total disenchantment of the people of this region. This is perhaps the reason for the growing lawlessness in these regions.

In short, the public appears to be alienated from the state in the maintenance of law and order; and views state agencies as enemies and not as allies. There is considerable evidence that this has led to the rise of local strong men that administer peace in their domain. The larger manifestation is the Maoists; where the Maoists operate, they are the law and not the state. At the same time, it is important that the state exercises administrative control and steps are being taken now to bring the rule of law into these disturbed areas is a step in the right direction. However, development must follow immediately. It is necessary that state governments quickly plan programmes that will be directed towards the economic improvement of these areas to prevent the people from slipping back into anarchy. The good news is that we have encountered such situations in the past and have some experience in dealing with them.

State agencies, on the other hand, plead institutional helplessness. The law breakers are often better armed and trained; they have political access and support, and the legal system poses innumerable hurdles to speedy conclusion of trials. Most importantly, the law enforcement agencies no longer command the respect and affection of the people. Therefore, the state is no longer privy to information or intelligence, and hence unable to come to grips with crime or terrorism. The only way they can enforce obedience is through ‘state terror’ – picking up suspects, holding them under draconian laws, lumping the innocent and the guilty together, and ensuring that things do not get out of hand. Little do they realise that this further alienates the public.

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The recent encounters at Lalgarh in West Bengal, seen so vividly on television, are a stark reminder of the problems that are being faced in several states. From the media, it appears as though the writ of the state does not run in a large number of districts and that there is a willing and ready supply of fighters for the rebel cause. This is indeed worrying.

Several questions arise. How do the Maoist extremists sustain themselves – who gives them money and arms? Secondly, where do they get their rhetoric and ideology from, for they all appear to be rural peasants of fairly limited educational attainments? And thirdly, what do they really want – what are their demands and aspirations?

Answers to these questions are not easy to find, nor are they satisfying. Recent aerial photography of areas where the Maoists have their pockets of influence has shown a substantial increase in the cultivation of poppy. No factories that process opium have yet been found, but this is a small garage venture, and it is possible that opium in its raw form constitutes a stable source of revenue. Of course, this also means that they have access to trade channels that are entrenched in drug trafficking, though this may not be their only source of funds. It is also clear that they have access to those who supply arms, and that the intelligence of the state has not been able to bring any of these suppliers to book. The famous air dropping of arms case in Purulia comes to mind, but we know very little about the threads that it led to. There is also evidence of extortion and forced collection of revenue from the peasants which would be yet another source of funds. In terms of ideology, the answers are somewhat easier – there are a number of intellectuals, including academics and teachers, who have espoused their cause. Dr Binayak Sen2, who was held by the police for a long time, suspect to espousing this radical cause, is an example; and there are many others, notably from Andhra Pradesh. It is interesting that this state, which has brought forth so many entrepreneurs in the last decade, is one where the differences between the rich and the poor; the urban and the rural; and the feudal nature of the society, make it a natural breeding ground for dissent against the prevalent structure of the society.

The third question, even more difficult to answer, is what exactly do that they want. Earlier peasant movements including the Naxalbari movement of the sixties sought to overthrow landlords and restore the tiller’s rights to lands and the produce. Today, ownership of land is no longer the sure way to wealth and prosperity, not even of sustained livelihood. It is also clear that the form of governance practised in Maoist-held areas is largely focused on redistribution of agricultural land and solving of village level disputes through an ad hoc judgment mechanism. What is next and what they really want are questions difficult to answer. In Nepal, after the Maoists had won their armed struggle against the monarchy, they were content to mainstream their activities through the democratic system. If this is the aspiration in India, the solutions are not difficult. But, if like the Liberation Tigers of Tamil

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Dr Binayak Sen, the national vice-president of the Peoples’ Union for Civil Liberties (PUCL) in India, was arrested in May 2007. He was granted bail by the Supreme Court in May 2009.

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Eelam (LTTE), the attempt is to destabilise the state and to bleed it endlessly, then there is no solution to the problem other than to engage them.

If we add to the above the concerns of deteriorating law and order in the major cities and the increase in crime and accidents, there is a fear that matters are slipping out of control. These threats manifest internally, with some overtones of external influences, are likely to hinder development, growth and stability.

There is still the threat of external terrorism that seeks to inculcate its ideology into the misguided youth in India. This can be handled only through better intelligence and preparedness. State police and intelligence agencies need to be better armed and protected, intelligence gathering should be digital not person-dependant, and greater surveillance over borders and coasts is necessary. This needs to be done quickly so that an effective deterrent internal security force is available. The introduction of the National Identity Card will help, and this programme should be implemented quickly, ensuring that infiltrators are properly screened before the cards are given out.

Finally, there is the issue of governance, especially in the urban areas. The average citizen has little faith in the police or the law and order machinery, and media continue to highlight the failings of the state. Unless citizens have confidence in the authorities, they will not trust them. The first step towards building trust is to establish an effective grievance redressal mechanism. If those who govern are seen as oppressors that have to be appeased or fought, there is little hope for security or peace.

Why have we come to this? Thirty years ago, a Collector in a crime-prone district used to get information about every crime committed the same day, and the name of the perpetrator within 48 hours. It was not an intelligence system that was operating – just a fair administrative system that ensured that grievances were given due attention. In return, the villages cooperated and felt that they were part of the state. The important lesson was that the state was their friend and ally.

The state and its institutions are in decay, notwithstanding the rising Sensex and the mighty conclaves of the government and the rich. They are in decay because the institutions that deal with the public have become exploitative and whimsical – seeking to deal with all dissent with a heavy hand and meting out unfair laws to a mute populace.

There is also the worry that politicians are using Maoists as a vote bank with whom electoral or commercial adjustments can be made. They are even prepared to take a soft line with the Maoists. ‘For a significant proportion of our politicians, democracy is just a career path, a

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road to power and affluence.’3 If the Maoists are able to command a proportion of votes that would get them elected, then they become a legitimate constituency.

For long-term growth and stability, institutional and governance issues are very important to address concerns of internal security.

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See K. Subrahmanyam, Business Standard (9 May 2010), ‘The dangers of playing footsie with Maoists’, http://www.business-standard.com/india/news/k-subrahmanyamdangersplaying-footsiemaoists/394207/.

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ISA S Insights No. 101 – 19 May 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Media and Maoism Robin Jeffrey1

‘More than Maoism: Rural Dislocation in South Asia’ is an ISAS research theme focusing on socioeconomic, political and security dimensions of “Maoist movements” in South Asia. The institute conducted a closed-door workshop on the research theme, and the presentations are being put together as a series of ISAS Insights and ISAS Working Papers. This is the second paper in this series.

Abstract This insight surveys transformations in the Indian media, print and electronic over the last few decades, and examines their significance for coverage of the Maoist movement. Print and electronic media have grown immensely in the past 20 years and there are numerous other outlets, such as the internet, for both the Maoists and the government to present their versions of events. Some media have been accused of being sympathetic to the Maoists. It remains to be seen how Indian media will balance freedom with responsibility and what impact newer sources of technology, such as the mobile phone, will have on the coverage of Maoism.

The ‘Maoist insurgency’ comes at a time when India lives in a totally new media environment. Every group in this drama struggles with these new conditions and seeks to use them to achieve its aims.

Such attempts to ‘make the media work for you’ were illustrated in Arundhati Roy’s vivid account, in the Outlook, of days spent with Maoist-led tribals in the forests of Chhattisgarh.2 1

Professor Robin Jeffrey is a Visiting Research Professor at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He can be reached at isasrbj@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.

Maoist leaders calculated that giving someone of Roy’s global reputation and firsthand experience of their activities would help their cause. Few other writers appear to have had similar access (see, Gautam Navlakha’s piece in the Economic and Political Weekly).3 On Roy’s part, she would have had to weigh up the extent to which she was being used. Was there a hope on the Maoist side of her becoming a 21st century Edgar Snow and writing a Red Star over India? (Snow’s Red Star over China, published in 1937, brought Mao Tse-tung to world attention).4 Indeed, Roy’s long sympathetic piece generated a surprising number of supportive responses from Outlook readers, as well as predictable calls for her prosecution as a traitor working for India’s enemies.

How new is the media environment in which the Maoist insurgency unfolds? Comparisons with earlier crises of the Indian state make clear how much things have changed. At the time of the Telengana insurgency of 1948-52, India produced 2.5 million newspapers for a population of 360 million (111 people to a daily newspaper). There was no television; the two dozen radio stations were government-run and tightly controlled; and telephones and radios were rare.

In 1968-74, when ‘Naxalites’ challenged governments in West Bengal, Andhra Pradesh and elsewhere, television was almost non-existent and, like radio, controlled by timid bureaucrats and politicians. Newspapers sold nine million a day for a population of 550 million (60 people to a daily newspaper), and India had one million telephones.

In 1984, when the Indian army battled Khalistan insurgents at the Golden Temple in Amritsar, the only television was the government’s Doordarshan which broadcast pictures of the temple only days later. The contrast with the live and out-of-control coverage of the Mumbai terrorist attack of 26 November 2008 could not be more striking.

Even at the time of the Kargil war of 1999 – India’s ‘first television war’ – commercial television was just beginning to escape from various government controls and there were perhaps 30 million homes with televisions. Newspapers sold 58 million copies a day for a population of 1,000 million (17 people to a daily newspaper) and telephones had pushed beyond 20 million. These changing conditions meant that military authorities had to look for different ways dealing with media than they had deployed during earlier war experiences in 1962, 1965 and 1971.

In 2010, another new medium has spread throughout India: 580 million cell phones. Every owner of a cell phone is a potential photographer, film maker, radio listener and librarian of audio recordings. India also has close to 130 million television households, which means 2

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Arundhati Roy, ‘Walking with the Comrades’, Outlook (29 March 2010), pp.24-59.

Gautam Navlakha, ‘Days and Nights in the Maoist Heartland,’ Economic and Political Weekly, Vol. 45, No.16 (17 April 2010), pp.38-47.

Edgar Snow (1937), ‘Red Star Over China’, (London: Victor Gollancz).

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more than half the country sleeps each night in a place with a television set. India has more than 50 television news channels, many of them plugging particular lines, which are not necessarily those of governments. India publishes 100 million newspapers a day for 1,150 million people (11 people to a daily newspaper). Up to 15 per cent of the population have access to the web.

This media environment enables ordinary people to tell their stories – and hear the stories of others – as never before. Fierce competition among scores of owners of media outlets drives these changes. The businesses and organisations include the biggest newspaper and telecom companies of Mumbai and New Delhi. At the other end of the invisible threads of communication are hundreds of millions of cell phone users, television viewers and newspaper readers.

Both Maoist ideologues and governments struggle to devise ways of telling their stories through these varied media. One of the ‘marketing’ issues in this environment is the very name of the insurgent movement itself. The term ‘Maoist’ suits both sides. The communist party mergers of 2004 agreed on Communist Party of India (Maoist) as the name for the new consolidated group. Why did they do that when a good Indian label, ‘Naxalite’, was available? ‘Maoist’ provides a vision for the oppressed people whom the ideologues seek to recruit: a brave hero Chairman Mao led struggling peasants for years before encircling the cities, capturing power and creating the modern Chinese giant (and inspiring a successful revolution in neighbouring Nepal). It is a communicator’s dream: a rousing (and selective) story told in 25 words or less.

From the standpoint of India’s ‘patriotic’ media that aim to paint the insurgents as traitors, “Maoist” also works. The word suggests something un-Indian and foreign – Chinese. Sinister and scary, it echoes with the humiliation of the 1962 war.

The opposing sides experiment with ways of influencing India’s publics. One example was the access the Maoists were prepared to give Arundhati Roy. Another is the written questionand-answer exercise that a Maoist spokesperson undertook for the Hindu.5 On the government side, state media outlets seem to be presenting more varied opinion than would once have been the case. There appears to be realisation that slow, dreary, unconvincing reporting and tried-and-true spokespersons do little to engage or convince audiences. Recent panels on Doordarshan, on the other hand, have featured a variety of analysts and opinions in ways that would once have been too controversial for government media-minders to have tolerated. Indian governments appear to be reflecting on the most effective ways of ‘manufacturing consent’.

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Hindu (14 April 2010), ‘Edited text of 12,262-word response by Azad, Spokesperson, Central Committee, CPI (Maoist)’, http://beta.thehindu.com/news/resources/article396694.ece.

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Governments also seek ways to control trigger-happy commercial media, particularly since the terror attack on Mumbai in November 2008. Commercial television at that time groped for standards: how does a medium dedicated to the fast break deal responsibly with a terrorist attack on a global icon like the Taj Hotel? As it was, live feeds helped the terrorists. And in 2010, such evidence of ‘media irresponsibility’ strengthens the hands of those who want to put tighter bonds on all Indian media in the name of national security.

YouTube videos promote causes and provide material for security forces and insurgents to study. Both sides’ video ambushes and devastation – to analyse and learn and to use as propaganda. A policeman shows Arundhati Roy a Powerpoint presentation of Maoist carnage – mutilated, burned police and blown-up schools. Gory photographs are mailed on compact disks to Members of Parliament. Intercepts of radio messages get recorded and used either for their intelligence or propaganda value. Roy tells of Maoists recording a police message instructing officers to shoot journalists who want to cover Maoist activity. The recording, when disseminated, makes media fodder for the Maoists – and no doubt gives journalists in remote towns even greater reason for caution. The dangers of being a small-town journalist in Bihar, Chhattisgarh and Jharkhand are well known. ‘I earn around Rs 5,000 every month by not writing,’ a reporter with a Hindi daily in Chhattisgarh told Shubhranshu Choudhary to explain the perils of the profession. ‘Journalism here is the art of not writing.’

The bloodshed in remote India plays out in front of urban, middle-class India. This instant, mediated guerrilla war is something Mao and Ho Chi Minh did not contend with, though one can see parallels with the awakening of the United States public opinion, through television, to the horror of the Vietnam War. Governments and insurgents will calculate how much exposure to destruction and violence helps their cause. What sorts of media provide the most effective outlet for telling their versions? And how does one determine the effects of particular kinds of media on ‘the public’, on security forces, insurgent cadres and the outside world?

Analysts will watch how governments and insurgents develop media policies. Governments will struggle to control media yet keep media credible and timely, because without prompt credibility, media lose the power to persuade. Indian media, under scrutiny for irresponsible television coverage of breaking events and for ‘pay for coverage’ scandals in newspapers, need to find ways to police themselves – or face ham-handed but constricting attempts by government to control them. And where does the New Equaliser, the mobile phone, fit into this equation? Is it a crucial device for mitigating – or promoting – insurgency? Media will not decide how this insurgency ends; but they will profoundly influence the unfolding.

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ISA S Insights No. 102 – 26 May 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

The Rise and Fall of the Maoist Movement in Pakistan Ishtiaq Ahmed 1

‘More than Maoism: Rural Dislocation in South Asia’ is an ISAS research theme focusing on socio-economic, political and security dimensions of “Maoist movements” in South Asia. The institute conducted a closed-door workshop on the research theme, and the presentations are being put together as a series of ISAS Insights and ISAS Working Papers. This is the third paper in this series.

Abstract During the late 1960s and early 1970s, Maoist ideas gained considerable popularity and influence in left politics and the labour movement, and made an impact on Pakistani mainstream politics, which was out of proportion to its political strength in the overall balance of power. Neither class structure nor the ideological and political composition of the state apparatus warranted any such advantage to Maoism. Clues to it are to be found in the peculiar power game over security and influence going on at that time between several states in that region and, perhaps, more crucially in the internal political situation surrounding the rise to power of Zulfikar Ali Bhutto (1971-77).

His fall from power, the coming into power of an Islamist regime under General Muhammad Ziaul-Haq (1977-88), and the Afghan jihad spelled disaster for leftist politics. In the 1980s, Maoism faded into oblivion.

Pakistan came into being on 14th August 1947 as a result of the failure of extended negotiations mainly between the Indian National Congress (a secular-nationalist party predominantly under modern-educated Hindu leaders) and the Muslim League (an exclusive communal party headed by modern-educated Muslims) to evolve a formula over sharing of power in a united India. 2 The 1

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Professor Ishtiaq Ahmed is a Visiting Research Professor at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He can be contacted at isasia@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.

Ahmed, I., ‘State, Nation and Ethnicity in Contemporary South Asia’ (London and New York: Pinter Publishers, 1996).

partition of India was attended by the biggest forced migration in recent history. More than one million (current estimates suggest a figure as high as two million) Hindus, Muslims and Sikhs lost their lives and some 14-17 million fled their homes in search of safe haven.

In the north-eastern and north-western Muslim majority zones that were separated from the rest of India and given to Pakistan, there was hardly any industry. Pakistan received only 9.6 per cent of the total number of industrial units (1,414 out of 14,677); 5.3 per cent of the electric capacity (72,700 kw out of a total capacity of 1,375,000 kw); 6.5 per cent of the industrial workers (206,100 out of a total of 3,141,800); and only 10 per cent of the known mineral deposits. 3 Most of the industrial units were small-scale, usually simple home-based production. The economy as a whole was agrarian and in terms of class structure, various categories of peasants and landowners constituted the bulk of the population.

Radical peasant uprisings had begun to appear in India from the beginning of the twentieth century.

Some were inspired by general anti-colonial patriotism while others came increasingly to be associated with the Communist movement. The Sikh peasantry in the Punjab was – for a number of cultural, historical and socio-economic reasons – more receptive to radical ideas than Hindus and Muslims and a disproportionately large number of Communist activists and militants had emerged from amongst Sikh ranks in the Punjab. 4 It is interesting to note that the Communist Party of India (CPI) had supported the demand for a separate Pakistan, describing it as a popular movement of the Muslim masses for national self-determination. 5 Consequently many Muslim cadres of the CPI had joined the Muslim League and during the election campaign used the public meetings as a platform to propagate the idea of Pakistan as a peasant paradise free from the exploitation of Hindu moneylenders and landlords. At the time of partition, no formal decision to split the Communist Party of India had been taken. However, the annual congress of the CPI at Calcutta in December 1948, which was attended by delegates from Pakistan, decided to split the party. Some prominent Communists of Muslim background were instructed to emigrate to Pakistan so as to help organise the Communist Party of Pakistan (CPP).

However, in independent Pakistan, hostility towards communism became a centrepiece of state ideology. In future all sections of Muslim society were to work together rather than confront one another. 6 A popular discourse drawing on notions of an Islamic order and an Islamic state began to be churned out by Muslim ulama (clerics) and rightwing newspapers. Quite simply the argument that came to characterise the discussion on the ideological foundations of Pakistan was that it was an Islamic state and, therefore, there was no place for atheistic ideologies in such a polity.

In early March 1951, Prime Minister Liaqat Ali Khan announced that his government had uncovered a plot involving some officers of the armed forces and leading members and sympathisers of the Communist Party to overthrow the government. It was alleged that the

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Gankovsky and Gordon-Polonskaya, (1972), pp. 99-100.

Josh, B., ‘Communist Movement in Punjab (1926-47)’ (Delhi: Anupama Publications, 1979). See also Singh, G. ‘Communism in Punjab’ (Delhi: Ajanta, 1994).

Adhikari, G., ‘Pakistan and National Unity’ (Bombay: People’s Publishing House, 1944).

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conspirators intended to ‘create commotion in the country by violent means and to subvert the loyalty of the Pakistan defence forces’. 7 The accused were alleged to have met several times in Rawalpindi to plan the insurgence. Among the civilians arrested was Sajjad Zaheer, the General Secretary of the CPP; Faiz Ahmed Faiz, a famous poet and editor of the radical Lahore-based English-language newspaper, the Pakistan Times; and Muhammad Husain Ata, a prominent trade union leader. The accused were tried on camera by a special tribunal. The charges could not be proved against them. The court, however, sentenced the civilians to four years in prison and a fine of Rs. 500 each. The military officers received various sentences ranging from three to seven years.

The ringleader General Akbar Khan was sentenced to a long exile of twelve years.

In any event, the prevailing policy of imposing restrictions on the activities of the leftists was made even harsher. However, the Communists and pro-Communist intellectuals continued to play a part in Pakistani politics through their support to the autonomy movements of the dominated provinces of Baluchistan, East Bengal, North West Frontier and Sindh. In the provincial elections held in East Bengal in March 1954, a united front constituted by a number of parties opposed to West Pakistani domination won 223 seats out of a total of 237 seats reserved for Muslims. These developments created panic among the ruling Muslim League government. It retaliated by alleging that the United Front and the CPP were involved in a conspiracy to undo the unity of Pakistan by supporting secessionist movements. Consequently, a ban was imposed on the CPP in July 1954. 8 Its offices were closed, records and publications impounded and all assets confiscated. A countrywide crackdown on party cadres took place. On the general political, intellectual and cultural fronts, harassment and intimidation of leftists was intensified.

Given the polarisation in international politics in the wake of the Cold War, Pakistan’s repression of leftists won it considerable acclaim from the United States (US). Pakistan joined Southeast Asia Treaty Organization (SEATO) in 1954 and the Baghdad Pact in 1955, and later Central Treaty Organization (CENTO). In October 1958, the Pakistani armed forces led by the Commander-inChief, General Mohammad Ayub Khan, overthrew the civilian but unelected government of Prime Minister Feroz Khan Noon and imposed martial law.

A view that the military was a major modernising agent in Third World countries, especially if a country lacked functioning democratic institutions and an autonomous national bourgeoisie, enjoyed significant currency in the conventional development literature produced during the 1960s.

Ayub Khan was an apt example of such a developmentalist regime. Operating within an anticommunist ideological framework it sought vigorously to promote the industrial sector (on an important substitution basis) and to modernise agriculture. Land reforms with a very high ceiling were introduced: 200 hectares of irrigated and 400 hectares of un-irrigated agricultural land in West Pakistan and in East Pakistan the ceiling was raised from 33 hectares to 120 hectares. 9 The

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Mahmud, K., ‘Pakistan Mein Mazdoor Therik’ (The Labour Movement in Pakistan) (Lahore: Maktab-e-Fikr-oDanish, 1987), p.6.

Gankovsky, Y. V. and Gordon-Polonskaya, L. R., ‘A History of Pakistan (1947-1958)’ (Lahore: People’s Publishing House, 1972), p.175.

Callard, Keith, ‘Pakistan: A Political Study’ (London: George Allen and Unwin Ltd., 1957), pp.73-4.

Khan, Mohammad Ayub, ‘Friends Not Masters’ (Karachi: Oxford University Press, 1967).

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objective was clearly to create a strong class of prosperous farmers rather than liquidate landlordism by distributing land among poor peasants.

Pakistan’s defence planning has always been based on the assumption that the main threat to its security comes from India. The 1962 Sino-India war the US had expressed support for India and begun to provide it with armament, which greatly annoyed the Pakistani leaders who argued that a militarily strong India will pose a greater threat to Pakistan. On the other hand, the Chinese government had expressed political support for Pakistan during the India-Pakistan war in 1965.

China had even threatened India and supported the Kashmir people’s right to self-determination.

Under the circumstances, Ayub Khan’s Foreign Minister, Zulfikar Ali Bhutto, worked out another strategy than dependence only on the US. Pakistan was to develop closer ties with the People’s Republic of China. 10 The latter responded warmly to such overtures since its own policy was dictated by an overriding concern to prevent the spread of Soviet influence in regions close to its borders. In turn, the Soviet Union backed India in different manners, including military and economic aid. The US looked upon the Sino-Pakistan courtship with apprehension, but its paramount concern to contain Soviet influence in South Asia suggested that the emerging relation between China and Pakistan could be a useful counter-weight.

The 1960s was also a period when the Sino-Soviet political and ideological animosity (which had been brewing for a long time) came to a head. It culminated in an irrevocable split in the international Communist movement in the early 1960s. In almost all countries outside the Soviet bloc, the Communists split up into pro-Moscow and pro-Beijing parties. While the pro-Moscow parties advocated peaceful strategies for advancing the socialist cause, their pro-Peking counterparts stood for militant armed struggle. 11 Given the exigencies and compulsions of patriotism and nationalism in modern politics, a Communist party which looked towards the same ideological centre (either Moscow or Peking) for inspiration as the one with which the state in which it was based had good relations enjoyed the advantage of working more freely than the one associating with a centre with which the state had estranged relations. Thus, while being pro-Soviet in Pakistan was considered unpatriotic, being pro-Chinese was not. In India, the situation was the reverse.

The emerging Sino-Pakistan liaison provided a leeway for a new type of radical politics in Pakistan: one could mix Maoist ideas of peasant revolution with hostility towards the Soviet Union, condemning it as a social-imperialist capitalist restorer, as Mao preached. 12 To it, if one added antiIndia rhetoric, then a sufficiently confusing and contradictory theoretical concoction was ready.

The authorities were willing to tolerate such developments as long as they remained confined to small groups.

10 11 12

Bhutto, Z. A., ‘The Myth of Independence’ (Lahore/Karachi/Dacca: Oxford University Press, 1969), pp.131-61.

Banerjee, S., ‘India’s Simmering Revolution: The Naxalite Uprising’ (London: Zed Books, 1984).

‘Chairman Mao’s Theory of the Differentiation of the Three Worlds is a Major Contribution to Marxism-Leninism’ (Peking: Foreign Language Press).

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Meanwhile Zulfikar Ali Bhutto, who had fallen out with Ayub Khan after the 1965 war, entered Pakistani politics as a major contender for power against his former patron. He founded the Pakistan People’s Party (PPP) in late 1967. The PPP quickly won a large following among intellectuals, lawyers, journalists, workers, peasants and students. Many Maoists and radical trade unionists also entered the PPP fold. However, many powerful landlords and some smaller industrialists also joined it. 13 The ideology of the PPP was a blend of radical rhetoric borrowed from Maoist jargon, nationalist fervour directed against India, democracy and Islamic socialism.

Not surprisingly, the element which distinguished the PPP’s ideology from that of the Maoists was the notion of Islamic socialism. It generated controversy and confusion both within the PPP and outside. While the radical wing of the PPP made it, its battle-cry for social revolution, the more moderate sections denied that it meant anything more than a concern for social justice in accordance with Islamic traditions. Outside the PPP, the conventional ulama and the propertied classes mounted a powerful campaign to damn the notion of Islamic socialism.

Pakistan broke up in December 1971 after the East Pakistan-based Awami League won an absolute majority in the Pakistan parliament in the 1970 general elections – winning 162 seats out of 300. It had a majority to form the government but was overruled by the West Pakistan power elite.

Negotiations between the military government, Awami League and the PPP failed. On 25 March 1971, the army struck with all its might against what it perceived was a veritable all out rebellion.

The result was a long civil war which culminated in the intervention of the Indian army on behalf of the Bengali resistance. The Pakistani army was defeated and East Pakistan became the separate independent state of Bangladesh in December 1971. 14 In the truncated Pakistan now confined only to West Pakistan, Zulfikar Ali Bhutto came to power.

Emboldened by the PPP’s coming into power, radical trade union leaders intensified militant activities in 1972. Gherao and Kabza were attempted in many industrial areas of Punjab and Sindh.

The workers established their own management committees. In some industrial areas and residential colonies the workers virtually took over the task of administration, including law and order, and prompt provision of relief and justice. 15 At the same time, the government ordered stern action against Maoist groups active among the peasants.

From the second half of the 1960s, along with populist left-leaning politics of Zulfikar Ali Bhutto and his PPP, many of whose cadres and a few leaders such as Mairaj Muhammad Khan professed Maoist sympathies, more radical revolutionary Maoists established their presence in the trade unions and university campuses. The Pakistan International Airlines trade union was firmly with Maoists and their student wing, the Nationalist Students Federation (NSF), emerged as a powerful force on the Karachi University Campus. In Punjab, the Nationalist Students Organization (NSO) represented Maoist ideas. Maoists with some presence in the industrial areas and towns formed the

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Waseem, M., ‘Politics and the State in Pakistan’ (Lahore: Progressive Publishers, 1989).

Ahmed, Ishtiaq, ‘State, Nation and Ethnicity in Contemporary South Asia’ (London and New York: Pinter Publishers), pp.222-3.

Mahmud, Khalid, ‘Pakistan Mein Mazdoor Therik’ (The Labour Movement in Pakistan) (Lahore: Maktab-e-Fikr-oDanish, 1987), pp.61-4.

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Pakistan Socialist Party led by C. R. Aslam and Abid Minto, while those with a peasant-orientation went on to form the Mazdoor-Kissan Party (MKP).

The MKP was founded in 1968. It was a product of the split in the National Awami Party (NAP) into a pro-Moscow, West Pakistan-based wing led by Wali Khan, son of the Frontier Gandhi Abdul Ghaffar Khan, and the East Pakistan-based Maulana Bhashani. In West Pakistan, the Maoists broke away from the National Awami Party (NAP) (Wali Khan) and founded the MKP under the leadership of Afzal Bangash, a Pukhtun like Wali Khan. In 1970 Major (Retd) Ishaq Muhammad from the Punjab joined it along with his supporters. 16 The MKP was able to launch a number of peasant resistance initiatives but the most spectacular was the one in the North-West Frontier Province among the Pukhtuns. The Pukhtuns were the only nationality in Pakistan in which all sections of society bore firearms. As a result, there were militant confrontations between landlords and peasants in the North-West Frontier Province (NWFP) in the late 1960s and early 1970s. Fighting continued during the military regime of General Yahya, and from 1972 onwards when in the NWFP a coalition government led by NAP (Wali Khan) and an Islamist party, the Jamiyat-Ulama-e-Islam was in power while Bhutto’s PPP ruled at the centre, and in Punjab and Sindh.

The NAP-JU government supported the landlords and banned the MKP. One of the most spectacular clashes between the peasantry and the state took place in July 1971 at Mandani. A heavily-armed force consisting of 1,500 policemen clashed with a smaller force of MKP cadres, the poor and landless peasants. Another struggle took place when nearly 8000 police and militia fought MKP fighters and the local peasants. The struggles in the Hashtnagar area of the NWFP liberated an area of approximately 200 square miles and inspired similar movements all over Pakistan. 17 In Punjab, the MKP was involved in similar initiative in the western and southern regions where big landlordism was strongly entrenched. However, police repression in such areas proved too strong for the largely unmarked MKP cadres and peasant activists. Many of them were jailed and tortured. Bhutto’s fall from government in 1977 brought into power a rabidly rightwing government under General Muhammad Zia-ul-Haq. After Pakistan joined the Afghan jihad in 1979, militant Pukhtuns were absorbed by the campaign to oust the Russians from Afghanistan. In the rest of Pakistan, leftists were also greatly marginalised as the state embarked upon comprehensive Islamicisation of state and society.

The MKP was an anti-imperialist party open to all progressive individuals. At its core was a hardcore communist leadership consisting of theorists, trade union activists, and peasant leaders and organisers. The MKP allied itself with China and supported its line in international politics as 16

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Salim, Ahmad, ‘Peasants Lands Rights Movement of Pakistan’, Islamabad: Sustainable Development Policy Institute (SDPI) (2008), pp.43-44, www.sdpi.org/research_Programme/human_development/wlr/wlr_Peasants%20Land%20Rights_final.pdf.

Accessed on 12 April 2010.

‘The Rebel Road, History of the Communist Mazdoor Kissan Party’, http://redtribution.wordpress.com/history-ofthe-communist-mazdoor-kissan-party/. Accessed on 12 April 2010.

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well as on the question of the revolution in Pakistan. The peasantry was declared as the main force of the revolution armed with Marxism-Leninism and Maoism. Major Ishaq wrote a number of articles and plays dealing with the oppression of the people in general, while highlighting in particular, the very sad plight of the indigenous people. The Punjabi faction of the MKP led by Major Ishaq was openly anti-Indian and subscribed to the view that the Soviet Union was a social imperialist superpower. The Afzal Bangash factions however were more practice-oriented and somewhat wary of taking an open stand against the Soviet Union. However, after the Communists captured power in Afghanistan, all factions of the MKP welcomed it and supported it as a progressive revolution. Such developments resulted in repression against the MKP being redoubled by the Zia regime.

The MKP split into different factions in the late 1970s. Major Ishaq and Afzal Bangash became bitter rivals, both accusing each other of betrayal. Following the death of Chairman Mao Tse-tung, China abandoned its revolutionary fervour. That had a profoundly demoralising effect on the Pakistani Maoists. The Pakistani state did not function even as a formal bourgeois democracy and the few years of Maoism’s popular appeal were a product of a regime coming into power under Zulfikar Ali Bhutto that was pro-China and also flirted with ideas of socialism. All that became irrelevant in the 1980s.

The Pakistani Maoists survive in several small factions. There are also a number of MKPs. The Maoists continue to pledge a commitment to a peasant revolution based on Mao Tse-tung's ideas.

They cooperate with other leftist and democratic forces in the struggle for workers’ and peasants’ rights. In recent years, they took part in some peasant resistance struggles on military farms but Maoism is not an important force in Pakistani politics today.

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ISA S Insights No. 103 – 02 June 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

The Maoist Movement in Sri Lanka Dayan Jayatilleka1 ‘More than Maoism: Rural Dislocation in South Asia’ is an ISAS research theme focusing on socioeconomic, political and security dimensions of “Maoist movements” in South Asia. The institute conducted a closed-door workshop on the research theme and the presentations are being put together as a series of ISAS Insights and ISAS Working Papers. This is the fourth paper in this series.

Abstract This paper examines the rise and decline of the Maoist movement in Sri Lanka. It provides a background to the history of Sri Lankan Maoism and looks at the split between the Pro-Moscow and Pro-China groups in 1964. The high point of Maoism in Sri Lanka was the close relationship Nagalingam Sanmugathasan of the Ceylon Trade Union Federation (CTUF) developed with Chairman Mao Tse-Tung and other leaders of the Communist Party of China during the Cultural Revolution. Though some conditions were favourable for Left mobilisation, the movement fizzled out in Sri Lanka. The paper also provides possible explanations for the failure of the movement. These include a disconnect between Maoist doctrine and socio-political realities, the ‘right’ turn in China’s foreign policy, the Sino-Vietnam and Sino-Albanian schisms, and the Tamil ethnicity of Sanmugathasan and his age, which precluded him from participating in armed struggle. A notable feature of the Maoist movement is that the Janatha Vimukthi Peramuna (JVP), which resorted to major armed uprisings twice within twenty years, resulted from a split within the Maoist party.

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Dr Dayan Jayatilleka is a Visiting Senior Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He was the former Permanent Representative and Ambassador of Sri Lanka to the United Nations. He can be reached at isasmdds@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.

The story of Sri Lankan Maoism is a paradox. Apart from Nepal, Sri Lanka has been the scene of the most efficacious, armed and ideological insurgencies in South Asia. It has seen two such insurrections launched by the same party, the JVP; the first in April 1971 and the other in 198689 which seriously threatened state power. Thus, Sri Lankan Maoism must be viewed against the backdrop of two significant attempts at armed insurrection.

The fact that though the attempts did take place – thereby indicating the availability of a clear space for a revolutionary Left – they did not spring from a Maoist movement indicating the failure of Sri Lankan Maoism. However, the fact that the JVP, though not itself a Maoist movement emerged from the bowels of the Maoist movement and its leading cadres were for the most part ex-Maoists, is evidence of the fecundity of Sri Lankan Maoism.

When the Maoists split from the pro-Soviet party in 1964, the new movement was distinguished by the fact that it had been able to carry the main trade unions of the pro-Moscow party with it, which was a rarity in most parts of the world. The CTUF was led by Sanmugathasan, who was the initiator of the breakaway from the pro-Soviet party and took the union federation along with him. The cadre leading the All Lanka Peasants’ Congress also went along with Sanmugathasan.

Even more striking was the role played by the Sri Lankan Maoist leader internationally.

Sanmugathasan was a well-known ideologue of the national rather than merely the regional or youth sections of the parent Communist party, unlike the leaders of most Maoist breakaways the world over. Sanmugathasan’s skills with the English language and his knowledge of MarxistLeninist doctrine made him an ideal instrument for the Communist Party of China in the global polemic with the pro-Moscow parties and splinters. The histories and anthologies of political literature of that period showed the Ceylon Communist Party, as the Maoists were known, the chance to punch above their weight.

The high point of Maoism in Sri Lanka were the meetings that Sanmugathasan had with Chairman Mao and the zenith was clearly the May Day on which he stood by Mao, taking the salute as the sun rose and Mao was hailed by hundreds of thousands of Red Guards in Tiananmen Square.

It was downhill all the way after that. Several key youth and student leaders of the party broke away from it. These included Rohana Wijeweera who went on to form the JVP, launched two insurrections fifteen years apart, and died at the hands of the government in November 1989.

When the April 1971 insurrection broke out, Sanmugathasan who had been one of the most acerbic ideological critics of the JVP was jailed along with them by Prime Minister Sirima 2

Bandaranaike, to whom they all looked and sounded alike. Sanmugathasan was to suffer a double blow. When he was released from jail, his party had split, with a faction adopting the new foreign policy of China, best exemplified by its line on Sri Lanka and Sudan where it supported governmental suppression of communists and radical leftists it suspected were under the influence of the USSR. This rightward shift in China’s foreign policy was the cause and consequence of its new rapprochement with the United States under Richard Nixon.

Sanmugathasan was not entirely and utterly orphaned, though. Having opposed Deng Xiaoping’s alleged restoration of capitalism in China and supported Albania (not to mention about obtaining support from the latter), he broke with it and guided his vastly diminished party into the Revolutionary International Movement (RIM), which coordinates far left Maoist insurgencies in Asia, including the Naxalites of India.

Preaching Maoist dialectics, Sanmugathasan was fond of emphasising the primacy of internal over external factors in the development of a phenomenon or process. Using the same methodology, one may say that Sri Lankan Maoism was undone far more by internal rather than external factors, such as the turn in China’s foreign policy, though it did play its part. Three factors can be identified: 1. Ethnicity: the Maoist leader Sanmugathasan was from the Tamil minority and therefore would be unacceptable to the Sinhala majority – a point made by the most significant of the youth dissidents Rohana Wijeweera (who was to become the founder-leader of the JVP), albeit sotto voce, and more hinted at than openly expressed.

2. Generations and political practice: Sanmugathasan was an old man, known to have a bad back and an upper middle class lifestyle; therefore he was perceived as preaching People’s War but incapable of the practice of armed struggle.

3. Disconnection between doctrine and socio-political reality: Maoist formulae were criticised as being irrelevant outside their time and place, namely colonial or semi colonial societies with backward agrarian structures characterised by large landholdings.

Sri Lanka, by contrast, was a modern nation state, capitalist rather than feudal, with capitalist relations or petty commodity production predominant in the countryside. Thus, the ‘stage of the revolution’ was held to be ‘socialist’ rather than ‘new democratic’.

Of the three reasons listed above, the third seems especially relevant because of the failure of other Maoist organisations, led by younger, educated Sinhalese (which therefore were immune to 1 and 2 above).

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However, the fact that the JVP with its unusual admixture of ultra-leftism and Sinhala xenophobia was easily the strongest and most consequential of all anti-systemic or anti-capitalist formations to appear in Sri Lanka, also lends weight to the salience of factor 1.

The Maoist splinters from Sanmugathasan’s party, which had followed the rightward shift of Chinese foreign policy and adopted the Theory of the Three Worlds2 (enunciated by Deng Xiaoping at the United Nations (UN) General assembly in 1974), joined the mainline Sri Lanka Freedom Party (SLFP) of the Bandaranaikes. Having played a part in the anti-Soviet, antiVietnam, anti-Cuba polemics during Sri Lanka’s stewardship of the non-aligned movement, these elements dissolved into the SLFP, supporting more populist, Sinhala nationalist and in some cases, anti-Indian policy stances and personalities within and by that party.

The history of Sri Lankan Maoism contains a mystery of a development that was not. In the late 1960s, the Jaffna branch of the Maoist Party of Sanmugathasan, then in its heyday, had led a violent mass struggle, prefiguring those of today’s Naxalites in India against caste oppression in the mainly Tamil North. Though this struggle was displaced by the emerging Tamil secessionist movement, the left wing of that movement had been influenced by and had considerable respect for the struggle waged by the Maoists. However, despite the invocation of the slogan of a national liberation struggle and the arguable approximation of the conditions in the Tamil areas to those that Asian Maoism took root in, and despite the Tamil ethnicity of the founding father of Lankan Maoism, none of the Tamil Eelam armed movements were Maoists [except for a small, short lived group called the National Liberation Front of Tamil Eelam (NLFT) which soon spawned a breakaway, the People’s Liberation Front of Tamil Eelam (PLFT)].

The lasting residue of the Maoist movement in Sri Lanka then seems to be an ideological gloss and glossary for anti-Indian sentiment that erupts intermittently within the JVP and the Liberation Tigers of Tamil Eelam (LTTE).

The abiding irony of history, though, is the poignant relevance of the essays written by Sanmugathasan in the mid 1980s, reminding the emergent Tamil armed movement of Mao’s Rules of Discipline and Points for Attention, cautioning the young militants against terrorism and killing of civilians, and preaching the doctrine of Protracted People’s War in which, mass organisations form the foundation and politics in command (‘all political power flows from the barrel of the gun but the party commands the gun and not the gun the party’- Mao). Had Velupillai Prabhakaran heeded this advice of an older Tamil militant leader who once stood 2

Speech by Deng Xiaoping at the Sixth Special Session of the UN General Assembly, 10 April 1974. People’s Daily (11 April 1974), p.2. ‘In 1974, Deng Xiaoping delivered a speech at the Sixth Special Session of the UN General Assembly on behalf of the Chinese government, in which he systematically set forth Mao Tse-Tung's thesis of the three worlds’, www.chinadaily.com.cn/english/doc/2004-06/25/content_342508.htm.

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alongside Mao, his militia and he may not have been obliterated on the banks of the Nandikadal lagoon in 2009.

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ISA S Insights No. 104 – 25 June 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Maoism in Bangladesh: Past, Present and Future Iftekhar Ahmed Chowdhury1

‘More than Maoism: Rural Dislocation in South Asia’ is an ISAS research theme focusing on socio-economic, political and security dimensions of “Maoist movements” in South Asia. The institute conducted a closed-door workshop on the research theme and the presentations are being put together as a series of ISAS Insights and ISAS Working Papers. This is the fifth paper in this series.

Abstract Bangladesh, or rather the territory now comprising it, which is the eastern part of the British Indian Province of Bengal, has had a strong tradition of Left politics dating back to the Colonial Period (1857-1947). This should have made it a fertile ground for the latter-day Maoist insurgency. Despite the intellectual and political heritage, this has not come to pass.

The paper explains and analyses the reasons behind such non-occurrence and also why the expected ‘domino-effect’ has not taken place despite the situation in the neighbouring India and Nepal. It argues, however, that there is no room for complacency as the potential for danger exists. This includes a new tactical alliance between the Islamist fundamentalists and the Maoist radicals called the ‘United Front’. The paper concludes by underscoring the need to address the problem through appropriate policy measures, regional and international cooperation, and eternal vigilance.

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Dr Iftekhar Ahmed Chowdhury is a Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.

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Colonial Backdrop Bangladesh has had a history of a strong tradition of Left politics. During the colonial period, particularly between 1857 and 1947, the region then constituting the eastern portion of Bengal witnessed a number of peasant uprisings. The common population of eastern Bengal comprised mostly Muslims, and the feudal landlords, or Zamindars, who were mostly Hindus.2 The umbrage of the peasantry was directed against both the Zamindars and the British rulers.3 However, the fact that some of the leaders of the movements were Hindus laid the basis of a secular culture that has been a hallmark of Left politics of East Bengal ever since. Two early instances of such uprisings were the ‘Indigo Riots’ also known as Nilbidraha, resulting from the coercion of the peasants by British planters to produce the crop at a loss4 and the ‘Pabna Rent Revolt’ of 1873, a protest against absentee landlordism.

Initially, the British tended to favour the landlords and their legislations facilitated rentextraction, but eventually they enacted tenancy protection laws aiming at forestalling peasant agitation.5 An example would be the Bengal Tenancy Act of 1885 that defined the obligations of both Zamindars and Raiyats (rent paying peasants).6 The Partition of 1947 divided the subcontinent into the two Dominions of India and Pakistan.

East Bengal became a part of Pakistan and West Bengal of India. While the struggle for the Indian independence was led by the Congress party and that of Pakistan by the Muslim League, the hardcore Communists of both Bengals, all members of the Communist Party of India (CPI) founded in 1920 clung on to the notion that yeh azadi jhoota hai, meaning ‘this independence is false’. This was because they did not see this as entailing the economic

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Following the advent of Muslim conquerors in Bengal in the 13th century, there were large conversions among the inhabitants from Hinduism and Buddhism to Islam. This was partly due to the Hobson’s choice before them and partly because of their distaste for ‘a rigid system of caste discipline’ (E.A. Gait, Census of India, 1909, Vol.6, Part 1, Report, p.165). This happened largely in the deltaic East Bengal, whereas the western portions, because of better communications and more stable form of cultivation that contributed to social differentiation, was integrated into the Hindu culture of the Upper Gangetic Plains. See Premen Addy and Ibne Azad, ‘Politics and Society in Bengal’, in Robin Blackburn (ed.), Explosion in a Subcontinent (Penguin, 1975), pp.80-82.

The Permanent Settlement Act of Lord Cornwallis (1793) created the social conditions in East Bengal that were primarily responsible for such sentiments. See Rajat and Ratna Ray, ‘Zamindars and Jotdars: A Study of Rural Politics in Bengal’, Modern Asian Studies, Vol.9 (1975), p.101.

For studies on the two events, see Kalyan Kumar Sengupta, ‘The Agrarian League of Pabna, 1873’, The Economic and Social History Review, Vol.7, no.2, (June 1970), pp.253-270; and Chittabrata Palit, Tensions in Rural Bengal Society: Landlords, Planters, and Colonial Rule, 1830- 1860 (Calcutta: Progressive Publishers, 1975), pp.140-151.The ‘Indigo Riots’ were the subject of a famous Bengali play called Nil Durpan (literally ‘Mirror of Indigo’ written by Dinabandhu Mitra in 1858-1859.

Dietmar Rothermund, Government, Landlord and Peasant in India: Agrarian Relations Under British Rule (Wiesbaden: Franz Steiner Verlog GMBH, 1978), p.89.

‘Banglapedia: Survey and Settlement Operations’, National Encyclopedia of Bangladesh 2006, www.banglapedia.org/httpdocs/HT/S_0621.HTM. Accessed on 14 May 2010.

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emancipation of the working classes.7 For now, though, such sentiments were submerged in the waves of euphoria as also the horrendous rioting that accompanied the birth of the two sovereign nations.

Left Politics in East Pakistan Two developments took the wind out of the sail of left extremism in East Pakistan (called ‘East Bengal’ till Pakistan became a Republic in 1956 when it formally became known as ‘East Pakistan’). One was the migration of nearly two-thirds of the total of 20,000 CPI members in East Bengal to India in the aftermath of the 1950 communal riots since they were Hindus.8 The second was the adoption of the State Acquisition and Tenancy Act 1950, by which a conservative Muslim League government in East Bengal was able to pass what was seemingly a progressive piece of legislation. This was vastly facilitated by the fact that most of the affected were Hindu landlords or Zamindars, no constituency of the Muslim League in any case, who had by then already moved to Calcutta.

The East Bengal State Acquisition and Tenancy Act 1950 had a profound impact in creating a more egalitarian society in that province of Pakistan than what was the case in the Punjab, Sindh, Baluchistan or the Frontiers, (Pakistan’s other provinces – all located in the western wing of the country) mainly due to two reasons. First, by removing the Zamindars from the scene, the Act eliminated what extreme radicals would call srenishotru (or ‘class-enemy’).

Second, the State through the District Collector (also known as District Magistrate) could deliver ‘development’ or governance goals like law and order more directly to the raiyats.

Thus, being perceived as ‘benefactors’ rather than ‘exploiters’. These elements rendered radical slogans much less credible.

For a variety of reasons including the language movement of February 1952, in which the Muslim League was seen to be supporting Urdu as State language as opposed to Bengali in the provincial elections held in East Bengal in 1954, the government was swept out of office by a combination of parties known as the Jukto Front or United Front. The United Front was perceived to be more reflective of the basic urges of the common people, a major player in it being the Awami League, later headed by Sheikh Mujibur Rahman to shepherd the independence struggle for Bangladesh in 1971.9 By 1956-57, an Awami Leaguer, H S Suhrawardy was the Prime Minister of Pakistan. It was as a mark of protest against his 7

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Saurabh Jyoti Sharma, ‘Evaluating Jyoti Basu’, Voice of India Features (7 February 2010), http://voi.org/07feb2010/saurabhjyotisharma/column-saurabhjyotisharma/evaluatingjyotibasu.html.

Accessed on 10 May 2010.

This fact obtained from, Marcus Franda, ‘Communism and Regional Politics in East Pakistan’, Asian Survey, Vol.10, no.7 (July 1970), pp.588-606.

Iftekhar Ahmed Chowdhury, ’Pre-history of Bangladeshi Nationalism and a Theory of Tripartite Balance’, Asian Affairs, Vol.IV, no.IV, December 1982, pp.417-418.

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pro-western foreign policy that the socialist-oriented cleric, Mowlana Abdul Hamid Khan Bhashani, left the Awami League and founded his own National Awami Party (NAP).10 But while the mainstream socialist politics of Bhashani found empathy with the martial law government of President Mohammad Ayub Khan, soon to become a close ally of China, there was a more radical revolution-oriented party slowly burgeoning as heir to the CPI, the Communist Party of East Pakistan (CPEP).

The Communists and the Bangladesh Movement The international communist movement was dichotomised into two separate camps by 1962 on the question of the adoption of the appropriate Marxist techniques. The CPEP was no exception. It was consequently split into the more moderate pro-Moscow and the more radical pro-Peking factions. The pro-Moscow faction led by Comrade Moni Singh, a former Hindu Zamindar and CPI-member, argued for the establishment of socialism through a peaceful parliamentary process – a tactic not very much unlike that of Bhashani (NAP), or that of the pro-Moscow NAP headed by Professor Muzaffar Ahmed. The pro-Peking wing of the CPEP, on the other hand, led by Mohammad Toaha and Sukhendu Dastidar advocated the line of revolutionary class struggle that came to be known as Maoism. Indeed in 1967, a group of young Communists under the leadership of Siraj Sikdar founded the Mao-Thought Research Centre in Dhaka.11 That was the origin of Maoist politics in the region, now Bangladesh. The pro-Peking wing of the CPEP splintered into over a dozen factions during the Bangladesh movement and its aftermath.

The Bangladesh movement in 1971, immensely popular among the masses, threw the CPEP into a theoretical quandary. Apart from Mohammed Toaha, the other person with a significant profile on the issue was Abdul Huq. The break-up of Pakistan generally appeared to them to be giving into the machinations of the Indo-Soviet ‘duet’ of ‘Indian expansionism’ and ‘Soviet hegemonism’. Abdul Huq was stronger in his view that the disintegration of Pakistan would bring aid and comfort to the Soviet ‘hegemonists’ and the Indian ‘expansionists’ than Toaha, who later initiated the concept of a two-way war against the Pakistan Army and the Awami League.12 The Huq line appears to have attracted the favour of China. China opposed the break-up of Pakistan but confined itself to making only ‘sympathetic noises,’ without using any kind of

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M. Rashiduzzaman, ‘The National Awami Party of Pakistan: Leftist Politics in Crisis’, Pacific Affairs, Vol.XLIII, no.3 (Fall 1970), p.395.

M. Nurul Amin, ‘Maoism in Bangladesh: The Case of the East Bengal Sarbohara Party’, Asian Survey, Vol.26, no.7 (July 1986), pp.759-773.

For a study of the positions of the radical Bengali political parties towards the Bangladesh Movement, see Talukdar Maniruzzaman, Radical Politics and Emergence of Bangladesh (Dhaka: Bangladesh Books International, 1978), especially pp.51-52.

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military force to come to Pakistan’s rescue.13 Indeed, Huq’s views, along with similar ones held by Ashim Chatterjee of CPI (Marxist-Leninist), were broadcast on ‘Radio Peking’ and its ally ‘Radio Tirana’.14 The fact that the Communists and the ultra-radicals went against the grain of public opinion, which was overwhelmingly supportive on the issue of the independence of Bangladesh, was to cost them and their fellow-travellers like the Maoists dearly in political terms later on. Ironically, the same was true of also those on the other extreme in the political spectrum, the Islamists.

Siraj Sikdar and the ‘Sarbaharas’ Siraj Sikdar, who headed the splinter group of the young Communists who established the Mao-Thought Centre in Dhaka in 1967, adopted a line on the Bangladesh struggle that was different from his other pro-Peking comrades. The Sikdar faction opposed both Pakistan and India as colonial powers. Seeking the formation of a Democratic Republic of East Bengal, they set up the ‘Purbo Bangla (East Bengal) Sarbahara (‘Have-nots’, literally ‘those who have lost everything’) Party (PBSP) in June 1971. After Bangladesh’s emergence as a sovereign country, the PBSP carried on their militant struggle against the Mujib government.

Their intellectual propaganda machine was a pamphlet called Lal Jhanda or ‘Red Flag’.

Sikdar was killed in January 1975, and thereafter the PBSP further splintered into various groups; their militancy losing steam. Around this time the extreme left faction of the ruling Awami League, espousing ‘scientific socialism’ broke off to form the Jatiya Samajtantri Dal (JSD, literally the ‘Nationalist Socialist Party’, but bearing no resemblance whatsoever with the one with a similar name earlier in Germany). The JSD also lost momentum in the late 1970s with the execution of Colonel Abu Taher and the strong measures adopted by then strongman, and later President, Ziaur Rahman.15 While by the end of the 1970s, the Maoist movement had largely lost its bite in Bangladesh and it struggled to survive intellectually, drawing nourishment from the burgeoning activities of its counterparts in neighbouring India. As we will see later in the essay, it also managed to establish some regional and international linkages. The remnants of the Sikdar-line brought out a pamphlet recently that criticises ‘deviationists’ and seeks to project the correct path which according to them is as follows: …We don’t believe in empty theory. [Chairman Mao] has shown that the main law of contradiction is the law of unity of opposites. He has explained the transformation of quantity 13 14 15

Stephen Philip Cohen, The Idea of Pakistan (Washington DC: Brookings Institution Press, 2004), p.73.

Tariq Ali, ‘Pakistan and Bangladesh: Results and Prospects’, in Robin Blackburn (eds), op cit, p.318.

For an interesting account of this period, see Lawrence Lifsschultz, Bangladesh: The Unfinished Revolution (London: Zed Press, 1979).

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into quality by the law of the unity of opposites. And he has said that the negation of negation does not exist as a law. What exists is the unity of the opposite of affirmation and negation.

[Mao] established monism by discarding the trip list doctrine of development…He, by correcting Engels’ formulation regarding freedom showed that freedom is not only understanding necessity but its transformation too…16 The problem with this esoteric, heavily-laden philosophical discourse or approach was that it was not possible to use this as a means for generating support among the broad masses. Its appeal could only be confined to a few intellectuals among the universities and civil society.

But without mass support militant Maoism would lack potency in Bangladesh to achieve any of its goals.

External Influences Doubtless, there were external influences. Perhaps, the foremost came from next door, Naxalbari of West Bengal in India. There a section of the CPI (Marxist-Leninist) led by Charu Majumdar, Kanu Sanyal and Jangal Santhal had initiated a bloody uprising in 1967.17 Today, the Naxalites are seen as the forerunners of the wave of Maoist insurgency sweeping across several Indian states. But, in West Bengal by the 1970s, the government had also managed to crush the Naxalite insurgency with an iron hand, just as it was nipped in the bud by the Bangladesh authorities.

The success of the United Communist Party of Nepal (Marxists) would have been something to emulate for the Bangladeshi Maoists but for several reasons. First, by the time its leader, Pushpa Kamal Dahal, better known as Prachanda or ‘the fierce one’ had successfully organised the ‘people’s war’ on the basis of the Maoist dictum that ‘power flows from the barrel of a gun’ from the mid-1990s to 2008 when he assumed power, Maoism was already a spent force in Bangladesh. Secondly, unlike in Nepal, there was no major goal of a constitutional change acceptable to the masses such as the change from monarchy to a republic. Finally, there were few takers of the Prachanda Path in Bangladesh, his ideology based on his paper ‘The Great Leap Forward: An Inevitable Need of History’. So, ironically, even ‘the most successful Maoist insurgency in the world in decades’, as an analyst described it,18 had little impact on Bangladesh, which was next door. However, Bangladeshi Maoists interacted with their Nepalese counterparts in regional and international fora, as we shall see.

16

17

18

‘Maoist Party in Bangladesh Reorganizes’, Anubad Sahitya Potro, (10th issue). http://southasiarev.wordpress.com/2009/12/13/maoist-party-in-bangladesh-reorganizes/. Accessed on 7 May 2010.

See Sankar Ghosh, The Naxalite Movement: A Maoist Experiment (Calcutta: Firma KL Mukhapadhyay, 1975).

Manish Thapa, ’Evolution of Maoism in Nepal: Understanding Maoist Insurgency from Wider Perspective’, Panorama, www.tigweb.org/express/panorama/article.html?Content ID=6491. Accessed on 12 May 2010.

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Developments within China itself were of little assistance to the Bangladeshi Maoists. The horrors of the ‘Cultural Revolution’, which were to reveal that Maoism had ‘no notion of limits’,19 were of no help in enhancing the attractiveness of ‘Mao-thought’. Also, China was always more focused on developing close Beijing-Dhaka ties and had no interest in destabilising the Bangladesh state, which it was beginning by then to be seen as an ally, like Pakistan in many ways and unlike India.20 The reforms introduced in China by Deng Xiaoping obviously did not correspond to what was perceived as ‘Mao-thought’ by the Bangladeshi Maoists. However, the Chinese reformers including Deng, were careful to stress that the revolutionary side of Maoism was separate from the governance side, leading to the now famous observation that Mao was ‘70 per cent good and 30 per cent bad’.21 Some writers saw Maoism as a third way between capitalism and communism, attempting to combine Confucianism with socialism.22 There was, however, a school of thought that exerted some influence in shaping the thoughtprocess among the intelligentsia, particularly among the students and scholars of the University of Dhaka, which has always made a major contribution to the politics of the nation. This was the ‘dependencia’ school of neo-Marxist economists from around the developing world, in particular, Latin America. Its proponents powerfully argued that any relationship involving foreign aid deepens structural dependency, exploits the ex-colonial ‘periphery’ for the benefit of the former colonial powers, now the metropolitan ‘centre’ and creates a ‘comprador-elite’ class to do its bidding. The only path to development was to sever the relationship, better still in all forms, if necessary through a revolution.23 For an aiddependent country, which Bangladesh was in the 1970s and to a certain extent, though far less, is also today, these thoughts were very relevant. These ideas, thus, should have fed radical thinking. However, in Bangladesh, they ran counter to actual experience, for the country was able to use external assistance very effectively, for among other things, alleviating poverty.24 So these concepts brought no grist to the Maoist mills.

19

20 21

22 23

24

Dayan Jayatilleka, Fidel’s Ethics of Violence: The Moral Dimension of the Political Thought of Fidel Castro (London: Pluto Press, 2007), p.168.

Iftekhar Ahmed Chowdhury, A Method in the Dragon’s Moods, ISAS Working Paper No.75, p.12.

This assessment of Mao by Deng is reportedly based on Mao’s own earlier assessment of Stalin. See, ‘Interpreting Mao’, Beijing Review, No. 40, 5 October 2006, updated 10 December 2006. www.bjreview.com.cn/nation/txt/2006-12/10/content_50364.htm. Accessed on 11 May 2010.

Martin Cohen, Political Philosophy from Plato to Mao (London: Pluto Press, 2001), p.206.

To cite some examples: Andre Gunder Frank, The Development of Underdevelopment (Monthly Review Press, 1970); Samir Amin, Unequal Development: An Essay on the Social Formation of Peripheral Capitalism, Trans. Brian Pearce (New York: Monthly Review Press, 1976); and Gerard Chiliand, Revolution in the Third World: Myths and Prospects (Sussex: The Harvester Press, 1977).

See M.A. Muhith: ’Is Foreign Aid Essential for Development in Bangladesh?’, Seminar Paper, Department of Economics, University of Dhaka, 10 November 1978. The conclusion of the author, then a senior government official, was that it was. Muhith has been the Finance Minister of Bangladesh since January 2009 in the Awami League-led cabinet of Prime Minister Sheikh Hasina.

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A major factor that has been the cause in the spread of Maoism in India was absent in Bangladesh. This was the large number of Memoranda of Understanding entered into by the government for mining and mineral based industries, resisted by the masses of the poorer states, mainly tribals, which is the reason the Indian government launched ‘Operation Green Hunt’ in the jungles.25 This is a war that the author Arundhati Roy has said that ‘India is both proud and shy of’.26 Another is the disaffection among the tribal population. In India, the Maoist insurgency has a resonance among these people. In Bangladesh, the insurgency among the tribals in the Chittagong Hill Tracts was largely ended by the signing of the 1997 Peace Accord between the then Awami League Government and the Parbatta Chattagram Janasanghati Samity (PCJSS), the main political platform of the tribal resistance. While there have been complaints about its slow implementation and occasional conflicts between the tribals and settlers from the plains, the government has invested heavily in the area in developmental terms.27 Overall, it appears that the retractors among the tribals are not making efforts for a common cause with Maoist remnants.28

International and Regional Linkages The fledgling Maoists of Bangladesh, however, do maintain international and regional linkages. In 1984, the Revolutionary International Movement (RIM) was created as an international Communist organisation to uphold the values and principles of MarxismLeninism-Maoism. Its broad purpose was to try and form a Communist International of a new type. It was to rely on the Maoist strategy of a ‘people’s war’ as being the best method of effecting Marxist revolutions in the developing world. Its membership includes several of the Bangladeshi Maoist groups, such as the PBSP, a splinter group formed in 2001 called Purbo Baglar Sarbahara Party (Maoist Bolshevik Reorganization Movement) and the Bangladesh Samyabadi Dal.29 Again, the last could hardly be said to be revolutionary as its leader, Dilip Barua, sits in the current Bangladesh Cabinet.

At a regional level, there exists the Coordination Committee of Maoist Parties and Organisations of South Asia (CCOMPOSA). The various Sarbohara factions and the Samyabadi Dal are also its members. The South Asian Maoists meet one another, often in secret gatherings. Some linkages are naturally created at these events, particularly, among the 25

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28 29

Gautama Navlakha, ‘Days and Nights in the Maoist Heartland’, Economic and Political Weekly (17-23 April 2010), Vol.XLV, no.16, p.47.

Arundhati Roy, ’Walking with the Comrades’, Outlook India.com (29 March 2010), www.outlookindia.com/article.aspx?264738. Accessed on 11 May 2010.

The author was the Adviser (Minister) to the Bangladesh Government in charge of Chittagong Hill Tracts Affairs during 2007-2008.

Ekramul Kabir, 'Terrorism in Bangladesh: How Long the Denial?’, Daily Star (19 February 2006).

Mohosin Al Abbas, 'Maoism in South Asia: Insurgency or Movement’, Ground Report, www.groundreport.com/opinion/Maoism-in-South- Asia-Insurgency-or-Movement/2865458. Accessed on 7 May 2010.

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Indian Maoists, the Janata Vimukti Paramuna (JVP) of Sri Lanka, the communist Party of Ceylon (Maoist) and the Nepalese Marxists and Maoists. In fact, analysts have observed that it would be ironical if the notion of SAARC cooperation was ‘hijacked’ by the Maoists of the region before the governments of these countries substantively profit from the concepts of regionalisation.30

Factors Impeding Maoism The economy of Bangladesh has sometimes been seen as a ‘paradox’, where despite a myriad challenges, a steady growth rate of around six per cent has been achieved over the last few years with the benefits more equitably distributed than elsewhere in the region. Contrary to initial pessimism, Bangladesh has come to be regarded ‘as a lead performer among the least developed countries and considered as a successful example of graduation of traditional society to modernity at a low level per capita income’, with the United Nations Development Programme ranking it as being among the league of countries having achieved ‘medium human development’.31 The absence of abject poverty was a key factor in the prevention of the success of Maoist propaganda.

Another factor is the spread of ideas such as microcredit, for which Professor Mohammed Yunus and his Grameen Bank were awarded the Nobel Peace Prize in 2006, and Sir Fazle Hasan Abed and his BRAC won such global plaudits, helped empower women, thereby marginalising all kinds of extremist thought and action, including Maoism. The fact that Bangladesh is also a preponderantly Muslim society, that too of a syncretic sufistic tradition, is also an impediment to the Maoists, an alien ideology. True, the Muslim peasantry had in the past participated in radical movements, as in the colonial period, but then their ‘Muslimness’ was also an element in the uprisings directed against the Hindu Zamindars and British rulers.

Taking all these into account, an analyst has observed: ‘The Maoist phase in Bangladesh politics is over. Splintered, and surviving in isolated pockets, those who call themselves Maoists in Bangladesh today are more of a law and order problem than a challenge to mainstream politics.’32 Interestingly, Bangladesh’s famously vibrant civil society has also absorbed many ex-Maoists as NGO leaders. An example is Shafiqul Huq Chowdhury, now

30

31

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Rajat Kumar Kujur, ‘CCOMPOSA: A Mirage or Reality?’, Institute of Peace and Conflict Studies, www.ipcs.org/article/naxalite-violence/ccomposa-a-mirage-or-a-reality-2142.html. Accessed on 7 May 2010.

Binayek Sen, Mustafa K. Mujeri and Quazi Shahabuddin, ‘Operationalizing Pro-poor Growth: Bangladesh as a Case Study, 7 November 2004. http://siteresources.worldbank.org?INTPGI/Resources?342674111505137044/oppbangladesh(Nov)pdf. Accessed on 11 may 2010.

Ekramul Kabir, op. cit.

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heading the Association for Social Advancement, or ASA, an acronym, which translated into Bengali means ‘hope’.33

Conclusion A look at the map will show that Bangladesh’s neighbouring areas are engulfed in ongoing Maoist insurgencies: several states of India to its east and Nepal to the north. Also, Bangladesh historically presented a fertile ground for extreme Left politics because of a long tradition of peasant uprisings and the existence of an intelligentsia receptive to external intellectual stimuli. Yet, Maoism (or any other form of extreme radicalism) never took off in a significant way in this country.

Several reasons for this can be extrapolated from this essay. First, even in the pre-Bangladesh East Pakistan period (1947-1971), abolition of landlordism or Zamindaris and legislations ending the exploitative feudal system robbed such movements of their fodder. Second, the opposition to the independence movement, vastly popular with the masses, cost the extreme Left and later the Maoists considerably in terms of public empathy. Third, in the decade after independence, early police action eliminated potential extremists. Fourth, while the excesses of the ‘cultural revolution’ in China during Mao’s final years set unattractive examples for Bangladeshis, Beijing also desisted from even appearing to display any kind of solidarity with the Maoists and instead focused on building close ties with all governments in Bangladesh, whom like those of Pakistan, they considered allies. Fifth, neo-Marxist concepts and ideas like those of the ‘dependencia’ school, while finding some resonance among scholars and students, were actually belied by the actual experience of equitable growth achieved through appropriate utilisation of foreign aid and international linkages. Sixth, initiatives like micro-credit and ‘non-formal education’ for girls leading to women’s empowerment created social conditions unlikely to nurture violent insurrections. Last but not the least, there was little encouragement for extremism in a moderate Muslim society whose basic values were mild and generally shorn of ideological mores. While the state may at times appear weak, its ‘collapse or failure’, as Naureen Fink argues, ‘remains a distant and unlikely outcome because of the many social and political forces which continue to promote a peaceful, democratic and inclusive society’.34 All this is not to say threats do not exist. The society, unless vigilant, runs the risk of being destabilised by the Maoists as also by religious extremists. If the Indian Maoists succeed in

33

34

Abhoy, ‘From Maoism to Micro-finance-Something to read for India’s Maoists’, Microfinance Business News (20 April 2009), http://indiamicrofinance.com/blog/microfinance/microfinance-articles/maoism-tomicrofinance-maobadi-ban-gaye-microfinance-agents.html. Accessed on 7 may 2010.

Naureen Chowdhury Fink, Bombs and Ballots: Terrorism, Political Violence and Governance in Bangladesh, (New York: International Peace Institute, 2010), p.19.

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any major way, the dangers increase. That will also be the case if the other Muslim country in the subcontinent, where Maoism is not an issue but Islamism is, is overrun by Taleban-ite religious extremists, though in this case, the two societies are geographically much further apart (a factor that erodes with globalisation). There is also the ever-present danger that Maoists, though weak, may seek to strengthen themselves by linking up with Islamist fundamentalist extremists, and vice verse, creating something like an old-style classical Leninist ‘United Front’ for tactical gains.

It will, therefore, be in the interest Bangladesh as also of its neighbours, mainly India to cooperate in bilateral, regional and international initiatives to curb the spread of Maoism and other forms of extremism. The visit of the Bangladeshi Prime Minister Shekh Hasina to India in January 2010 led to a number of agreements designed to fight terror following talks with her counterpart Dr Manmohan Singh. But implementation in letter and spirit will be the key.

Also, these agreements are designed to tackle forms of terrorism other than Maoism. There should be regular structured meetings between the Home Secretaries and the intelligence agencies of the two countries with Maoism also on the agenda. Cooperation is also desirable at the regional level, such as in SAARC and the SAARC Ministerial Declaration on Cooperation in Combating Terrorism signed on 28 February 2009, was a step in the right direction. Support provided by the United Nations (UN) should also be fully and appropriately utilised. Currently, Bangladesh and the UN are negotiating the establishment of a Regional Centre for Capacity Building to fight terrorism, which is a positive step. There should absolutely be no room for complacency, only for eternal vigilance, sober reflection, and good governance.

oooOOOooo

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ISA S Insights No. 105 – 5 July 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

The Afghan Peace Jirga: Is an end in sight?

Shanthie Mariet D’Souza1

Abstract The recently held peace jirga in Kabul have once again raised hopes among the Afghans and international community of finding peace through ‘other means’. The continuing military stalemate and talks of exit have emboldened the Taliban who perceive the tide to be in their favour. In such a scenario, are the peace gestures by the Afghan government a way forward?

Will such peace initiatives lead to durable peace in Afghanistan? Will the recently concluded peace jirga provide a consensual framework of negotiations for the Afghans and international community?

Protected by layers of security consisting of 12,000 security force personnel, the much awaited and twice delayed three-day peace jirga, a traditional consultative assembly of tribal elders, culminated in Kabul with near unanimous calls for negotiations with the Taliban. Attended by more than 1,600 delegates including 300 women, the jirga was intended to build a national consensus around President Hamid Karzai’s peace plan for the country. However, the plan ran into rough weather as opposition stayed away. Not only the jirga saw no Taliban representation, but on the first day the latter fired at least five rockets, few of them exploded not far from the tent where President Karzai delivered his speech and called on his ‘angry brothers’2 to come forth and accept the olive branch being extended to them. The security forces also foiled a 1

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Dr Shanthie Mariet D’Souza is Visiting Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. She can be contacted at isassmd@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.

Afghan peace jirga’, Daily Times (7 June 2010), www.dailytimes.com.pk/default.asp?page=2010%5C06%5C07%5Cstory_7-6-2010_pg3_1. Accessed on 10 June 2010.

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Taliban suicide attack apparently targetted at the jirga. At the end of the three-day meeting, the Taliban issued a statement saying that the jirga did not represent the will of the Afghan people and was aimed at securing the interest of foreigners.3 Role of Talks, Reintegration, Negotiation and Reconciliation The issue of reintegration and reconciliation is an essential component of counter-insurgency (COIN) campaign, especially in a country whose social fabric has been severely damaged through decades of conflict. As the military stalemate continues and security further deteriorates, especially in the South and East, there is a growing recognition that Afghanistan needs to go through a transformative process in pursuit of national accord and building an inclusive political order, which calls for its own dedicated peace and reconciliation process. One of the main reasons for excluding the Taliban from the original peace agreement of the Bonn Process (20012002) was the assumption that after being ‘totally defeated’, they no longer had a credible constituency in Afghanistan. The assumption stayed clear of the issue of sanctuary that the Taliban had found inside neighbouring Pakistan.

Consequently, in a few years, the Taliban have developed serious means to challenge the fragile peace and reconstruction efforts in Afghanistan. Also aiding and abetting the Taliban-led insurgency4 are the key Afghan stakeholders excluded from the 2001 to 2002 peace process and their regional proxies who are increasingly playing a destabilising role. The Bonn Process, however, did not envision a greater regional role in ‘peace building’ of Afghanistan.5 In light of the deteriorating security and escalating violence combined by the urgency of the United States (US) and North Atlantic Treaty Organization (NATO) forces to leave Afghanistan, the Afghan government has put forward a peace plan as witnessed by the recently concluded jirga. While there has been an emerging consensus on the need and feasibility of reintegration of low and mid-level Taliban among Afghans and internationals alike, reconciliation efforts have generated intense debate and opposition among ethnic minorities, women and human rights groups.

Karzai’s Peace Initiatives – Extending the Olive Branch The Afghan Government under President Karzai has made numerous gestures towards political reconciliation with the Taliban since 2003. While steering clear of the NATO classification of 3

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Afghan peace jirga backs Karzai Taliban talks proposal, BBC (4 June 2010), news.bbc.co.uk/2/hi/world/south_asia/10234823.stm. Accessed on 5 June 2010 The Taliban-led insurgency includes a symbiotic relationship of Taliban guerrillas, followers of Gulbuddin Hekmatyar’s radical group Hezb-e-Islami, the Haqqani network, Al Qaeda and its affiliates, religious clerics, narcotic traffickers, anti-government armed groups, tribal fighters, and self-interested spoilers in the Pakistani tribal areas along the border with Afghanistan.

This inference was derived from interviews, discussions with Government officials, academia, media persons, and aid workers in various Afghan provinces in May–June 2007.

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‘tier based Taliban’, the Afghan Government’s approach of inclusion is based on the ‘tribal milieu’ in Afghan society. The objective has been to exploit the differences between the tribes and communities supporting the Taliban in an effort to drive a wedge between Afghan and Pakistani Taliban. 6 Of late, there has been at least two significant peace jirgas – the Joint (Afghanistan-Pakistan) Peace Jirga in Kabul in August 2007 and the provincial peace jirga in Uruzgan province, Afghanistan in 2008. There have also been similar peace jirgas in some of the other provinces. It is difficult to ascertain the actual achievements of such initiatives, which are considered to be important consultative institutions in the traditional Pushtun society.

Nonetheless, these jirgas have been attempts in providing avenues to the marginalised and alienated Pushtun tribal communities to voice their grievances, given that the modern state institutions to deliver justice, security and governance are non-existent in these areas.

For the critics of the Afghan President, the recent jirga is a face saving exercise, especially at a time when his popularity is seen as plummeting both at the domestic and international level. The jirga served as a tailor-made platform to revive support and build legitimacy after the 2009 presidential elections which was allegedly rigged and fraudulent.

The opposition having boycotted; it was alleged that the Afghan President handpicked the delegates for the jirga. The jirga was, thus, largely unrepresentative and non-consultative. While it included members of both Houses of the Parliament, provincial councils, religious scholars, tribal leaders, civil society organisations, Afghan refugees residing in Iran and Pakistan, it was left unattended by several main drivers of insurgency, key opposition figures and most importantly, the Taliban. Abdullah Abdullah of the National Front, Karzai’s main rival candidate in the 2009 presidential election, declined to attend calling it ‘a little more than a rubber stamp’.7 The jirga critics alleged, lived up to the expectations of benefitting only the president and ended up in making calls similar to the ones reiterated by Karzai in recent times. It called for the removal of Taliban leaders from the UN blacklist so that the hurdles were cleared for face-toface talks between the Afghan government and insurgents who renounce ties to Al Qaeda.8 The jirga recommended that the Afghan government form a commission to lead efforts to negotiate with the Taliban.

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For further details of Karzai’s government efforts at talks and negotiation with the Taliban, see Shanthie Mariet D'Souza, ‘Talking to the Taliban: Will it Ensure 'Peace' in Afghanistan?’, Strategic Analysis, Vol.33, no.2, March 2009.

‘Afghan president Karzai to open assembly on peace’, Post Bulletin (2 June 2010), www.postbulletin.com/newsmanager/templates/localnews_story.asp?z=50&a=455295. Accessed on 10 June 2010.

The United Nations Security Council on 27 January 2010, on the eve of London Conference, had lifted travel and economics restrictions from five Taliban leaders – Wakil Ahmad Muttawakil, who was a minister of foreign affairs in the Taliban government, Abdul Hakim Monib, another former Taliban official who has since served as Karzai's governor in Uruzgan province, Fazl Mohammad Faizan, Shams-us-Safa Aminzai and Mohammad Musa Hotak.

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Karzai appears determined to build reconciliation with the Taliban by way of removal of all internal hurdles outside and within his own government. His decision to dismiss two very influential members of his administration – Interior Minister Hanif Atmar and National Security Chief Amrullah Saleh on the grounds of security lapse leading to attack on the Peace Jirga is being interpreted as a move towards reducing the influence of Northern Alliance in his administration. Northern Alliance groups remain opposed to any forms of peace with the Taliban.

Incidentally, both these officials were very close to the US administration and NATO officials in Afghanistan. Reacting to the development, Pentagon spokesman Geoff Morrell said both officials were ‘people we admire and whose service we appreciate’. 9 Atmar was opposed to reintegration of the Taliban into the police and army. Saleh, Afghan intelligence chief since 2004, was in disagreement with Karzai over release from detained Taliban sympathisers who could not be prosecuted for want of evidence.10 Moreover, the presence of members of Northern Alliance in key ministerial positions overlooking the reconciliation process was viewed as an impediment to the negotiations with the Taliban given prevailing inter-ethnic ‘trust deficit’.

Series of Parallel Efforts – Lack of ‘Unity of Effort’ A plethora of efforts have taken place on the peace parleys, both in the region as well as outside.

In the absence of a unified strategy and red lines, the peace processes have largely resulted in dissipated efforts. Most importantly, these initiatives have fallen short of being able to bring in the Pakistan-based Taliban leadership. In January 2010, a small delegation including four Afghan lawmakers, one of whom was a relative of the slain anti-Taliban warlord Ahmad Shah Massoud, met some Taliban representatives led by the son of former Afghan Prime Minister Gulbuddin Hekmatyar in Maldives. This informal meet was arranged few days before the London Conference in January 2010, as signalling the international community of the indigenous Afghan effort independent of the Afghan government effort.

A month later in February, Afghan government sources indicated that it has established contacts with Taliban’s second ranking leader Mullah Abdul Ghani Baradar. However, Baradar’s arrest in Karachi by Pakistan appeared to have sabotaged the effort. Pakistan rejected the Afghan Government’s appeal to hand over Mullah Baradar to them. Karzai believes that Pakistani assistance would be crucial to get the Taliban hardcore leaders to agree to peace talks. In January 2010, Karzai had met his Pakistani counterpart Asif Ali Zardari for two days in Istanbul to

9

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‘Two Karzai aides resign after jirga attack’, MSN (6 June 2010), www.msnbc.msn.com/id/37536188/ns/world_news-south_and_central_asia/. Accessed on 10 June 2010.

Shahid R. Siddiqi, The Peace Jirga and After: Will this Jirga prove a turning point in President Karzai’s efforts to woo the Taliban? Axis of Logic, (21 June 2010), axisoflogic.com/artman/publish/Article_60412.shtml. Accessed on 22 June 2010.

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discuss how to involve Taliban in the peace process. In spite of Pakistani promises, little progress has been achieved in this front.

In March, a delegation of Gulbuddin Hekmatyar’s Hezb-e-Islami group went to Kabul to present a 15-point peace plan to Karzai. Talks, however, ended with Hekmatyar reiterating the demand that foreign troops must leave Afghanistan by mid-2010, elections in six months and a review of the Afghan constitution. Though Hezb-e-Islami’s demands are not set in stone, these do run into the realm of non-negotiable. By all means, Hekmatyar remains an isolated leader and a weak link in the Taliban-led insurgency. The recent armed factional strife between his forces and local Taliban groups in Northern Afghanistan has raised doubts about his ability to influence Taliban leadership; and thus acts as a serious mediator between the Afghan government and the Taliban.

In the last week of May 2010, several delegates drawn from the Afghan Parliament, former Taliban members and the Hezb-e-Islami met for several days in Maldives to explore an end to the war in Afghanistan. While the Maldivian government had helped organise the talks in the hope of bringing peace to the region gathering, it was reportedly orchestrated by Homayoun Jarir, a son-in-law of Gulbuddin Hekmatyar. Jarir has acted as a mediator for the Afghan government and Hekmatyar. Among the parliamentarians present was Arsala Rahmani, a former minister of higher education in the Taliban government who has worked on bringing Taliban members to the government’s side. However, the talks never rose beyond its unofficial nomenclature as both the Afghan government as well as the Taliban stayed aloof. While the Afghan government said that it was not participating in the talks, the Taliban issued a statement dismissing as ‘baseless’ a report that its representatives had participated in the talks. It labelled those who participated representing the ‘Taliban’ as people who had already surrendered to the Afghan government and are acting on its behalf. 11 Splitting the Opposition – Separating the ‘Fish’ from the Pond President Karzai’s detractors are being challenged by a number of optimists and the believers in the capacity and vision of the Afghan President. For them the jirga is a gradual preparation for the scenario of a US withdrawal from the country. President Karzai who doubts the staying power of the Americans in Afghanistan realises the limitations of dealing with the Taliban in the eventuality of US withdrawal. Thus, his plan works towards the probability of inclusion of the Afghan Taliban to deny Pakistan a stake in post US withdrawal negotiated settlement. Towards that objective, Karzai’s two-tiered plan of reconciliation and reintegration include an offer of amnesty, cash and job incentives to Taliban foot soldiers, while arranging asylum for top figures 11

Author’s discussions with the Maldivian government officials highlighted the efforts of the Maldivian government in bringing peace in the region, Male’, 24-27 May 2010. Maldives is also presently witnessing the radicalisation, which is of concern to the local authorities. Also see Carlotta Gall, Afghan Government and Taliban Deny Formal Talks, New York Times (22 May 2010).

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in a second country and getting their names struck off the UN as well as US blacklists, are practical efforts. On 21 June 2010, 12 Taliban prisoners were freed from US detention in Bagram while two would-be suicide bombers were released from Afghan custody.12 The strategy appears to be clear and simple. What cannot be gained through overt peace offers is to be secured through splitting the opposition. One important achievement of the numerous such efforts including the recent peace jirga is a split, in some manner, in the older generation of factional leaders. Whereas leaders like Sayyaf, Burhanuddin Rabbani and Sebghatullah Mujaddedi can be said to have been brought to the Karzai side of the dividing line, leaders like Dostum, Mohaqiq and Abdullah are some distance away from being won over.

President Karzai is expected to sign a decree launching a reintegration programme featuring the weapons initiative. The decree would also establish a High Council for Peace to begin a nationwide outreach effort to lure insurgents away from the battlefield. The Council will set up local reintegration committees at the provincial level led by provincial governors. The Afghan government expects between 36,000 and 40,000 insurgents to join the reintegration programme within the next five years.

Disinclination of the Taliban leadership to the offers of peace continues to remain the greatest hurdles in pursuing peace in Afghanistan. Negotiations occur from a position of strength and at the moment, the Taliban perceive itself as winning the war. According to a count, 249 foreign troops have been killed in Afghanistan in the first half of 2010 (as at the first week of June).13 The casualty among the US forces since the beginning of the Afghan war has crossed 1,000.14 The talk of exit by various NATO countries has further strengthened this conviction. Faced with no prospects of defeat, the Taliban spokesperson continues to reiterate the demand of the withdrawal of foreign ‘occupation’ forces from the country as the primary condition before initiation of any talks. Any change in this stated position is difficult to perceive in near future.

Primacy of Military Operations The recent troop surge and increase in military operations, notwithstanding, the violence levels have peaked. A UN report15 indicates that security situation in Afghanistan has changed for the 12

13

14

15

‘Taliban suspects released after Afghan jirga deal’, Reuters (21 June 2010), www.reuters.com/article/idUSTRE65K11Y20100621. Accessed on 22 June 2010.

‘Pentagon admits "tough week" as casualty mounts in Afghanistan’, Xinhua (10 June 2010), http://news.xinhuanet.com/english2010/world/2010-06/10/c_13342231.htm Accessed on 12 June 2010.

Chris Lawrence, ‘More than 1,000 US troops killed in Afghanistan’, CNN (8 June 2010), http://edition.cnn.com/2010/US/06/08/afghanistan.deaths/. Accessed on 10 June 2010.

‘UN report on Afghanistan notes surge in attacks, killings’, Washington Post (19 June 2010), www.washingtonpost.com/wp-dyn/content/article/2010/06/19/AR2010061902715.html. Accessed on 22 June 2010.

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worse in recent months. The roadside bomb attacks during the first four months of 2010 have increased by an alarming 94 per cent, compared with the same period in 2009. A 45 per cent increase has occurred in assassinations, with most assassinations occurring in the southern and eastern provinces, where several government officials have been killed in recent months. The report indicated that ‘the shift to more complex suicide attacks demonstrates a growing capability of the local terrorist networks’ 16 linked to Al Qaeda. The surge in violence has prompted the US lawmakers to question the Obama administration’s Af-Pak strategy.

The US strategy clearly hinges on pouring forces into southern Afghanistan before starting a gradual withdrawal in July 2011, subject to ‘favourable conditions’.17 On 20 June 2010, the US chairman of the Joint Chiefs of Staff Admiral Mike Mullen had stated ‘the pace with which we draw down and how many we draw down is going to be conditions-based’. 18 In spite the ‘favourable conditions’ clause being attached to the July 2011 deadline, pressures for troop pullout has increased in the US, Canada and Britain, making the probability of troop reduction starting on its due date is much higher.

The foreign troop number in Afghanistan is projected to reach 150,000 by August 2010, almost eleven months before the planned withdrawal is initiated. It is apparent that military approach would remain the primary focus of the international forces in that country to create such favourable condition which allows a gradual reduction in the troop levels. However, the entire exit strategy for foreign forces rests on the assumption that in time, Afghan national security forces would be able to take over from their western counterparts, allowing the NATO to have a face saving pullout. But the fighting capability of the local recruits is still far short of what is expected of them, raising serious concerns of a Taliban return after the foreign troops go home.

With these limitations, the effort to weaken the Taliban, howsoever futile it may appear for the moment, by co-opting moderate or reconcilable elements into the folds of the government or society appears to be complimentary and is now being welcomed. In an apparent move to supplement Karzai’s initiatives, the US military has said that the Afghan President’s order for a review of cases of roughly 15,000 Taliban detainees in Afghan jails would also apply to the US military prisons.19

16 17

18 19

Ibid.

In a testimony to the Senate Armed Services Committee US Commander General David Petraeus said that the July 2011 deadline for beginning a troop withdrawal depends on the assumption that ‘conditions’ are favorable.

Eugene Robinson, ‘Obama must keep to his Afghanistan deadline’, Washington Post (18 June 2010), www.washingtonpost.com/wp-dyn/content/article/2010/06/17/AR2010061704568.html. Accessed on 22 June 2010.

‘US troops' withdrawal from Afghanistan is on track for next Jul’, Times of India (22 June 2010).

‘Taliban suspects released after Afghan jirga deal’, Reuters (21 June 2010), http://www.reuters.com/article/idUSTRE65K11Y20100621. Accessed on 22 June 2010.

7

Both the US and Karzai administration, however, differ on the Afghan reconciliation approach.

Whereas the Americans want to talk to mainstream Taliban only from a position of strength, which they intend attaining by vanquishing the enemy through use of force, Karzai on the other hand, is unsure of the success of the American military victory and hence insists on opening a dialogue with even the unrepentant Taliban to promote reconciliation and end the war. The Peace Jirga scheduled for early May 2010 was deferred to latter date as President Karzai travelled to Washington to gain endorsement for his peace efforts.

Even while it has not given up on its own approach, the protracted and unending war efforts and the waning American public opinion against an overstretched war, the US is seen to swing in support of Karzai’s initiative. It was, thus, not surprising that President Obama termed the jirga ‘an important milestone that America supports’.20 However, at the same time, the US is making final preparations to launch a massive military offensive against the Taliban in the southern Afghan province of Kandahar, the Taliban’s spiritual capital. To be launched by combined NATO, the US and Afghan forces, preparations have started since months to target about 1,000 Taliban, who remain embedded within the one million strong civilian population. 21 Gaining control over the Taliban stronghold in southern Afghanistan remains crucial to the US efforts and hence, there is little option available for the forces other than securing an outright and overwhelming victory. In a battle that is projected to ‘take months and will not resemble a typical battle’22, the military victory will have to be accompanied by winning hearts and minds of the civilian population, prodding them to sever their ties with the Taliban and support the Central Government in Kabul. In this, in addition to the international forces, the Afghan forces and administrators will have a crucial role to play.

However, if past operations are any indicators, the performance of the Afghans has fallen short of the American expectations. The objective of filling in the vacuum and initiate political and administrative activism has not been achieved following the overthrow of the Taliban from the Marjah in a battle that started in February 2010. The Afghan government and police were slow to fill in the security and governance vacuum as the Taliban continued to remain in hide-outs surrounding Marjah or in sanctuaries within the city. They not only continued to ambush the international forces but also executed those working with the Americans. The idea of ‘government in a box’ of former NATO commander General Stanley McChrystal envisioning to ‘quickly getting a government running and to win public support away from the Taliban by

20

21

22

Stephen Kaufman, ‘Obama Offers Support for Afghan Peace Jirga’, (12 May 2010), www.america.gov/st/peacesec-english/2010/May/20100512143106esnamfuak0.9200861.html. Accessed on 15 June 2010.

Chris Lawrence, ‘More than 1,000 US troops killed in Afghanistan’, CNN (8 June 2010), http://edition.cnn.com/2010/US/06/08/afghanistan.deaths/. Accessed on 10 June 2010.

Ibid.

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providing security, delivering services and offering people jobs on public works projects’23 never took off. Marjah incidentally had been described as a ‘dress rehearsal’24 for the Kandahar battle.

Analysts have indicated that the military push needs to be backed by a strong political campaign.

The Afghans who currently are in charge of establishing local government have been slow to do so. The lessons from Marjah have important pointers for the forthcoming plans to take on the Taliban stronghold of Kandahar province.

In the prevailing scenario, working with Afghans remains as crucial for the international forces as the proposed sweeping victories against the Taliban. The strategy has to evolve from rueing the contentious fact that the Afghans been unable to act, enabling them to act by securing and holding on to the area for long enough. Success of the military campaign will ultimately depend on well buttresses political efforts. After all, all counter-insurgency campaigns are fought in the political domain, with the military being one important component in the overarching strategy.

An irresolute declaration of victory will not motivate the wavering and weak political administration to stay put and take over the charge.

Conclusion Such is the complexity of Afghanistan that it would be a miracle for peace jirga alone to provide solution to the problem. What this peace jirga aimed to achieve was an attempt at evolving a negotiating framework for the Afghans and the international community alike.

Even as the US endorses Karzai’s peace initiative, it is not difficult to see that an overwhelming element of urgency in dictating such a policy. The real road block to peace building efforts – the absence of consensus both among the international community and Afghans remains. As witnessed in the military efforts, the non-military efforts too are plagued by the absence of ‘unity of effort’. No attempt worth its name has been made to correct the basic flaws in counterinsurgency.

To address Afghan’s woes obviously lies in a long, arduous and committed effort to build indigenous Afghan institutions, empower the local Afghans to develop a stake in the country’s peace, stability and progress. This endeavour, for obvious reasons, needs the support of the international community and the presence of the international forces. However, with the announcement for gradual25 withdrawal of forces starting summer of 2011 and the apparent dip 23

24

25

Paul Wuseman, ‘Despite US gains, Afghan city still feels intimidation’, USA Today (9 June 2010), www.usatoday.com/news/world/afghanistan/2010-06-09-marjah_N.htm?csp=34news. Accessed on 15 June 2010.

Patrick J. Buchanan, ‘What Price Afghanistan?’, 17 June 2010, http://vdare.com/buchanan/100617_afghanistan.htm. Accessed on 18 June 2010.

‘No immediate withdrawal of troops from Afghanistan: Obama’, Times of India (25 June 2010), ‘Barack Obama on Afghanistan withdrawal timetable’ BBC, (24 June 2010),

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in international commitment to the long term stabilisation efforts in Afghanistan, prospects for peace in Afghanistan appears miles away. oooOOOooo

http://news.bbc.co.uk/2/hi/world/us_and_canada/10409698.stm. Accessed on 24 June 2010. Speaking on 24 June 2010 on the proposed pull out of forces from Afghanistan, US President Barack Obama said, ‘We didn't say we'd be switching off the lights and closing the door behind us. We said we'd begin a transition phase that would allow the Afghan government to take more and more responsibility’.

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ISA S Insights No. 106 – 09 July 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

The 2010 Commonwealth Games: India’s Triumph or Disaster?

Syeda Sana Rahman1

Abstract India’s successful bid to host the 19th Commonwealth Games in October 2010 seems like the South Asian giant’s chance to showcase its growth and progress. Additionally, coming on the heels of China’s triumph with the Beijing Olympics in 2008, anything less than a successful event would be an embarrassment for India. However, preparations for the Commonwealth Games appear to have been blighted by delays and allegations of corruption and inefficiency. Thus, what was supposed to signify India’s arrival on the world stage now appears to typify the problems of governance in India, in terms of both policy-making and implementation.

India‟s successful bid to host the nineteenth Commonwealth Games in 2010 marks a chance for the South Asian giant to showcase its rapid growth and development to the world. The games, which begin on 3 October 2010, are expected to attract two million tourists, in addition to the approximately 10,000 athletes from 54 Commonwealth member states, to New Delhi.2 In preparation, the Indian government has allocated a generous budget of well over US$1.6 billion – the largest yet for the Commonwealth Games (CWG) – to prepare the infrastructure and spruce

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2

Ms Syeda Sana Rahman is Research Associate at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. She can be contacted at isasssr@nus.edu.sg. The views reflected in this paper are those of the author and not the institute. „India fears Commonwealth Games venues will not be ready‟, Taragana.com (31 May 2010), http://blog.taragana.com/sports/2010/05/31/india-fears-commonwealth-games-venues-will-not-be-ready106876/. Accessed 12 June 2010.

up the capital ahead of the games.3 Clearly, the CWG, which will be the most high profile sporting event to be held in India since it hosted the Asian Games in 1982,4 is being viewed by the Indian establishment as a chance to signal its coming of age as an economic and regional power, if not a burgeoning global power. This is especially true coming on the heels of Beijing's Olympic success in 2008 and (albeit to a lesser degree) South Africa's success with the Fédération Internationale de Football Association (FIFA) soccer World Cup in June and July 2010.

Unfortunately, preparations for the games have been riddled with delays in the construction of event venues and related infrastructure. In September 2009, a government report found that „work on 13 out of the 19 sports venues were behind schedule‟.5 At the same time, the Commonwealth Games Federation chief, Mike Fennell, warned that India was behind schedule in its preparations. In a letter to the Indian organising committee, Fennel said that it was „reasonable to conclude that the current situation pos[ed] a serious risk to the Commonwealth Games in 2010‟.6 This warning is said to have „caused alarm among Indian ministers who regard the Delhi Commonwealth Games as a “coming of age” party to herald the arrival of India as a major power... its failure would be regarded as a national humiliation‟.7 While these warnings seem to have sped up construction, there still appear to be delays in meeting deadlines.8 Reports indicate that at the end of May 2010, with around four months to go, work on the Jawaharlal Nehru Stadium (the main stadium), the swimming pool and other venues was still overdue.9 Other games-related infrastructure, like roads, bridges and hotels were also

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5

6 7

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„2010 Commonwealth Games 6-8 pct over budget‟, ExpressIndia.com (4 June 2010), www.expressindia.com/latest-news/2010-Commonwealth-Games-68-pct-over-budget/471229/. Accessed 12 June 2010; and Jenny Franklin, „Bracing For Commonwealth Games 2010‟, ArticleSnatch.com (n.d.), www.articlesnatch.com/Article/Bracing-For-Commonwealth-Games-2010/1109320#ixzz0rC1VEGhi. Accessed 13 June 2010. „India Says It is Ready for 2010 Commonwealth Games‟, VOA News (14 September 2009). Accessed 12 June 2010. „India admits 2010 Games problems‟, BBC News (15 September 2009), http://news.bbc.co.uk/2/hi/south_asia/8256127.stm. Accessed on 12 June 2010.

Ibid.

Dean Nelson, „Delhi Commonwealth Games “at grave risk of collapse‟”, Daily Telegraph (15 September 2009), www.telegraph.co.uk/news/worldnews/asia/india/6190118/Delhi-Commonwealth-Games-at-grave-risk-ofcollapse.html. Accessed on 12 June 2010. „Delhi risks failure in many areas: cocom report‟, Hindustan Times (23 December 2009), www.hindustantimes.com/special-news-report/commonwealth2010/Delhi-risks-failure-in-many-areas-cocomreport/Article3-489875.aspx. Accessed on 13 June 2010; „2010 dawns, but Delhi unprepared for Commonwealth Games‟, Times of India (31 December 2009), http://timesofindia.indiatimes.com/sports/eventstournaments/commonwealth-games-2010/2010-dawns-but-Delhi-unprepared-for-CommonwealthGames/articleshow/5399511.cms. Accessed 13 June 2010; and „2010 Commonwealth Games: CGF Coordination Commission Report – Meeting of 14-16 December 2009‟, CGF Coordination Commission (22 December 2009), www.thecgf.com/games/future/CoCom%20Report%20December%202009.pdf. Accessed 13 June 2010. „India fears Commonwealth Games venues will not be ready‟.

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behind time.10 Additionally, the promise to generate surplus power by 2010 in readiness for the CWG has also fallen by the wayside with daily power cuts in Delhi.11 Hence, for many national and international observers, what was supposed to symbolise India‟s triumphant ascendance to the world stage has now come to epitomise the problems of governance in India, in terms of both policy-making and implementation.

One of the most oft-mentioned challenges to governance in India is the endemic corruption.

Corruption can lead to inefficiency in two major ways. One, misspent and misappropriated funds can cause budgetary strain, which can take time to resolve. Two, corruption can also lead to the appointment of incompetent individuals in positions of power. This can lead to extensive inefficiency, especially in a bureaucratic setting. Additionally, perceptions of corruption can also cause delays as they create controversy and impede the timely implementation of projects.

According to a study of governance indicators worldwide commissioned by the World Bank, India‟s percentile rank for control of corruption is 44.4, giving it a score of -0.37.12 The preparations for the games have also been surrounded by allegations of corruption. Leaders of the opposition, Bharatiya Janata Party (BJP), including Vijay Kumar Malhotra, who is a senior vice-president of the Indian Olympic Association (IOA) and Vijay Goel have accused the government of „mindlessly‟ spending money on the CWG and have alleged that „there has been mass corruption in the [CWG] funds as suggested by the unaudited increase in the budget of various projects‟.13 According to Malhotra, the Delhi Development Authority (DDA) – a civic agency – „under pressure from the builders‟ cartel‟, was forced to fork out over US$2 million towards the completion of the Games village.14 Members of various civil societies have also heaped accusations of corruption. Allegedly, of the US$70 million accumulated by builders for a workers‟ welfare fund – as required by the 1996 Building and Other Construction Workers Act – only US$30,000 have trickled down as benefits for workers.15 Activists have also accused the

10 11

12

13

14

15

Ibid.

Rajeev Ranjan Roy, „Delhi will have surplus power by 2010‟, India eNews (21 March 2008), www.indiaenews.com/india/20080321/105643.htm. Accessed on 14 June 2010; and Shambhavi Rai, „Delhiites battle heat, long power-cuts‟, CNN-IBN (26 April 2010), http://ibnlive.in.com/news/powercut-free-summer-adream-for-delhiites/113963-3.html. Accessed on 14 June 2010.

The governance scores ranges from -2.5 to +2.5, with higher values corresponding to better governance. Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi, „Governance Matters VIII: Aggregate and Individual Governance Indicators, 1996-2008‟, 29 June 2009, http://info.worldbank.org/governance/wgi/sc_chart.asp#.

Accessed 15 June 2010.

Duncan Mackay, „Run held to protest against Delhi Commonwealth Games delays‟, InsideTheGames.com (6 December 2009), www.insidethegames.biz/index.php?option=com_content&view=article&id=8332:run-held-toprotest-against-delhi-commonwealth-games-delays&catid=75:new-delhi-2010-news&Itemid=94. Accessed 15 June 2010. „Delay in 2010 CWG Projects Will Lead to Corruption‟, Outlook India (28 May 2009), http://news.outlookindia.com/item.aspx?660539. Accessed 15 June 2010. „Allegations Surround New Delhi Commonwealth Games and Labor Law Violations‟, GovMonitor.com (4 March 2010), www.thegovmonitor.com/world_news/middle_east_and_africa/allegations-surround-new-delhicommonwealth-games-and-labor-law-violations-25323.html. Accessed 14 June 2010.

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police of ignoring cases of construction-site accidents.16 Furthermore, the Central Vigilance Commission (CVC) has accused the Union Power Ministry and the Damodar Valley Corporation (DVC) – which is to provide additional power to the capital for the games – of corruption.17 Since then DVC engineers have admitted that the power company, which was to provide 2,500 megawatts of power to Delhi, will not be able to provide even „a single megawatt (of power) for the Commonwealth Games‟.18 In India, matters are complicated by overlapping jurisdictions in certain matters. According to the Seventh Schedule of the Indian Constitution, the centre and the state have separate jurisdiction over some items and joint jurisdiction over others. For example, items on the „Union list‟, like foreign policy, defence policy, banking and currency are under the sole purview of the central government.19 Other items, like public health, land and certain duties, and taxes are under the „State list‟ and are the responsibility of the respective state governments. 20 However, items like criminal law, social insurance and forests are on the „Concurrent list‟ and are jointly administered by the central and state governments.21 This last list can lead to some timeconsuming wrangling when the state and central governments are not in agreement over certain issues or policies. With regard to the CWG, matters are still more convoluted as the games are being hosted in the National Capital Region, which not only comprises Delhi, but also Noida, which is in Uttar Pradesh and Gurgaon, which is in Haryana. As a result, not only are the central and Delhi state governments involved in the policy formulation and implementation concerning the CWG, but in certain matters such as land acquisition for the Games Village in Noida, the state authorities are also involved. Tellingly, it has been noted that Delhi‟s chief minister has often „complained‟ about the lack of cooperation from agencies like the DDA and Delhi Police, both of which are under the central government‟s, and not the Delhi government‟s control.22 These factors are likely to have contributed to the delay in construction. Finally, accusations of environmental damage by activists also delayed land acquisition for the Games Village. 23

16 17

18 19

20 21 22

23

Ibid.

Sumon K Chakrabarti, „Shinde under scanner, 2010 Games in darkness‟, CNN-IBN (24 March 2010), http://ibnlive.in.com/news/shinde-under-scanner-2010-games-in-darkness/111978-3.html. Accessed 16 June 2010.

Ibid.

The Constitution of India, Seventh Schedule. Available at http://lawmin.nic.in/coi/coiason29july08.pdf.

Accessed 17 June 2010.

Ibid.

Ibid. „Perfect coordination among all agencies for Games: Dikshit‟, Taragana.com (29 March 2010), http://blog.taragana.com/sports/2010/03/29/perfect-coordination-among-all-agencies-for-games-dikshit-89083/.

Accessed 17 June 2010.

Avishek G Dastidar, „A year on, the fight to save the Yamuna continues‟, Hindustan Times (31 July 2008), www.hindustantimes.com/News-Feed/newdelhi/A-year-on-the-fight-to-save-the-Yamuna-continues/Article1327780.aspx. Accessed 17 June 2010.

4

Another problem that has exacerbated matters and arguably also contributed to the opportunities available for corruption is the lack of communication and cooperation amongst the various committees and agencies involved in the preparations for the games. As mentioned above, Delhi‟s chief minister has often found central government agencies like DDA, the police and the Municipal Corporation of Delhi (MCD) uncooperative.24 This plays out on a more „micro‟ level as well. According to Randhir Singh, secretary-general of the IOA, the chairmen of the 23 organising committees „hardly ever meet‟.25 He also said that the committees needed to be run more „professionally‟.26 Moreover, various complaints about discrepancies in the work under the purview of agencies like the DDA, New Delhi Municipal Corporation, MCD and the Central Public Works Development have lead to the CVC to post vigilance officials at the agencies to „double check‟ procurement and other procedures.27 The organising committees have also been blighted by much in-fighting and lack of cooperation. In one such incident, Goel, who claimed to have been expelled from the CWG Organising Committee, said the chairman of the committee, Suresh Kalmadi, was a „short-tempered‟, „autocratic‟ and „arrogant‟ man, and also accused him of „rampant corruption‟.28 On another occasion, a tussle between Kalmadi, who is also president of the IAO and Union Minister of Youth Affairs and Sports, M. S. Gill over the tenure duration of sports officials, also, arguably, distracted attention and effort away from the CWG. These delays and accusations also highlight the challenges faced by the central government in implementing policy. Given the sometimes uneasy relations India has had with China, their concurrent economic rise and the resultant competitiveness between the two, India‟s success in hosting the CWG is seen as a major foreign policy goal, especially in light of China‟s success with the Olympics. However, despite assurances (and undoubted effort) by Prime Minister Manmohan Singh and the second United Progressive Alliance (UPA-II) government,29 clearly, 24

„Perfect coordination among all agencies for Games: Dikshit‟. ‟Olympic official calls for revamp of Delhi Games committee‟, Reuters (15 September 2009), http://in.reuters.com/article/idINIndia-42471320090915. Accessed 17 June 2010.

26 Ibid.

27 „India: Commonwealth Games Projects Under Anti-Corruption Scanner‟, Brunei FM (23 February 2010), http://news.brunei.fm/2010/02/23/india-commonwealth-games-projects-under-anti-corruption-scanner/.

Accessed 19 June 2010.

28 „CGW 2010 chief Kalmadi accused of corruption‟, RediffSports.com (8 December 2009), http://sports.rediff.com/report/2009/dec/08/commonwealth-games-chief-kalmadi-corruption.htm. Accessed 20 June 2010; and „BJP‟s Goel expelled from CWG team‟, India Today (8 December 2009), http://indiatoday.intoday.in/site/specials/cwg/Story/74044/Sports/Goel+expelled+from+CWG+organising+comm ittee.html. Accessed 20 June 2010.

29 In November 2009, the UPA-II government doubled its budget for the CWG to ensure the completion of all venues and related infrastructure on time and on 1 June 2010, the UPA-II report card, „released‟ by Prime Minister Manmohan Singh, said the preparations for the CWG were at an „advanced stage‟. See, „Commonwealth Games budget more than double to Rs.1,620 crore‟, Thaindian News (5 November 2009), „www.thaindian.com/newsportal/uncategorized/commonwealth-games-budget-more-than-doubled-to-rs1620crore-third-lead_100270476.html. Accessed 22 June 2010; and „Preparations for Commonwealth Games on track‟, Thaindian News (2 June 2010), www.thaindian.com/newsportal/uncategorized/preparations-forcommonwealth-games-on-track_100373492.html. Accessed 22 June 2010.

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major projects are still behind time. According to a Hindustan Times report, with around a 100 days left to the start of the games, there are some areas of concern remain, including insufficient rooms to house the visitors expected for the games; the completion of roads, flyovers and bridges; and the completion of the parking facilities at the main stadium and other venues.30 Only the Delhi Metro projects have been completed ahead of schedule.31 Certainly, the challenges to and problems of governance in India are well documented. And given that India has not hosted a major sporting event since 1982, it is not surprising that it has had some „teething problems‟. Also, as India is a democracy with a robust press and civil society, it is not surprising that inter-agency disagreements, allegations of corruption and other problems have played out publicly in a fashion that may not be so apparent in other polities.

However, in the midst of the chaos surrounding the CWG, it appears that preparations have accelerated significantly. As mentioned above, the metro projects were completed ahead of time.

Also, while the main stadium is still not ready, latest reports indicate that a „majority of the stadia have been inaugurated‟ and the new Terminal 3 at the Indira Gandhi Airport is expected to be ready by 3 July 2010.32 Indeed, in early January 2010 there had been fears that the revamped Major Dhyanchand National Stadium – which is also a venue for the CWG – would not be ready for the Hockey World Cup held in February 2010.33 Despite these fears, the stadium was reopened, refurbishments completed, just later that month.34 Hence, it would appear that the authorities in India have a steep learning curve. Moreover, with all eyes on India, the central government certainly has sufficient motivation to ensure the realisation of all projects in time for the Games. While it remains to be seen whether it will achieve this goal, the preparations (or lack thereof) for the CWG highlight the systemic challenges India faces in terms of policy implementation. The overlap in authority, the lack of communication and coordination between agencies and the opportunities for corruption, and the subsequent squandering of funds and incompetence are problems all major projects in India are afflicted with. However, given the Indian government‟s seeming ability to finish projects in the nick of time, it would be too soon to assume failure just yet. In addition, it is only after the conclusion of the CWG that the qualitative differences between the 2008 Olympics and the 2010 CWG can be evaluated. Nonetheless,

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31 32 33

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„100 days left, Delhi gets its act together for Commonwealth Games‟, Hindustan Times (23 June 2010), www.hindustantimes.com/100-days-left-Delhi-gets-its-act-together-for-Commonwealth-Games/Article1561999.aspx. Accessed 24 June 2010.

Ibid.

Ibid. „Event to test facilities before Hockey World Cup scrapped‟, Taragana.com (4 January 2010), http://blog.taragana.com/sports/2010/01/04/event-to-test-facilities-before-hockey-world-cup-scrapped-62195/.

Accessed 25 June 2010. „Revamped Dhyanchand Stadium to open‟, Times of India (23 January 2010), http://timesofindia.indiatimes.com/sports/events-tournaments/commonwealth-games/Revamped-DhyanchandStadium-to-open/articleshow/5493024.cms. Accessed 26 June 2010.

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should the government complete all projects and successfully host the CWG; it would be safe to say that India, like China, will have effectively announced its arrival on the world stage.

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ISAS Insights No. 107 – 16 July 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

President Zardari in China: Cementing Old Ties Shahid Javed Burki 1

Abstract

President Asif Ali Zardari's recent visit to China represents a continuation of the relationship between Pakistan and China that was started by Zulfikar Ali Bhutto, his father-in-law.

Zardari, however, has been pursuing China more aggressively than both Zulfikar Bhutto and Benazir Bhutto. He has focused much more on economics and has now taken the initiative to factor in Afghanistan in what might become a trilateral relationship.

Introduction The Pakistani President Asif Ali Zardari concluded his fifth visit to China since assuming office less than two years ago. He was in China during 6-11 July 2010 and visited Beijing and Shanghai during the period. This was his first state visit as Pakistan’s president. The visit came at a time when Pakistan faces a difficult economic situation and China is engaged in the process of redefining its economic objectives.

Under China’s leadership, Asia or most parts of the continent, is catching up with the more advanced countries in the global economy. Sometime soon, China will overtake Japan as the second largest economy in the world after the United States (US). China’s rise will be different for Asia as compared to the earlier rise of Japan. While Japan had anchored its economy in the West, China was focusing to a much greater extent on leading the rest of Asia

1

Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies, an autonomous research institute at National University of Singapore. He was former Vice-President of the World Bank and former Finance Minister of Pakistan. He can be contacted at sjburki@yahoo.com. The views reflected in this paper are those of the author and not the institute.

towards development and modernisation 2. This raises the question whether the discussions the Pakistani team had with China’s senior leaders recognised the importance of the massive structural change occurring in China. These changes will be of great consequence for the future of the Chinese economy, its position in the global economic system and its relations with the countries in its immediate neighbourhood. The nature of Pakistan’s response to China’s evolving situation in the global system, given the long relationship between the two countries, is an important question for Asia.

The Visit’s Symbolism President Zardari was escorted to the Great Hall of the People in Beijing by his two daughters. The leading English-language Chinese newspaper, China Daily, covered the Pakistani President’s visit extensively. It carried his picture alongside President Hu Jintao on the first page of the newspaper and quoted the Pakistani president telling the Chinese leader that his daughters wanted ‘very much to see you in person’ and hoping the meeting will inspire the younger Pakistani generation to continue its ‘all-weather and time-tested friendship with its Asian neighbour.’ 3 By bringing his children along for the visit, Zardari was giving a clear signal to the Chinese leadership. He was carrying on the effort initiated by his father-in-law, Prime Minister Zulfikar Ali Bhutto, in the late fifties and early sixties.

Bhutto was then foreign minister in the cabinet headed by General Muhammad Ayub Khan, Pakistan’s first military president. Under Bhutto’s stewardship, Pakistan established a close working relationship with the Chinese. China was then an isolated country partly because of its ideological preferences and partly because of the cordon sanitare thrown around the country by the US. Warm relations between China and Pakistan had survived many leadership changes in the two countries. By bringing his children along to the meeting, Zardari wished to convey to the Chinese leaders and Chinese people that he was preparing the next generation to carry on the work initiated by the earlier generations. ‘The only way I could do justice to the memory of my late wife and my late father-in-law was to make sure that my first state visit as president was to China’, he told President Hu Jintao at the beginning of his meeting with the Chinese leader. ‘I’m hoping to take the China-Pakistan friendship further along. It is a duty that history has bestowed upon me.’ In his response, President Hu acknowledged the legacy of the Bhutto family in developing China-Pakistan friendship. ‘Ali Bhutto and Benazir Bhutto made prominent contributions to the initiation and development of China-Pakistan friendship which the Chinese people will never forget’, he said. ‘China attaches great importance to the China-

2

3

Shahid Javed Burki, ‘Asia in the “Catch-up” Game Part I’, ISAS Working Paper 106, 9 April 2010 and ‘Asia in the “Catch-up” Game Part II’, ISAS Working Paper 107, 10 May 2010.

Xiao Yang, ‘Children lead the way into the meeting’, China Daily (7 July 2010), p.1.

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Pakistan relationship and has always made the development of the relationship China’s diplomatic priority.’ 4 It was reported that since the Pakistani President assumed office in August 2008, the two countries had concluded 60 agreements, opening up a number of new avenues for Chinese investment in Pakistan. The Hu-Zardari meeting on 7 July 2010 lasted for almost two hours and witnessed the signing of six deals in the fields of law, housing, agriculture and media cooperation. These were all new areas of collaboration between the two countries. The visit and the associated meetings also covered some traditional areas of involvement of the two countries particularly Pakistan’s energy resources.

Focus on Energy The Pakistani President told Chinese business leaders in Beijing that ‘Pakistan was facing an acute power shortage and intended to add tens of thousands of megawatts of power to its national grid in the next 25 years through combined hydro, coal, gas nuclear and renewable energy resources.’ The Chinese response was encouraging. According to China Daily, ‘an executive of China’s Three Gorges Corporation which runs the huge hydro power dam in central China, it was agreed to invest more than $100 billion in two hydro-power projects in Pakistan.’ 5 The question of China’s support for developing nuclear power in Pakistan also came up. This issue had acquired some significance following questions raised by the American administration about the understanding China and Pakistan had reached earlier in the area of nuclear power development. China National Nuclear Corporation had signed an agreement with the Government of Pakistan in February 2010 for financing construction of two new reactors. Washington was concerned whether the promised assistance by China to add to the nuclear capacity already built at Chasma in Punjab met with Beijing’s international obligations. Beijing gave repeated assurances to the international community that its current and future nuclear commerce would be in total compliance with its commitment to the Nuclear Non-proliferation Treaty. This assurance was repeated to the Indian National Security Adviser Shiv Shankar Menon, who left Beijing the day the Pakistani President arrived in the Chinese capital. Menon spent several days in China during which he met Prime Minister Wen Jiabao. He said before leaving China that he had discussed China’s assistance to Pakistan in the nuclear area. ‘They told us that what they are doing will be in accordance with their international obligations. We will wait and see where this is going’, he said while talking to the press before leaving for India. 6

4 5 6

Xiao Yang, ‘Zardari visit cements all-weather friendship’, China Daily (9 July 2010), p.4.

Ibid.

Ibid.

3

Ye Hailin of the Chinese Academy of Social Sciences spoke about the controversy and said that the decade-long Chasma project was legal and had nothing to do with other countries. He said that China has always been supervised by the International Atomic Energy Agency and future nuclear cooperation with Pakistan will depend on the demand of that country for using nuclear power to meet its large energy shortfall. ‘Our cooperation is not a show, not a demonstration. It is decided by our need.’

The expression of concern by New Delhi and Washington about the cooperation between Beijing and Islamabad was surprising since they themselves had concluded a deal which was clearly outside the Non-Proliferation Treaty (NPT) framework. The Americans had used considerable political muscle to get the international community to accept their agreement with India.

Afghanistan-China-Pakistan: A Developing Trilateral Relationship President Zardari’s visit to Beijing came two months after the visit to the Chinese capital by the Afghan president, Hamid Karzai 7. Although the rapidly changing situation in Afghanistan was not recognised in the formal statements made by the two leaders, the approach the two capitals should adopt as America approaches the July 2011 pull-back deadline in Afghanistan was covered in the dialogue 8. China’s interest in Afghanistan is changing as the rapid escalation in its economic activity makes it increasingly dependent on imported industrial raw material. Recent discoveries in Afghanistan of large quantities of minerals of interest to China have persuaded Beijing to seek an active role without getting involved in the conflicts within that country. ‘China’s interest in Afghanistan remained marginal until Karzai’s government opened up its energy, mineral and raw materials to foreign investment.’ 9 Beijing has already secured a large contract to exploit copper at Aynak, outbidding the US firm, Phelps Dodge. Pakistan also has large unexploited mineral deposits located in the restive province of Balochistan. China is already working in the copper field at Sandak in that province. It appears therefore that China will aim to develop a trilateral relationship involving itself with its two western neighbours – Afghanistan and Pakistan – in order to help it access mineral and energy resources. This strategy will involve not only the development of these resources for its use but also their transportation through Afghanistan and Pakistan to the centers of industrial production in China.

7

8

9

The Afghan president visited Beijing for three days beginning 23 March 2010. See ‘Karzai’s Balancing Act: Bringing “China” In?’, Shanthie Mariet D’Souza, ISAS Insights 98, 7 May 2010 for greater details.

The author was in Beijing when President Zardari visited the Chinese capital. He discussed China-Pakistan relations with the officials from both sides.

Shanthie Mariet D’Souza, op. cit., p. 3.

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Conclusion From the perspective of Pakistan’s current economic needs, the Zardari visit was clearly a success. It was also timely given the rapidly evolving situation in Afghanistan and its own troubles given the rise of Islamic extremism in the country. Whether the President’s visit will put Pakistan in a position from which the country can draw benefit from the changing situation in China, while protecting its interests in Afghanistan will become clearer when more details of the discussions become available.

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ISAS Insights No. 108 – 05 August 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Recovery, Double-dip or Depression Shahid Javed Burki1

Abstract Dark clouds have appeared on the horizon, just as confidence had increased among consumers and investors that the worst was over for the global economy. The clouds have gathered mostly for political reasons. The Europeans – the Germans in particular – have concluded that they cannot take the risk to persist with expansionary policies. They were discouraged to stay on course by their own history as well as by the nasty jolts delivered by the Mediterranean economies. It took some extraordinary jaw-boning by the United States President Barack Obama to convince German Chancellor Angela Merkel to come to the assistance of the almost bankrupt Greece. The American president saw his own set of problems emerge when a highly vocal and noisy part of his electorate began to question the wisdom of his approach to build a mountain of debt to revive an economy that has been stubbornly resisting recovery. These setbacks have made it difficult for the world’s large economies to work together within one economic framework. At the G-20 meeting in Toronto, leaders failed to agree on a common path on which they will be prepared to travel. Asia is the only silver-lining on the horizon. This raises the question whether it has the weight and political will to guide the rest of the world.

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Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He was former Vice-President of the World Bank, and former Finance Minister of Pakistan. He can be contacted at sjburki@yahoo.com.

Introduction In recent months, economic policy around the world has taken a turn for the worse and according to some economists, the global economy may be headed towards another recession. If that were to happen, the Great Recession of 2008-09 may turn into the Great Double-dip Recession of 2008-11. This may degenerate into a depression – the first since the late 1930s. The main reason for this unhappy turn of events is the policy-induced weakness in aggregate demand. This is more evident in Europe but may also happen in the United States (US).

Deep political divisions in the US have prevented the Obama administration from assisting the unemployed as their benefits run out. Republicans in the Senate, with some help from conservative Democrats, have blocked US$77 billion in aid to the unemployed proposed by the administration. The German government has pledged US$100 billion in tax increases and spending cuts even though the economy continued to operate well below capacity. The newly installed Cameron-Craig government in London has also opted for austerity. The French too are pulling back sharply.

Faltering Europe and America For many analysts, what matters is not the fiscal tightening by the countries in Europe but very tight liquidity conditions, which will reduce overall demand along with levels of investment.

Also of concern is the recent increase in the euro-dollar exchange rate. This means that the euro will no longer be headed in a direction that would produce sustainable buoyancy in its manufacturing sector. Given these developments in the European economies, those who count themselves among pessimists ‘would argue that global demand growth will not be sufficiently strong to support a self-sustained recovery in the eurozone’.2 This is indeed the case, the growing demand from China notwithstanding.

America is also uncertain about the direction it should take. Economic downturns – their depth and duration – are exceedingly hard to predict. This is especially the case when governments actively intervene to shorten their duration and reduce their depth. Sometimes the cures that are used may worsen the situation rather than reduce the impact of the downturn. The 2008-09 downturn – by far the most severe of the several that have hit the global economy over the last six decades – was supposed to have ended by the time the year 2009 was in its third quarter. The conventional measure – two successive quarters of growth – when applied to this recession seemed to suggest that the recession was over. Not so said Christina Romer, the chair of President Barack Obama’s Council of Economic Advisors. According to her, she would be

2

Wolfgang Munchau, ‘Even eurozone optimists are not optimistic’, Financial Times (12 July 2010), p.9.

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prepared to say that the Great Recession had ended only when the rate of unemployment in the US declined to 5.5 per cent of the labour force. That, however, may not happen for many quarters. On the other hand, Larry Summers, the other important economic policymaker in the Obama White House, along with the US Treasury Secretary Timothy Geithner prefer the conventional interpretation. They believe that the aim of the policymakers should now be to manage the recovery and determine the time when the governments should begin the process of reducing the amount of stimulation used to prevent the economies from going through a free fall.

President Obama’s challenge is to balance the three different types of advice he has been receiving from his White House advisers and experts.3 The most vocal are those who watch politics, among them Rahm Emannuel, his chief of staff and David Axelrod, his senior advisor.

Both are worried that given the sharp increase in the levels of public debt and associated fiscal deficits it would be politically costly – perhaps suicidal – to continue to stimulate the economy by using the printing press. Already, the ‘tea party’ movement has gained a great deal of political ground and threatens to deliver a major setback to the Democrats in the 2010 mid-term election.

It has developed its campaign by suggesting that the mountain of debt the US has built up will have a severe impact on the future generations as they begin to pay off the accumulated debt through higher taxes and reduced consumption.

Summers and Geithner are the sources of the second line of advice to the president. They are not averse to continuing with some stimulation and providing compensation to the millions unemployed (both positions are unpopular with the Republicans), but also to focus attention on reforming the financial system through better regulation. According to them, the president needs to spend his political capital on bringing about structural changes in the economy so that the economy does not go through another spin as it did in 2008-09.

The third advice comes from people such as Romer who fear that by exiting more rapidly than the current situation warrants, the economy may head towards a double dip recession rather than continued recovery. This group has the support of some private economists with powerful credentials. The most prominent among these is Paul Krugman, a Nobel Prize winning Princeton professor and a columnist at The New York Times. ‘Many economists, myself included, regard this turn to austerity as a huge mistake’, he wrote in a recent article. ‘It raises memories of 1937, when F.D.R’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession. And in Germany, a few scholars see parallels to the policies of

3

For a detailed account of the debate on economic issues and policies in the Obama White House in 2009. See Jonathan Alter, The Promise: President Obama, Year One (New York, Simon & Schuster, 2010).

3

Heinrich Bruning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic.’4

Asia as a Locomotive Perhaps the most troubling development is that the G-20 governments that recently met in Toronto failed to agree on a common framework for guiding the world economy back to full recovery. The history of the world economy shows that when national governments are left to work on their own, they are likely to work against each other rather than in support of one another. This happened in the period before the Second World War and produced the Great Depression. Does this mean that the world is headed not only towards a double-dip recession but perhaps a full-fledged depression? The answer is probably no because the large economies of Asia have not – at least not yet – joined the politically popular austerity drive in countries on both sides of the Atlantic. Asia may come to the world’s rescue and in the process acquire greater economic heft.

While both the European Union and the US are projected to see growth of only one per cent in their respective gross domestic products (GDP) in 2010, the Asian countries are expected to do much better. Led by China, Asia is becoming the engine of global growth and may save the world economy from plunging into a double-dip recession. Asia’s help is coming in many ways.

Recent German data illustrates the deep structural changes that are taking place in the global economy would not have been possible without economic expansion in Asia. Since May 2009, when continental Europe was in the midst of the worst economic downturn in the post-war period, German exports have risen 28.8 per cent. Sales to non-European markets buoyed the trend; they increased by 39.5 per cent.5 ‘Without China, we would have hardly seen this recovery’, said Hannes Hesse, managing director of the VDMA engineering associates.

According to Deither Klingelnberg, a maker of machine tools, the demand from Asian and emerging markets is the main driving force for the ongoing recovery of the German manufacturing and exports. ‘It’s China, China, China by a long way, then India, Brazil, then Russia – and the US remains weak as do many of our European markets’, he said.6 While China may begin to slow down the unsustainably high rate of growth of recent months, it will remain close to 10 per cent.

4

5

6

Paul Krugman, ‘That ‘30s feeling’, The New York Times (18 June 2010), p.A25. Also see his interview with Bob Willis and Carol Massar of Bloomberg News,, ‘Krugman calls for more stimulus’, China Daily (8 July 2010), p.14.

Gerrit Wiesmann, Daniel Schaefer and Ralph Atkins, ‘China drives German recovery’, Financial Times (9 July 2010), p.4.

Ibid.

4

The Chinese are also engaged in reassessing their strategy. They will continue to let their economy grow only if its suits their economic, political and social needs, not to become the locomotive for the rest of the world. According to Geoff Dyer of the Financial Times, one of the more perceptive students of the Chinese economy, ‘the Chinese economy is going through two delicate transitions. Worried about over-heating, Beijing has applied the brakes in the two sectors that have helped propel the recovery from the financial crisis last year, ordering a clampdown on property speculation and limiting lending to local government infrastructure projects. At the same time, it is trying to find a new growth model that relies less on the 20 per cent increases on exports that it enjoyed for most of the past decade.’7 Some other large Asian economies may step forward. For instance, there is a lot of life in Indonesia which could begin to spend more by relying not just on taxes but also on borrowing.

Emerging Asia as whole, with a quarter of the world’s gross domestic product, has less than 8.0 per cent of its outstanding bonds. Increasing the ratio will help not only to increase domestic demand, it could also put a floor under which the global economy would not fall. India, South Asia’s anchor economy, has also recovered well from the mild slowdown it suffered when the world went into the Great Recession of 2008-09. While its policymakers hope for a rate of growth of 10.0 per cent a year beginning 2010-11, an increase of 8.0 to 9.0 per cent appears to be feasible. Bangladesh, once South Asia’s poorest performer, is now moving ahead at a respectable rate of growth of 6.0 percent a year. It is only Pakistan that remains economically stagnant. Its GDP is expected to increase by 4.0 per cent in 2010-11. The reason for its poor performance has to do more with non-economic factors such as persistent acts of domestic terrorism than with changes in its economic environment.

Asia then has become the economic area that will begin to carry a great deal of water for the global economy. But for that to happen, the West must not totally turn away from expansion and move towards austerity. To use another metaphor, Asia is developing broad shoulders but they can carry only so much burden for the moment.

Conclusion It appears at the time of this writing (July 2010) that the recovery from the Great Recession of 2008-09 may not be as smooth and easy as it was first expected. The various stimulus packages financed by several large countries stopped the recession from becoming more severe. The question now is the form and speed with which the governments should exit from adopting stimulation as the most important economic policy of the day. Also, the way the recovery is

7

Geoff Dyer, ‘All eyes on Bejing to drive world growth’, Financial Times (12 July, 2010), p.4.

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taking place is giving more weight to the large Asian economies, bringing forward the day at which their presence in the global economy will become even more pronounced.

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ISAS Insights No. 109 – 17 August 2010 469A Bukit Timah Road #07-01, Tower Block Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

The RBI Discussion Paper on Entry of New Banks in the Private Sector: A Comment S. Narayan1

Abstract The Reserve Bank of India (RBI) does not have an articulated policy for the expansion of private sector banking in India. There have been two guidelines, issued in 1993 and 2001, under which the RBI granted some licenses for private sector banking. For the first time now, the RBI has put out a discussion paper on a new strategy – of permitting corporate houses to enter the banking industry in India. As an effort to bring transparency to policy making in this important sphere, it is a very welcome move. However, there are some concerns and this paper highlights some of the issues posed by the discussion paper.

The Reserve Bank of India, on 11 August 2010, put out a discussion paper2 on ‘Entry of New Banks in the Private Sector’ for public debate and discussion, and promised that the final policy would take note of the comments that it received. This in itself is a new approach to transparency

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Dr S. Narayan is Head of Research and Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He is the former Economic Adviser to the Prime Minister of India. He can be reached at snarayan43@gmail.com. The views reflected in this paper are those of the author and not of the institute.

‘Entry of New Banks in the Private Sector - Discussion Paper’; Reserve Bank of India http://rbidocs.rbi.org.in/rdocs/content/PDFs/FIDIS110810.pdf. Accessed on 16 August 2010.

in policy making and is perhaps the first time that the RBI has opened itself up to public comments before framing a policy.3 The Indian Banking system has two public sector banks, 22 private sector banks, 86 regional rural banks (RRBs), four local area banks (LABs), 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks. In addition, 31 foreign banks operate in the country. The average population coverage by commercial banks has been improving steadily over the years and stands at 9,400 in urban areas and 15,900 in rural areas.

Until 1993, almost five decades after independence, no new licenses for private banking were issued. There was some old private sector banks, most of them established before independence, which continued to function. But these were mostly small, community managed banks with only regional footprints. Guidelines for licensing of new banks were first issued by the RBI in 1993 and subsequently revised in 2001. Even the latter guidelines for licensing were quite conservative in nature. Large industrial houses were not permitted to promote banks. Individual companies were permitted to own 10 per cent of the equity of the banks, without any controlling interest. There were other conditions as well. The capital requirement was prescribed at Rs 300 crore (S$ 100 million, approximately). Promoters could not contribute more than 40 per cent of the equity and their voting rights were restricted to 10 per cent with the shares to be listed on the stock exchange.

Ten new banks were licensed after the 1993 guidelines and two more after the 2001 revised guidelines. Out of these, four were promoted by financial institutions, one each by the conversion of a cooperative institution and a Non-Banking Financial Institution (NBFC), and the remaining six by individual banking professionals. The two banks licensed after 2001 have been functioning fairly smoothly. Of the earlier lot, the success rate has been quite poor with almost all the individual sponsored banks having to compulsorily merge with nationalised banks due to poor governance and lack of financial strength. The banks promoted by financial institutions have merged with their parent institutions and have rebranded themselves and achieved some growth.

The experience with the small banks has not been encouraging. Only four out of the original six LABs remain. Out of these, only two are functioning satisfactorily. Lack of professional expertise, poor credit management and diversion of funds has affected the performance of the urban cooperative banks as well.

3

Financial Express, editorial, 12 August 2010.

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The RBI’s experience in opening up the banking sector has been somewhat patchy. It must be said to the credit of the regulator that it has consistently intervened to prevent any shocks in the banking sector. It has also tried to ensure that the weak and poorly managed banks merge with stronger banks and that there is adequate safeguard for consumer deposits. It is interesting that wherever larger entities have taken over these ailing banks, they have been able to turn them around and make the merger successful. In short, capital, professional management, capital adequacy and transparent functioning have been the key to success in the banking sector. All the failures can be attributed to the lack of one or other of these attributes.

Even in respect of foreign banks, the RBI’s view has been that these banks have not achieved adequate coverage of rural and semi-urban areas, and have focused more on providing banking solutions to urban population and relatively wealthier sections of the people. The RBI and the government have always felt that the rural areas are not adequately covered by banks.

The new guidelines have to be viewed against this experience. There is an attempt to address some of these concerns in the discussion paper.

For the first time, there is a discussion on whether industrial and business houses can be allowed to promote banks. The argument perhaps stems from the poor experience in allowing individuals to promote banks and the need to enlarge the number of banks that are functioning outside the private sector. The paper draws upon other countries’ experiences: corporate houses are not allowed to set up banks in the United States; the European Union, the United Kingdom, Australia and Canada. While there is no regulatory bar on the establishment of banks by industrial houses, there are restrictions on the percentage of voting rights and controlling positions that any shareholder can obtain.

The RBI paper argues that industrial houses in India have demonstrated managerial and technical capabilities, adequate capital and experience. They therefore offer a suitable source of capital and expertise for the establishment and management of new banks. The RBI still appears cautious suggesting a slew of safeguards. It is suggested that the credentials of the promoters should be carefully verified, including through the taxation and criminal investigation agencies.

The new entity should be ring fenced from financial and industrial entities of the rest of the group. Industrial houses engaged in real estate activities either directly or indirectly should not be allowed to promote banks and there should be stringent limits on transactions between the banks and other entities in the group. The board should have a majority of independent directors and the chairman should be a part-time chairman. The RBI has asked for legislation to allow it to supersede the board where, in the regulators view, the functioning is not in the interest of the depositors or financial stability.

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There is also a suggestion that NBFCs, those engaged in leasing and other forms of financing, could also be allowed to convert into banks subject to the regulatory restrictions of the RBI. There is also a suggestion that the business model should emphasise financial inclusion by clearly articulating a strategy and business plan to reach the clientele in the tier three to six centres (with population density of less than 50,000), and in the unbanked regions of the country either through branches or through branchless models.

On minimum capital requirements, there are two options in the paper – either to go for a higher number of Rs 1,000 crore, or have an intermediate figure of between Rs 500 to Rs 1,000 crore (S$15-30 million). There are various suggestions for promoters’ equity, ranging from a maximum of 40 per cent to be held for a minimum period of five years, down to a limit of 5 per cent shareholding requirement while permitting promoters to take it up to 20 per cent, based on stringent regulatory criteria. A number of alternatives in between are also discussed. On foreign banks, the suggestion is that aggregate non-resident holding including NRI, FDI and FII4 in these banks could be capped to below 50 per cent and be locked at that level for an initial period of 10 years.

The paper must be commended as it has put out into the public domain a range of issues that need to be considered before opening up the banking sector. Given its past negative experience, the RBI is understandably cautious, prescribing several fairly stringent criteria for selecting potential licensees. At the same time, the paper gives rise to several questions, some of which are examined here.

First and most importantly, the need for new licenses is not adequately argued. Clearly, the RBI paper points out that past experience with private banking, particularly after 1993 has been poor and that it has not been able to improve the performance of cooperative banks and RRBs, both of which should have been appropriate vehicles for ensuring that rural and semi-urban areas are well banked. If the failures are managerial, then it is perhaps just a wish that the new entities would be better managed. If the failures are due to inadequate regulatory supervision, then there is little in the paper in the nature of regulatory introspection and how things can be different in the future. Even in case of foreign banks, the RBI has not been able to ensure the financial inclusion criteria – it is difficult to see how ‘business as usual’ in the RBI would enable better banking facilities to be available in the less-banked areas. Further, and perhaps for the first time, there is an implicit statement here that public sector banks can do no more and that they cannot do much better than what they are doing, and therefore it is necessary to bring in private banking

4

NRI, FDI and FII refer to Non-Resident Indian, Foreign Direct Investment and Foreign Institutional Investor respectively.

4

to serve the rural and semi-urban population. This in itself is a major policy statement, a change from three decades of reliance on the strengths of public banking.

One would have liked a clearer articulation of why this approach is necessary and why it is a better approach than strengthening existing institutions. For example, the so called ‘old’ private banks have been in existence since before 1947, and by and large, have held on to their regional character, while performing quite satisfactorily. There would perhaps be an opportunity to enlarge the capital bases of these banks and also enlarge regulatory support to ensure that these banks grow into serious players in unbanked areas. Their managerial capabilities as well as ability to manage in the smaller towns are by and large proven – yet there is little analysis about their experience. Thus the shadow of doubt that the paper has been prepared with specific corporates in mind that have applied for licenses, could have been dispelled more clearly.

Second, the capital adequacy that has been prescribed appears to be on the lower side. The highest figure in the paper is Rs. 1,000 crore (S$ 30 million), and the highest promoter contribution that is suggested is 40 per cent. Thus a large industrial house can become eligible with a promoter contribution of S$ 12 million, which is surely not an onerous requirement, given the size of some of the industrial houses in India. The RBI had prescribed Rs 300 crore (S$ 8 million) as early as in 1993. Given the increase in incomes and taking into account inflation, the current requirements could have been at least twice as much as proposed. A S$ 30 million capital base is still a very small base for a bank, since given access to Tier II capital and the prescribed capital adequacy ratio, its commercial operations would be only of the order of Rs. 20,000 crore ( S$ 650 million), a fairly small figure by the standards of the banking industry. It is not clear why the RBI has been so timid, for it could result in the new licensees becoming undercapitalised with little room to grow. This size is smaller than the book size of several of the ‘old’ private banks, which are already looking for ways to augment capital.

The third issue relates to the regulatory capability of the RBI. The conditions of integrity, transparency, independent directors and public shareholding appear to be very laudable: but the past record of the RBI in preventing misdemeanors in private banks and RRBs has been quite poor. In all the recent cases, where the RBI has intervened to close down or merge banks, there has been public shareholding: the intervention has happened after the sins have been committed, never at a preventive stage. Finally, none of the erring promoters have ever been brought to book or punished; in most cases, they have got away with some of their assets quite intact. Therefore, the conditions prescribed in the discussion paper may well be viewed by applicants against the backdrop of past regulatory oversight by the RBI, and indeed, may not be taken very seriously.

There is little in the paper to encourage confidence that the regulatory oversight will be better or more stringent.

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Fourth is the issue of existing banks. There are the public sector banks where the government is unlikely to give up majority ownership, and where the government, in spite of an articulated policy, has been unable to bring in economies of scale through mergers and capital enhancement.

The old private banks, as pointed out earlier, suffer from poor capital base, which leads to lack of access to deployment of new technology and products. The private sector banks, fewer in number, appear to be doing well. But even here, the regulatory requirements appear to have been compromised. The government has already stated that the majority shareholding of the ownerships of the ICICI bank and the HDFC bank are with foreign investors and that they may be Indian banks that are ‘foreign owned’. The discussion paper suggests a maximum of 50 per cent ownership for foreign entities. Equity demands that these rules should apply to existing entities as well, in which case the character of ownership of these banks need to change significantly. The RBI paper does not address these issues.

Finally, it is important that the RBI as regulator and a central banker must be seen to be entirely impartial and transparent.5 In two cases in the last three years, the reasons for the closing down and merger of private banks were never made public, nor were any accountability fixed.

Depositors and shareholders were protected through a merger with a nationalised bank, but the exact extant of the failings of the earlier management were not made public.

This shadow of doubt on the impartiality of the regulator is not entirely without basis. On 9 August 1960, fifty years ago6, almost to the date that the RBI put out this new paper, it ordered the liquidation of the Palai Central Bank, a small bank in Kerala that had been functioning for several decades. The poor functioning of the bank was well known to the regulators, as evidenced from the prior correspondence with the RBI. Yet the RBI held its hand for several months. At that time Kerala was under a Marxist government, the first democratically elected communist government in India. Mid-term elections were due in early 1960 and the Congress was eager to regain power. The main promoter of the Palai Central Bank was George Thomas Kodakapally, a staunch Congress supporter and member of the legislature. At that time, the banking sector had not been nationalised and the failure of the Palai Bank would certainly have caused the ruin of thousands of depositors. The Congress government – in Delhi held its hand until the Kerala elections were over, fearing that the electorate would turn against them. Midterm election was held in February 1960. Pattom Thanu Pillai formed his Congress-led government on 22 February 1960 after the landslide victory of the anti-communist coalition. The Palai Central Bank scandal became public in August 1960, with the liquidation of the entity.

Nothing happened to Mr Kodakapally, but a large number of small depositors were ruined. At 5 6

Today, this is perhaps a comment that can be made for several central banks.

I am grateful to Professor Robin Jeffrey, Visiting Research Professor, ISAS for bringing this historical fact to my attention.

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least in this case, the RBI did not act as an independent regulator. These memories linger, as there is a renewal of the question of the autonomy of the regulator in India, with the Finance Minister assuming arbitration powers to settle differences between regulators.

This is not to say that the RBI effort is without merit.

It is perhaps possible to take advantage of the opportunities offered by the RBI discussion paper to examine the sate of Indian banking in greater depth. There is no doubt at all that financial inclusion requires greater access to credit and deposit linked products to the citizens of smaller towns in India. Given the rising savings rates and the improvement in incomes, the smaller towns are leading the savings and the consumption boom, and it is important that the banking sector penetration improves substantially. Kerala received inward remittances of S$10 billion during 2009, from overseas Kerala workers. Bihar receives close to S$ 3 billion from the Bihari labour working in several states in India, and most of these remittances go to small towns. There is an opportunity to increase the reach of financial products, encourage savings and create capital for the deployment in developing infrastructure. Of all the aspects of the RBI paper, this is perhaps the most important: that the new licensees should unequivocally commit to a strategy of reaching to towns with population below 50,000.

This is also perhaps the single most important feature that the RBI should enforce, while regulating the new entities.

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ISA S Insights No. 110 – 26 August 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Mining in India: Separating Growth from Development?

Amitendu Palit1

Abstract Concerns over illegal mining in India have revived following the report of a committee appointed by the Ministry of Environment and Forests (MoEF) of the Government of India on mining operations in Orissa. The report has mentioned violation of multiple forest and environment laws in securing forest land for mining. Highlighting complicity between private industry and local administration, the report has urged the MoEF not to allow the transfer of forest land for mining. Following the report, the MoEF has rejected the proposal to transfer land for mining. The paper examines the issues raised in the report and argues that growth of mining and protection of rights of local communities are conflicting objectives. India is yet to evolve a socio-economic mechanism, where these objectives can be simultaneously accommodated.

The trade-off between industrial growth and sustainable development in India is back in attention following the findings of a committee set up by the MoEF of the Government of India on mining operations in the eastern coastal state of Orissa.

Chaired by Dr N. C. Saxena, Member, National Advisory Council, the four-member Committee was mandated to examine the Government of Orissa’s (Orissa Mining Corporation Ltd (OMCL)) proposal to transfer 660.479 hectare of forest land for mining bauxite ore in Lanjigarh mines in Kalahandi and Rayagada districts of Orissa.2 The mining is

1

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Dr Amitendu Palit is Head (Development and Programmes) and Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous institute at the National University of Singapore (NUS). He can be reached at isasap@nus.edu.sg. The views expressed are personal and do not reflect those of the institute.

The MoEF set up the Committee on 29 June 2010. The Committee submitted its report on 16 August 2010.

See ‘Report of the Four-Member Committee For Investigation into the Proposal Submitted by the Orissa

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to be done by Sterlite Industries (India), an organisation owned and controlled by Vedanta Resources, a mining group based in the United Kingdom. The MoEF is the final authority for allowing forest land to be used for ‘non-forest’ purposes like mining. It has put down certain conditions in this regard including recognition of rights under the Forest Rights Act (FRA) of 2006, obtaining consent of local communities and ratification of the process by the local Gram Sabha.3 The committee has found that these conditions were not fulfilled while proposing the transfer of the land. Accordingly, it has recommended that the MoEF should not allow the use of the land for mining.

The recommendations have far reaching implications. First, forest land is being acquired by private industry in violation of environmental guidelines. Second, such actions by industry are likely to deprive local communities of their livelihoods. Third, violation of existing guidelines and occupation and use of forest land by industry are taking place with support of local administration.

The Government of Orissa has reacted sharply to the report of the committee. Senior officials of the Orissa Government have emphasised that all actions taken in the matter have been consistent with existing laws. Orissa has officially communicated its clarifications to the Government of India.4 On the other hand, the Central Government has responded to the mounting outcry over illegal mining activities by setting up a Commission of Inquiry under the Commissions of Inquiry Act of 1952 for investigating illegal mining in the country. There are also talks of a National Mining Regulatory Authority being in the pipeline.5 The Saxena report has in the meantime been accepted by the Forest Advisory Committee (FAC) of the MoEF.6 The FAC recommends use of forest land for non-forest purposes in line with the provisions of the Forest Conservation Act (FCA) of 1980. According to latest reports, the MoEF has rejected the proposal to transfer the proposed land for mining.7 The report will undoubtedly be a much cited document in future discussions on India’s contemporary development issues. The economic and political impact of the report is

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Mining Company for Bauxite Mining in Niyamgiri’, http://moef.nic.in/downloads/publicinformation/Saxena_Vedanta.pdf, p.13. Accessed on 19 August 2010.

Gram Sabha is a civic body comprising people registered in electoral rolls from Panchayat areas of villages.

Article 243A of the Indian Constitution empowers Gram Sabhas with powers and functions at the village level that are comparable to legislatures at the state level. Panchayats need the approval of Gram Sabhas for levy of new taxes as well as implementation of development plans for villages. http://planningcommission.nic.in/reports/sereport/ser/bihinter/st_bihch11.pdf. Accessed on 20 August 2010.

‘State denies saxena committee allegations’, Business Standard (18 August 2010), www.businessstandard.com/india/news/state-denies-saxena-committee-allegations/404853/. Accessed on 19 August 2010.

‘Commission to probe illegal mining across the country’, The Times of India (17 August 2010), http://timesofindia.indiatimes.com/india/Commission-to-probe-illegal-mining-across-thecountry/articleshow/6321156.cms. Accessed on 19 August 2010.

‘FAC accepts report on Vedanta project', The Hindu (21 August 2010), http://publication.samachar.com/pub_article.php?id=9894442&nextids=9894442|9894443|9893755|9893757| 9893758&nextIndex=1. Accessed on 21 August 2010.

‘Govt. rejects Vedanta mining plan on green worries’, The Times of India, http://timesofindia.indiatimes.com/articleshow/6425009.cms?prtpage=1. Accessed on 24 August 2010.

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significant given that it addresses concerns that are directly relatable to reasons behind the growing influence of Maoist insurgents in several parts of India. This paper discusses some of the issues highlighted by the report and ponders on future outcomes for mining in India.

Non-compliance with Environment Laws Niyamgiri hills, the site of the mining operations examined in the report, are particularly rich in biodiversity. Providing an uninterrupted tract of forest land by connecting Korlapat and Kotagarh wildlife sanctuaries, the area plays an important role in conserving wildlife species such as tigers and elephants. It is also home to a diverse variety of plants with medicinal properties used by local Dongaria Kondh and Kutia Kondh tribes for treating diseases. Both the Kondh tribes are ‘Scheduled Tribes’ under Schedule V of the Indian Constitution.

Constitutional provisions require governments to uphold land rights of scheduled tribes.

Furthermore, both tribes are classified as ‘Primitive Tribal Groups’ and are eligible for special protection.8 The Niyamgiri hills are an excellent example of the interdependence between a forest-based ecological system and livelihoods of local communities. The latter are critically dependent on forest resources for staple activities such as grazing and agriculture. The same resources provide them opportunities for earning income through horticulture, rearing animals and collecting and selling forest produce such as honey and mushrooms. Reorganisation of forest land for mining has implications for not only the region’s ecological balance with respect to flora and fauna, but also for economic prospects of local communities.

The rights of scheduled tribes and traditional forest dwellers over forest resources are specified in FRA of 2006.9 The legislation has invited criticism from certain quarters particularly wildlife conservationists on the ground that it prevents freeing up of forest areas from human presence for the larger purpose of conserving wildlife. While that is a separate issue, the Act recognises several rights of the scheduled tribes. These include title rights (ownership of land being cultivated by tribes), use rights (for collecting minor produce, grazing, etc.), relief and development rights (rehabilitation in case of illegal eviction and forced displacement), and forest management rights (protecting forests and wildlife).

In the present instance, application of the Act implies that local tribes residing in the area proposed for bauxite mining have the right to protect their habitat. The authority for protection vests with Gram Sabhas. Land belonging to scheduled tribes cannot be appropriated for non-forest activities such as mining without recognising all rights of

8

9

For more details, see ‘Report of the Four Member Committee for Investigation into the Proposal Submitted

by The Orissa Mining Company For Bauxite Mining In Niyamgiri’, http://moef.nic.in/downloads/publicinformation/Saxena_Vedanta.pdf. Accessed on 19 August 2010.

The Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act 2006 was cleared on 18 December 2006 and notified on 31 December 2007.

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inhabitants. The Gram Sabhas are also required to certify that the process has been executed in line with the provisions of FRA of 2006. The Saxena Committee report emphasises that the Government of Orissa has not recognised the rights under FRA and has not obtained the consent of local communities, or endorsement of the Gram Sabha, while proposing allocation of land for mining. Furthermore, the report also mentions that the mining company is in possession of 26.12 hectare of forest land in violation of the FCA of 1980 and its current construction activities amount to violation of the Environment (Protection) Act (EPA) of 1986. Thus, practically almost all binding forest and environment legislations appear to have been violated.

Repercussions on Livelihood The mining area is located in the Kalahandi-Bolangir-Koraput (KBK) belt of Orissa,10 which is one of the poorest regions in India, notorious for starvation deaths. Other than poor road connectivity and irregular rainfall, the region is ecologically disturbed due to heavy forest degradation. Tribal communities comprise almost 40 per cent of the population and are entirely dependent on forests for livelihood. This exclusive dependence on forests implies serious economic repercussions for the communities if they are unable to access forest resources.

The Saxena Committee notes that other than agriculture, grazing and collection of minor forest produce (MFP), forest resources enable local Kondh tribes to cultivate a variety of cereals including millet, pulses, gram, pigeon pea, castor oil, linseed oil, honey and edible mushrooms. The MFP collected includes tuber, flowers, jhunu (aromatic resin from trees), bamboo and wood. The Kondh tribes are well-known for their horticultural skills in producing a variety of fruits such as pineapple, banana, orange, lime, ginger, jackfruit, mango and turmeric.11 The tribes also rear livestock, which again yields significant economic benefits.

The local communities have an economic relationship with the forest that enables them to be self-sufficient as far as consumption needs are concerned. Over and above such needs, they are also occasionally left with marketable surpluses that help them in fetching additional incomes. As a result, the communities have hardly had to work as wage-labourers.

Deprivation of access to forest resources will cripple the economic self-sufficiency of local tribes. The Saxena Committee notes that claims of mining not resulting in displacement does not take into account long-term effects of displacement from occupations.12

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11 12

The undivided districts of Koraput, Bolangir and Kalahandi (KBK) now comprise eight districts: Koraput, Malkangiri, Nawrangpur, Rayagada, Bolangir, Sonepur, Kalahandi and Nuapara. See ‘Special Area Development Project for K.B.K Districts of Orissa’, (National Informatics Center, Berhampur), http://kbk.nic.in/ataglance.htm. Accessed on 20 August 2010.

As in 7, pp.27-30.

Ibid., p.34.

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Industry-Administration Collusion The Committee’s report points to collusion between private industry and local administration for securing land for mining. The biggest example of such collusion is overlooking the mandatory requirement of obtaining consent of the Gram Sabha. Indeed, the report cites a message from the Gram Sabha conveyed to the committee members where the Gram Sabha appeals to the MoEF ‘not to allow the Vedanta company for the extraction of bauxite from the Niyamagiri reserve forest, proposed Khambesi reserve forest, proposed Nimagiri reserve forest and other adjacent forest areas’.13 As mentioned earlier, the Committee has also highlighted violation of provisions of FCA of 1980 and EPA of 1986 by Vedanta. Such violation would not have been possible without support of local administration.

The Saxena Committee, however, is not alone in alleging industry administration collusion in Orissa. Improper implementation of FRA of 2006 (in terms of recognition of rights of tribes) by the local administration in Orissa has been pointed out with respect to industrial activities of the POSCO as well. The Korean steel giant POSCO is building an integrated steel plant and captive port in the Jagatsinghpur district of Orissa. Complaints of non compliance of FRA of 2006 have arisen with respect to 1253.22 hectare of forest land diverted for the purpose. The MoEF has ordered Government of Orissa to stop all work being undertaken on the land.14 Other than Orissa, complaints against illegal mining taking place in collusion between industry and local administrations have been reported from the ore-rich states of Andhra Pradesh and Karnataka as well.

Thoughts for the Future India’s unexploited mining reserves attract potential prospectors. More industries like Vedanta will be keen on exploiting the untapped resources. India’s industrial expansion will also increase demand for more minerals. Whether for the domestic market, or exports, mining in India is a high-return venture. India’s foreign investment policies permit 100 per cent FDI (foreign direct investment) in mining and exploration of metal and non-metal ores (excluding titanium-bearing ores).15 Thus mining is an activity that India’s current industrial policies definitely encourage.

Notwithstanding the encouragement, mining represents a classic dichotomy in the Indian economy. India has abundant reserves of minerals. Despite such endowments, domestic supply of minerals is often inadequate forcing industry to import. Supplies have been constrained as mining has failed to take off on a large scale due to a complex combination of

13 14 15

Ibid., p.6. http://moef.nic.in/downloads/public-information/POSCO.pdf. Accessed on 20 August 2010.

‘Consolidated FDI Policy’ (Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India), http://siadipp.nic.in/policy/fdi_circular/fdi_circular_1_2010.pdf, p.37.

Accessed on 20 August 2010.

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factors involving livelihoods of tribal communities, environmental concerns, poor enforcement of laws and corruption. Handled judiciously, India's mineral wealth can not only support rapid industrial expansion, but also provide occupational alternatives to local communities. This will allow the latter to withdraw from exclusive dependence on forest resources and shift to modern occupations and also have stakes in industrial projects entailing such occupations.

The Vedanta bauxite mining project highlights the inescapable conflict between policies encouraging private investment in mining and those guaranteeing rights of local communities over forest resources. Both sets of policies are correct in their aims and objectives. But can mining activities expand without affecting rights and interests of local communities? Given the provisions of FRA of 2006, obtaining forest land for mining in a consensual manner after protecting all interests of local communities is a difficult and time consuming process. Such delays and difficulties create incentives for violating the existing guidelines as observed for both Vedanta and POSCO. This is identical to similar incentives elsewhere encouraging businesses to collude with implementing agencies for bypassing circuitous processes.

The FRA of 2006 was a response to displacement of tribes and forest communities arising from aggressive mining intentions of private industries. The Act was a long-awaited move and a step in the right direction. The problem is efficient implementation of the Act, while protecting rights of forest communities, are likely to discourage investments in mining. This is obviously something that was overlooked while framing the legislation. In order to prevent ‘illegal’ growth of mining, it is important to conceive a mechanism where local communities become beneficiaries of mining. In this regard, there are suggestions that mining companies spend a part of their profits on local area development.16 However, ‘costs’ of mining extend to ecological damages as well. Thus it is probably not enough to allocate a part of profits to local development; it is essential to ensure that locals spearhead the development. It is also important for industries to convince local communities about the long term benefits of shifting to a different occupation and equip them accordingly. Failure to convince will not only antagonise the local communities, but will also make them willing allies in anti-state activities such as those led by the Maoists.

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'People before profits', The Hindu (17 August 2010), www.thehindu.com/opinion/editorial/article576822.ece.

Accessed on 21 August 2010.

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ISA S Insights No. 111 – 31 August 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

A New Priority in India’s Look East Policy: Evolving Bilateral Relations with Bangladesh Dr Iftekhar Ahmed Chowdhury 1

Abstract India is a country and nation on the rise. The process would be facilitated by a supportive regional environment. While with Pakistan relations continue to be challenged, with Bangladesh they appear on the mend. Bangladesh has for a variety of reasons proved to be the calmest country in the region and is also emerging as a responsible international actor.

However, if this relationship is to evolve satisfactorily, India will be required to assume a disproportionately greater and non-reciprocal responsibility. The Indian leadership has already intellectually accepted this role and the article recommends some mutual steps towards advancing it. This relationship is also in consonance with India’s Look East policy, in which Bangladesh appears to have become a new priority.

The Indian Express brought out an editorial on 3 August 2010 that deserves to be quoted extensively. The leader stated: ‘Rising powers need friendly neighbours. A relationship with our neighbours that is supportive, or at least cordial, would free us to think on a larger scale.’

Of course, India’s western border shows no signs of being unproblematic any time soon. But to the east, an election in Bangladesh that brought in the Awami League - which does not subscribe to the anti-Indian rhetoric that is the characteristic of the other main party, the Bangladesh Nationalist Party (BNP) - should have been seized with both hands. It is particularly shocking; therefore, that India seems to have dropped the ball. In case after case, the Bangladeshi side has done its bit, laying the groundwork for further agreement, or 1

Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous institute at the National University of Singapore (NUS). He can be reached at isasiac@nus.edu.sg. The views expressed are personal and do not reflect those of the institute.

implementing what was signed. And in case after case, the Indian side has not reciprocated to any reasonable degree. It would be a pity if the Delhi establishment’s tendency to look obsessively at the western border means that it ignores what it must achieve on the eastern side. 2 This may appear to be a somewhat harsh indictment against the Indian side, while the reality may be a shared blame on the part of both parties to a certain extent. But then there is a modicum of truth in the fact that Bangladesh and Prime Minister Sheikh Hasina would be more politically challenged to implement the agreements recently entered upon with India.

Sheikh Hasina is acutely hard pressed to demonstrate some success of her India policy to her electorate, the critical political opposition and to the Bangladesh public in general. It was for this reason that some months ago she had dispatched her Economic Adviser Dr Mashiur Rahman to New Delhi to urge action on the part of the Indian authorities with regard to the early implementation of the summit level understandings.

Immediate Past Relations: Caretaker Period When the Caretaker Government (CTG) headed by Chief Adviser Dr Fakhruddin Ahmed assumed office on 11 January 2007 in Bangladesh, both Dhaka and New Delhi realised the importance of having good bilateral relations. If the CTG were to discharge its role and functions effectively, a positive working environment with India was essential. For New Delhi, which already saw the CTG as a longer haul than initially anticipated, a stable and peaceful Bangladesh till the elections were held, was crucial. It was on such a matrix that Foreign Minister Pranab Mukherjee paid a brief visit to Dhaka on 19 February 2007, the first foreign dignitary to visit the CTG. The ostensible reason was to convey invitation to the South Asian Association for Regional Cooperation (SAARC) Summit, which was to take place in New Delhi in April that year. The Indians, rather cleverly, invited not only President Iajuddin Ahmed, but also Chief Adviser Dr Fakhruddin Ahmed, which naturally pleased the CTG. On that occasion, India’s Foreign Minister Pranab Mukherjee was hosted by the author as his Bangladesh counterpart, and the two were able to develop a close personal and functional relationship. 3 In his formal lunch remarks, the author while being very warm, made a few substantive points drawing the guest’s attention to them - ‘our two countries share borders, cultural affinities, common historical experience, values that do us proud, and much more. It is thus natural for us to be friends. And that we are. We recall with fond gratitude your support at our nascence. We look back with fond memories to the occasions that have linked our destinies, 2

3

‘The other border’, The Indian Express (3 August 2010), www.Indianexpress.com/news/the-otherborder/655258/0. Accessed on 3 August 2010.

The author was then the Foreign Advisor (Foreign Minister) of the Bangladesh Government. Many of the events mentioned and quotes cited hereinafter are drawn from the author’s personal notes/records, and are not therefore separately footnoted.

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such as the creation of SAARC. We will use these commonalities to build for the present, a harmonious relationship between us. For the future, we will continue to mark this relationship with cordiality and cooperation. This cannot but be, for the hopes and aspirations of our two people are intertwined…India among us is most blessed in terms of size, population and resources. A special responsibility therefore devolves on her. We know that she will not shy away from it. As India grows, we would like to grow with her.’

The moot point made was that India has a special responsibility towards her neighbours as a senior South Asian partner, one that immediately appeared to have found resonance and intellectual acceptance in the visitor. Visibly pleased, upon his return to New Delhi, Mukherjee remarked to the media that ‘Our bilateral relations have reached an irreversible trajectory’.

In this relationship, buttressed by two visits to India by the Head of the CTG (titled ‘Chief Advisor’), Dr Fakhruddin Ahmed, leading the SAARC and Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC) delegations in April 2007 and November 2008 respectively, Bangladesh sought to put in place the principle of living in concord with but distinct from the powerful neighbour. There appeared to be a sophisticated understanding of this among the Indian authorities. Indian concerns were primarily focused on ‘security’ and ‘connectivity’. On both, the Indians seemed to understand and appreciate that the CTG would need to be circumspect and act in consonance with perceived public opinion and desisted from giving too much pressure. India wanted Bangladesh to deny ‘safe haven’ to Indian insurgents and were given assurances on that count, while also being told that no ‘hot pursuits’ would be allowed. India wanted transit facilities, on which issue, with an eye on public sentiments, Bangladesh had to go slow. There were some breakthroughs on both issues though. Data on insurgents were exchanged and some Indian insurgents hiding in Bangladesh were apprehended and returned. The Dhaka-Kolkata rail links were resumed with much fanfare. There was some forward movement on the trade front as well. India accepted to buy eight million pieces of garment annually and reduce the ‘negative list’ of importables.

While these measures were insufficient in reducing the huge trade imbalance in India’s favour and progress in implementation was lamentably slow, a good start with positive gestures was made.

Indeed the most important achievement in terms of bilateral relations was that while a positive political climate was created complete with the Indian acceptance of a greater non reciprocal responsibility; all the different mechanisms created for bilateral negotiations were set in motion. The Indian High Commission in Dhaka described these engagements with Bangladesh during the Caretaker period (January 2007 - January 2009) as ‘constructive’. 4

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‘India-Bangladesh Relations’, High Commission of India, Dhaka (March 2010), www.hcidhaka.org/pdf/Political%20and%20Economic%20relations.pdf. Accessed on 5 August 2010.

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From the entire gamut of the Indian Government’s relationship with the CTG, Sreeradha Datta, an Indian analyst, reached some extrapolations, which according to her would help guide future Indian policy for the mutual benefit of Bangladesh and India. She wrote, ‘Free from partisan politics, the CTG was able to initiate and respond positively towards India. It was free from any anti-Indian pressures that undermine the ability of a government in Bangladesh to respond positively to various Indian overtures… Looking at its experience with the CTG, its response and the positive outcomes, India could draw certain broad lessons regarding the bilateral relations. That the CTG was unable, if not unwilling, to address some of its principal demands should enable India to prioritise its concerns. 5

Sheikh Hasina in New Delhi While relations with India would be central to Sheikh Hasina’s regional, indeed global policy, she needed to approach the subject with utmost caution. Views on Bangladesh-India relations are far more varied and diverse in Bangladesh than in India. Many in Bangladesh see these as a ‘zero-sum game’ in which if one gains, the other loses. They see stressing the distinctiveness with India rather than the commonalities as crucial to Bangladesh’s separateness and sovereignty, and suspect that India’s motives aim at eroding the latter two.

This somewhat emotive posture has many votaries, largely within, but not necessarily confined to the other major political party, the BNP. This is perhaps largely why Sheikh Hasina waited a year to undertake her first visit to India in January 2010, and signal a balance to the potential detractors, followed it up the very next month with a trip to China, the other major perceived regional protagonist. To be seen as sovereign equal to India was important and therefore, Manmohan Singh’s remarks at the banquet in her honour must have been music to her ears when he said, ‘We meet today as two vibrant and equal democracies that share common values and common goals’. 6 As expected, the visit raised a wave of diverse emotions. The BNP and the right-wing religious oriented Jamaat-e-Islami declared it a ‘total failure and surrender to India’. 7 At a round table discussion organised by the newspaper Daily Star, former State Minister of Foreign Affairs and BNP member Reaz Rahman described the outcome as ‘mega concessions to India’, while Irene Khan, the Bangladesh-born Secretary General of Amnesty International, called it a ‘courageous step’, and Farooq Sobhan, President of the Bangladesh Enterprise Institute, a prominent think-tank, said that ‘if growth was the goal, there was no way but to build regional and sub regional economic cooperation’. 8 Sheikh Hasina herself

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6 7 8

Sreeradha Datta, Caretaking Democracy; Political Process in Bangladesh (New Delhi: Institute for Defence Studies and Analyses, 2009), pp.108-109.

Daily Star (12 January 2010).

Bhaskar Roy, ‘The Lessons from Hasina’s Visit’, Sify News (20 January 2010).

'Indo-Bangla summit "bold shift" in bilateral relation', Zeenews.com (17 January 2010), www. zeenews.com/news596599.html. Accessed on 27 August 2010

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stated at the airport upon her return that the visit was ‘cent per cent successful’. 9 These comments demonstrate the kind of emotions that dealing with India raises among the Bangladeshi public and the consequent political and electoral ramifications for the government, and in this case for Sheikh Hasina and the Awami League.

Pranab Mukherjee Revisits Dhaka The growing unease in Bangladesh with regard to the tardy implementation of the HasinaSingh understanding and an acknowledgment of this in the Indian media as the initial paragraphs of this article demonstrates, led to a decision by Manmohan Singh to send his most senior Cabinet colleague, Mukherjee, now Finance Minister, to Dhaka on 7 August 2010. It was billed as a signal to Bangladesh that the country was ‘very high on (India’s) priority list’. 10 Mukherjee had already visited the new Awami League government soon after the elections in February 2009, then as Foreign Minister, with a ‘message of goodwill’ from India. 11 Concerned about the fact that in 2009-2010, India’s exports to Bangladesh were US$2.43 billion against import figures of only US$254 million, the Bangladeshi Commerce Minister Faruque Khan, on the eve of Mukherjee’s visit, said, ‘We are set to ask India to expedite the process of removing tariff and non tariff barriers in the Indian market’. 12 Bangladeshi newspapers also saw the initiative as a means to ‘assuage’ Dhaka. 13 During his brief four-hour stay in Dhaka, Mukherjee and his Bangladeshi counterpart A.M.A. Muhith witnessed the signing of the US$1 billion Indian credit line between the Chairman of Exim Bank of India and Bangladesh Secretary of External Resources. The terms and conditions of the credit, to be used for 14 mainly infrastructural projects, included 1.75 per cent fixed interest per annum, 0.5 per cent commitment fee per annum on unutilised credit after 12 months from the date of contract approval, and 20 years’ repayment period with a grace period of five years. 14 There was some criticism by a section of the intelligentsia, including some economists and political analysts like Professor Mahbubullah, Dr Badruddin Omar and Professor Anu Mahmood, that the terms were too stiff and softer credit would have been available elsewhere. 15 An English daily cited Mukherjee’s remarks from a written 9 10

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‘Hasina says India tour Cent Per Cent Successful’, Expressindia (13 January 2010).

Indrani Bagchi, ‘With Pranab Visit India Signals Changed Approach to Bangladesh’, Times of India (6 August 2010).

The author, though not in office at that time, was specially invited to meet Mukherjee as an ‘old friend’ by the Indian High Commissioner, along with some Cabinet Ministers of the new Awami League Government.

‘Bangladesh to seek removal of trade barriers during Pranab Mukherjee’s visit’, Daily News & Analysis (6 August 2010), www.dnaindia.com/world/report_bangladesh-to-seek-removal-trade-barriers-during-pranabmukherjee-s-visit_1419908. Accessed on 7 August 2010.

Rezaul Karim, ‘Dhaka to pen $1bn loan from India today: Pranab to Witness Signing, Review Deals on Arrival’, Daily Star (7 August 2010).

Daily Star (8 August 2010).

Amar Desh (Bengali language daily) (8 August 2010).

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statement that ‘the terms of the line of credit were extremely favourable’ and caustically added that the Indian Minister did not specify for which country. 16 Muhith dismissed the criticisms as ‘utterly false’. 17 Several issues of key interest to Bangladesh also came up during Mukherjee’s talks with the Bangladeshi leadership, including Sheikh Hasina and Foreign Minister Dipu Moni. One was the subject of tariff and non tariff barriers on which Mukherjee said that the ‘two sides are working to remove them’. A second was Bangladesh’s transit access to Nepal on which Mukherjee said that ‘India would soon place arrangements to allow Nepalese trucks to enter the land customs station at Banglabandha in Bangladesh’. The third was the agreement to be signed on the sharing of the Teesta river waters, on which Mukherjee stated that both sides had exchanged drafts, and there was ‘progress towards positive direction’. 18 On the whole, the public reaction to the Mukherjee visit appeared to be positive. The BNP however, has assumed a contrary position and its Chairperson Begum Zia had warned of agitation. But if positive outcome can truly be demonstrated, then this position would likely be adjusted in consonance with the realities of electoral politics. It is therefore extremely important to show palpable gains, most certainly for the Bangladesh government. Following Mukherjee’s departure, a mainstream influential newspaper wrote in an editorial that ‘IndoBangladesh relations have been put on a new, but potentially stronger remained to be done.

The paper went on to say, ‘At the same time, we believe this move will give a fillip to the process of resolving some outstanding issues Bangladesh has with India, especially those related to sharing of common river waters, border demarcation and peace, 19 delimitation of maritime boundaries, 20 and the like.’ 21

Prognosis Prime Minister Manmohan Singh has said, ‘India’s Look East policy is not merely an external economic policy; it is also a strategic shift in India’s vision of the world and India’s place in the evolving global economy. Most of all, it is about reaching out to our civilisational

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Shahidul Islam Chowdhury, ‘$1b Supplier’s Credit: Deal inked with India amid Criticism’, New Age (8 August 2010).

Ibid.

Ibid. On the Teesta river waters agreement, the Union Government in New Delhi might go slow so as not to upset the chances in the West Bengal elections next year of Ms Mamata Bannerjee’s Trinamool Congress, aiming to unseat the present Left Government in Kolkata. West Bengal, too, is keen on the Teesta waters.

‘Peace’ along borders has reference to the shooting by Indian Border Security Forces of Bangladeshi nationals, a fact that has been raising considerable anger among Bangladeshi public.

A Singapore-based analyst from the S. Rajaratnam School of International Studies has argued that the Bay of Bengal region has great potentials for future conflict due to disputes over off-shore oil and gas, and conflicting claims by such littoral countries like Bangladesh, India and Myanmar to extended continental shelves. See Sam Bateman, ‘Bay of Bengal: A New Sea of Troubles?’, RSIS Commentaries (21 May 2010).

‘Credit line with India Signals substantial Bilateral Engagement and Wider Connectivity’, Daily Star (9 August 2010).

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neighbours in South East Asia and East Asia’. 22 Bangladesh, the nation to India’s east, with the largest common border of 4,096 kilometres fits the bill of a ‘civilisational neighbour’ admirably. The mighty Rabindranath Tagore once said while undertaking distant journeys, ‘we often tend to ignore what is worthy of our attention in our own backyard’. It is perhaps time for India to pay more heed to its immediate environs and the ‘strategic shift’ that Singh has spoken of must find deeper focus among those who shape India’s external policies, neighbours with negative perceptions, which is perhaps a sign of hopeful bilateral potentials. 23 The ‘Bhagavad Gita’, records a debate between Krishna and Arjuna. Krishna urges Arjuna to fight the ensuing battle no matter what the consequences, because the cause is just. Arjuna however, dithers. He ponders about the possible resultant misery and slaughter. Amartya Sen believes these arguments to be valid in our times, stating that ‘it is important to take on board Arjuna’s consequential analysis, in addition to considering Krishna’s arguments for doing one’s duty’. 24 I have observed elsewhere on this debate, ‘Indeed, it is this philosophical capacity of the Indian ethos to be able to weigh the considerations on both sides from which India’s policies in the neighbourhood must derive its nourishment. India must be the elder not merely the big brother. It must not only be the largest country in the heart of South Asia, but the country with the largest heart. It is as simple or as difficult as that’. 25 The fact, as this article has sought to demonstrate, bilateral relations between Bangladesh and India were already on an even keel during the period of Bangladesh’s Caretaker Government (2007-2009), shows that it is possible for positive cooperation to take place with elements in power in Bangladesh other than the Awami League, with its reported tilt in favour of India.

Of course for that to happen, there must exist a political will on both sides. A disproportionate responsibility, as this essay has also argued, may lie with India, but Bangladesh must also signal reciprocation and appropriate understanding.

Three things need to be done. It is obvious for a number of reasons. Pranab Mukherjee is emerging as India’s point-man for Bangladesh. He and his Bangladeshi counterpart, A.M.A. Muhith, may jointly head a High Level Cabinet Implementation Committee, also comprising Ministers of Foreign and Commerce of both countries, to guide and supervise the implementation of all bilateral understandings, including the Joint Communique of January 22

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Cited in C.S. Kuppuswamy, ‘India’s Look East Policy- A Review’, South Asia Analysis Group, Paper No. 3662 (12 February 2010).

Louise Merrington, ‘Big dreams, little direction: India’s foreign policy machine’, South Asia Masala (4 August 2010), http://asiapacific.anu.edu.au/blogs/southasiamasala/2010/08/04/big-dreams-little-directionindia%E2%80%99s-foreign-policy-machine/. Accessed on 6 August 2010. In this piece, the author makes a somewhat controversial and stinging criticism of the Indian External Affairs Ministry, arguing there exists a ‘paralysis’, resulting from a ‘lack of decisiveness and cohesion’, impeding India’s aspirations of a ‘dominant’ power role. This observation would run contrary to this author’s own exposure over decades to Indian diplomats who can be said to be some of the best in the profession in the contemporary world.

Amartya Sen, The Argumentative Indian (New York: Farrar, Strauss and Giroux, 2005), pp.5-6.

Iftekhar Ahmed Chowdhury, ‘Post-Election India: How the Neighbours View the Elephant’, ISAS Insight No.68 (22 May 2009), p.10.

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2010. Both Mukherjee and Muhith are the most senior ministers in their respective cabinets, and this would also take on board the prevalent Bangladeshi sentiment that the key issues needed addressing is basically economic. Secondly, as political relations improve, all the bilateral mechanisms set up to resolve divisive issues must begin to function simultaneously.

Neither country will win in all, but such flurry of activities will generate an impetus to improve ties across the broadest possible spectrum of activities. And thirdly, a return visit from Prime Minister Manmohan Singh to Bangladesh is now most certainly due. This would help underscore the point all these activities are designed to make, that Bangladesh is now a priority in India’s Look East policy, just as it should be.

oooOOOooo

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ISA S Insights No. 112 – 15 September 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Inflation, Growth and the 3D: South Asian Perspectives M. Shahidul Islam1

Abstract While inflation and economic growth, the two fundamental issues of macroeconomics, are often addressed from fiscal and monetary policy perspectives, this paper argues that there is a limitation to the extent they can contain headline inflation and remove barriers to growth. In this connection, the paper suggests that such issues also need to be viewed through a 3D (density, distance and divisions) prism. If addressed properly in the light of the 3D, individual countries of South Asia as well as the region can solve many fundamental problems concerning inflation and growth.

Introduction The spectre of inflation is back in South Asia. While core inflation2 has spiked moderately, headline inflation3 in most countries is now double digit. This is also happening at a time when many parts of the global economy are fighting deflation. People in advanced economies

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Mr M. Shahidul Islam is Research Associate at the Institute of South Asian Studies (ISAS), an autonomous institute at the National University of Singapore (NUS). He can be reached at isasmsi@nus.edu.sg. The views reflected in the paper are those of the author and not of the institute.

Core inflation is a measure of inflation that excludes certain items—notably food articles and energy—that face volatile price movements. It is often calculated by taking the Consumer Price Index (CPI) and excluding certain items from the index, usually food products and energy, www.investopedia.com Accessed on 20 August 2010.

Also known as top-line inflation, headline inflation is a measure of price inflation that takes into account all types of inflation that an economy can experience, including changes in the price of food and energy.

generally ignore headline inflation (as do central banks) owing to the low weight of food and energy in their household budget. For South Asia, home to the world’s largest number of poor people, however, it is too important to be ignored, given the higher share of income being allocated to food articles.

Generally, supply shocks, or higher demand, or a combination of both push prices up. However, a closer look gives us a different picture. The total stock of food grains with the Food Corporation of India and other government agencies, for instance, increased to 58.4 million tonnes in July 2010.4 The stock was much above buffer norms. Yet food inflation in India has been double digit for several months. One might argue that this is due to high inflation expectations. Based on available data and the forecast by the Indian Metrological Department, the country will experience a near-normal monsoon.5 The Reserve Bank of India (RBI) projected that the agriculture sector is likely to grow at least 4.0 per cent in 2010-11, which is much higher than in the previous fiscal year.6 So shortage in agricultural supplies is probably not the reason behind high food inflation.

Similar stories can be traced elsewhere in South Asia. In Bangladesh, for instance, there is a wide gap between international and local prices of imported commodities, even if one separates tax, tariff and subsidy distortions, and transport costs. Prices of grains and other food articles between different locations in Bangladesh are highly divergent7, despite the fact that the country is geographically dense.8 While monetary policy can be quite useful to contain core inflation, its role as far as headline inflation is concerned has proven to be less potent. Upward adjustment in traditional monetary tools such as policy rates or currency appreciation might not have a profound effect on inflation.

Moreover, short-term interest rates are generally guided by the core inflation rate.

One of the key premises for ignoring changes in food and energy prices, particularly in developed countries, is that although these prices have significant effects on the overall index,

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Macroeconomic and Monetary Developments, Reserve Bank of India, 26 July 2010. Accessed on 12 August 2010.

India Meteorological Department, www.imd.gov.in/. Accessed on 19 August 2010.

RBI (2010). –Macroeconomic and Monetary Developments, Reserve Bank of India, 26 July 2010. Accessed on 12 August 2010.

Poor infrastructure, extortion and collusion in the commodity supply chain, among others are blamed for commodity price distortions in Bangladesh.

With 144,000 square kilometres, Bangladesh is geographically smaller than Orissa of India and slightly larger than Wisconsin of the United States. The country is home to 160 million people - making it one of the most densely populated countries in the world.

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they are often quickly reversed. As a result, they do not require a monetary policy response.9 Under this circumstance, an impotent monetary policy allows the supply shock to be passed through into a higher price level as it generally does not have any mechanism to address headline inflation.10 Nevertheless, food inflation in India and elsewhere in South Asia remains persistently high. The respective central banks responded by rising policy rates, inter alia. However, as in the past, such an action may not dampen the prices in a meaningful way.

Costs of Economic Growth Then there are issues concerning growth. Bangladesh’s gross national savings, for instance, is 35 per cent of its GDP, but it invests only 25 per cent. Its incremental capital output ratio (ICOR)11 is approximately 4. With this ICOR, it should have grown at the rate of 9.0 per cent. Economic growth rate is the ratio of investment to ICOR. However, it has been growing at approximately 6.0 per cent for the past five years. What then explains Bangladesh’s inability to grow at 9.0 per cent? Energy shortages, higher economic distance (despite lower Euclidean distance12), inadequate infrastructure, and poor regional connectivity, among others, bar Bangladesh from growing at 8.0 to 9.0 per cent. Similar conclusions can be drawn from other South Asian economies as far as cost of growth is concerned.

Growth and Inflation in 3D Prism It might be more useful to see the aforesaid problems in 3D prisms. 3D is an acronym for Density, Distance, and Division. The concept received much attention following the publication of the World Development Report (WDR) 2009 titled ‘Reshaping Economic Geography’ by the World Bank, although the idea originated from Paul Krugman, recipient of the 2008 Nobel Prize for Economics. According to Krugman, economies of scale and declining transport costs

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FRBSF Economic Letter, 97-11; 18 April 1997, Federal Reserve Bank of San Francisco. www.frbsf.org/econrsrch/wklyltr/el97-11.html. Accessed on 19 August 2010, Accessed on 17 August 2010.

Ibid.

ICOR is defined as: ICOR for year t = Investment in year t/Increase in value of output in year t, www.jstor.org/pss/2229085.

According to the Harrod-Domar Growth Model, a country with an investment rate of 4.0 per cent of GDP and an ICOR of 4 will experience growth of 1.0 percent per year. See William, Easterly (1997), ‘The Ghost of Financing Gap: How the Harrod Domar Growth Model Still Haunts Development Economics’, The World Bank Development Research Group, Policy Research Working Paper WPS 1807, p.5.

The Euclidean distance or Euclidean metric is the ‘ordinary’ distance between two points that one would measure with a ruler, and is given by the Pythagorean formula. For details, see http://en.wikipedia.org/wiki/Euclidean_distance. Accessed on 21 August 2010.

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encourage concentration of production in certain places and this, in turn, leads to new trade patterns.13 Countries can increase the ‘density’ by concentrating economic activity in a few areas – coastal areas are prime candidates. The ‘distance’ between markets can be shortened through an expansion of transport services. Correct policies should be adopted to reduce barriers to the movement of goods and services, helping to eliminate ‘divisions’.

According to the WDR 2009, density is the first of the geographic dimensions of development that underlies the economic mass or output generated on a unit of land. The economic merits of density are profound. Literally no country has developed without the growth of its cities.

Examples are abundant – from ancient Rome to modern day’s Seoul or Shenzhen, which did not even exist 30 years ago. Paris generates 28 per cent of France’s GDP using only 2.0 per cent of its land.14 According to the WDR 2009, denser concentrations of economic activity increase choice and opportunity. They ensure greater market potential for the exchange of goods, services, information and factors of production.

The next critical factor is distance. Economists measure distance between two places based on economic distance, and not Euclidean distance. The distance between Dhaka and Gazipur (where many apparel industries are located), for instance, is merely 26 kilometres (km). It should take less than an hour to commute between these two places, but the travel time is on average 2 to 3 hours. From Gazipur, a consignment of goods needs half a day, if not a day, to reach Chittagong port, a mere 208 km distance. In China people from Shanghai can travel to Wuhan (a distance of 682 km) in 2 to 3 hours. China’s high speed trains run between 260 km/hour to 350 km/hour, connecting the coastal areas to inland cities. This shows how continental China has narrowed the gap between economic and Euclidean distance by rapidly developing its infrastructure.

Poor infrastructure in Bangladesh and elsewhere in South Asia inhibits products and people from moving freely between cities and the countryside. The cost of high economic distance is enormous. Prices of grains or other soft commodities vary widely between the countryside and cities due to higher economic distances in South Asia, prohibiting prices from converging at least within the country, if not across the region.

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Krugman, Paul (1991), ‘Increasing Returns and Economic Geography’, Journal of Political Economy, 99(3): 483-499. Fujita, Masahisa and Jacques-François Thisse (2008), ‘New Economic Geography: An Appraisal on the Occasion of Paul Krugman’s 2008 Nobel Prize in Economics’, CEPR Discussion Paper #7063.

World Development Report (2009), The World Bank. http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTWDRS/EXTWDR2009/0,,m enuPK:4231145~pagePK:64167702~piPK:64167676~theSitePK:4231059,00.html. Accessed on 24 March 2010.

Accessed on 24 March 2010.

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Economic borders are narrow elsewhere in the world barring South Asia and Africa. Landlocked Nepal, for example, is just a few kilometres away from the Bangladesh border. But the economic distance between these two neighbours is few hundreds, if not thousand, kilometres. People from both sides have to travel via India to conduct trade and commerce. This brings the issue of ‘divisions’ in the picture. There are tariff and non-tariff barriers15 across the region and beyond the borders. High economic distance and divisions restrict the flow of goods, capital, people, and ideas in South Asia.16 Bangladesh shares a 4,098 km border with India, particularly with the state of West Bengal and north-east India. The people of north-east India are closer to Bangladesh than to those in the Indian mainland – irrespective of their geography, history, culture and language, to name just a few aspects. However, the economic isolation between north-east India and Bangladesh has made the border between the two countries a ‘safe heaven’ for separatists and terrorists. The economic isolation of over 200 million people encourages illicit trade, fuels terrorism and increases tensions along the border. Yet they could have been natural trading partners, exploiting the comparative advantages of their respective regions. Bangladesh’s economic growth is severely constrained due to energy shortages, while there is surplus hydro-power in Bhutan and north-east India that could be diverted to Bangladesh’s power grid. Energy-starved Bangladesh can invest in Nepal’s underutilised hydropower sector. Bangladesh has two sea ports and it is a connecting point between South Asia and ASEAN countries; its advantageous geographical location could have been exploited for the benefit of landlocked north-east India and Himalayan countries such as Nepal and Bhutan.

There is a tendency in India and elsewhere in South Asia to seal borders to control the flow of already restricted goods and services if there is inflation or inflation expectations.17 This deprives poor farmers getting the right price for their produce on one side of the border and the poor, on the other side of the border, seeing inflation eroding their real income. This adversely affects agriculture production – with a lag affect.18 The economic literature on this is abundant. It also bars the poor from breaking the vicious circle of poverty. There are more poor people in India than Sub-Saharan Africa and nearly one-third of Bangladesh live below the poverty line.

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Non-tariff barriers include, among others, a wide range of operating practices such as bureaucratic delays in processing request for permits.

‘Non-tariff barriers hindering export to India’, The Dawn (24 February 2010); ‘Dhaka sends list, asks Delhi to remove non-tariff barriers’, The Financial Express (26 August 2010).

India banned exports of certain commodities following the commodity price hike in 2007-08 and 2010.

If farmers do not get the right price for their produces in the current year (Yt) this affect their farming decision in the next year (Yt+1) and often have adverse impact on agriculture production.

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For politicians and bureaucrats, it is more convenient to seal borders than address fundamental issues. Bangladesh and India also share borders with Myanmar. Although Yangon and New Delhi (or Dhaka) are governed by different rulers, the outcomes are no different. While many parts of the world are virtually borderless, India is now constructing a 4,000 kilometre fence to seal the India-Bangladesh international border.

One might cite recent developments in India-Bangladesh relations as a success so far as South Asia’s regionalism is concerned. Such optimism is nothing new, if the history of Indo-Bangla relations is any guide. India has recently offered some development assistance to Bangladesh and the latter has promised not to allow terrorism along the borders. The ruling government in Dhaka has also promised to allow India to use Bangladeshi territory for transit. It apparently looks like a win-win situation for both stakeholders. However, the core issues concerning the two countries are not addressed in this ad hoc deal. Unless New Delhi allows natural trade between north-east India and Bangladesh, fundamental issues concerning India-Bangladesh relations will not be resolved. Hence, despite recent developments, the comparative advantages between these two close neighbours remain unexploited. So, such occasional spikes of hope – this time thanks to the personal chemistry between Sheikh Hasina, Prime Minster of Bangladesh and Pranab Mukherjee, Finance Minister of India19 – might die down when there are changes in government or ideology in Delhi and Dhaka. The opposition party in Bangladesh has already renounced the deal. New Delhi must find a way to develop relationships with Bangladesh as a whole and not with individual parties.

While South Asian economies, both individually and regionally, have not looked at development in the 3D prism, China has followed Krugman’s theory profoundly. In recent years, the press and academics alike have been highly vocal against China’s undervalued currency that is believed to be a cause of major restraint in the global economy. Krugman has also joined the bandwagon with his columns in the New York Times.20 Rebutting Krugman’s allegations, Yukon Huang, World Bank’s country director for China (1997–2004), argued that China’s three-decade spectacular development is based on the 3Ds and not by the aid of its undervalued currency.21 More precisely, Deng Xiaoping, the architect of China's reforms, started economic reforms by using ideas similar to those developed by Krugman; undervalued currency was not in Deng’s mind, Huang argued. China increased the ‘density’ of economic activity by concentrating production in a few coastal cities geared to exports. It cut the ‘distance’ between markets through

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They address each other as brother and sister.

‘Taking On China’, New York Times (14 March www.nytimes.com/2010/03/15/opinion/15krugman.html?_r=1, Accessed on 15 March 2010.

‘Watch China’s Coasts, Not its Currency’, The Financial Times (10 August 2010).

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2010).

an expansion of transport services. It undertook to reduce barriers to the movement of goods, helping to eliminate ‘divisions’.22

Conclusion So, the solution to growth constraints or the control of inflation does not merely depend on fiscal or monetary policies or similar economic tools. The state of the 3Ds in South Asia tells us why most countries in the region are growing at 5.0 to 6.0 per cent and not 8.0 to 9.0 per cent consistently, or why the law of one price hardly prevails in the region.

However, if the region follows the Chinese example (or designs policies based on the theory developed by Krugman and captured in the WDR 2009), individual countries or the region can narrow the gap between economic and Euclidean distances. Bangladesh, north-east India and Nepal could increase the ‘density’ of economic activity by concentrating production in a few border cities geared to exports. Bangladesh’s land and port can be used to export the produce in the region and beyond. Barriers to the movement of goods and services have to be addressed that could eliminate ‘divisions’, making South Asia a more integrated region. Haphazard initiatives, as one notices in the case of the recent India-Bangladesh relations, will not eliminate the ‘divisions’ and will not fundamentally reduce ‘economic distance’, and the region’s comparative advantages will remain unexploited.

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This explains how China is removing the barriers to the movement of goods helping to eliminate ‘divisions’.

This, including its rapidly developing infrastructure, could help the country to see the ‘law of one price’ works across the country. For case studies, see World Development Report, 2009, The World Bank, http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTWDRS/EXTWDR2009/0,,m enuPK:4231145~pagePK:64167702~piPK:64167676~theSitePK:4231059,00.html. Accessed on 24 March 2010.

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ISA S Insights No. 113 – 19 October 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Bangladeshi Courts: Reaffirmation of Democratic and Secular Norms Iftekhar Ahmed Chowdhury 1

Abstract Bangladesh, a predominantly Muslim country of 160 million people was born in 1971.

Immediately after independence, it was confronted with a host of developmental and political challenges. Over time it managed to respond to the development issues with a modicum of success. Initially this was done by an effective utilisation of external support as well as domestic resource mobilisation, and then through home-grown concepts like microcredit and non-formal education, which helped in alleviating poverty, mainstream gender and marginalise extremist thoughts and action. The political problems were more daunting. The principles of ‘democracy’ and ‘secularism’, among others, were soon eroded by military interventions, with such actions given legislative sanction through the Fifth (1979) and Seventh (1986) amendments to the constitution. Recently the higher judicial courts delivered two historic judgements nullifying the amendments and setting the country again on the path of democracy and secularism. This paper discusses the judgements and Bangladesh’s efforts to maintain religious harmony with democratic and secular values.

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Dr Iftekhar Ahmed Chowdhury is a Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007-2009. He can be contacted at isasiac@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.

Introduction A series of interesting judgements by the higher courts in Bangladesh are poised to mark an indelible imprint upon the social and political fabric of Bangladesh. They tend to reaffirm the norms of democracy and secularism, two of the nation’s original state principles. Bangladesh is a country with a ‘complicated and spectacular tale’.2 Already, Bangladesh appears well set on a democratic path, which is chaotic, but calm, at least more than Pakistan, the other main Muslim majority country in South Asia. It has an example of how ‘education can actually transform a nation’.3 Add to it women’s empowerment through microcredit and non-formal schooling, a steady and equitable growth-rate over years, and commendable international behavior denoting a responsible global actor.4 A vibrant civil society enhanced the nation’s recent international reputation.5 The work of Nobel laureate Mohammad Yunus helped spread the nation’s fame globally.6 Taunted by Henry Kissinger as a ‘basket-case’ at its inception in 1971, the country has slowly transformed itself from a ‘paradox’, as the World Bank described its successes against numerous odds7, to a ‘paradigm’. Two things tended to cast a shadow on its evolution; military interventions, though less frequent than Pakistan’s, from which it seceded in 1971 and the potentials of burgeoning religious extremism, though also far less threatening than the other country’s. The recent court rulings addressed these two issues.

Following the establishment of the sovereign state, having broken away from Pakistan in December 1971, the Constitution of Bangladesh, adopted the following year, clearly identified nationalism, socialism, democracy and secularism as fundamental state principles. However as politics evolved most of these underwent considerable erosion. In August 1975, a bloody coup led by some junior military officers assassinated Sheikh Mujibur Rahman, the President, who had championed those values and installed Khandker Mushtaque Ahmed, who did not share his commitment to these norms.8 The new leaders were also overthrown by counter-coups soon enough, but the leaders of the August 1975 coup were given indemnity in by General Ziaur 2 3 4

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William Van Schendel, A History of Bangladesh (Cambridge: Cambridge University Press, 2009) p.XXV. Nicholas D. Kristof, ‘One Soldier or 20 Schools?’, New York Times (30 July 2010).

Bangladesh has been consistently one of UN’s largest peace-keeping contributors, helping stabilise post conflict regions, particularly in Africa. See, Nurul Islam, ‘The Army, UN Peacekeeping Mission, and Democracy in Bangladesh’, Economic and Political Weekly, Vol.XLV, No.29 (17 July 2010), pp.77-85.

For a story on one of Bangladesh’s and the world’s largest and successful NGOs, BRAC, see, Ian Smillie, Freedom from Want ( Dhaka: The University Press Limited, 2009).

See, ‘Nobel Winner Yunus: Microcredit Missionary, Bloomberg Businessweek (26 December, 2005), www.businessweek.com/magazine/content/05_52/b39665024.htm. Accessed on 28 August 2010.

Despite heavy odds, this was due to the considerable progress Bangladesh achieved in a number of fronts. See, Naureen Chowdhury Fink, Bombs and Ballots: Terrorism, Political Violence and Governance in Bangladesh (New York: International Peace Institute, 2010), p.12 .

Talukdar Muniruzzaman, ‘Bangladesh in 1975: The Fall of the Mujib Regime and its Aftermath’, Asian Survey, Vol.16, No.2, (February 1976), pp.119-129.

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Rahman, the strongman-turned-President, through the Fifth Amendment (of the Constitution).9 It legitimised all constitutional changes between 15 August 1975 and 9 April 1979.10 Similarly, General Hussain Mohammed Ershad, who assumed power following Ziaur Rahman’s assassination in 1981, had the Seventh Amendment enacted on 11 November 1986, validating all his constitutional (or extra-constitutional) actions.11 It was only after Ershad’s overthrow through a mass upsurge in 1991 that an acceptable democratic system took root, with two parties, the Awami League, and Bangladesh Nationalist Party (BNP), and two leaders, Sheikh Hasina and Khaleda Zia, alternately leading the government every five years, with caretaker governments holding elections, as neither Party trusted the other enough to do so.12 During this period, the principle of ‘secularism’ also took a battering. ‘Secularism’ was deleted as a state principle from the constitution in 1977, Islam was declared the state religion in 1988, the use of Islamic idiom burgeoned in political discourse and close liaisons were formed between secularist and Islamist political parties.13 Grave concerns were raised by some foreign observers.

One was Liza Griswold, who writing in 2005, expressed fears about the rise of the Taliban in Bangladesh.14 Another was Bertil Lintner, whose apprehensions were that if countermeasures were not adopted a hitherto moderate state could go down the ‘Islamist’ path.15 Happily, though, the misgivings did not come to pass. The Islamist movement spluttered and was dealt a heavy blow when the courts awarded capital punishment to a number of leading terrorists which were carried out during the period of the caretaker government (2007-2009). At this time, the current government is organising trials for war crimes committed in 1971, mostly by Jamaat-i-Islami leaders who had also opposed the independence of Bangladesh, and there does not appear to be any palpable opposition to the decision by the mainstream public.

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For an interesting account and analyses of the turbulent Bangladesh politics in mid and late 1970s, see Lawrence Lifschultz, Bangladesh: The Unfinished Revolution (London: zed Press, 1979).

See Rasel Pervez, ‘Repeal of the Fifth Amendment: Musings’, e-Bangladesh (18 February 2010). www.ebangladesh.org/2010/02/18/the-repeal-of-the-fifth-amendment-musings/ Accessed on 29 August 2010.

Banglapedia: National Encyclopedia of Bangladesh, www.banglapedia.org/httpdocs/HT/C_0336.HTM. Accessed on 29 August 2010.

For a concise and succinct account of the complexities, see Kazi Anwarul Masud, Bangladesh Crisis (Dhaka: Sudipta Printers, 2007).

Ali Reaz, ‘God Willing: The Politics and Ideology of Islamism in Bangladesh’, Comparative Studies of South Asia, Africa and the Middle East, 23:1&2 (2003), pp.301-302.

‘The Next Islamist Revolution?’, New York Times (23 January 2003), www.muktomona.com/news/bangla_bhai/Islamic_rev_NYTimes.htm. Accessed on 29 August 2010.

‘Bangladesh: Extremist Islamist Consolidation’, www.satp.org/satporgtp/publication/faultlines/volume14/Article!.htm. Accessed on 29 August 2010.

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The Courts and the Fifth Amendment Following a writ petition, on 29 August 2005 the High Court in Bangladesh gave a historic ruling that declared the Fifth Amendment to the constitution illegal. The then BNP government was actually favourably disposed towards the amendment and it was obvious that it would do little about it until the Supreme Court, pronounced itself on the issue. This came five years down the line, in February 2010. The political milieu had altered by then and an Awami League-led government was now in office. Five months later, in July, the six member bench headed by thenChief Justice Mohammed Tafazzal Islam released the full text of the judgment, comprising 184 pages. In strong terms it denounced extra-constitutional methods of acquiring state power and restored the secular spirit of the original constitution.

These were reflected in the following two pronouncements of the court - first it said, ‘We are putting on record our total disapproval of martial law and suspension of the constitution or any part thereof in any form…The perpetrators of such illegalities should also be suitably punished and condemned so that in future no adventurist, no usurper would dare to defy the people, their constitution, their government, established by them with their consent’. Second, on secularism, the court observed that martial law proclamations by omitting secularism, one of the state policies from the constitution, destroyed one of the basis of our struggle for freedom and also changed the basic character of the Republic as enshrined in the preamble as well as in Article 8(1) of the Constitution’.16 The editorial of a mainstream newspaper seemed to reflect public sentiment, when it wrote, ‘...the judgment of the Supreme Court nullifying the fifth amendment to the constitution must be considered one significant means by which history can be restored to its natural course or must be made to move in a direction that will uphold the interest of the nation... Apart from a return to unfettered democracy, we also have the opportunity today, thanks to the landmark Supreme Court verdict to have our secular spirit as a nation restored in the constitution…Secularism has never been and can never be a negation or abandonment of religion. It is a much higher principle, the one that promotes and ensures the equality of all faiths and the right of all citizens to practice their religion in their individual ways’.17 Perhaps as a pragmatic compromise, the judgment made no mention of the eighth amendment, which had declared Islam as the state religion, thereby retaining it.

16 17

Daily Star, Dhaka (29 July 2010).

Daily Star, Dhaka (30 July 2010).

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The Courts and the Seventh Amendment On the heels of this judgment of the Supreme Court, the High Court delivered another ruling that nullified the seventh amendment enacted by Ershad in 1986 legitimising his military take over.

Even at the time of its enactment, experts had sensed its ominous implications. A lawyer had written that it ‘has intensified the widespread concern and suspicion about the future of constitutional rule in Bangladesh’.18 A High Court bench comprising two justices, AHM Shamsuddin Chowdhury and Sheikh Mohammed Zakir Hussain, ruled in August 2010 that the seventh amendment was ‘void and unconstitutional’; it also declared void ab initio the proclamation of martial law on 24 March 1982 and all regulations, orders and instructions under it, including verdicts passed by tribunals under it.19 There is, of course, every possibility that the matter would go to the Supreme Court and little possibility that the Supreme Court would turn it down, which is a logical deduction from its own ruling on the Fifth Amendment.

The two judgements were as well received as the previous one. In a commentary on them, the editor of a major Dhaka English Daily said, ‘The two recent verdicts nullifying the fifth and the seventh amendments to our constitution can definitely be termed as epoch-making. If ever there were moments in our history when the pronouncements from the judiciary elevated us, energised us, emboldened us and above all restored our pride in ourselves…the aforementioned two judgements were such moments.’20 Another analyst stated, ‘Bangladesh has welcomed the two verdicts. Simply put, the judgements nullifying the fifth and the seventh amendments have established as paramount the peoples’ will and not the will and the whims of military strongmen’.21

Prognosis and Relevance for the Muslim World As can be imagined, the judgements have great implications for Bangladesh. Much of it is moral, since the courts cannot undo the past and as a matter of fact had to state that apart from what was specifically cited by the rulings, all else would continue as is. In other words, normal decisions with regard to governance would remain valid. That was necessary. By acknowledging that Islam remains the state religion, the courts acted in consonance with what it perceived as a 18

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M. Rafiqul Islam, ‘The Seventh Amendment to the Constitution of Bangladesh’, The Political Quarterly, Vol.58, Issue 3 (July 1987), p.312.

‘Seventh Amendment of Constitution Illegal and Fate of Ershad’, Save BD.com, 27 August 2010. www.savebd.com?news/seventh-amendment-of-constitution-illegal-and-fate-of-ershad/. Accessed on 14 September 2010.

Mahfuz Anam, ‘Judgements that Restore Our Pride’, Daily Star (28 August 2910).

Haroon Habib, ‘Two Epoch-Making Verdicts’, The Hindu (9 September 2010).

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preponderant public sentiment. Yet by underscoring secular and democratic values, the courts were also in conformity with the public psyche. It is true that an ‘unconstitutional takeover’ by definition would ignore the constitution, the first act of a ‘strongman’ would be to abrogate the constitution, but nonetheless the rulings enshrined democratic and secular norms as national principles. Also the judgements demonstrated that the long arm of law would eventually prevail.

The courts were careful to avoid any criticism that they were legislating, by clearly stating that specific laws in this regard would be enacted by the parliament.

Apart for its ramifications for Bangladesh itself, the rulings have great implications for the wider Muslim world. A vast majority of Bangladesh’s 160 million Muslims appear to have accepted the pronouncements, many enthusiastically. At a time when major Muslim nations, even the archetypal Islamic secular state Turkey, were coming increasingly under the influence of religiosity, Bangladesh was moving in a direction that implied the acceptance of religion, along with secular and democratic principles. A Pakistani analyst, Farooq Sulehria, observed, ‘[The judgements] not only bucked an apparent trend in the Muslim world, but also dismissed a stereotype: Islam’s incompatibility with secular democracy… In an age of brewing fundamentalism the Bangladesh Supreme Court’s decision is very important and this example, if allowed to flower, may provide secularism with a chance to root itself in the Muslim world’.22 In Bangladesh, the courts have shown the way. It remains to be seen whether the nation will follow, and if some other Muslim nations will emulate. Indeed Bangladesh has the potentials to become the drummer that other Muslim nations can march to.

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Farooq Sulehria, ‘Secularism Triumphs? Bangladesh Supreme Court Sets an Example’, Let Us Build Pakistan , World Press Copyright 2010. http://criticalpp.com/archives/6500. Accessed on 14 September 2010.

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ISA S Insights No. 114 – 21 October 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Disorder in the Global Economic Order Shahid Javed Burki 1

Abstract The consensus that developed among the governments of all major economies in 2008-09 at the time of the economic depression has dissipated leading to tensions among several of them. These are centered mostly on the issue of the value of their currencies. The replacement of consensus at the series of Group of Twenty (G20) meetings in 2009 with discord at the annual meetings of the International Monetary Fund (IMF) in early October 2010 has produced considerable uncertainty in the markets. The dispute over currency valuation has been exacerbated by political wrangling in the United States (US) leading up to the mid-term elections in November 2010. There is expectation that the G20 summit scheduled to be held in Seoul, South Korea may produce more concrete results than the earlier Washington meeting. At Seoul, some concerns of South Asia – in particular the voice it has in multilateral institutions such as the IMF and the World Bank – may also get addressed.

Crises bring people – and nations – together. When they are over or even when their intensity has diminished, states and citizens return to their old, largely selfish, ways. This is exactly what is happening to the global economy in the final quarter of 2010.

The sudden near-collapse of the global financial system in September 2008, with the demise of Lehman Brothers, one of the storied investment banks in the US, brought global flow of credit to 1

Mr Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be reached at isassjb@nus.edu.sg.

The views reflected in this paper are those of the author and not of the institute.

a halt and induced panic among policymakers. Six months later the G20 decided to act in unison.

The members agreed to stimulate their economies by using their budgets to create domestic demand. The US and China, both with large fiscal stimulus programs, led the way in these efforts.

This was the time-tested Keynesian approach which was adopted at the depth of the Great Depression and saved the battered world economy from slipping into an abyss. The approach worked. The Great Recession of 2008-09 was prevented from becoming the Great Depression of the first decade of the 21st century.

With some comfort having returned to corridors of power in the capitals of major economies, policymakers returned to their old ways. Governments began focusing on what they considered problems to be addressed by domestic policies. They were not too concerned about what the impact of their actions on other nations or the global economy. However, on 8 October 2010, a day before the meeting of the policy-making committee that gives direction to the IMF, unexpectedly weak employment data from the US confirmed the fear that recovery in the US had slowed to the point that the talk of a double-dip recession no longer seemed excessively pessimistic. News that the economy lost 95,000 jobs in September 2010 pushed the US dollar briefly below 82.0 Japanese yen for the first time in 15 years.

Tokyo had already begun adopting measures aimed at weakening the value of its currency. A number of other countries also acted similarly. Brazil, for instance, imposed a tax on capital inflows to reduce the upward pressure on its currency. There were fears of a global currency war.

Timothy Geithner, US Treasury Secretary, called for collective action on the eve of the IMF annual meeting in Washington, lamenting progress on lifting domestic demand ‘in countries running external surpluses and by the extent of foreign exchange intervention as countries with undervalued currencies lean against depreciation’. He accused China of setting off a cycle of ‘competitive non-appreciation’ in which countries prevent appreciation of their currencies for helping exports, as Japan, Brazil and South Korea have recently tried. This line of policymaking, according to the US, posed an existential threat to the global economy.2 These were strong sentiments expressed by an administration under great pressure because of the domestic political environment. In the run up to the mid-term collections in the US, China had become the poster child of opposition to economic policies of the Obama administration. As one analyst wrote, ‘with many Americans seized about the country’s economic decline, candidates from both parties have suddenly found a new villain to run against: China…At least 29 candidates have recently unveiled advertisements suggesting that their opponents have been too 2

The quotes from the coverage in Sewell Chan, ‘China’s Central Bank Chief Backs Gradual Rise in Currency’, The New York Times (9 October 2010), p.B3.

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sympathetic to China and, as a result, Americans have suffered.’3 There was a move in the US Congress to push legislation that would impose counter-veiling duties on Chinese imports if Beijing did not make revalue its currency vis-à-vis the US dollar.

The value of its currency was not the only concern of developed countries with reference to China’s economic policies. They also wanted China to change the orientation of its policies; to give up, in fact, the model of export-led growth it had used with such success to climb the economic ladder. The senior Chinese leaders who came to the IMF meeting did not seem to disagree with this notion. On the eve of the Washington meeting, the Chinese officials did not contest the finding that their currency needed to appreciate. But they argued that the upward adjustment needed to be gradual, not abrupt and certainly not by something like 20 per cent that was being informally proposed. Such a major adjustment would bankrupt a number of export industries in the country and increase the level of unemployment. What they called the ‘equilibrium exchange rate’ should come into play over a few years.

China also indicated that they needed more than an exchange rate adjustment to balance their economy. Speaking at a forum sponsored by the IMF and the British Broadcasting Corporation, Zhou Xiaochuan, the governor of the People’s Bank of China, the country’s central bank, said that ‘the Chinese government was committed to doing its part by encouraging the growth of the service sector, which would lessen its dependence on the export-oriented manufacturing sector; by improving its health care and retirement pension systems, which would allow Chinese consumers to save less; and by spending more on rural development to lessen the economy’s dependence on rapidly urbanising global areas’.4 Revaluation of the currency would help reorient growth away from exports and coastal manufacturing areas and move it more towards domestic demand and poor regions in the country’s interior. Some of these areas had become politically restive in recent years. Greater emphasis on developing social safety sets would ultimately result in reducing domestic savings and increasing consumption. The assumption was that if China begins consuming a larger proportion of its national product, it would export less and thus help in balancing the global economy.

While Geithner was pointing his finger at Beijing, the Europeans included the US among the culprits attempting to manipulate currencies for building exports. Jean-Claude Juncker, chairman of the group of Eurozone finance ministers, complained about the weakness of the US dollar as

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David D. Chen, ‘China emerges as a scapegoat in campaign ads’, The New York Times (10 October 2101), pp.

A1 and A19.

Sewell Chan, ‘China’s Central Bank Chief Backs Gradual Rise in Currency’, The New York Times (9 October 2010), p.B3.

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well the undervaluation of the Chinese currency. ‘The euro is too strong today’, he said. ‘I don’t think the dollar is in line with the underlying fundamentals’.5 While accepting some of the criticisms, the Chinese also had their own complaints. According to them, the global imbalance threatening the world economy and affecting its recovery was also due to the inability of the US to curb its fiscal deficit and reduce government debt. They also emphasised that liberal monetary policies of central banks of large economies had contributed to global imbalances. They further pointed out that the decision by the Federal Reserve (Fed) in the US, to use ‘quantitative easing’ to stimulate demand would end in further lowering the value of the US dollar. Quantitative easing, or QE, is used by the Federal Reserve to pump new money into the economy and keep interest rates low by buying assets from the private sector. This was done by the Fed in 2009; the new effort has been labeled QEII and can be launched if the US economy shows signs of weakening further.

The minutes of the meeting of the Federal Open Market Committee (FOMC), which sets interest rates and held on 21 September 2010, showed that many participants felt that more monetary easing is necessary for kick-starting the sluggish US economy. ‘Many participants noted that if economic growth remained too slow to make satisfactory progress towards reducing the unemployment rate, or if inflation continued to come in below levels consistent with the FOMC’s dual mandate, it would be appropriate to provide additional policy accommodation.’6 The QEII decision may come as early as 3 November 2010, when the FOMC is scheduled to meet again. As Dominic Wilson of Goldman Sachs points out, ‘quantitative easing is potentially a very stimulative policy for the global economy if it compels other central banks to follow suit on pain of seeing their currencies rise and policy stances tighten’.7 The effect of this policy will be significant for a country such as India that has been tightening money supply on inflationary concerns.

It is not surprising that the IMF meeting produced at best a tepid response, which did little to calm the markets. No pressure was exerted to get China to revalue its currency. Instead the communiqué issued after the deliberations recognised that ‘economic recovery is proceeding, but remains fragile and uneven across the membership’. The members pledged to ‘continue working collaboratively to secure strong sustainable and balanced growth, and to refrain from policy actions that would detract from these shared goals’. They also promised ‘to work towards a more balanced pattern of global growth, recognising the responsibilities of surplus and deficit

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Chris Giles and Alan Beattie, ‘Global clash over economy’, Financial Times (11 October 2010), p.1.

Quoted in James Politi and Robin Harding, ‘Fresh Fed boost more likely’, Financial Times (13 October 2010), p.1.

Quoted in Alan Beattie, ‘G20 currency fighters set for rumble in Seoul concrete jungle’, Financial Times (12 October), p.2.

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countries’8. The message was largely meant for China, with huge trade and foreign exchange surpluses, and the US with equally large deficits. The IMF policymaking committee also vowed to ‘address the challenges of large and volatile capital movements which can be disruptive’.9 This had reference to the large inflows of capital in emerging market economies such as Brazil and India, where higher returns were available due to monetary tightening.

The other important issue before the IMF during the annual meeting was to change the rules of governance, which would have given greater voice to larger emerging market economies. This would have resulted in reduction in the number of seats held by Europe in the 24-member IMF board of directors. The Europeans were not prepared to make major adjustments and suggested only minor changes that were not acceptable to the US and other large emerging market economies.

Weak words do not produce strong policy actions. ‘The language is ineffective. The language is not going to change things. Policy has to be adapted’, said Dominique Strauss-Kahn, IMF managing director, expressing his discontent at the outcome of the meeting. Many experts feared that the lack of substantive agreements and brinksmanship on proposed reforms to the IMF is likely to exacerbate currency volatility in run-up to the Seoul G20 summit.10 According to Mohamed El-Erian, chief executive of PIMCO (Pacific Investment Management Company, LLC), the world’s largest bond investor, ‘a once promising global response has now been replaced by inadequately coordinated national economic policies and growing friction among countries’.11 Paul Martin, the former Canadian prime minister who helped create the G20 after the 1997-98 Asian financial crisis, said the dispute among the major global players was overshadowing issues of international cooperation such as the Basel III capital accords and the newly expanded Financial Stabilty Board. ‘The exchange rate issue is important but it would be tragedy if the Seoul G20 were to be hijacked by currencies as these meetings were’, he said after the conclusion of the meetings.12 With the world’s attention trained on the value of the global currencies and recovery from the Great Recession of 2008-09, South Asia’s concerns were hardly discussed at Washington. India expressed concern about capital inflows becoming larger than what can be absorbed without difficulty and affecting the value of the rupee. Pakistan used the meetings to drum up support for 8

9 10 11 12

International Monetary Fund, ‘Communiqué of the Twenty-Second matting of the International Monetary and Financial of the Board of Governors of the International Monetary Fund’, Press Release No. 10/379, 9 (October 2010), Washington DC. Ibid.

Chris Giles and Alan Beattie, ‘Global clash over economy’, Financial Times (11 October 2010), p.1 Ibid.

Alan Beattie and Chris Giles, ‘IMF meeting dashes hopes for cooperation’, Financial Times (11 October 2010), p.2.

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its efforts to revive the economy after the 2010 floods that had caused severe economic distress.

Even after India’s impressive economic performance over the last quarter century, the South Asian presence in the global economy is not strongly felt. That said, there are issues on which South Asia, India in particular, would like the international community to focus. The most important among these is the voice of the region in the IMF and the World Bank. The region is not heard when important international economic issues are debated at international forums.

India figures in the boards of the IMF and the World Bank but unlike China, it is not a permanent member and has other South Asian countries such as Pakistan in its constituency. It, therefore, does not fully represent South Asia since Pakistan is included in the Iran/Arab constituencies in the two boards. Unfortunately, while demanding changes in the voting structures of these institutions, South Asia is not working together.

Many of the causes for the disorder in the global economic system and the structure of the international system remain unaddressed in Washington. The can has been kicked down the road with the expectation that the G20 meeting in Seoul in November, with fewer people sitting around the table than at the IMF annual meeting at Washington, may be more productive. Seoul may be able to take some decisions that were avoided in the Washington meeting. .....

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ISAS Insights No. 115 – 19 November 2010 469A Bukit Timah Road #07-01, Tower Block Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Explaining Realignment Sumit Ganguly 1

Abstract This paper explains how India’s policymakers reacted to structural shifts in the global order at the Cold War’s end and sought to realign India’s foreign policy interests and priorities. It analyses these changes through the use of the level of analysis approach to the study of international politics.

The Cold War’s End India’s foreign and economic international policies underwent a fundamental transformation at the end of the Cold War. This paper will attempt to briefly outline the changes through the use of a framework which is widely accepted in the study of international politics and is referred to as the level of analysis. It will show how changes in the global distribution of power (systemic changes), state-level factors (domestic imperatives) and decision-making issues (political leadership) contributed to the fundamental re-orientation of the India’s foreign, economic and security policy orientations. 2

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Dr Sumit Ganguly is Rabindranath Tagore Chair in Indian Cultures and Civilizations at the Indiana University, Bloomington. He is also Director, India Studies Institute and Professor, Department of Political Science at the university. He can be reached at sganguly@indiana.edu. The views reflected in this paper are those of the author and not of the institute.

Kenneth N. Waltz, Man, State and War (New York: Columbia University Press, 1954).

Systemic Shifts India had pursued an odd amalgam of ideational and instrumental policies for much of the Cold War especially after the death of its first prime minister, Jawaharlal Nehru. 3 The drastic shift in the structure of global power had a profound impact on India’s policy orientation. India was forced to jettison its previous ideological and ideational commitments and drastically adjust itself to the changed structure of the international order. It had dissipated much of its energies during the Cold War on altering the structure of the international order, through voicing of concerns of the developing world in various international forums particularly through the Non-Aligned Movement (NAM). These efforts, however, yielded few meaningful results beyond India’s initial successes and, by the 1980s India’s efforts in the developing world had actually lost much of its moral force. 4 Domestic Dimensions The process of India’s foreign policy realignment in the post-Cold War era also had a significant domestic component. 5 The country had pursued a strategy of import-substituting industrialisation since independence. Though this strategy had contributed to an industrial base, it had also inhibited completion, innovation and efficiency. 6 Worse still, the strategy, despite its socialist pretensions, had done little to alleviate abject poverty in India. The Soviet collapse coupled with an unprecedented fiscal crisis in 1991 virtually forced India to reconsider its strategy of economic development. Accordingly, India started to steadily abandon its statist approach to development and sought to replace it with new set of market oriented policies and also attempted to dispense it with its export pessimism. Not surprisingly, this new approach to economic development encountered significant domestic opposition on both ideological and instrumental grounds. Nevertheless, the policies were not reversed.

Leadership Choices India’s policymakers were ill-prepared to cope with the end of the Cold War and more specifically, the collapse of the Soviet Union. Since 1971, India had come to rely on the Soviet Union as a significant market for Indian goods. It had counted on a Soviet veto at the United Nations Security Council on the Kashmir question and had depended upon them to tie down a 3

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E.H. Carr, The Twenty Years Crisis: An Introduction to the Study of International Relations (New York: Harper Perennial, 1964).

Fouad Ajami, ‘The Third World Challenge: The Fate of Nonalignment’, in Foreign Affairs, Vol.59, no.2 (Winter 1980/1981), pp.366-385.

Peter Gourevitch, ‘The Second Image Reversed: The International Sources of Domestic Politics’ in International Organization, Vol.32, no.4 (Autumn 1978), pp.881-912.

Jagdish N. Bhagwati and Padma Desai, Planning for Industrialization: Industrialization and Trade Policies Since 1951 (London: Oxford University Press, 1970).

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possibly revanchist People’s Republic of China (PRC). Finally, India had relied on the Soviets to supply them with advanced weaponry at non-market prices. 7 With the Soviet collapse, Indian policymakers quickly realised that the principal successor state to the Soviet Union, Russia, was neither able nor willing to play the same role that the Soviets had during the Cold War.8 Consequently, they felt compelled to attempt to improve relations with the sole surviving superpower, the United States (US) while also trying to drastically realign its relations with a host of other states. Fortunately, the two sides had made limited overtures toward each other in the waning days of the Cold War. Nevertheless, the prior lack of significant strategic, economic and cultural links made any rapid rapprochement all but impossible. 9 As a consequence, differences in the relationship over global issues, such as non-proliferation and human rights, took on a disproportionate significance. Additionally, the initial Indian public insistence that they would prefer to see the emergence of a multipolar world order did little to endear the country to the US. To their credit, India’s policymakers sought to improve relations with key states that they had long neglected during the Cold War years. In order to do so, they upgraded their ties with Israel and embarked upon a quest to engage the dynamic economies of Southeast Asia. India had kept at an arm’s length away from Southeast Asia after the initial flush of warmth in the wake of the Bandung Conference of 1955. 10 Simultaneously, India persisted in their attempts to gradually improve the tenor of Sino-Indian relations, an effort that they had undertaken even before the Cold War had come to a close. In this endeavour, however, progress proved to move glacially slow due to the intractability of the Sino-Indian border dispute. 11 Finally, after long maintaining a nuclear weapons option and after scrubbing an initial plan to test nuclear weapons in 1995, its policymakers finally crossed the nuclear Rubicon in May 1998. 12 In its immediate aftermath, India was subjected to a spate of bilateral and multilateral sanctions but its policymakers steadfastly refused to roll back the nuclear weapons program. 13

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Robert Donaldson, Soviet Policy Toward India: Ideology and Strategy (Cambridge: Harvard University Press, 1974); Robert Horn, Soviet-Indian Relations; Issues and Influences (New York: Praeger, 1982); S. Nihal Singh, ‘Why India Goes to Moscow for Arms’, Asian Survey, 24:7, July 1984, 707-720; Linda Racioppi, Soviet Policy Toward South Asia Since 1970 (Cambridge: Cambridge University Press, 1994).

Andrew J. Rotter, Comrades at Odds: the United States and India, 1947-1964 (Ithaca: Cornell University Press, 2000).

Sumit Ganguly, ‘Introduction’ in Sumit Ganguly, ed., India’s Foreign Policy: Retrospect and Prospect (New Delhi: Oxford University Press, 2010).

Jonathan Holslag, India and China: Prospects for Peace (New York: Columbia University Press, 2010).

Sumit Ganguly, ‘India’s Pathway to Pokhran II: The Sources and Prospects of India’s Nuclear weapons Program,’ in International Security, 23:4, Spring 1999, 148-177.

Strobe Talbott, Engaging India: Diplomacy, Democracy and the Bomb (Washington, DC: The Brookings Institution, 2004).

Manmohan Singh as quoted in Indo-Asian News Service, ‘Security situation has worsened, be prepared for all threats: PM’, The Hindustan Times (20 April 2010).

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Coping with Structural Changes Changes at the level of the international system, without a doubt, finally made India’s pursuit of an ideational and ideological foreign policy simply untenable. Thanks to its reliance on some ideological tenets and its refusal to accept the significance of the distribution of material power India had been mostly marginalised in the global order. India’s eventual abandonment of its normative commitments and its willingness to gradually come to terms with the significance of material power in the global arena has given it a new standing in international politics. India’s choices in a range of emergent global regimes will have a profound impact on their features and their evolution. Specifically, three regimes where India can play a critical role are those dealing with global climate change, nuclear non-proliferation and the international trading system. To do so, India will have to forge policies that are in accord with its new-found pragmatism and its belated recognition of the importance of material power in global politics.

Now that it has awakened to the realities of power and the utility of force in international relations, it will have to cope with additional critical challenges in the emergent world order.

None are perhaps more significant than the dramatic rise of the PRC. Even though the PRC is loath to so concede, India will for the foreseeable future remain its principal peer competitor in Asia and possibly beyond. How India copes with the seemingly inexorable rise of the PRC remains an open and vital question for its future status in the international order. Thus far, India’s policies, for the most part have been reactive. To effectively deal with the rise of the PRC, India will still have to formulate a national strategy that protects its vital interests while accommodating itself to its behemoth northern neighbour.

A More Pragmatic Foreign Policy There is little question that, though India still espouses the cause of non-alignment, its foreign policy bespeaks of a new found pragmatism. Prime Minister Manmohan Singh, the principal intellectual architect of India’s domestic and foreign economic policies in the post-Cold War period, has stated that India’s new foreign policy is based upon ‘enlightened self interest’. 14 This was most manifestly on display as his government, despite substantial tendentious domestic opposition, managed to successfully negotiate the US-India civilian nuclear accord. In mid-2010, India demonstrated similar tenacity in crafting legislation designed to address the question of nuclear liability for foreign nuclear power producers in India. Once again, much of the

14

I am grateful to Rahul Mukherji of the South Asian Studies programme at the National University of Singapore for bringing this matter to my attention.

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opposition to this bill is not based upon sound concerns but a mixture of fear and political opportunism. 15 Moreover, India has demonstrated a growing capacity to leverage its economic strength in the global arena. India has become an active participant in a new trilateral developmental initiative involving Brazil and South Africa known by its acronym, IBSA. 16 It is also one of the key players in a less formal organisation of major economic powers, Brazil, Russia and China, popularly referred to as the BRIC states. In large part, India’s interest in these entities stems from two concerns. First, it hopes to diversify its ties with a number of significant emergent powers.

Second, India’s policymakers also believe that the pursuit of these relationships will enhance India’s own autonomy in international affairs and avoid an inordinate dependence on any particular state. 17 Finally, in the recent past, India has also demonstrated its ability to provide public goods in both strategic and humanitarian issue areas. In the aftermath of the terrorist attacks on the US on September 11, Indian warships patrolled the Straits of Malacca in support of the US anti-terrorist operations. Later, in December 2004, the Indian Navy participated in an ad hoc coalition involving the US, Australia and Japan to provide relief and humanitarian assistance to Indonesia and Sri Lanka in the wake of an unprecedented tsunami which left much devastation in its wake. 18 Question of Political Leadership Key political leaders have been responsible for undertaking and sustaining these dramatic policy changes. Just about two decades ago when faced with the Soviet collapse and then an unprecedented fiscal crisis, Prime Minister Narasimha Rao and his then Finance Minister, Manmohan Singh, managed to set India on a new course. Despite significant differences on domestic policy issues, especially in the social and cultural realms, the successor Bharatiya Janata Party (BJP)-led regime actually built upon the foundations that the Congress government had laid. Even Prime Minister Atal Bihari Vajpayee’s decision to carry out the nuclear tests of 1998, contrary to much uninformed and polemical commentary really reflected continuity rather

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Caroline Vavro, ‘Piracy, Terrorism and the Balance of Power in the Malacca Strait’ in Canadian Naval Review, Vol.4, no.1 (Spring 2008), pp.13-17.

K. Subrahmanyam, ‘Indian Nuclear Policy, 1964-98 (A Personal Recollection)’, in Jasjit Singh, ed., Nuclear India (New Delhi: Knowledge World, 1998), pp.26-53.

I am grateful to Rahul Mukherji of the South Asian Studies programme at the National University of Singapore for bringing this matter to my attention.

Caroline Vavro, ‘Piracy, Terrorism and the Balance of Power in the Malacca Strait’, in Canadian Naval Review, Vol.4, no.1 (Spring 2008), pp.13-17.

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than a fundamental disjuncture in India’s nuclear weapons policies. 19 Despite its professed hostility toward Pakistan, the BJP regime actually made two important overtures. The first of such was in 1999 when Prime Minister Vajpayee travelled by bus to Lahore, the capital of Pakistani Punjab. Subsequently, despite the deep sense of betrayal that most Indians and certainly the BJP-led regime felt about the Kargil military incursions of 1999, Vajpayee hosted Pakistan President General Pervez Musharraf at a summit in Agra, New Delhi in 2001. In turn, when the Congress-led United Progressive Alliance (UPA) government came to power, it did not markedly alter the policies that the BJP and its allies had pursued in the external realm. Indeed its leaders continued the process of improving relations with the US and went ahead to forge the US-India civilian nuclear accord.

Footsteps into the Future The task before India and its policymakers is to forge a national strategy that enables the country to meet its legitimate national security interests, to create a milieu within its neighborhood that helps foster economic growth and to enable the country to influence and shape the structure and content of a series of critical global regimes. To achieve these ends, India will have to improve the efficacy of its public institutions, sustain economic policies that promote both growth and opportunity while ensuring that adequate resources are devoted to defense spending. Forging such a strategy in the context of India’s chaotic and fractious democracy will neither be easy nor smooth. However, a failure to tackle these issues might lead to the squandering of the significant progress that the country has made since the realignment of its policies at the end of the Cold War.

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K. Subrahmanyam, ‘Indian Nuclear Policy, 1964-98 (A Personal Recollection)’, in Jasjit Singh, ed., Nuclear India (New Delhi: Knowledge World, 1998), pp.26-53.

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ISA S Insights No. 116 – 13 December 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

A Curse from God? The Consequences of the Floods on Jihadist Influence in Pakistan Didier Chaudet 1

Abstract The recent floods in Pakistan have been one of the most terrible natural disasters the country has had to deal with since the Partition. It happened at a time of strong local tensions between radical Islamist groups, in particular, of course, the ‘Pakistani Taliban’, and the central government. This paper examines the implications of the floods for jihadist influence in Pakistan.

Introduction The catastrophic floods in Pakistan will probably be remembered as one of the most dramatic test this country has had to endure since the Partition in 1947. Beyond the terrible impact on millions of people, such a calamity can have important political consequences. And in the many countries involved in the coalition fighting the Taliban in Afghanistan, there have been many expressions of fear that the floods will help the Tehrik-i-Taliban Pakistan (TTP) and its allies. Even if too often the jihadist issue is linked to each story related to Pakistan in the international media, the anguish on this matter is legitimate. There is a need to clearly answer the question – are the floodings an opportunity for the jihadists, i.e. the Taliban and their allies?

To answer this question, one needs to have in mind the exact situation of Pakistan today, after the floods. Once the general situation is ascertained, two questions need to be answered: what 1

Didier Chaudet is a French specialist of Central and South Asia. He is teaching at the Institute of Political Studies (Sciences Po) in Paris. He is a former Fox Fellow from Yale University (2006/7). He can be contacted at didier.chaudet@gmail.com. The views reflected in this paper are those of the author and not of the institute.

do we know for sure about the importance and impact of the help given by groups that could be related to jihadism? 2 And what does the flooding mean for the TTP? From those answers, it will be possible to obtain a pretty accurate picture of the situation.

The Flooding as a ‘Slow-motion Tsunami’: Impact and Reactions No analysis about the political consequences of the flooding can be done without taking into account the impact of this natural catastrophe on the South Asian nation. Even before this summer, Pakistan has had a difficult economic situation. It suffered from a two-year financial crisis, and its energy shortages were already having a very negative impact. For example, the textile industry [8.5 per cent of the gross domestic product (GDP)] was only working at half its capacity. 3 Besides, it was not the only problem, natural or man-made, that Pakistan had to deal with. After all, the fight against the TTP has also been a burden. Indeed, this local ‘War on Terror’ has cost more than US$30 billion. 4 Islamabad was already weakened, so the shock of the flooding, on the government and the people, has been all the more violent.

And the shock has been enormous: an area larger than England, one-fifth of the country, has suffered from the floods. At the end of August 2010, 20 million Pakistanis were affected, four million were without shelter, and eight million were in urgent need of immediate help. At the beginning of September 2010, the numbers had risen: five to six million, at least, were without shelter, and ten million were in urgent need of help. 5 It is reported that at least

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What ‘jihadism’ refers to here is the Islamist tendency that chooses explicitly violence as a way to impose its ideology politically. Such a strategic orientation does not mean that jihadist groups are only involved in guerrilla/terrorist actions and military training of militants. They can also choose, like other Islamist groups, to be active at a social/humanitarian level. But contrary to those other groups that could accept to play the game of democracy, or to share power, at the end of the day, they do not have a ‘bottom-up’ agenda, i.e. convincing a large number of the population for political goals. To be a jihadist means a rejection of democratic system or compromises for gains, and a focus on violence in order to impose political/geopolitical views. It makes them radically different from other, more important Islamist movements, like the Muslim Brotherhood, and even from radical but non-violent entities, like the Hizb utTahrir (Party of Liberation, especially influent in Central Asia and in the West). For a security analyst, jihadists, contrary to non-violent ideologues, are a concrete threat. Indeed, Islamist groups with a radical view of the world can attract some individuals who will later feel that the only way to win politically would be through violence. But if some individuals are indeed doing such an ideological journey towards more radicalisation, it does not appear that it is supported by non-violent Islamist groups. In fact, it appears that the non-violent extremist groups strongly oppose the jihadist point of view. Hence, here the goal in this paper will be to focus on the people that could really mean security trouble for Pakistani stability. Indeed, if to focus on Islamism as a whole could seem simpler, intellectually and academically, it would not make much sense. On this subject, see for example Didier Chaudet, ‘Hizb ut-Tahrir: An Islamist Threat to Central Asia?’, Journal of Muslim Minority Affairs, Vol.26, no.1 (April 2006).

Shuja Nawaz, ‘Is there any way to fix Pakistan’, AfPak Channel – Foreign Policy (21 October 2010), www.foreignpolicy.com/articles/2010/10/21/is_there_any_way_to_fix_pakistan?page=0,2. Accessed on 25 October 2010.

G. Shabbir Cheema, ‘U.S. response to Pakistan flood is an investment in trust’, East West Center (25 August 2010), www.eastwestcenter.org/news-center/east-west-wire/us-response-to-pakistan-floods-is-aninvestment-in-trust/. Accessed on 29 August 2010.

Numbers given by the New York Times on its general analysis of the floods on 7 September 2010. See http://topics.nytimes.com/top/reference/timestopics/subjects/f/floods/2010_pakistan_floods/index.html.

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100,000 women had to give birth in the worst unsanitary conditions. 6 And this is so because by the end of August 2010, 400 hospitals had been destroyed, as well as 7,000 schools and 5,000 miles of railways and roads. In order to understand the financial implications that the floods will have for the future, one has to compare with the situation in Afghanistan, where USAID has spent US$700 million to build only 500 miles of road, 19 health facilities and 56 schools. 7 Huge losses have been recorded in terms of cash crops (tobacco, cotton, rice, sugarcane, in particular). Grain stocks have been devastated, particularly in Khyber Pakhtunkhwa. 8 14 per cent of the cultivable areas were flooded, 200,000 livestock were killed. 9 The damages on electricity and power sectors have been particularly important, as the floods destroyed US$125 million worth of equipment. Last but not least, 70 per cent of the bridges in the areas affected have been destroyed.

Indeed, it is important to understand that for a significant number of Pakistani citizens, the trauma caused by the floods can be compared with the shock of the Partition. This is particularly the case for people from the countryside, who were already in a bad economic shape. In view of such a situation, all political actors, national and international, can only help to avoid seeing the state becoming too weak. But are the two main actors here, i.e. the United States (US) and the Pakistani government, up to the challenge?

For the US, as cynical as it may sound, the floods appeared like an opportunity to show to the Pakistanis a gentler side of the American power. 10 With the tsunami in Indonesia in 2004, and the earthquake in Pakistani Kashmir in 2005, the help from the US was able to win ‘hearts and minds’, at least for a time. The US has been at the forefront of the international humanitarian aid effort, and it has been lobbying other countries to do more. But this aid is plagued by weaknesses. First, it is focusing on the areas where the TTP has been active, not the south, that also suffered. 11 It appears that the US is only helping the part of Pakistan that is related to the fight in Afghanistan, a situation that will not help to win the ‘hearts and minds’. 12 Besides, historically, the American aid to Pakistan has often been related to short6

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Chris Allbritton, ‘Down the River: What Is to Be Done?’, Reuters (5 September 2010), http://blogs.reuters.com/pakistan/2010/09/05/down-the-river-what-is-to-be-done/. Accessed on 7 September 2010.

‘Pakistan Flood Sets Back Infrastructure by Years', New York Times (26 August 2010).

‘Pakistan floods cause huge losses to crops’, BBC (12 August 2010), www.bbc.co.uk/news/world-south-asia10948275. Accessed on 15 August, 2010.

Web Chat: Pakistan’s Flood Emergency, with Elisa Ferris, Brookings Institution (15 September 2010), www.brookings-tsinghua.cn/sitecore/content/Home/opinions/2010/0915_pakistan_flood_chat.aspx.

Accessed on 21 September 2010.

See the analysis of Anthony Cordesman in ‘UN warns of militant threat in Pakistan floods’, The Jordan Times (12 August 2010), www.jordantimes.com/index.php?news=29116. Accessed on 30 August 2010.

Daniyal Mueenuddin, ‘Don’t Forget the South’, New York Times (23 August 2010), www.nytimes.com/roomfordebate/2010/08/23/can-us-disaster-aid-weaken-the-taliban-in-pakistan/dontforget-southern-pakistanis. Accessed on 10 September 2010.

Indeed, in the fight against the radical elements in Pakistan, such actions are often seen as a proof of hypocrisy, or at least of an opportunistic attitude from the US. It could negate, in the minds of the Pakistani people, the humanitarian support given by the Americans, hence making the differences of means between the Pakistani Taliban and the anti-Taliban foreigners less relevant. This accusation of hypocrisy could have an impact on the more nationalist side of the Pakistani public opinion. Even more as it has been fed by some

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term political interests, and it seems that it is still the same approach that is dominating. 13 The initial US reaction has been good, but what Pakistan needs is long term help, and it is not sure that the American leadership will be eager to offer it.

As for the Pakistani central government, it is clearly in a fragile position. The present situation is not without precedent in the country. Indeed, East Pakistan, today’s Bangladesh, felt disaffection from Islamabad first when it suffered from a devastating typhoon and that no real help came from West Pakistan. 14 There is a fear that the government would find itself in the same situation in the North West of the country in particular. With the flooding, all the work done to reassert state authority in the areas affected by the TTP has been thwarted.

Besides, there are numerous criticisms of bad governance in the national and international press, and they are based on facts that show a lack of prevention from the bureaucracy. 15 Only the army is seen positively for the important job done on relief help. It is fair to say that any government, being confronted with such a tragedy, would be in a very difficult situation.

But indeed, to deal with the consequences of the calamity, Islamabad will need all the help it can get. The fear from Washington is to see this situation become a ‘divine surprise’ for the Islamist movements.

Making a Difference between Propaganda and Reality: JuD and the Islamist Humanitarian Help Indeed, when one reads about the possible impact of the jihadist groups on the populations that suffered from the flooding, it seems that everybody has the same thoughts. It appears as a given that the Jihadists will necessarily benefit from this catastrophe, and that they are doing an excellent job in helping the victims. For some, the radical Islamist groups helping them

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American blunders. An example of this tactlessness can be found in the US criticism of China about Beijing’s supposed insufficient support to Pakistan during the floods. It appears that such criticism has given proof to some that with its help, as usual, the US was playing Great Power politics, and was not acting out of humanitarian concerns. It would be a mistake, of course, to think that such blunder could mean immediate gains for the Pakistani Taliban. But a weaker impact on the American aid in the long term means a stronger anti-Americanism, so a lack of trust between the US and Pakistan, and a continuity of the difficulties for Islamabad and Washington to work together. A lack of coordination between the forces in Afghanistan and Pakistan is what the Afghan and Pakistani Taliban need to win on their respective battlefields. On the American criticism of China about the humanitarian help, see Joe Lauria, ‘U.S. Presses China on Pakistan Floods’, The Wall Street Journal (19 August 2010), http://online.wsj.com/article/SB10001424052748703791804575439613818191990.html. Accessed on 21 August 2010. For a Pakistani criticism, see ‘Unfair US criticism of Chinese aid’, The Daily Mail (30 August 2010), http://dailymailnews.com/0810/30/Editorial_Column/DMEditorial.php. Accessed on 2 September 2010.

Homi Kharas, ‘US Aid to Pakistan: Time for a New Approach’, Brookings Institution (25 August 2010), www.brookings.edu/opinions/2010/0825_pakistan_aid_kharas.aspx. Accessed on 29 August 2010.

Ahmed Rashid, ‘How to fix flood-hit Pakistan’, BBC (7 September 2010), www.bbc.co.uk/news/worldsouth-asia-11200179. Accessed on 11 September 2010.

Ardeshir Cowasjee, ‘Fact or fiction?’, Dawn (19 September 2010), http://66.219.30.205/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/columnists/ardeshircowasjee-fact-or-fiction-990. Accessed on 25 September 2010.

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and the Taliban are nearly the same, and what is done by the first will necessarily benefit the latter.

The problem with such an approach is that it is based on a misunderstanding of the victims, of the radical Islamists in charge of the humanitarian aid, and of the strengths and weaknesses of the Jihadists.

First, the main group that has attracted international attention and fears about its involvement is Jamaat-ud-Dawa (JuD) – the social welfare wing of Lashkar-e-Taiba (LeT). It is known, thanks to numerous reports from Pakistani and foreign journalists, that the Jamaat-e-Islami (JI) has also been giving humanitarian aid. 16 But to see these two groups as connected to the Pakistani Taliban is a mistake. Indeed, LeT has been accused of the Mumbai attack, among other terrorist actions. And it has been active fighting on Indian territory in Kashmir and in Afghanistan. But its relations with the TTP have always been difficult. State control over this group has historically been strong, and the leadership of this organisation has criticised the choice of the TTP and Al-Qaeda to see Islamabad as an enemy. 17 In fact there is more than a lack of confidence between the TTP and the LeT, as they have sometimes fought one another.

One of the most well-known examples of those tensions was the rivalry that turned violent between the TTM (Tehreek-e-Taliban Mohmand), affiliated to the TTP, and the Khalid Sahib Shah group, a LeT local cell in the Mohmand agency. 18 So even if they have common enemies, the idea that the Lashkar and the Pakistani Taliban are one and the same just does not make any sense. As for the JI, its relations with the TTP have been at least as difficult. In June 2010, two JI leaders were killed by the TTP, and on 19 April of the same year, a suicide bombing targeted the JI leaders of Peshawar during a rally. 19 Of course, here again, there is a complex situation of commonality of goals with the more violent groups, but also a refusal to choose violence to oppose Islamabad. It is the position of Syed Munamar Hassan, the leader of the JI – he has supported the desire of the Tehreek-e-Nafaz-e-Shariat-e-Mohammadi (TNSM) to impose Sharia Law in the Swat area, but opposed its violent actions against the Pakistani government. 20 From the terrorist actions of the Pakistani Taliban against the JI, it is clear that some common ideological goals are not enough to talk about a united front.

Hence, the Islamist organisations that have been able to have an impact on the aid given to the flood victims are not against Pakistan as a state, and cannot be seen as a ‘humanitarian 16

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See for example, ‘JI distributed dry ration, medicines among the victims’, www.onepakistan.com (8 September 2010). Accessed on 12 September 2010.

Stephen Tankel, ‘Laskar-e-Taiba in Perspective’, New America Foundation (February 2010), p.2-3, www.newamerica.net/sites/newamerica.net/files/policydocs/tankel.pdf. Accessed on 30 June 2010.

Imtiaz Gul, The Most Dangerous Place. Pakistan’s Lawless Frontier (New York: Viking, 2010), pp.100101.

Kashi Nath Pandita, ‘Beleaguered Jamaat-i-Islami of Pakistan’, Geopolitical Analysis (27 July 2010), http://geopolitics.world-citizenship.org/wp-archive/323. Accessed on 13 September 2010.

‘JI Never Support Taliban: Syed Munawar Hassan’, Pakistanviews.com (26 May 2009), www.pakistanviews.com/politics/ji-never-support-taliban-syed-munawar-hassan.html. Accessed on 2 June 2010.

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wing’ of the TTP. There is not a unified radical Islamist front in Pakistan. On the contrary, it seems that the JuD and the JI are able to help only because the Pakistani army has accepted them to do so. But it has showed who is in charge when it closed at least 16 aid camps run by the JuD at the end of August 2010. 21 Clearly, the Islamists are seen at best as an auxiliary for aid relief by the army on the ground.

Moreover, it appears that to buy into the idea that the Islamists are the best in humanitarian aid is only to fall for the propaganda of groups like the JuD. As proven by a Policy Research Working Paper of the World Bank, the help given by the Islamists during such natural disasters are much more modest than they would like the international community to believe. 22 This report is the only real survey on the impact of different local and foreign groups on the victims of the 2005 earthquake. The results are striking: a quarter of the targeted population saw the international groups as helping them, and just one per cent saw the JuD as involved in the help to the victims. In fact, the JuD does not really have the resources to provide food and shelter wherever the flooding strikes. It clearly does not have the capacity to be active at the level the LeT appears to be in the minds of quite a few foreign journalists. 23 The Islamists place themselves as competitors on the humanitarian aid with the government, 24 so the alarmist approach giving them too much influence is indeed in their interest. But outside the areas where they traditionally have a presence, it would be a mistake to assume they have more impact than the army of the international community.

Floods: Implications for the TTP Unfortunately, the fact that the Islamist humanitarian aid is not linked to the TTP and does not have such an important impact does not mean that the TTP is not benefiting from the floods, at least in the short term. 60,000 Pakistani troops, that have been used previously in the fight against the TTP, have been affected by the problems related to floods. Besides, helicopter activity has been reduced and the destruction of infrastructures is not really a problem for them, as the jihadist fighting groups are much more independent and

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‘Pakistan closes militant-run aid camps’, The Telegraph (24 August 2010), www.telegraph.co.uk/news/worldnews/asia/pakistan/7962109/Pakistan-closes-militant-run-aid-camps.html.

Accessed on 5 September 2010.

See Tahir Andrabi and Jishnu Das, ‘In Aid We Trust: Hearts and Minds and the Pakistan Earthquake of 2005’ (September 2010), www.cgdev.org/doc/events/9.14.10/InAidWeTrust.pdf. Accessed on 29 September 2010. For a short analysis of this report, see Christine Fair, ‘Not at the forefront of flood relief’, AfPak Channel – Foreign Policy (20 September 2010), http://afpak.foreignpolicy.com/posts/2010/09/20/not_at_the_forefront_of_flood_relief. Accessed on 30 September 2010.

Myra MacDonald and Kamran Haider, ‘Islamist charity aims to be Pakistanis’ salvation’, Reuters (3 September 2010), www.reuters.com/article/idUSTRE6822MN20100903. Accessed on 4 September 2010.

See for example Aisha Toor, ‘Militants Use Flood Aid To Seek Support’, CSIS (2 September 2010), http://csis.org/blog/militants-use-flood-aid-seek-support. Accessed 11 September 2010.

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decentralised than the units of the national army. 25 Because of its desire to secure the border with India and to deal with the insurgency of the TTP at the same time, the military had already a lot on its plate before this summer. Now it is not far from being overstretched. The Defense Secretary Robert Gates has acknowledged when he accepted the idea that because of the situation, Pakistan would not be able to target the Taliban in North Waziristan, something that was important in the US-Pakistani discussions in the past few months. 26 The US itself, during the flooding, had to give the TTP a rest and stop its strikes in the tribal areas. Even if the Taliban suffered from the floods, this situation has given them the possibility to regroup and organise themselves for attacks against a weakened state.

It explains why the TTP has been on the offensive lately. During the first week of September 2010, their terrorist cells have killed 120 people, striking in Lahore, Karachi, Quetta, and of course Khyber-Pakhtunkhwa. It is interesting to see that the Pakistani religious minorities, the Ahmadis and the Shia Muslims, have been part of the main targets of those terrorist acts. It seems to be a confirmation of the coordination between the Pakistani Taliban and the Punjabi Sunni supremacist group Lashkar-e-Jhangvi (LeJ). Another fact that needs to be kept in mind is that in its attack of the security forces during this period, the TTP has had no problem to be the cause of ‘collateral damages’. Indeed, numerous civilians have been killed by their actions. Hence, the flooding has not weakened the TTP. On the contrary, it clearly appears that it wants to nurture the chaos and the fears that arose because of this calamity, and to put as much pressure as possible on the security forces by attacking ‘soft’ targets. 27 With such a goal in mind, it is very possible to see an ever greater reliance on Sunni supremacists and anti-Shia groups in the fight against the state, giving the situation an even stronger taste of civil war.

But at the end of the day, the floods will be a long-term unexpected gift for the TTP only if the populations, especially the ones in the North West, give it support. There is some room for optimism since the Taliban do not have the means to really help the victims of the floods financially. Their proposal to give US$20 million (and their call to the Pakistani government to reject the international help) does not make a lot of sense when one has in mind the costs to rebuild the devastated areas. The fact that they threatened to attack the members of western non-government organisations (NGOs), and their tendency to kill civilians, will not help them to win the local hearts and minds. Besides, there is another element that can make the international community hopeful – the fact that the flood victims are not necessarily inclined to follow the TTP’s ideology. It seems that it is only prejudice towards the Pashtun 25

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‘Pakistan floods could give Taliban time to regroup’, Dawn (12 August 2010), http://news.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/pakistan/provinces/pakistanfloods-could-give-taliban-time-to-regroup-jd-04. Accessed on 15 August 2010.

‘Floods likely to delay Pakistan anti-Taliban moves’, The Star (3 September 2010), http://thestar.com.my/news/story.asp?file=/2010/9/3/worldupdates/2010-0903T181651Z_01_NOOTR_RTRMDNC_0_-512678-1&sec=Worldupdates. Accessed on 4 September 2010.

Imtiaz Gul, ‘New attacks stun Pakistan’, AfPak Channel – Foreign Policy (10 September 2010), http://afpak.foreignpolicy.com/posts/2010/09/10/new_attacks_stun_pakistan. Accessed on 12 September 2010.

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populations that would make us think otherwise. Indeed the Taliban, in Afghanistan and Pakistan, have been first and foremost coming from this population. But not all the Pashtuns are Taliban, and indeed, in the Federally Administered Tribal Areas (FATA), the TTP did not have the support of the majority of the locals, as it did not hesitate to use terror to impose itself. The few journalists and analysts who have been on the field did not meet victims ready to be radicalised, but people eager to rebuild their lives, especially their houses, without any interest for ideological debate or support for a particular vision of Islam. They do not care who is providing help as long as help is provided, in order for them to escape the nightmare they are living. 28 It will not have an impact on their allegiances, as historically, people who have been struck by the flooding never joined the terrorist groups or the fight against the TTP. They are peasants and small farmers who have not been a ‘strategic interest’ for anybody so far because they are focusing on their present survival, nothing more. 29 Nevertheless, the TTP could possibly win part of the population over through help in the longer term. As it does not have enough money, to be active on the ground to help the communities, especially where Islamabad is unable to assert its sovereignty, is its best way to have an impact. Local Pashtuns are afraid to be abandoned by the state. After all, the rebellion of the TTP has been historically fuelled by disaffection with the central government, and local people who feel they are second-class citizens. And protests already erupted in Khyber Pakhtunkhwa in reaction to what is seen as insufficient action from the government.

If the government is not active enough, the TTP could win followers not because it is able to win ‘hearts and minds’, but because it is able to use and manipulate those local grievances. A Pakistani parliamentarian has made a scary calculation to explain the potential possibilities for recruitment by the TTP. The most vulnerable persons after the flooding in FATA are the people who were already unemployed. There are two million in this area, so even if the TTP is able to convince a small minority, such as two per cent, to join them, it would mean 40,000 new militants. 30 The number is quite impressive when one keeps in mind that Baitullah Mehsud, the former leader of the TTP, had 20,000 men under his command. 31

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Myra MacDonald, ‘Giving a voice to Pakistan’s flood victims’, Reuters (8 September 2010), http://blogs.reuters.com/pakistan/2010/09/08/giving-a-voice-to-pakistans-flood-victims/. Accessed on 15 September 2010.

Mohammed Hanif, ‘Food, Not Ideology’, New York Times (23 August 2010), www.nytimes.com/roomfordebate/2010/08/23/can-us-disaster-aid-weaken-the-taliban-in-pakistan/the-heartsand-minds-of-pakistan-dont-have-a-price-tag. Accessed on 25 August 2010.

‘The link with governance’, Dawn (1 August 2010), http://news.dawn.com/wps/wcm/connect/dawn-contentlibrary/dawn/the-newspaper/columnists/19-huma-yusuf-the-link-with-governance-180-hh-06. Accessed on 2 September 2010.

‘Obituary: Baitullah Mehsud’, BBC (25 August 2009), http://news.bbc.co.uk/2/hi/south_asia/7163626.stm.

Accessed on 12 September 2010.

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Conclusion Hence, it appears that the responsibility of the evolution on the field depends in no small part in the ways the Pakistani central government and the US will deal with the long-term consequences of the floods. If the US is serious about a meaningful strategic partnership, whoever the next president will be, and if the central government is able to show signs of better governance in the months to come, there is a chance that the TTP will not be able to benefit from the floods.

Another lesson that can be found in the analysis of the floods in Pakistan is to avoid falling for the propaganda of the Islamist and Jihadist groups in this country. Too often, those movements are portrayed in the international media as all-powerful, with always a better relation to the local population than the other actors being the Pakistani army, the western NGOs or the international community. It is far from the reality on the ground. Last but not least, there is a need to differentiate between the different Islamist and Jihadist groups, and to evaluate their strengths separately. Such an analysis can help to better judge the security situation in Pakistan and to avoid an alarmist vision. .....

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ISA S Insights No. 89 – Date: 7 January 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India-Pakistan Relations Post-Mumbai Terrorist Attacks Ishtiaq Ahmed1 Relations between India and Pakistan have been proverbially bad ever since both countries attained independence in mid-August 1947. Disputes over territory, division of common assets of the colonial state, forced transfer of minorities in some border provinces and other related issues constitute a case of clashing nationalisms. Three wars – in 1948, 1965 and 1971 – and a dangerous showdown in the hills of Kargil in Kashmir in May 1999 that nearly drove both sides to a nuclear confrontation are indicative of the explosive nature of the rivalry between these two major South Asian states.

In the wake of the 13 December 2001 terrorist attacks on the Indian Parliament, their armies were amassed in hundreds of thousands along the border. In both these recent cases, international troubleshooting played a major role in defusing the explosive situation.

However, terrorist attacks continued in India and the India-administered Kashmir by groups suspected of being based in Pakistan. Hindu extremist groups were also involved in terrorism, most notoriously in the attack on the Samjhauta Express travelling from New Delhi to Lahore on 18 February 2007.

Mumbai Terrorist Attacks However, when on 26 November 2008, a group of terrorists, traced to Pakistan, attacked several key places in Mumbai – the Taj and the Oberoi hotels, among other places – it seemed that a war could break out between these two nuclear weapons upstarts. Thanks to the restraint exercised by their governments as well as hectic diplomacy by the United States (US), the United Kingdom and other major players, a major disaster was averted.

The obviation of open conflict did not mean that peace and normality had been restored; on the contrary its major casualty was the peace process that both sides had been claiming for quite some time that it was about to furnish a historic resolution of all outstanding disputes between the two rivals. There can be no doubt that those who planned and carried out the attacks wanted fear and hatred between India and Pakistan to deepen and even result in war.

At the end of 2009, South Asia is still held hostage to the India-Pakistan confrontation.

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Professor Ishtiaq Ahmed is Visiting Research Professor at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He can be contacted at isasia@nus.edu.sg.

Peace Process Suspended Notwithstanding the tensions and conflicts that have constantly marred relations between the two states, since at least May 1998 when both exploded nuclear devices, a movement in search for a peaceful resolution of their conflicts has also been evolving at the official level as well as through civil society actors. The most central dispute which has defied resolution thus far and hence generated considerable bad blood is that over Kashmir. It is to be noted that India is totally averse to third parties mediating or even facilitating negotiations between itself and Pakistan. It insists on bilateral negotiations. On the other hand, Pakistan has called for international mediation.

In any event, India suspended the ongoing bilateral negotiations after the Mumbai attacks.

India refused to revive the peace process till such time that the perpetrators of the Mumbai attacks were arrested and put on trial. For a long time, the power elite in Pakistan dragged their feet but international pressure proved overwhelming. For example, Pakistan conceded that the main culprit caught in Mumbai, Ajmal Kasab, was a Pakistani national. That was not good enough for India, which kept insisting that the masterminds behind the plot to attack Mumbai should be arrested and put on trial.

To a large extent such a pre-condition was met when an anti-terror court in Rawalpindi indicted seven Lashkar-e-Toiba (LeT) men, including Zakiur Rehman Lakhvi and Zarar Shah who were suspected of having planned the attacks. Judge Malik Mohammed Akram Awan framed charges against the seven under the Anti-Terrorism Act, several sections of the Pakistan Penal Code, including Section 302 and under the Explosives Act for murder. All seven of them pleaded not guilty to the charges (The Hindu, 23 November 2009). The government has promised that if their culpability is proven, they would be meted out harsh punishments in accordance with the Pakistan Penal Code. India welcomed the arrests of the LeT operatives, but expressed criticism of the fact that the LeT Chief, Hafiz Muhammad Saeed, was still scot-free. The Pakistani standpoint has been that the evidence against him was insufficient. Therefore it did not warrant arrest; more inculpating material was needed.

The Mumbai terrorist attack conspiracy became further complicated with the Pakistaniorigin, US citizens David Coleman Headley (Daood Gilani) and Tahawwur Hussain Rana getting arrested in the US for complicity in the Mumbai attacks. In Pakistan, the authorities arrested one retired Major for allegedly having had links with both Headley and Rana (Daily Times, 26 November 2009). One implication of these arrests is that the prevailing understanding that the LeT has a purely Pakistani-Punjabi territorial location does not hold any water. Not surprisingly, the LeT also is interlinked with regional and global networks.

Pakistani Allegations against India While Indian complaints against Pakistan and Pakistan-based groups received maximum international attention, Pakistan, on the other hand, had been alleging that the very large Indian presence in Afghanistan comprises not only engineers and development experts but also military and intelligence personnel. The latter two are allegedly involved in anti-Pakistan activities. Pakistan Interior Minister Rehman Malik claimed that he has in his possession conclusive proof that India was involved both in terrorism against Pakistan as well as in helping Baluch separatists.

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Earlier, a former senior US diplomat, Karl Inderfurth, said at a hearing on 24 January 2008, “Kabul should address Pakistan‟s concerns on India, and its allies should urge Kabul to officially accept [the] Durand Line as the border between the two South Asian neighbours” (quoted in Lodhi, 15 July 2008). Former Indian ambassador to Pakistan, Bhadrakumar, commented that, “It is plain unrealistic to overlook Pakistan‟s concerns” (ibid.).

An unclassified report by the top US commander in Afghanistan, General Stanley McChrystal entitled „Commander‟s Initial Assessment‟ dated 30 August 2009 on the Afghanistan situation looks at different aspects of the International Security Assistance Force (ISAF) in that country. It looks at the role of different states not part of the ISAF mission.

With regard to India, the General says, “Indian political and economic influence is increasing in Afghanistan, including significant development efforts and financial investment. In addition, the current Afghan government is perceived by Islamabad to be pro-Indian. While Indian activities largely benefit the Afghan people, increasing Indian influence in Afghanistan is likely to exacerbate regional tensions and encourage Pakistani countermeasures in Afghanistan or India.” (Section 2, p. 11) Pakistan interpreted the report as confirmation of a suspected Indian role in Afghanistan, though General McChrystal did not allege that; he merely mentioned Pakistani perceptions and possible moves to counter it. Thus, according to Pakistan Interior Minister Rehman Malik, India was engaged in anti-Pakistan activities, especially in the tribal belt along the Afghanistan-Pakistan border. Pakistan also accused India of being behind most terrorist attacks in Pakistan as well as of being involved in fomenting separatism and secessionism in the southern Pakistani province of Baluchistan. He warned India not to threaten Pakistan (Dawn, 21 October 2009).

On 3 January 2010, BBC showed their special correspondent in Pakistan, Alim Maqbool, interviewing people from the coastal town of Gwadar, Baluchistan, who said they wanted to separate from Pakistan and become independent. They wanted the US and India to help them.

Maqbool gave the impression that such ideas were widespread among the Baluch. From the Pakistani perspective, such ideas are indicative of India and, by the same token of, the US involvement in Baluchistan.

Barack Obama’s Visit to China US President Barack Obama visited People‟s Republic of China in the beginning of the third week of November. Before his arrival he had indicated that the US recognised China as the second most important world power and wanted it to become a partner in maintaining stability and peace in the world. When he urged China to play a role in helping improve relations between India and Pakistan, India‟s knee-jerk reaction was that India did not need the help of any third party to negotiate peace with Pakistan (The Times of India, 18 November 2009).

Manmohan Singh’s US Visit Meanwhile, during his visit to the US, Indian Prime Minister Manmohan Singh rejected Pakistan‟s demands that the Kashmir dispute should be settled in accordance with the United Nations‟ resolutions. He expressed the view he had earlier taken pertaining to the Kashmir 3

dispute, “I have publicly stated that there can be no redrawing of borders (in Jammu and Kashmir)... but our two countries can work together to ensure that these are borders of peace, that people-to-people contacts grow in a manner in which people do not even worry whether they are located on this side of the border or that side,” he told CNN in an interview (The Times of India, 23 November 2009). In Islamabad, Foreign Office spokesman Abdul Basit reiterated the traditional position that “Jammu and Kashmir is a disputed territory awaiting settlement in accordance with the relevant UN resolutions and aspirations of the people of Jammu and Kashmir.” (The Times of India, 23 November 2009) More significantly, during his US visit, Manmohan Singh spoke candidly about India‟s links with Afghanistan. He asserted that “India has enduring civilisational links with Afghanistan and will continue to assist Afghanistan in building its institutions and its human resources” (The News, 24 November 2009, Geo Pakistan, http://www.geo.tv/11-24-2009/53505.htm).

Such a statement made it clear that India would pursue its interests in Afghanistan undeterred by concerns about its role (Shah 2009). It is understood that India is seriously worried about Afghanistan coming again under pro-Pakistan forces such as the Taliban.

In any case, India received support from the US when Manmohan Singh and President Obama met on 24 November 2009 in the White House. Both leaders underscored the “absolute imperative” to bring to justice the perpetrators of the Mumbai attacks and underlining the need for “resolute and credible steps” to eliminate “safe havens” in Pakistan and Afghanistan which undermine the security and stability around the world (The Hindu, 25 November 2009). President Obama also remarked, “Obviously there are historic conflicts between India and Pakistan. It is not the place of the US to try, from the outside, to resolve all those conflicts”. He went on to say that Washington wanted to “be encouraging ways in which both India and Pakistan can feel secure and focus on the development of their own countries and their own people.” (Daily Times, 25 November 2009) Such a stand surprisingly received support even from China. India and Pakistan should solve the Kashmir dispute between themselves, remarked Chinese Foreign Ministry spokesman Qin Gang, who went on to say, “Our stance on the issue has been consistent. This is an issue between India and Pakistan left over by history.” (Daily Times, 25 November 2009) International Fora In spite of the overall tension between India and Pakistan, the fact that both are members of international and regional organisations means that their leaders are bound to meet. The first such important meeting took place when President Asif Ali Zardari of Pakistan and Manmohan Singh met on the sidelines at a meeting of the Shanghai Cooperation Organisation, held in Yekaterinburg, Russia on 16 June 2009. Singh told Zardari that Pakistan should not let its territory be used for terrorism. The message was delivered with firmness. Both agreed, however, for their foreign secretaries to meet on a mutually convenient date (Daily Times, 17 June 2009). On the way back to India, Singh told journalists on the plane that if the Pakistani leadership, “shows courage, determination and statesmanship to take the high road to peace, India will meet it more than half the way.” (The Hindu, 17 June 2009) A month later, Manmohan Singh and Pakistani Prime Minister Yousaf Raza Gilani met at the annual meet of the Non-Aligned Movement at Sharm el-Sheikh, Egypt. On 16 July 2009 they first met for three hours and together issued a joint communiqué. Singh reiterated the need to 4

bring the perpetrators of the Mumbai attack to justice. Gilani assured that Pakistan will do everything in its power to do that. They agreed that the two countries will share credible and actionable information on any future terrorist threats. Prime Minister Gilani mentioned that Pakistan has some information on such threats in Baluchistan and other areas. It was agreed that action on terrorism should not be linked to the composite dialogue process and these should not be bracketed. Prime Minister Singh said that India was ready to discuss all issues with Pakistan, including all outstanding issues. Both expressed the need for their countries to cooperate on issues of poverty, development and regional cooperation (Dawn, 17 July 2009).

While in Pakistan the joint communiqué was welcomed as a triumph of Pakistani diplomacy, especially that of Prime Minister Gilani, the reception in India was diametrically opposite.

Singh had to face hysterical outbursts from some opposition parties, especially the Hindu nationalist, Bharatiya Janata Party. The media played a part in hyping up the issue. His detractors assailed him that by having agreed to Pakistan‟s request that he should look into the alleged unwelcome activities of Indian intelligence in Baluchistan, Singh had virtually conceded that India was involved in Baluchistan. Also, objections were raised towards the delinking of the resumption of the peace process to proceed in bringing to justice the culprits of the Mumbai terrorist attacks. Even within the ruling Congress Party in India it seemed that some people did not like Singh‟s accommodation of Pakistani concerns.

However, the Indian prime minister defended his decision as a friendly gesture and not an admission of guilt. He received full backing from the Congress president, Mrs Sonia Gandhi.

Moreover, Singh emphasised that the peace process and contact with Pakistan on other issues would remain suspended till such time that the culprits of the Mumbai attacks were brought to book. Thereafter, the hysteria over Baluchistan petered out. The Indian and Pakistani foreign secretaries, however, are yet to meet to resume peace talks.

The Pakistani High Commissioner to India, Mr Shahid Malik complained in a recent TV interview given to the well-known Indian journalist, Karan Thapar on 20 December 2009 that India was not fulfilling its commitment given in the joint statement issued at Sharm elSheikh for the resumption of talks. He observed that the “diplomatic vacuum” thus created would not help the cause of peace. By choosing not to talk to each other, “we are strengthening the forces which don‟t want the two countries to make any progress” (Daily Times, 21 December 2009). He went on to say that Pakistan had taken action against the suspects of the Mumbai terrorist attacks. Further he asserted that Pakistan was “looking for credible actionable evidence” to ensure that the case was “fool-proof”. On the other hand, he confirmed that the foreign offices of the two countries were in constant contact over a variety of issues, but “when it comes to holding a structured composite dialogue, yes, that is not taking place” (ibid.).

Indian Allegations and Warnings to Pakistan Meanwhile, the Indian Home Minister Mr P. Chidambaram had remarked some weeks earlier in a public meeting, “We have been gaining strength day by day to counter terrorism from across the border. I have been warning Pakistan not to play games with us. (I have told them that) the last game should be Mumbai attacks. Stop it there”. He went on to say that India would retaliate strongly against any attempt by Pakistan to send infiltrators into India and “we have strength to tackle any such infiltration” (The Indian Express, 2 November 2009).

Moreover, Prime Minister Manmohan Singh has from time to time been alleging that 5

Pakistan-based terrorist groups are planning more terrorist attacks on India. The latest such allegation was reported on 20 November 2009 (The Indian Express, 20 November 2009).

Stakes were upped when the Indian Army Chief General Deepak Kapoor said that the possibility of a „limited war under a nuclear overhang is still very much a reality in South Asia‟ (Daily Times, 24 November 2009). The News International of Pakistan reported that General Kapoor had spoken of a so-called two front-war doctrine – with China and Pakistan simultaneously (31 December 2009). India‟s leading newspaper, The Hindu, reported that the statement by General Kapoor elicited a sharp response from Pakistan alleging that it represented a cold-war mentality. His counterpart, General Kayani described it as “an adventurous and dangerous path, the consequences of which could be both unintended and uncontrollable” (The Hindu, 2 January 2010).

While such jingoistic statements have been going on from the Indian side, both states exchanged, in accordance with a practice established since 1991, information about each other‟s nuclear installations on New Year‟s Eve (Dawn, 1 January 2010).

Conclusion The Indian and Pakistani positions on the resumption of peace negotiations at present seem wide apart. But international pressure is likely to force both to the negotiating table again.

Pakistan has made substantial moves to bring to the book the perpetrators and planners of the Mumbai terrorist attacks. Therefore, the Pakistani plea that peace negotiations should be resumed is quite reasonable and convincing. The atmosphere can improve dramatically if issues like the King Creek and Siachen Glacier occupations are resolved, preparatory to the resolution of the Kashmir dispute. India‟s rejection of third party mediation or even facilitation of talks between itself and Pakistan borders on the hysterical.

Since Pakistan does not insist on the Kashmir dispute being resolved strictly in accordance with the relevant United Nations Security Council resolutions, India need not fear some dramatic change to the status quo. If India believed it could win the plebiscite in Kashmir, it would have agreed to one long ago. On the other hand, if Pakistan could liberate Kashmir through warfare, that too would have taken place by now. Under these circumstances, a negotiated settlement would have to correspond in an essential sense to the present Line of Control in Kashmir becoming the international border, but with adjustments necessary to satisfy Pakistan and the Kashmiris. Most importantly, the resolution of the Kashmir dispute must be such that the 500,000 Indian troops currently stationed there can be removed.

Obviously for that to happen the Kashmiris have to be convinced that the solution is a just and practical one.

In a more immediate sense, it is important that the two countries are brought to the table to discuss their stands on Afghanistan as well as consider Pakistani concerns about an alleged Indian hand behind the unrest in Baluchistan. The US in particular can facilitate such a meeting between representatives of the two states. It would also be an occasion to discuss its role and intentions in Baluchistan. Under these circumstances, it would not constitute the usual threat to bilateralism that India is always insisting on when dealing with Pakistan because the US can clarify its position as well.

In short, India-Pakistan relations have to move forward positively. This can be achieved only with a revival of the peace process and related issues.

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References Lodhi, Iftikhar A., „Attack on the Indian Embassy in Kabul: Time to Sober Up‟, ISAS Brief No. 75, 15 July 2008.

McChrystal, Stanley, A. (General), „Commander‟s Initial Assessment‟, Kabul: Headquarters International Security Assistance Force.

Shah, Mowahid Hussain, „Manmohan in Washington‟, The Nation, Pakistan, 26 November 2009.

Newspapers Daily Times, Pakistan Dawn, Karachi, Pakistan The Hindu, India The Indian Express, India The News International, Pakistan The Times of India, India

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ISA S Insights No. 91 – Date: 24 February 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

South Asian Developments: Moving Towards a Détente or Sowing the Seeds of Discord?

Shahid Javed Burki 1 Abstract The assessment of some of the recent developments in South Asia is based on a number of conversations the author had in Pakistan during a two-week stay in Lahore and Islamabad in early February 2010. He met with a number of Pakistani politicians, senior officials – civilian and military, serving and retired – most of whom offered their views on the condition that they should not be directly quoted given the sensitive nature of the issues discussed during the conversations. The author also met with some senior diplomats, including those from the United States (US). He had discussions with some officials from the United Nations who were managing programmes in both Afghanistan and Pakistan.

The most important conclusion the author draws from these exchanges is that a degree of normalcy is returning to Pakistan’s relations with Afghanistan and India. This is particularly the case with India-Pakistan relations. The two are set to resume formal discussions, although not the “composite dialogue” suspended by India following the terrorists’ attacks on Mumbai on 26 November 2008. Discussions will begin in New Delhi on 25 February 2010. That said, the author argues for placing the dialogue in an entirely new framework replacing “composite” with “economic betterment’’ as the focus.

Introduction The prospect for a détente in South Asia has increased with New Delhi’s decision to start formal discussions with Islamabad. This was a significant change of heart, motivated by the developments in Afghanistan. There has been a significant shift in the positions of most countries involved in the current Afghan conflict. The process started with US President Barack Obama’s speech on 1 December 2009. Addressing the cadets at the West Point Military Academy, he announced that while he would increase the size of the American contingent in Afghanistan by 30,000, bringing the total to more than 100,000, he will start pulling out his troops beginning July 2011. During the 18-month period when the Americans will have a large military presence in Afghanistan, the strategy will be to beat back the resurgent Taliban forces from the more populated areas of the country.

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Mr Shahid Javed Burki is a Visiting Senior Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He was Former Vice President of the World Bank, and Former Finance Minister of Pakistan. He can be contacted at sjburki@yahoo.com.

The Americans, supported by the NATO forces, will also put in a great deal of effort to build up the size of the Afghan military and police. At the same time intensive economic and social development programmes will be launched in the areas that were liberated and secured. The goal will be to win over those among the dissidents who had joined the ranks of the Taliban on the expectation that the Taliban will provide them better economic opportunities compared to those that were on offer from the government in Kabul. 2 There were thus four important changes from the previous strategy, which had been pursued by the administration of President George W. Bush. The number of American and NATO troops would increase by about 40 per cent; the build-up will be for a limited period of time; the size of the Afghan forces will be built-up rapidly; and ground will be prepared for the incorporation of those amongst the Taliban, who are prepared to work with the government in Kabul, into the Afghan mainstream. This way the size of the Taliban would get depleted.

This strategy was fully endorsed by the sixty countries that met in London on 28 January 2010 in a conference called by Prime Minister Gordon Brown of Britain. Afghan President Hamid Karzai used that occasion to spell out the details of his government’s programme to win over some of the elements of the Taliban force. He said that he was prepared to talk to those Taliban leaders who were willing to renounce violence and give up any association with Al-Qaeda. Soon after the conference ended, efforts to implement the several elements of the Obama strategy began along with efforts for winning over some of the Taliban to the side of the government. It also became clear that the Americans and their NATO allies believed that this strategy would only work if the countries in the region, especially India and Pakistan, worked on the same side. As the author has argued in an earlier ISAS publication, there was some danger that Afghanistan could become another Kashmir – an area that is the subject of contention between India and Pakistan – if Islamabad and New Delhi did not join the effort from the same side. 3 There were a number of quick developments following the London conference. General Ashfaq Pervez Kayani, Chief of Staff of the Pakistani Army, gave a detailed briefing to the press after returning from Brussels where he had met with the NATO commanders on the eve of the London conference. He spoke about the strategic interests Pakistan must protect as new developments occurred across the border in Afghanistan. “We want a strategic depth in Afghanistan but do not want to control it. A peaceful and friendly Afghanistan can provide Pakistan a strategic depth”, he told a selected group of journalists called to his office in Rawalpindi. He took a strong position against the offer made by India to train the Afghan military and police, offering instead a role for Pakistan. He was also nervous at the thought of a strong military force sitting right across Pakistan’s border in Afghanistan. “If we get more involved with the ANA [the Afghan National Army], there will be more interaction and better understanding”. He told the press that Pakistan had 140,000 troops stationed in the border areas with Afghanistan. Some of them were fighting the Taliban. In the last seven months Pakistan had launched 209 major operations and 510 minor ones, losing 2,273 officers and soldiers. Among those who lost their lives were a disproportionate number of officers, about 10 per cent of the casualties. 4 2

3 4

President Barack Obama’s new Afghanistan strategy was discussed by the author in an earlier brief. See Shahid Javed Burki, “The United States in Afghanistan: President Obama decides to fight the war in his way”, ISAS Brief No. 142, 3 December 2009.

Shahid Javed Burki, “Afghanistan: The London Meeting”, ISAS Brief No. 154, 4 February 2010.

Quoted in Zahid Hussain, “Kayani spells out terms for regional stability”, Dawn, (2 Feb.), p. 1.

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Resumption of India-Pakistan Dialogue Among the more important developments following the London meeting was the decision by New Delhi to restart negotiations with Pakistan. India thus gave up its position that it would not talk to Pakistan about resolving the many issues that had soured relations between the two countries unless Islamabad took steps to prosecute those who had masterminded the terrorist attack on Mumbai on 26 November 2008. India also demanded that the infrastructure used in Pakistan by various terrorist groups that had targeted the country should be dismantled. On 4 February 2010, New Delhi proposed the resumption of talks at the foreign secretary level but did not suggest an agenda. The response from Islamabad was quick. Abdul Basit, the foreign office spokesman, said that “if India dispenses with its traditional inflexibility there is a possibility of moving ahead. Pakistan has always believed that it is only through genuine and meaningful talks that Pakistan and India can resolve their disputes.” 5 On the same day that New Delhi sent out its invitation to Pakistan to start formal talks with India, P. Chidambaram, India’s Home Minister, told newsmen in New Delhi that the handler of the group that penetrated Indian defences to attack Mumbai may have been an Indian, something the Pakistanis had suspected all along. “When we say that [we mean] he could be somebody who acquired Indian characteristics. He could have infiltrated into India and lived there long enough to acquire an Indian accent, and familiarity with Indian Hindi words.” 6 On 5 February 2010, a day after the announcement from New Delhi, Shahid Malik, Pakistan’s High Commissioner in India, met with Nirupama Rao, India’s foreign secretary, to discuss the timing and content of the high level meeting between the two countries. “All possible issues which are of concern to Pakistan or India will be discussed”, he told the press after the meeting. “Kashmir is an issue we have been raising with India at every possible opportunity and forum. Terrorism will certainly be one of the areas of discussions because we have issues relating to terrorism and this is something that affects Pakistan”. 7 After several exchanges between the two capitals, 25 February 2010 was set as the date for the first meeting between the foreign secretaries.

While the process for resuming discussions was proceeding, terrorists struck India once again, this time in Pune, southeast of Mumbai. On 13 February 2010, a bomb was left at a German bakery frequented by foreigners. It exploded killing nine people instantly and one later when he succumbed to the injuries. The bakery is close to Osho Ashram, a mystic center popular with foreign visitors and the Chabad Center run by the Jewish Orthodox Chabad Lubvitch movement. The same Jewish group was targeted by the terrorists in the Mumbai attacks. There were calls from a section of the Indian press for the suspension of the talks scheduled for the end of February. These calls were rejected by New Delhi.

The news that India was prepared to restart its dialogue with Pakistan, which had first begun in 2004 but had been suspended in 2008 after the terrorist attacks on Mumbai on 26 November 2008, was received in Pakistan with a mixture of relief and triumph. Most policymakers were of the view that the position Pakistan had taken following the Mumbai carnage was vindicated. There is a feeling in Pakistan that India has begun to recognise that 5 6 7

Quoted in Baqir Sajjad Syed, India changes tune; offers high level talks”, Dawn (5 Feb. 2010), p. 1.

Quoted in an AFP report, “’Handler of Mumbai attacks could be Indian: Chidambaram”, Dawn (5 Feb.), p. 1.

Quoted in Reuters report picked up by Dawn in “Officials meet to set agenda of Pak-India talks”, (6 Feb. 2010), p. 1.

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there was no official Pakistani involvement in the attacks. The terrorist activity launched in Pakistan by the group that calls itself Tehrik-e-Taliban Pakistan (TTP) in the fall and winter of 2009, was a clear indication that that country was also a victim of terrorism. Some 600 people were killed in these attacks in the country’s major cities – Islamabad, Lahore, Karachi and Rawalpindi – and in many small towns in the Northwest Frontier Province. That said, suspicions remain in India that the security agencies in Pakistan are involved in creating trouble in India. According to a report published in the news magazine India Today, the tactics of these security agencies may have changed. Rather than training Pakistani terrorists to infiltrate India, it is claimed that the focus has shifted to activating disgruntled Indian Muslims who are being brought into Karachi and are being trained to carry out terrorist activities in their country. 8 The Pakistanis have similar impressions about India’s possible involvement in Baluchistan. These issues, no doubt, will be addresssed at the New Delhi talks.

The fact that there was some disagreement over the content of the dialogue once it began was yet another indication of the nature of the relationship between India and Pakistan. Even relatively minor issues become contentious. India initially indicated that it only wished to discuss terrorism while Pakistan wanted to go back to the composite dialogue which covered most of the contentious issues that had caused so much hostility between the two South Asian neighbours. The discussion to begin discussions went on right up to the time of the resumption of the dialogue. On 17 February 2010, the Pakistan foreign office spokesperson told the press that the government had sought a clarification about a statement attributed to the Indian External Affairs Minister S.M. Krishna that the composite dialogue would not be started and that the Indians will limit the discussions to the issues that were of immediate concern to them. 9 That, of course, meant terrorism.

Placing the dialogue in a new framework This may be a good time to completely change the framework within which India and Pakistan have been discussing their relations ever since 2004. Then, at the sidelines of the summit of the leaders of the South Asian Association for Regional Cooperation (SAARC) Pakistan’s then President Pervez Musharraf and then Indian Prime Minister Atal Bihari Vajpayee agreed that the two countries should attempt to resolve their differences through dialogue. In the context of the history of India-Pakistan relations this was a major breakthrough. As was always the case, Islamabad wanted to focus on the issue of Kashmir.

New Delhi was in favour of discussions that covered the many reasons for the continuing tensions between the two countries. These included territorial issues other than Kashmir. For a number of years India and Pakistan had been fighting over the Siachin Glacier in the eastern part of the disputed territory of Kashmir. There was also dispute over Sir Creek on the western side of the border between the two states. The Indians suggested that movement on these issues would build confidence and ultimately lead to the resolution of the more difficult problems, including perhaps Kashmir. Islamabad accepted New Delhi’s position which then became the basis of the “Composite Dialogue”.

The two countries are now debating once again the content of the dialogue expected to be resumed on 25 February 2010. According to a newspaper report, what should be right approach to the Indian initiative was discussed at a brainstorming session at the Ministry of 8 9

Sandeep Unnithan, “The Karachi Project”, India Today (18 February 2010), pp. 11-17.

Dawn, “Pakistan concerned over Krishna’s remarks” (17 February, 2010), p.1

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Foreign Affairs in Islamabad where some concern was expressed that unless the “Composite Dialogue” was fully restored, Pakistan should not participate in the discussions. However, the diplomats left the final decision to the politicians who, it was said, may be able to think outside the box. They may be able to find a way to depart from the entrenched positions in the two bureaucracies – the Indian position that dealing with terrorism has to be the main focus of discussions and Pakistan’s position that the entire relationship should be on the discussion table. 10 If thinking outside the box is to be encouraged, Islamabad should attempt to base the dialogue on an entirely new consideration: how to bring about greater economic integration between the economies of the two countries. The objective should be to develop a stake for India in the Pakistani economy and also in its stability. This would entail a number of things including unhindered flow of trade between the two countries, encouraging the private sectors on either side of the border to invest in each other’s economy, the opening up of the border that separates the two parts of Kashmir to trade and movement of people, grant of transit rights to each other for trade with third countries. As the European experience shows, economic integration among states that have known great hostility towards one another is a good way of easing tensions. Taking that approach would constitute real thinking outside the box.

The question is often asked as to what India and Pakistan would trade in case they were to ease the restrictions on the flow of goods. There are many complementarities between the two countries. Pakistan now has a reasonably well developed automobile vending industry which could feed the rapidly developing car industry in India. Pakistan imports iron ore from Australia for the steel mill at Karachi; this could be obtained at a lesser cost from India given the shorter distance involved. While these are obvious examples of complementarities, trade economists believe that the comparative advantage argument should not be pressed too far to fashion the pattern of trade among countries. There are product preferences consumers hold that governs a great deal of international trade. The US imports wines from France, Australia and South Africa although it has a vibrant industry of its own.

There are other possibilities of economic contacts. Several years ago, Reliance Industries of India showed interest in using the depleted salt mines at Khewra, south of Islamabad, for storing fuel oil. This would have cut the cost of transporting it to its refineries in northern India while Pakistan would have charged for storage.

Conclusion As India and Pakistan sit down at the conference table once again to discuss how they can resolve their many differences, it might be the right time to change the substance of the dialogue. This can only be done if they cast off the burden of history they have carried for more than six decades and construct a new relationship on purely economic grounds. Once the dialogue focuses on economic issues both sides will realise that they are not operating in a zero-sum framework when one side gains at the expense of the other. 11 Both will benefit from increased economic cooperation. In fact they could also draw in Afghanistan into this relationship. oooOOOooo 10 11

Baqir Sajjad Syed, “Foreign office counsels caution on Indian offer”, Dawn (9 February, 2010), p. 1.

The author discussed this approach in a newspaper op-ed piece written while he was visiting Pakistan. See Shahid Javed Burki, “Talks based on economics”, Dawn (16 February, 2010), p. 7.

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ISA S Insights No. 92 – 4 March 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India and Pakistan: Breaking the Ice Iftekhar Ahmed Chowdhury 1 But things cannot remain, O Zafar’ Thus, for who can tell?

Through God’s great mercy, and the Prophet, All may yet be well.

Attributed to: Bahadur Shah Zafar, the last Mughul Emperor (Transl: William Dalrymple)

Abstract The recent Foreign Secretary-level talks between India and Pakistan have failed to break the ice with regard to any of the major issues between New Delhi and Islamabad. Yet, for a variety of critical reasons, it is essential to regional peace and stability that the two nucleararmed South Asian states bridge their main differences. In order to be able to do so, new and ‘out-of-the-box’ thinking is necessary on both the process and substance of their bilateral deliberations. The article, based on the author’s own experience of diplomatic negotiations among South Asian nations both at official and political levels, seeks to suggest a way out of the impasse in order to be able to move forward, discarding conflict for cooperation.

Introduction Few diplomatic events have had results as predictable as those of the recently concluded talks between the Foreign Secretaries of India and Pakistan. Neither side had expected a positive outcome. Nor did either have any qualms about saying so before the talks commenced.

Indeed, the outcome matched the expectations. Not only did the ice remain unbroken, it also appears to have solidified further. The Americans, who had pushed for the meeting, re-learnt the lesson that one could take the horse (or rather the two horses in this case) to the water, but neither would care to drink! There were photo opportunities that showed the best sides of the two senior and elegant South Asian mandarins, the Foreign Secretaries of India and Pakistan, and excellent usage of the English language in endeavours to demolish the arguments of the other side. But that was pretty much all. In this case, diplomacy in New Delhi moved at a pace that would put a snail to shame!

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Dr Iftekhar Ahmed Chowdhury is a Senior Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He was the (Foreign Advisor) Foreign Minister of Bangladesh from 2007 to 2009. He can be reached at isasiac@nus.edu.sg.

Backdrop to the Recent Talks The backdrop to the talks on 25 February 2010 at the Hyderabad House in the Indian capital was inauspicious to say the least. Long in advance of the occasion, the two sides had gone public on their sharp differences on what was to be on the agenda. India wanted the focus to be on terrorism. But, New Delhi was prepared only to “talk about talks”, and no further.

Pakistan, on the other hand, wanted to resume the ‘composite’ or comprehensive dialogue that was called-off after the November 2008 terrorist attack in the Indian port-city of Mumbai by militants trained in Pakistan. On the day prior to the talks, shootings in Kashmir resulted in a number of Indian casualties. India accused, as it is wont on such occasions, Pakistan of complicity. Pakistan, as customary, denied any involvement! 2 Not that the Pakistanis were unwilling to discuss terrorism, but, as stated earlier, they wanted the range of the talks to be wider, and more substantive. The Islamabad foreign office spokesman, Abdul Basit announced to the media before the talks: “Terrorism is a regional, global concern; it is our concern as well,” and then proceeded to pronounce the rock-like Pakistani thesis on which many such negotiations had foundered: “But the Kashmir issue is the core”! 3 Another incident that threatened the talks was a Mumbai-style attack at a bakery in Pune over the previous weekend. 4 The Indian ‘nay-sayers, including the right-wing Bharatiya Janata Party, expectedly demanded the talks be called-off, but it was already too close to the event to cancel it.

Reasons for the Talks Despite this negative matrix, why did the parties agree to engage? There were three broad reasons. First, there was tremendous American pressure on both sides to do so. The Chairman of the United States (US) Senate Foreign Relations Committee, Senator John Kerry, during his recent visits to both the capitals, had urged peace. A series of key US officials, such as National Security Adviser, James Jones, Presidential Special Representative on ‘Af-Pak’ issues, Ambassador Richard Holbrook, and Under Secretary of Defense, Michele Flournoy, descended on Islamabad. In a statement that was almost touchingly naive, for it obviously did not take into account the extremely sophisticated and complex bureaucratic machineries of the Indian and Pakistani diplomacy, who, in the ultimate analysis, would only do exactly what they felt was good for them and not one bit more, said: “We will do everything in our power to support the outcome of the talks, an outcome everyone is looking for”. 5 Alas, ‘everyone’ did not include India and Pakistan who had their own ideas what the ‘outcome’ should be, and indeed whether there should be one! Nonetheless, both New Delhi and Islamabad were aware of the sense of urgency in Washington about easing regional tensions in South Asia given the entry into a critical stage in Afghanistan, and were willing to humour the Americans, albeit only up to a point!

Second, Pakistan assessed that agreeing to talk to India, coupled with some recent action in apprehending some Taliban leaders in Karachi, would place Islamabad on the right side of 2

3 4

5

BBC News: ‘India and Pakistan restart formal talks process’, 25 February http://news.bbc.co.uk/south_asia/8535787.stm . Accessed on 25 February 2010.

Quoted in Jim Yardley, ‘India and Pakistan Resume Talks’, New York Times’, 25 February 2010.

BBC: Soutik Biswas, ‘Why India and Pakistan must talk’, 17 February http//www.bbc.co.uk/blogs/thereporters/soutikbiswas/2010/02. Accessed on 25 February 2010.

Baqir Sajjad Syed, ‘US wants Pak India talks to end tensions’, Dawn, 18 February 2010.

2

2010.

2010.

the US and enhance its leverage in any consultations with regard to the future of Afghanistan.

This was a ‘core’ interest for Pakistan whose goal in Afghanistan remained two-fold – one, to have installed a friendly government in Kabul that would secure for the Pakistani Army the desired ‘strategic depth’ in Afghanistan in case of any future conflict with India; and two, to deny India any influence over the future government of Afghanistan. Pakistan also needed another scope to flag to the world the agenda it feels should find a place in any negotiations with India, such as Kashmir, Confidence Building Measures, Siachin, Sir Creek and river waters (included in the ‘eight issues’ that Pakistan stresses). India, which actually made the offer for the dialogue, was motivated by the desire to underscore “terrorism” as the key issue, and to appear to be a responsible international actor not afraid to talk to neighbours, particularly given its interest in a permanent seat at the United Nations Security Council for which a positive international image is a categorical imperative. Also, Prime Minister Manmohan Singh felt confident and politically secure enough to restart diplomacy, in line with his personal predilections. The Indian side viewed the talks as an opportunity to nudge Pakistan towards progress on follow-up actions to the Mumbai incidents.

Third, there was a genuine burgeoning demand in both countries to resume bilateral talks despite the presence of high misgivings and low expectations. The influential Pakistani newspaper Dawn urged: “Looked at from any angle, the problems between India and Pakistan are too serious for them to avoid talking to each other”. 6 The Pakistani analyst Hasan Askari also urged talks, though underscoring that “it should not be ‘onedimensional’” 7, meaning only focused on terrorism, but should be a “composite” dialogue embracing the “eight issues”. Former Indian Foreign Secretary Salman Haider said: “It is the right step. There is no other way India and Pakistan can address their issues. This can only fester if they are unaddressed.” 8 However when the talks were about to commence, optimism with regards to the immediate results was not in evidence. Indian officials openly spoke of the “trust deficit.” 9 With a degree of suspicion remarkable even for South Asia, the Indian media declared that the Pakistani delegation included a ‘physiognomy’ expert, who would be able to read the faces of Indian officials and predict what they would actually intend to say! 10 The reference was to the Director General for South Asia at the Pakistan foreign ministry, whose inclusion in the delegation was essential given his responsibility, and his reputation of the ability to foretell the future, deserved or not was obviously irrelevant.

6 7

8 9

10

This and the following quotes in this para are from, Soutik Biswas, op.cit.

BBC News: “South Asia rivals' differing agendas”, 23 February 2010. http://news.bbc.co.uk/2/hi/south_asia/8528204.stm. Accessed on 25 February 2010.

Jim Yardley, New York Times, op.cit. http://news.rediff.com/report/2010/feb/24/india-aware-of-trust-deficit-will-clear-the-air... Accessed on 25 February 2010. http://www.rediff.com/news?report/2010/feb/24/face-reader-part-of-pak-delegation-t0-india.htm. Accessed on 25 February 2010. The official in question was Afrasiab Hashmi, about whom there were some anecdotes with regard to a capacity to foretell the future, which if true, would be an invaluable asset in diplomacy as in other spheres of life. Indeed he is reportedly credited with hinting at the impending death of Pakistani President Zia ul Huq. But the fact was in this case he was a member of the Pakistani delegation because he was the Director General for South Asia in the Islamabad Foreign Office, holding a key position in terms of any talks with India.

3

The Outcome Unsurprisingly, the one-day, four-hour talk between the two Foreign Secretaries, Nirupama Rao of India and Salman Bashir of Pakistan, yielded little in terms of substantive results.

Wide differences remained on almost every issue raised by either side. The sheer breadth of the mutual gap was evidenced in the fact that not only was there not a joint statement or communiqué at the end of the meeting, there was also no joint press conferences, with each side convening its own, to proclaim its own success. Rao claimed that “terrorism” was discussed most of the time, and that India had handed over to the Pakistanis three “dossiers”, pertaining to the Mumbai attacks, an Al-Qaeda-linked terrorist, and Indian fugitives hiding in Pakistan. Indian sources also listed a set of Pakistani failures; these were the inability to achieve the goals of time-and-result-oriented dialogue, to revive the composite peace-process, to hand over a dossier listing evidence of Indian involvement in the Pakistani tribal areas, and to move India on the issue of the distribution of river waters. 11 The reaction from Bashir was sharp and erudite. He stated that: “it was unfair, unrealistic, and counter-productive for New Delhi to focus solely on terrorism. Pakistan does not believe India can just lecture us and demand that Pakistan does this and that. I suggest it is important that issues on which Pakistan has concern must be brought into focus”. 12 Rao countered him by asserting that time was not yet ripe for composite talks, though “good chemistry” was achieved between the two sides (sadly, evidence of this was lacking!). She spoke of a “first step towards rebuilding of trust”, concluding with perhaps the only positive element issuing from the dialogue, an agreement to “remain in touch”, by far the most minimal expression of cordiality in diplomacy between parties not at war! According to an observer, Amulya Ganguli: “if the talk about talks (as India saw the dialogue) by Rao and Bashir has vitiated the atmosphere instead of creating favourable conditions for more interactions, the reason is that, a reluctant India was seemingly pushed into it by the US and, second, Pakistan was weighed down by insecurities and complexes.” 13 Bashir also took time out to meet up with Kashmiri Hurriyat leader Syed Ali Gilani, who afterwards, in his remarks to the media, declared: “Pakistan’s continued political, moral and diplomatic support to the Kashmiri cause.” 14 Bashir’s decision to meet Gilani was obviously not a move designed to elicit friendly reaction from his Indian counterparts, nor to achieve a positive outcome at the official bilateral talks!

In the narrowest sense, however, the talks and their outcome or the lack of it, it, were able to deliver to each party what it desired. Neither India nor Pakistan sacrificed any ‘core’ interests; both were able to flag issues seen as key to each other, as well as to the international community; and both achieved the position to deflect criticism from any quarter, particularly from the US that either was too stubborn to talk to the other. But if the aim was to achieve a substantive “forward movement”, in terms of advancing bilateral understanding and 11

12

13

14

Daily Times, 26 February 2010. http:/www.dailytimes.com.pk/default.asp?page=2010%5CO2%5C26%5Cstory_26-2-2010. Accessed on 26 February 2010.

Amy Kaznin, ’Pakistan urges New Delhi to widen focus on terrorism: It seeks talk on Kashmir’, Financial Times, Asia, 26 February 2010. http://www.thainindian.com/newsportal/south-asia/india-pakistan-stumble-on-first-step-of-their-talks.

Accessed on 27 February 2010.

Pakistan Times, 2 March 2010.

4

cooperation, it was a total failure. Neither side was ready to, as the author of an excellent curtain-raiser to the talks had urged them, “to cast off the burden of history” and “construct a new relationship.” 15 Recent History of Dialogues In the recent past unfortunately whenever there has been some progress in terms of IndiaPakistan relations, it has almost immediately been eroded by some incident or the other. The decade of the 1990s were ending on a positive note with the Indian Prime Minister Atal Bihari Vajpayee undertaking a bus journey to Lahore in Pakistan to sign the Peace Declaration. Then suddenly in 1999, the Kargil conflict raised tensions to great heights. The two countries also came to the brink of war with attacks on Delhi’s Red Fort in December 2000 and on the Indian Parliament the following year, both of which were blamed on Pakistan-based militants. A process of détente ensued with them continuing the “composite dialogue” (that actually began in 1998) in 2004 to discuss eight main issues including Kashmir, flowing from back-channel deals initiated by Pakistan’s Pervez Musharraf and India’s Manmohan Singh, which again fell apart with the Mumbai mayhem. In July 2009, Singh had met his Pakistani counterpart Yusuf Raza Gilani in Sharm-el-Sheikh, Egypt. But Pakistanis claim that Singh had alluded to Indian interference in Baluchistan in the Pakistani tribal region (thereby negating a cardinal rule of diplomacy that one should never celebrate the successful scoring of a negotiating point!), embarrassed Singh and left a bitter taste in his mouth.

A retired Indian diplomat, G. Parthasarathy, once observed that India-Pakistan reconciliation is like trying to treat two patients whose only disease is an allergy to each other. 16 Like in all aphorisms, there is an element of exaggeration involved in this observation. There are substantive causes that have led to the differences between the two nations, not only since their independence in 1947, but reaching way beyond into history. The challenge now is to identify them, list them in a consensual way, and evolve a mechanism to address them with a view to their resolution. It is all the more necessary now since both have acquired powerful nuclear capabilities apart from maintaining two of the world’s largest conventional forces.

True, their new-found nuclear military power may have prevented serious conflict from breaking out. 17 Unstable Deterrence and Consequent Dangers But it is also true that the deterrence is extremely unstable, not based on any bilateral agreements (unlike between the US and Russia). The disequilibrium is also the result of India’s focus on China as the principal rival. This has not dissuaded Pakistan from a rapid expansion of capabilities, to seek strategic parity with India, which is also a ‘core’ goal of Pakistan’s India policy. Indeed, at this writing, Pakistan is estimated to have 100 bombs and 15

16

17

See, Shahid Javed Burki, ‘South Asian Developments: Moving Towards a Détente or Sowing the Seeds of Discord?’ , ISAS Insight No. 91, 24 February 2010 , p. 5 Cited in Stephen Philip Cohen, Emerging Power: India (The Brookings Institution, Washington DC, 2001), p.61 Former Indian Army Chief, General Shanker Roychoudhury, said in a seminar in New Delhi in March 2009 that Pakistan’s possession of nuclear weapons prevented India from attacking it on two occasions, one after the terrorist attack on the Indian Parliament, and the other after the Mumbai incident. See, Iftekhar Ahmed Chowdhury, ‘The South Asian Nuclear Genie: Out of the Bottle, It can Be Useful’, ISAS Brief No. 102, April 2009, p.6

5

counting; over the past eight years Pakistan has tripled its arsenal of nuclear weapons and nuclear weapons material. 18 It is, therefore, an extremely precarious situation, highly vulnerable to accidents and misunderstandings, exacerbated by the volatility of domestic politics. 19 SAARC’s Shortcomings There is, therefore, no option but to initiate a process of substantive bilateral negotiations to reduce tensions. This cannot be achieved through bureaucratic level discussions on politically extremely sensitive issues. My own impression after prolonged association with the South Asian Association for Regional Cooperation (SAARC) ever since its inception at both official, at first, and, then, Ministerial level, is that the elaborate step-by-step structure of negotiations in SAARC (starting with the Programming Committee comprising Joint Secretaries, then moving on to the Standing Committee of Foreign Secretaries, and thereafter, through the Council of Ministers to the Heads of Government ) is a recipe for failure.

By the time the political masters get to focus on a problem, their hands are pretty much tied by the outcomes of discussions at two preceding bureaucratic layers of Joint Secretaries and Secretaries. This procedure, coupled with the Charter forbidding any contentious political subject has led to a situation where the organisation now is practically on auto-pilot mode. No wonder the real parleys in SAARC now take place in the corridors and margins, rather than in the plenary and councils. Indeed, most of what has been achieved in SAARC has been in the retreats, where the heads meet in informal mode, unassisted by aides, except for the Foreign Ministers. Alas, the retreats are held for much shorter duration now than before, reflecting the current state of intramural relations.

New Thinking Needed It is, therefore, essential that for India-Pakistan deliberations some thinking out-of-the-box would be necessary. Given the experience illustrated in the preceding paragraph, the best format for discussions would be the heads of government meeting in an informal, retreat mode. They should be left to draw up their own agenda at the first such event, and determine their own programme thereafter.

No third-party mediation is envisaged. In any bilateral diplomatic encounter, the apparently weaker party seeks accretion of strength from a friendly third-party. An example is that just prior to the Rao-Bashir talks, the Pakistani Foreign Minister Shah Mahmood Qureshi had said that China has a “blank cheque” from Islamabad’s side to play a role in improving Indo-Pak ties; it drew a quick retort from the Indian Defence Minister A. K. Antony who remarked: “India’s basic policy is that we do not want interference from any country in our bilateral talks with Pakistan. We do not believe in any third-party mediation.” 20 Clearly the involvement of a third-party in mediation, particularly of one which is powerful with 18

19

20

Graham Allison, ‘Nuclear Disorder: Surveying Atomic Threats’, Foreign Affairs, January-February 2010, p.79.

As to whether someday Taliban elements or some such wrong hands may gain control of this capability, or of a part thereof, an Indian politician was said to have caustically remarked: “It is not a question of whether these weapons may fall into wrong hands; they are in wrong hands!” The observation underscores the prevalent level of distrust.

‘No third-party mediation in Indo-Pak talks: Antony’, Times of India, 25 February 2010.

6

perceptibly pro-Pakistan leanings, such as China, would be unacceptable to India (this was not always so, if one recalls the Union of Soviet Socialist Republic (USSR)’s role in the Tashkent Agreement between India and Pakistan in 1966, though USSR’s perceived proIndian stance was overlooked by President Mohammed Ayub Khan of Pakistan to suit the exigencies of circumstance). The problem is that it leaves Pakistan somewhat insecure, and an insecure partner protagonist in negotiations is not a rational partner.

So, is a compromise possible? Rather than a mediator, would both parties accept a facilitator, with no role other than to simply grease the process to enable it to move forward? If so, then Bangladesh could perhaps fit the bill. In South Asia, there is a great deal that its three largest countries, India, Pakistan, and Bangladesh, share. Much more than any others in the region, the three have had similar historical experience. Prior to 1947, the three constituted a single political entity. Now they have emerged as three independent sovereign states, each with a democratically elected government. The author believes that within the context of South Asia, India, Pakistan and Bangladesh have commonalities and potentials that could be positively developed and advanced through a policy of ‘trilateralism’. 21 Would, then, such a ‘soft’ role by Bangladesh, just to organise such meetings and simply facilitate the forwardmovement of the process be acceptable to both the parties? This would help.

Conclusion There is no doubt that the peoples of India and Pakistan, share with those of others in the region, including Bangladesh, the goal to “improve the prospects of a better South Asia based on mutual understanding and cooperation”, 22 in a new century. For this objective to come to fruition some bold and innovative steps are necessary. In the three-body state-system within South Asia described above, one, India, is preponderantly pre-eminent. This calls for a special responsibility on its part, and which its political leaders have now stressed it will not shy away from. That is great progress.

It is not too difficult to distil from the behaviour-pattern of other nations that what drives their actions and motivations are age-old interests and apprehensions that have ever remained constant. These are coloured by the primordial instinct of negative perceptions of any accretion of power to the larger neighbour. This has always been the case through history.

Over two millennia ago the Roman historian Thucydides had written: “When Athens grew strong, there was much fear in Sparta”. In the case of South Asia, such fears should not become a paranoia that would deter peace.

oooOOOooo

21

22

See Iftekhar Ahmed Chowdhury, ‘India, Pakistan and Bangladesh: Trilateralism in South Asia’, ISAS Brief No. 129, 16 September 2009.

Sugata Bose and Ayesha Jalal, Modern South Asia: History, Culture, Political Economy, (Routledge, London and New York, 1998), p. 244.

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ISA S Insights No. 93 – 10 March 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

An Analysis of India’s Thirteenth Finance Commission Report

S. Narayan1

Abstract The paper looks at the trends of fiscal consolidation in India following the introduction of the Fiscal Responsibility and Budget Management (FRBM) Act of 2003. It examines the deviations from the FRBM targets since 2007 and analyses the recommendations of the Thirteenth Finance Commission in the light of the evolving pressures on India’s public finances. The paper argues that apart from laying out the roadmap for devolution of resources from the Centre to the States, the Commission’s key contribution has been on emphasising restoration of fiscal discipline by reducing deficits, more transparent use of public debt and greater accountability in managing public finances.

Introduction The Constitution of India envisages a federal structure with distinct responsibilities for the Union and the States. Analysts have pointed out that the responsibilities enjoined on the States are not matched with the capacity to generate revenues for fulfilling them, and that delivery of programmes in education, health, agriculture, irrigation, internal security and local administration require resources far in excess of the constitutional ability of the states to tax. The Constitution, however, provides a mechanism for the devolution of revenues from the Union to the states from out of central tax revenues. The criteria for vertical and horizontal devolution are based on the recommendations of a finance commission that is appointed every five years for that purpose. The Thirteenth Finance Commission (TFC), dealing with the devolution of resources from the Centre to the States, has just submitted its report for the period 2010 to 2015 and the Finance Minister has, in his budget speech, indicated that the Government would accept their recommendations for devolution.

1

Dr S. Narayan is Head of Research and a Visiting Senior Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He is the former economic adviser to the Prime Minister of India. He can be reached at snarayan43@gmail.com. The views reflected in this paper are those of the author’s and not of the institute’s.

Apart from the normal terms of reference to determine the share of central tax revenues that would devolve to the states, the TFC was also requested to come up with a roadmap for the fiscal consolidation of public revenues, in the light of the fiscal expansion that had taken place since 2008.

Fiscal Responsibility and Budget Management Act, 2003 and Subsequent Developments The post-2003-04 period witnessed a number of important developments which had a bearing on the public finances of the Centre as well as the states. The introduction of the Fiscal Responsibility and Budget Management Act (FRBM) in 2004-052 led to a more transparent, rule based, management of public finances. The FRBM Act envisaged the following obligations of the Central Government: i. ii. iii.

iv. v. vi.

eliminating revenue deficit by the year 2008-09 by ensuring a minimum annual reduction of 0.5 per cent of GDP every year beginning from 2004-05. reducing fiscal deficit by at least 0.3 per cent of GDP annually from 2004-05, so that fiscal deficit is reduced to no more than 3.0 per cent of GDP at the end of 2008-09. limiting government guarantees to 0.5 per cent of GDP in any financial year and limiting additional liabilities to 9.0 per cent of GDP in 2004-05 and thereafter reducing the limit of 9.0 per cent by one percentage point of GDP in each subsequent year. prohibiting the Central Government to borrow from the Reserve Bank of India (RBI) from 2006-07 onward. disclosing specified information, such as arrears of revenue, government assets and guarantees, latest from the year 2006-07. undertaking quarterly review of receipts.

The introduction of the Value Added Tax (VAT) by the state Governments in 2005-06 considerably augmented their tax bases. The Twelfth Finance Commission (FC-XII) submitted its report in 2004 for the period 2005-2009 which raised the share of states entitlement of net central tax revenues from 29.5 per cent to 30.5 per cent. More importantly, the Commission recommended debt relief facility to the states conditional on their enacting legislations for fiscal responsibility, a condition that all states, barring West Bengal and Sikkim, complied with. The debt relief facility resulted in considerable relief to the states in the form of debt write-off and interest savings, leading to considerable improvements in the state finances till 2007-08. By this time, the Centre’s fiscal deficit declined by 1.79 percentage points, to 2.69 per cent of GDP in the same period. The aggregate fiscal deficits of the states declined by 1.89 percentage points, to 1.51 per cent of GDP over the same period.

Over this period, revenue realisation also improved. The gross tax-GDP ratio went up by over three percentage points in a span of four years, from 9.23 per cent in 2003-04 to 12.56 per cent in 2007-08. The entire improvement came from the buoyancy of direct taxes, more particularly from corporation tax, reflecting the increasing profitability of the Indian corporate sector (Table 1).

2

Though the FRBM Act was passed by the Indian Parliament in 2003, the Act was notified and came into force from 5 July 2004.

2

Table 1: Central Government Tax Trends: 2003-04 to 2009-103

Deterioration post-2007 The period 2007-2009 witnessed sharp fiscal expansion, in part due to the global slowdown, and equally due to the populist measures prior to the general elections that included write-off of agricultural debt as well huge subsidies for petroleum products and fertilizer. The Centre has put in place three fiscal stimulus packages in quick succession (December 2008, January 2009 and February 2009). Collectively, these have meant a ‘pause’ in the implementation of the FRBM Act by the Centre. The states, too, have been allowed relaxation in their fiscal and revenue deficit targets. These measures resulted in a deterioration of public finances for the states as well as the Centre (Table 2)

3

Table 4.4 of the Thirteenth Finance Commission TFC) report, available at http://fincomindia.nic.in/ ShowContentOne.aspx?id=27 &Section=1 [Accessed on 4 March, 2010].

3

Table 2: Central Government Deficit Trends: 2003-04 to 2009-104

As greater share of public borrowings were utilised for meeting current expenses, capital formation deteriorated from 3.96 per cent of GDP in 2003-04 to 1.83 per cent in 2008-09.

The share of total debt of the central government increased to 59.68 per cent of GDP by 2008-09 (Table 3).

Table 3: Central Government Expenditure Trends: 2003-04 to 2008-095

State finances, after improving initially, deteriorated over the last two years. The revenue account of states turned surplus in 2006-07 from a deficit of 1.25 per cent of GDP in 200405. The fiscal deficit declined significantly from 3.40 per cent in 2004-05 to 1.51 per cent of GDP in 2007-08. The primary balance also turned surplus in 2006-07 from a deficit of 0.65 per cent of GDP in 2004-05. The surplus on the revenue account provided more fiscal space to states to enhance their capital spending. In line with other fiscal indicators, the debt-GDP ratio too exhibited a declining trend. However, in 2008, the Central government permitted fiscal expansion to take place, and the target for elimination of revenue deficit was moved to 2009-10. The aggregate fiscal deficit of states is budgeted to increase further to 3.23 per cent of GDP in 2009-10, close to the level obtaining in 2004-05.

4 5

Ibid; Table 4.1 Ibid; Table 4.5

4

Table 4: Central Government Revenue, Expenditure & Deficit: 2003-04 to 2009-106

The following is a summary from Chapter 4 (Pg.59-60) of the TFC report 7 on the comparative performance of the states: i.

there was significant improvement on the revenue account, with the number of revenuesurplus general category states going up from four in 2004-05 to 14 in 2007-08. The only three states with revenue deficits in 2007-08 were Kerala, Punjab and West Bengal.

Thus, in most general category States, elimination of the revenue deficit was achieved one year ahead of the target date. All special category states were in revenue surplus in 2007-08.

ii. elimination of revenue deficit in all states (barring three) by 2007-08, meant that fiscal deficits were now incurred on account of capital expenditure. This marks the quality of fiscal correction achieved. iii. only five of the 17 general category states had fiscal deficits exceeding 3.0 per cent of Gross State Domestic Product (GSDP) in 2007-08, as compared to 11.0 in 2004-05.

Among the 11 special category states, only four (Jammu & Kashmir, Mizoram, Nagaland and Uttarakhand) had fiscal deficits exceeding 3.0 per cent of GSDP in 2007-08, as compared to 10.0 in 2004-05. iv. in six of the 17 general category states, fiscal deficit was less than 2.0 per cent of GSDP, and in Maharashtra and Orissa, the fiscal account turned surplus in 2007-08. The borrowing limits prescribed for states in accordance with the correction path stipulated 6 7

Ibid; Table 4.8 http://fincomindia.nic.in/ ShowContentOne.aspx?id=27 &Section=1[Accessed on 4 March, 2010].

5

by FC-XII, were with reference to the GSDP paths as projected by FC-XII. States with higher GSDP growth than projected would, thereby, exhibit lower fiscal deficits as a percentage of their actual GSDP. v.

corresponding to the declining path of fiscal deficits, the debt-GSDP ratios of states also declined over the period. There were only four general category states with debt-GSDP ratios exceeding 40.0 per cent in 2007-08, as compared to seven in 2004-05. However, the debt position of six of the 11 special category states worsened by 2007-08.

vi. with a few exceptions, the tax-GSDP ratios of all states improved over 2004-08, both in the general category and the special category, the exceptions being Haryana and West Bengal in the general category and Assam in the special category. The tax-GSDP ratio is the highest in Karnataka, followed by Tamil Nadu and Andhra Pradesh. Bihar and West Bengal are at the bottom of the list of general category states in terms of tax-GSDP ratios. vii. there was only a marginal decline of 0.20 percentage points of GSDP in the aggregate revenue expenditures of general category states in 2004-08, with eight states witnessing an increase and nine states registering a decline. There was significant increase in revenue expenditure in Andhra Pradesh, Bihar and Jharkhand. Further, significant reduction in revenue expenditure took place in Chhattisgarh, Gujarat, Maharashtra and West Bengal. There was a marginal increase in revenue expenditure of special category states during 2004-08, with the exception of Assam, Sikkim, and Tripura, which saw a reduction in their revenue expenditure-GSDP ratios.

In short, even though the implementations of the Twelfth Finance Commission recommendations brought public finances of the Central Government and the States into a modicum of fiscal discipline, fiscal expansionism after 2007 has resulted in a considerable deterioration. The causes of the deterioration are argued to be the fiscal stimulus packages following the global crisis of 2007-08, though several analysts feel that they are more due to the political requirements of the general elections of 2009. Whatever the origin, there is consensus that fiscal discipline needs to be restored, and hence it is not surprising that the recommendations of the Thirteenth Finance Commission focus substantively on these issues.

It is to be noted that fiscal management is not the constitutional role of the finance commission, but for the first time, the terms of reference have included this role, and the recommendations have been considered seriously by the Government in the budget of 201011. The recommendations attempt to address three distinct issues: the devolution of revenues, need for greater transparency and removal of distortions and, corrections required in public finances.

Past Transfers The pattern of transfers to the states out of Central revenue receipts is given in Table 5. It is interesting to note that total transfers have not changed significantly over the years, and have actually declined marginally in the last three years. Even though FC-XII had recommended a share of 30.5 per cent as a share of Central taxes to States, the actual devolution has been less a matter that the states have repeatedly pointed out. TFC has stated that it would like greater transparency in these transfers and the central accounts should be available for scrutiny. An area of further concern for states in the sharing of net Central tax revenue is the sharp 6

increase in the proportion of cesses and surcharges in the gross tax revenue of the Centre, from 3.51 per cent in 2001-02 to 13.63 per cent in 2009-10 (BE). This has considerably reduced the proportion in gross tax revenue of the Centre of net tax revenues shareable with states.

Table 5: Transfer Trends8

TFC Recommendations The TFC has also addressed the issues of vertical and horizontal distribution of tax revenues of the Center. The vertical gap is the difference between the normatively assessed expenditure share and revenue capacities of the Centre and the States. FC-XII recommended the share of states in net central taxes at 30.5 per cent. Without disturbing the approach of normative expenditures, and recognising the relative buoyancy in the Centre and State revenues in the last five years, the TFC has recommended that the States’ share of central tax revenues should be increased by 1.5 per cent to 32 per cent. As these are recommendations that are constitutionally binding, the Finance Minister has already accepted these numbers for future devolution. The TFC has also suggested direct transfer of grants to States, and has suggested that the recommendations of the State finance commissions on transfers from the States to their local bodies should be made more binding and regular.

On the distribution of the devolved revenues among the states, the TFC has followed the principles of equity and efficiency. The principle of equity addresses the problem of differences in revenue raising capacity and cost disabilities across States. The principle of efficiency has been used by earlier Finance Commissions to motivate the States to exploit their resource base and manage their fiscal operations in a cost effective manner.

8

Ibid; Table 4.15

7

FC-XII assigned a weight of 25 per cent to population, 50 per cent to per capita income distance, 10.0 per cent to area and 7.5 per cent each to tax effort and fiscal discipline in the formula for arriving at the share of each state in tax devolution. The income distance criterion used by FC-XII, measured by per capita GSDP, is a proxy for the distance between States in tax capacity. When so proxied, the procedure implicitly applies a single average tax-to-GSDP ratio to determine fiscal capacity distance between States.

TFC, on the other hand, has recommended the use of separate averages for measuring tax capacity, one for general category States and another for special category States. The procedure used involves working out the three-year average per capita GSDP for the individual states based on comparable estimates for the years 2004-05 to 2006-07. In the next step, the average tax to comparable GSDP ratio has been obtained as a weighted mean separately for general category and special category states. These group-specific averages are then applied to the constituent states in each group so as to obtain the per capita tax revenue in each state, potentially available at the average tax effort for the group in which it falls. The intent is to estimate per capita fiscal capacity at reasonably comparable levels of taxation by application of the observed group average.

For estimating fiscal distance, the TFC has used the distance from the estimated per capita revenue of Haryana, the second highest in the per capita income ranking state after Goa. The distance so computed for all States, barring Haryana and Goa, defines the per capita revenue entitlement of each state based on fiscal distance.

Fiscal discipline as a criterion for tax devolution was used by FC-XI and FC-XII to provide an incentive to States managing their finances prudently. Both these Commissions assigned a weight of 7.5 per cent to this criterion. The index of fiscal discipline was arrived at by relating improvement in the ratio of own revenue receipts of a state to its total revenue expenditure to average ratio across all the states. TFC has worked out the index of fiscal discipline with 2005-06 to 2007-08 as reference years and 2001-02 to 2003-04 as the base years. FC-XII assigned a weight of 7.5 per cent each to fiscal discipline and tax effort. Thus, the combined weight assigned by FC-XII to these two criteria was 15.0 per cent. The TFC has increased this to 17.5 per cent. The criterion for horizontal devolution, then, emerges as in Table 6: Table 6: Horizontal Devolution9

The TFC has expressed concern that the collection of cesses and surcharges are being retained by the Centre and not passed on to the States. They have recommended that the cesses and surcharges should be subsumed within the tax rates, or in the alternative, be shared 9

Ibid; Table 8.1

8

with the States. The central government has not yet expressed a view recommendation, but it is likely that this may get accepted as well. There is recommendation that programme transfers, especially through plan grants and sponsored schemes, distort public finances and these should be eschewed in predominantly formula based transfers.

on this also the centrally favor of

Comments Surprisingly, a large number of recommendations are of the nature of governance advice, like the reduction of subsidies in the power sector and criticism of use of plan funds for non-plan purposes. On the issue of Goods and Services Tax (GST), though the TFC has made strong recommendations about the need for a grand alliance between the Centre and the States, it is handicapped by the fact that studies do not reflect knowledge of the processes of tax collection at the level of the States. This is possibly because the experts who have attempted this portion of the report are people with experience in direct taxes, but with little knowledge or experience of the intricacies of taxation of goods and services and transactions. The recommendations on the GST front appear quite naĂŻve and shorn of any detailed analysis.

Having taken care of its constitutional responsibilities of devolution, the TFC then turns to the issues of fiscal discipline, a new term of reference, and it is in this area that it has made some fundamental recommendations. First, it has suggested that the revenue deficit of the Centre should be reduced and eliminated by 2014-15. It has also recommended that the combined debt of the Centre and the States should be brought down to 68.0 per cent of the combined GDP by 2014-15. This would mean a reduction in the debt stock of the Centre to 45.0 per cent of the GDP by that time. More importantly, the TFC has recommended tighter discipline and more transparency in disclosure of debt. This would include reporting of plan as well as non-plan grants to States, as well as explicit statements of liabilities, compliance costs and costs of major policy changes. It has suggested that disinvestment receipts should be maintained in the consolidated fund. Future pay awards should not have a retrospective component.

Concern over public finances, public debt and the revenues of the states had been expressed in the report of FC-XII; this was perhaps the first time that a Finance Commission looked at the larger picture beyond the considerations of the agenda for devolution. That Commission had recommended debt relief for the states as well as incentives for fiscal discipline – the TFC has carried these thoughts forward. It has recognised that the efforts made soon after the FC-XII report yielded substantial benefits in the form of greater revenue mobilisation and tighter fiscal discipline, and it would like a similar environment to be created again, having witnessed the fiscal expansion since 2007. Most importantly, the contribution of this report is the requirement that it places on greater transparency of the use of public debt, and an attempt to enforce a stricter accountability over the use of public finances, including parliamentary disclosures on slippages. The acceptance of these recommendations would be a major step to ensure that public finances in India are not affected by internal or external shocks in the future, and that there is true disclosure at all times on the nature of the debt.

This is an important contribution that has been made by the TFC.

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ISA S Insights No. 94 – 16 March 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

‘Seeing it Comin’: The Post-Parliamentary Scenario in Sri Lanka

Dayan Jayatilleka1

“You never see it comin’ till it’s gone” – ‘Falling & Flyin’, Jeff Bridges in ‘Crazy Heart’

Abstract In the span of less than a year, Sri Lanka will have transited three decisive turning points: the conclusion of armed conflict in May 2009, the Presidential Election of late January 2010 and the Parliamentary election scheduled for this April. While the ruling coalition strives for a two thirds majority in the legislature, which would permit the replacement of the Constitution, this paper argues that the main result of the upcoming election is already prefigured and portends a new cycle of conflict along the lines of identity politics. The paper concludes that the dominant ideologies on the Sinhala and Tamil sides prevent Sri Lanka’s adoption of the recognised contemporary Asian mechanisms of the management of diversity, thus preventing the country from fully integrating into and benefiting from the economic rise of Asia. *********** There was an old Cold War joke about the thief who broke into the Kremlin and stole, among other things, the complete results of the next election. Well, one of the most important results of Sri Lanka’s upcoming parliamentary election is already n, or rather, is predictable: the predominance of the Tamil National Alliance (TNA)2 in the Tamil majority areas of the North and East and the resultant political polarization between North and South.

1

2

Dr Dayan Jayatilleka is Visiting Senior Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He can be reached at isasmdds@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.

The mainstream Tamil Nationalist political coalition was regarded as a proxy for the Tamil Tigers during the war.

Seeing it comin’: Will the Tamils silently celebrate and the Sinhalese secretly curse the day that Prabhakaran3 died? With his secessionist fundamentalism and ghastly terrorism, he was the biggest obstacle to achievable autonomy for Tamils and the best excuse for the Sinhala establishment’s tardiness in devolving power to the Tamil speaking periphery. Now the North is no longer hostage to secessionism and the South is bereft of a human shield against democratic demands for devolution.

Unipolar Mindset While Ranil Wickremesinghe4, the leader of the Opposition and the centre-right United National Party (UNP), arguably has the cosmopolitanism necessary to reintegrate the Tamils into the Sri Lankan polity that very cosmopolitanism (and his track record of appeasement of the Tigers) means that he cannot carry the Sinhalese with him on this issue even if he becomes President someday. By contrast President Rajapakse is indispensable because he can carry the majority (Sinhalese) with him into a settlement with the Tamils, but does the consciousness of his close allies permit him to do so, on a basis other than that of unilateral imposition and total Tamil capitulation? The Sri Lanka Freedom Party (SLFP) has reformist nationalists and the United National Party (UNP), nationalist liberals, who could forge an overarching consensus, but these factions are marginalised to the point that they cannot be factored into any serious current discussion of future prospects.

The incumbent administration seems to think that all problems can be solved through political uni-polarity of a sort that would issue from a two-thirds majority at or after the parliamentary election (through defections). Serial victories – in the war, in a single diplomatic theatre and at the Presidential election – have given rise to a mood and mindset, ideology and project, that we have witnessed before in other more important parts of the world on a much larger scale.

We have seen politically uni-polar moments, with their attendant delusions and tragic denouements. When the Union of Soviet Socialist Republics (USSR) lost the Cold War, the United States won the first Gulf war and the Kosovo conflict, and went on to overthrow the Taliban in Afghanistan and Saddam Hussein in Iraq, the Bush administration and more precisely its two most influential components, the religious fundamentalists and the neoconservatives, were convinced the moment had come for the USA to re-mould the world unopposed and as it saw fit. Parallels were made with the Roman Empire at its height. A favourite dream theme was that of a ‘New Middle East’. It is hardly possible to recall those absurd illusions today, buried up-ended as they have been. Domestically too we have experienced the equivalent of such hubristic delusions: in late 1982, at the moment of President JR Jayewardene's5 triumphant re-election, with a booming economy and a prostrate Opposition.

Today there is yet another such moment; one in which the Southern hawks, the Sri Lankan equivalent of the neoconservative populists, think that a Sinhala solution can be imposed 3 4 5

Velupillai Prabhakaran, leader of the Tamil Tigers slain on 18 or 19 May 2009.

Former Prime Minister, 2001-2003.

First executive president of Sri Lanka, 1978-1988, author of the 1978 constitution introducing the Presidential system of government; architect of Sri Lanka’s open economic policy.

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upon the Tamils; a Southern solution on the North and East; a solution which entails the rollback of the Indo-Lanka accord and the 13th amendment and its substitution by something else amounting to something less. The argument seems to be that having decisively defeated the secessionist war which was itself an outgrowth, zenith and logical culmination of Tamil nationalism, nationalism can be totally rolled back and the Sinhalese can (re)write their own ‘ethnic contract’ for Sri Lanka as if it were a tabula rasa. For these ideologues, ‘Sri Lanka’ and ‘Sri Lankan’ are (as it perhaps was in the spirit animating the 1972 Constitution) but synonyms and masks for ‘Sinhala Buddhist’ – and not a negotiated or evolved synthesis of the identities of all the island’s citizenry, albeit with a natural ‘core’ status and function for the Sinhala Buddhist civilisation. One may observe parenthetically that the conversion from ‘Ceylon’ to ‘Sri Lanka’ and ‘Ceylonese’ to ‘Sri Lankan’ did not stop at ‘Lanka’ and ‘Lankan’.

Reconfiguration of Mainstream Tamil Nationalism Thus the political deadlock in the North-South relationship continues while the war, the armed conflict, has been won. The April 2010 parliamentary election takes place in a context that is post-war, post-victory and post-presidential election, but not post-crisis. If one defines the conflict not as a military one but as a political conflict, then it is a moment that is not yet ‘post-conflict’ and is even describable as ‘pre-conflict’. The upcoming election must be viewed as embedded within this situation. Its real consequences go beyond the arithmetical outcome and reside in how the electoral outcome impacts upon the larger context of the longrunning crisis. The commencement of the crisis of Sri Lanka’s political identity was obviously not in 1983. The Vadukkodai resolution, whereby the Tamil parliamentarians led

by S.J. V. Chelvanayagam6 called for the establishment of ‘an independent sovereign secular socialist state of Tamil Eelam’ was in 1976, while JR Jayewardene’s UNP manifesto of 1977 said that "the Tamil people have been driven even to seek a separate state" – and the TULF7 swept the North on this single issue at the watershed elections of that year.

The TNA has undergone a partial yet welcome reconfiguration; partial because it entails personalities rather than political line and policy platform. Welcome, because the most proTiger elements have been shed and the party looks more like the old TULF, TUF8, or Federal Party. It is not that the TNA has no radicals or militants in its ranks. Suresh Premachandran is one, but though he was pro-Tiger, he was never a Tiger and is originally from the Left- Wing EPRLF9 stream of Tamil militancy. The reconfigured TNA is rather like what the ruling United People’s Freedom Alliance (UPFA) would have been without the militant Sinhala Buddhist Jathika Hela Urumaya (JHU) (Sri Lanka’s equivalent of the Indian Shiv Sena) led

by Minister Champika Ranawake10, but only the more secular radical nationalist National 6

7 8 9

10

Samuel James Veluppillai Chelvanayakam, politician and leader of the Tamil community who negotiated the Bandaranaike-Chelvanayakam Pact in 1957 which agreed to provide government services in Tamil and devolve powers to a set of provincial councils. Bandaranaike, then Prime Minister and founder leader of the SLFP abandoned the pact after stiff opposition from Buddhist monks.

Tamil United Liberation Front formed in 1976.

Tamil United Front formed in 1972.

Eelam People’s Revolutionary Liberation Front, an avowedly Marxist –Leninist organisation formed in 1981 with links to the Indian left parties and radical Palestinians such as the PFLP of George Habash.

Cabinet minister of environment and natural resources in the government of Mahinda Rajapaksa and leader of the militant Sinhala ultranationalist JHU.

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Freedom Front (NFF) of ex-Janatha Vimukthi Peramuna (JVP) member Wimal Weerawansa11. Premachandran12 is probably best seen as the TNA’s counterpart of the UPFA’s Ranawake or Weerawansa. Gajan Ponnambalam’s13 breakaway grouping which seems to have the support of the more hard-line elements of the Tamil Diaspora and organs such as the TamilNet is the JHU equivalent and are no longer part of the TNA. Still, there is a major problem which will contribute to the exacerbation of the situation. One part of the problem is that the TNA has not yet officially and formally abandoned the secessionist Vadukkodai resolution. That platform may have had some historical validity or comprehensibility at that time, and after July 1983, but it has been unjustified and obsolescent since Indian mediation commenced, serious negotiations started and the Indo-Lanka Accord produced a reasonable reform as alternative. It would be a wise and legitimate stance were the TNA were to unilaterally and unconditionally renounce secessionism and formally return to a federalist platform, while settling for autonomy within the unitary state of Sri Lanka. The other part and no less troubling aspect of the problem is that the Southern establishment is not staunch in its commitment to authentic provincial autonomy within a unitary state; not even the autonomy contained in the country’s Constitution and derivative of a bilateral agreement with our most indispensable international ally.

After the election, the TNA will put forward demands that dominant Sinhala opinion may think excessive, if not outrageous, but world opinion and many Governments find unexceptionable. If President Rajapakse contents himself simply by not giving in, rather than keeping the TNA engaged but off balance with a counterproposal that at least the rest of Asia will think reasonable, the TNA will go the SJV Chelvanayagam route of peaceful agitation.

This will be stimulated by competition from Ponnamabalam’s grouping and pressure from Premachandran and such others within the party.

Scenario: A New Cycle of Conflict It is unlikely that there will be a Southern consensus, given the basic bipolar (two party) split in Sinhala society. The Rajapakse administration’s response will also be tangentially affected by the Sarath Fonseka14 factor: a caged, wounded lion in the basement or dungeon does not make for socio-political stability and a generous, consensual response to minority issues.

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12

13

14

Member of parliament, he entered politics through the Peoples' Liberation Front (JVP) during 1989 but left to form a radical Sinhala nationalist party the National Freedom Front (NFF) and joined the government of Mahinda Rajapaksa.

Kandaiah Premachandran, better known as Suresh, is a Sri Lankan Tamil militant turned politician and current leader of the Suresh Wing of the Eelam People's Revolutionary Liberation Front (EPRLF), and member of the Tamil National Alliance (TNA). Elected to Parliament in April 2004, he represents Jaffna for the TNA. Grandson of G.G.Ponnambalam, founder of the Tamil Congress and Minister of independent Sri Lanka’s first cabinet and son of G.G. Ponnamblam junior, lawyer and Tamil Congress leader murdered by an unidentified gunman.

Former commander and General of the Sri Lanka Army. As Commander of the Army, he played an instrumental role in ending the 26 year Sri Lankan Civil War in 2009, defeating the Tamil Tigers. He later had a public falling out with President Mahinda Rajapaksa, and unsuccessfully challenged Rajapaksa in the 2010 presidential election. Presently under arrest and facing a military tribunal on as yet unspecified charges.

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If the state cracks down on, or elements in the South react violently and with impunity to peaceful and democratic non-secessionist Tamil demands, the global diplomatic reaction in this YouTube age will not be the same as in 1956, 1983 or 2009. The TNA will be armed with democratic legitimacy in the eyes of the world, from West to East. The Tamil Diaspora and its ex-colonial Western patrons will exploit the gap between MR's nativist ideological constituency and the globalised world. That's when the Tamil Diaspora's serial referenda campaign will have set the stage, and the British connection (not just Labour’s MilibandBrown but the Conservatives’ William Hague) which is a bridge to ‘human rights crusaders’ in Washington DC will kick in. The diplomatic battle at the UN Human Rights Council in Geneva was won last May not only because of Sri Lanka’s friends but also the nature of its enemy: the Tigers and the Tiger-flag bearing Tamil Diaspora demonstrations. The same strategy and tactics will not work against a democratically elected TNA option, unless the latter remains formally and demonstrably secessionist while the 13th Amendment is implemented. The Eastern friends helped against armed Tamil separatism but they regard the Tamil community as a respected, productive component of Asia's citizenry and will not back Sri Lanka in a confrontation with the democratically elected representatives of the Sri Lankan Tamils of the North and East.

India remains Sri Lanka’s key ‘buffer state’ internationally, and if the prevailing view is that the Indo-Lanka accord can be rolled back without something more extensive in place; i.e. go below the 13thAmendment to the Constitution (1988) which made for provincial autonomy, and continue to have Delhi’s support, it is unlikely to be so. The provision for devolving police powers does not have to be implemented right now. However, the carefully negotiated arrangements on land cannot be deleted or diluted. The problem arises when the leadership refers to "village level devolution for the North and East" on an occasion as portentous as the first peacetime Independence Day in decades. It is as if nothing has been learnt. If Mr. Sampanthan is not successfully co-opted with adequate power sharing, Ponnambalam’s splinter group will grow, ironically as Chelvanayagam’s breakaway Federal Party did when Colombo undermined Ponnambalam’s grandfather, GG Ponnambalam’s political credibility with the citizenship move on the hill country Tamils.

Asia’s Mechanisms for Managing Diversity The issue of Sri Lanka’s collective identities is hardly likely to be resolved by integration through economic development. If economic development alone would do the trick, the UPFA would not have lost the East so badly at the Presidential elections. Indeed this formula puts the cart before the horse. A viable option for Sri Lanka would be the Asian model of globalization, but the dominant ideology, mindset and policy framework of the incumbent administration is far from the paradigm of the New Asian modernity. The experience of Asia reveals broadly five formulae or models for handling diversity, though one could also envisage a suitable combination of various aspects of these models: 1.

2.

Meritocratic multiculturalism; a level playing field and a managed market economy (the Singapore model) Secular state, constitutional guarantees of equality, and quasi-federalism (the Indian model; the secularity of the state/central government is not contradicted by sporadic outbreaks of ethnic or religious violence at the sub-national, local or civic level).

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3.

4.

5.

A secular, unitary/non-federal state with suitable regional/provincial autonomy arrangements (China, Indonesia, Philippines) Non secular, federal state (Pakistan) Secular unitary state (Vietnam, Bangladesh)

The relevance of secularism is that it is symbolic of the state’s/central government’s neutrality or non-alignment in relation to the constituent communities/collectivities of that society, irrespective of the sizes of those communities and ratios between them. Thus the state stands above the communities, able to reconcile them.

The Soulbury Constitution would have been closest to model 1. If the existing Sri Lankan Constitution inclusive of the results of the Indo-Lanka accord, i.e. 13th amendment were fully implemented, the Sri Lankan state would arguably be a variant of model 3: non-secular, not a level playing field, but with an offsetting provincial autonomy. However, the 1972 Constitution, the 1978 Constitution without the 1988 amendment and the ideas of counterreformation proposed by the ideologues of Sinhala dominance all posit a model which does not fit with any Asian framework. It is/would be the model of a non-secular, linguistically unequal, non-federal polity devoid of even provincial level devolution/autonomy. In a homogenous society, devolution is not an imperative. In a heterogeneous society, strong centralism devoid of devolution is fine if accompanied by meritocratic multiculturalism and secularism, i.e. a neutral state. Conversely, a secular meritocracy – a neutral state – is not necessary, and the dice can be loaded as affirmative action in favour of the majority perceived as historically underprivileged, provided there is a compensatory counterweight at the periphery in the form of federalism or regional/provincial autonomy (as in Malaysia). Sri Lanka does not have a homogenous society. Its minorities are mixed with the majority in some areas and preponderate in others. Yet Sri Lanka today neither has a neutral state (secular or meritocratic multiculturalism) nor a federal system nor active devolution within a unitary framework. Thus it does not have the necessary framework for successful globalisation along Asian lines and full participation in the Asian economic miracle.

This threefold asymmetry between (A) Southern and Northern political choices; (B) social reality and political structure; and (C) the dominant paradigm and reform imperatives for fulfilment of the country’s potential, constitute the core of the Sri Lankan crisis and the faultlines which will be exploited by those who do not wish the country well. Meanwhile, we may well reflect with Jeff Bridges playing Bad Blake in ‘Crazy Heart’ as he sings: “Funny how fallin’ feels like flyin’/ For a little while”.

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ISA S Insights No. 95 – 19 March 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

China and India: Is Policymaking by the Two Asian Giants Merging?

Shahid Javed Burki1

Abstract New Delhi and Beijing announced their economic plans for the future within a few days of each other. On 26 February 2010, the Indian Finance Minister presented his government’s budget for the fiscal year 2010-11. On 6 March 2010, the Chinese Prime Minister’s address to the annual National People’s Congress included the budget for the year 2010. This paper suggests that while there are many similarities between the approaches followed by the two governments as indicated in their respective statements, there are also several subtle differences. These include the explicit attention paid to taking care of the poor and reducing income disparities in the case of the Chinese approach. In the Indian approach, there is much greater focus on returning to higher rates of growth. In presenting the budget, the Indian leader had his eye on the foreign investor while in presenting his government’s economic plan, the Chinese leader was more deliberately addressing his domestic audience. That said, both governments are setting the stages in their two countries for returning to the high growth trajectory. But adjustments need to be made for correcting some of the distortions that had crept in the previous growth spurts.

Introduction The question, “Are the two continental Asian giants – China and India – merging?” relates to the way they are managing their economies. “Merging” implies the adoption of basically the same set of policies for moving forward. Both the economies – China more than India – have seen not only large increases in their gross domestic products (GDPs) but have also been through profound structural changes. They are now coming out of periods of economic slowdown that were mostly the consequence of what the economists have termed the “Great Recession of 2008-09”.

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Shahid Javed Burki is a Visiting Senior Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He was Former Vice President of the World Bank, and Former Finance Minister of Pakistan. He can be contacted at sjburki@yahoo.com. The views reflected in this paper are those of the author and not of the institute.

At first glance, Beijing and New Delhi, having recently announced policies that they will be following as the recoveries from the recent downturns take hold, appear to have embarked on the same course. The Indian Finance Minister Pranab Mukherjee announced the budget for the year 2010-11 on 26 February 2010 and promised that the rate of economic growth was heading towards double digits. He also opened the economy a little bit more to those outside the country and who are willing to place their bets on an expanding Indian economy. Prime Minister Wen Jiabao delivered his annual economic speech to the National People’s Congress on 5 March 2010 where he visualised his country’s economy moving ahead briskly. The speech also provided details of the budgetary outlays for the calendar year 2010.

Both leaders were cautious about the international environment in which the two economies will be functioning. “While the global financial condition has shown improvement over the recent months, uncertainty about the revival of the global economy remains. We cannot, therefore, afford to drop our guard”, said Minister Mukherjee in his Lok Sabha address.2 Much the same sentiment was expressed by the Chinese leader. “We must not interpret the economic turnaround as a fundamental improvement in the economic situation. There are insufficient internal drivers of economic growth”, said the Chinese leader in his two-hour long address3. As S. Narayan indicates, a significant part of the Chinese pickup in growth was policy-driven: “90 per cent of the growth in the last three quarters [January-September 2009] has come through public expenditure on infrastructure projects.”4 In these two economic and policy statements, both capitals indicated that they will not be pulling back on the efforts to stimulate their respective economies. These efforts have paid off but it was not the time to change the basic economic thrust. There was recognition, however, that making the economies dependent on public sector stimulus was not a viable long-term option.

Budgetary Priorities and Short-term Objectives According to the Government of India’s estimates presented in the budget for 2010-11, the economy grew at 6.7 per cent for the year 2008-09. It is expected to grow at a higher rate during the year 2009-10 with the advance estimates pegging the growth at 7.2 per cent during 2009-10.5 The Finance Minister followed up on his budget speech with interviews with the press, including one with the Financial Times in which he said there was no complacency about the economy’s ability to climb back on a high growth strategy that will produce GDP increases of 10.0 per cent a year. However, the lack of a parliamentary majority was an obstacle to moves such as raising the cap on foreign investment in the pension and insurance sectors and steps to improve governance.”6 The private sector once again will be the driver of growth as the state pulls back after having taken effective steps to stimulate the economy.

The state, however, will continue to help the poorer segments of the population by retargeting

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The quotations from the Indian finance minister’s budget speech are from the website http://indiabudget.nic.in, accessed on 7 March 2010.

The quotations from the speech by the Chinese prime minister are from “China pledges to close poverty gap”, Weekend Today, Singapore, 6-7 March 2010, p. 8.

S. Narayan, “Unwinding the Fiscal Stimulus – Dilemmas for India and China”, ISAS Brief No. 145, 11 December 2009. http://www.isas.nus.edu.sg/Attachments/PublisherAttachment/ISAS_Brief_145_-_Email__Unwinding_the_Fiscal_Stimulus_22122009115354.pdf. http://www.indiabudget.nic.in/ub2010-11/bs/speecha.htm [accessed on 16 March 2010] David Pilling, James Lamont and Amy Kazmn, “India confident of growth targets”, Financial Times, 4 March 2010, p. 1.

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the subsidies that, in their present form, go to the more well-to-do segments of the population.7 Only time and politics will tell whether the few reforms that were introduced would yield the intended results. According to David Pilling, a long-time observer of the Indian economy, “these adjustments could quickly accelerate into meaningful reallocation of government spending. Equally, they could stall on the hill of special interest politics.” 8 Prime Minister Wen set before his administration a growth target for the year at 8.0 per cent.

This was in line with the thinking in Beijing to aim for the lowest rate of growth below which it becomes difficult to manage the expectations of the people. For several years this has been determined at 8.0 per cent. The Prime Minister’s growth expectation is much lower than the consensus estimate of about 10.0 per cent. Recognising that the economy should not become dependent on hand-holding by the state, China will rein back spending after last year’s massive stimulus. The 11.4 per cent planned increase will bring the total lending to US$1.73 trillion, less than half of last year’s increase of 24.0 per cent. Social spending will increase by 8.8 per cent while spending on rural programs will rise by 12.8 per cent.

Growth and Distribution Both leaders, while emphasising the importance of high rates of growth in their economies, gave a great deal of attention to their distributive aspects. While the emphasis on redistribution was not new in the Indian way of thinking on economic issues – it was the platform on which the Congress Party was elected last year to another term in office – the stance adopted by the Communist party of China was a relatively new one. A Communist country is supposed to look after its poor and the less advantaged. It does not have to make an explicit commitment to such a policy in its pronouncements and plans. But Prime Minister Wen went some distance in ensuring his country’s citizens that meeting their social needs will be a high priority of the administration he was heading. “We will not only make the pie of social wealth bigger by developing the economy, but also distribute it well. We can ensure that there is sustained impetus for economic development, a solid foundation for social progress, and lasting stability for the country only by working hard to ensure and improve people’s well being” he said in his address. Beijing’s deep concern about the increase in inequality was informed by its experience in 1989. The Chinese senior leaders have always interpreted what they prefer to call the “Tiananmen Square event of 1989” as an expression of economic discontent rather than as a campaign for democracy.9 Until recently – in fact up to the Great Recession of 2008-09 that shook the global economic system – the two countries had followed different models. China had relied much more on using external markets to develop scale for its industrial system. In that and several other respects, it had followed the East Asian model of export-oriented industrialisation. India, on

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According to revised estimates of the incidence of poverty in India, based on the work done by the Tendulkar Committee, 37.2 per cent of the Indian population was living in absolute poverty measured by the revised poverty line. The incidence of poverty at 41 per cent of the urban population was higher. See Narayan op.cit.

David Pilling, “Subsidy reform could help India spend batter”, Financial Times, 4 March 2010, p. 11.

This point was made repeatedly to the author when he was directing The World Bank’s program in China.

Among those who discussed the Tiananmen Square crisis with the author were then Prime Minister Li Peng and Zhu Rongji who succeeded Li as prime minister. Both believed that the economy’s failure to provide employment to the educated middle class even though the rates of growth were high was the most important reason for the discontent that manifested at the Tiananmen Square in June 1989.

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the other hand, had pursued import substitution for industrialisation for more than forty years after achieving independence. When it opened its economy to the outside world starting in the late 1980s but more fully after 1991, and when the then Finance Minister Manmohan Singh had to deal with a serious balance of payments crisis, the Indians continued to be cautious about foreign participation. Although the “license raj” that owed its existence to Jawaharlal Nehru’s socialisation of the Indian economy was dismantled, the participation of foreign capital remained constrained. It was allowed in a limited way into some sectors of the economy. Its involvement in the sectors of finance and retail trade was quite severely constrained. Foreigners were also not encouraged to participate in the development of the social sectors, in particular education. The Indians, for instance, are now making an effort to open their education sector, but for political reasons still in a limited way. They indicated, for instance, that new incentives will be offered to private operators from the outside to enter the education market.

The Indian budget also promised a major effort in improving the quality and reach of physical infrastructure. The development of high-class highways was to be given special attention. In the budget for the railways, there was promise that quality of the services provided will be greatly improved by developing high speed railways. Here the two countries have adopted different approaches. The Chinese, having anticipated that a rapidly developing economy will need a well functioning transport system, began to invest in highways and railways early on. The Chinese claim that they are now operating the world’s fastest train connecting Shenzhen in the Southeast to Wuhan in the country’s center. The Indians are now playing catch-up.

There are subtle differences in the overall direction of public policies in the two countries. It is growth with continued emphasis on poverty alleviation in the case of India. The Indian leadership emphasised the need to maintain high levels of growth rates while the Chinese leaders are promising to care for the poor. The Chinese policy objectives include considerably greater focus on distribution while maintaining a reasonable rate of growth.

There is no explicit reference to distribution in the Indian statement.

The Indian policy statement can be read as more directed at foreign audiences while the Chinese one is aimed more at its own citizenry. New Delhi seemed anxious to make the case to foreign investors that the country should be a major destination for the funds they controlled. With a higher trade deficit than that of China’s and with still lower rate of savings than China, New Delhi is more dependent on foreign capital flows. It would like these to take the form of foreign direct investment. Portfolio investments are welcome but they had proven in the past to be a very volatile source of external flows. However, to receive foreign direct investment in large amounts, potential investors had to be convinced that the Indian economy could expand at the rates that were comparable to those achieved by China and sustained over a long time. Minister Mukherjee, by repeatedly underscoring that a double digit rate of growth was well within India’s grasp and that such a rate of expansion could be sustained over time, was speaking to the foreign investor.

The audience for Prime Minister Wen was mostly within the country. He and his colleagues had heard the people. The people had voiced many concerns. The escalating price of urban housing was one of them. The discrimination against migrant workers – amounting to almost 240 million – was another. Not only are their wages relatively low, they also do not have access to many social services available for the common urban dweller. They are also not 4

secure about their places of residence. The Chinese law and practice require the unemployed to return to their places of origin. Voices had also been raised about corruption in the ranks of the Communist Party. This was one of the themes explored at the 2010 National People’s Congress. Bo Xilai, the “gang busting Communist Party boss of Chongqing” became the poster child of the meeting with the media “gushing over his performance.”10 Reflecting the mood in the country, the Prime Minister pledged to reform the residency rules called the hukou system that discriminate against people who relocate from their hometowns and villages.

The more informed public opinion that had the knowledge of such affairs was also worried about the widening income disparity. While Deng Xiaoping had famously said that it was glorious to be rich, he did not envision the kind of wealth accumulation that had occurred under the watch of his successors. It was interesting that an authoritarian structure was being so sensitive to the concerns of the common men and women. The Chinese Prime Minister promised to reduce the gap between the rich and the poor and also between the more advanced parts of the country and those that had fallen behind.

Guns or ‘Doufu’ ‘Doufu’ is the Chinese word for beancurd, a dietary staple in the country. It figured frequently in the discussion leading up to the release of the government’s budget for the year 2010. It was widely expected that the rate of increase on defence would remain within double digits. It increased by 11.6 per cent in 2004 and 17.8 per cent three years later in 2007.

However, the government surprised many China watchers by limiting the rate of increase to merely 7.5 per cent in 2010 – “the first time in 21 years that the rate of increase has fallen below double digits” – according to David Shambaugh of the China Policy Program at George Washington University. Why the change in the trend line? “Given other demands on state expenditures from various sectors – the stimulus, unemployment, insurance – to continue giving the military 15 per cent increase year-on–year does cause some Chinese to raise questions”, continues Shambaugh who specialises in the Chinese military.11 The Chinese, in other words, were moving some of the state resources from guns to ‘doufu’.

The expenditure on the military as earmarked in the budget will amount to US$77.9 billion equivalent to 1.4 per cent of the Chinese GDP. This is dwarfed by what the United States spends. The US expenditure at 4.0 per cent of the nation’s GDP accounts for 48.0 per cent of the world total. If Beijing was ever competing with Washington on military build-up, it seems to have given that up for the year 2010. However, competing with India, the other Asian continental power, is an entirely different matter. The Indians seem to be keeping the rapid Chinese military build-up in their mind. That notwithstanding, New Delhi was equally modest in announcing its planned expenditure on defence. In the 2010-11 budget, it was raised to US$32 billion, up 8.13 per cent from the revised estimates of the previous fiscal year. The outlay on defence was to be 2.37 per cent of the country’s GDP considerably more than the proportion for China. “Secure borders and security of life and property fosters development”, the finance minister said in his budget speech. “Needless to say any additional

10 11

The Strait Times, “Crime buster woos media in leadership bid”, 8 March 2010, p. A3.

Quoted in Michael Wines and Jonathan Ansfield, “China slows its military spending”, International Herald Tribune, 5 March 2010, p. 4.

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requirement for the security of the nation will be provided for.”12 But the armed forces did not seem too happy by New Delhi’s decision to pause in the pace of build-up. According to one Indian defence analyst the men in uniform “were left disappointed with what is being perceived as lack of attention towards modernisation of weapons and equipment and for force accretion as required by existing threat perception and imperatives of defence preparedness.”13 Both countries seemed to have decided that for the moment at least it was better to limit defence expenditures and commit more resources for satisfying some of the non-military needs. The main goal for India is to quicken the pace of economic growth – to close the economic gap, as it were, between itself and its giant Asian neighbour rather than to match the latter’s military strength. For China, the goal is to stall the possibility of the recurrence of a Tiananmen Square type of event based on economic discontent.

Conclusion After having taken very different paths towards the attainment of high rates of economic growth, Beijing and New Delhi are moving forward but are still taking slightly different routes. For India achieving high growth is critical; for China, there had to be renewed commitment to improving the lot of the poor. Both were aiming at rates of growth that would be four to five times higher than the rate of growth of increase in their populations. This will help them to direct more resources for meeting the needs of the poor. And both will attempt to achieve this objective by the efficient involvement of the state in the redistributive process.

The budgets presented by the two governments will take the two countries towards these two goals.

12 13

See 2.

Saurabh Joshi, “Defense budget disappoints forces”, StratPost: South Asian Defense and Strategic Affairs, 27 February, 2010, p. 1.

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ISA S Insights No. 96 – 5 April 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India’s ‘Look East’ Policy: Reflecting the Future Amitendu Palit 1

Abstract India’s ‘Look East’ Policy is aimed to integrate it more closely with its Eastern neighbourhood in the post-Cold War globalising world order. After almost two decades, it is important to reflect on the scope of the policy and shape that it should assume in the days to come. This paper argues that while economic benefits from the policy have been substantive and visible, it is essential for India to decide whether it wishes to play a more strategically proactive role in Asia-Pacific in future. In this regard India must realise that in the aftermath of the global financial crisis, the rise of the East is accompanied by a strategic marginalisation of the West.

Introduction One of the major foreign policy initiatives taken by India after the end of the Cold War was its ‘Look East’ policy. Announced in 1992, the policy marked India’s intention to establish close ties with a part of its neighbourhood that had received insufficient attention during the Cold War. Economic motives were strong determinants behind the efforts to establish close ties with Southeast and East Asia 2. With India finally deciding to open up its economy after more than four decades of inward-looking import-substitution policies, East and Southeast Asia – as key hubs of the ‘Asian economic miracle’ 3 – were natural options for seeking 1

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Dr Amitendu Palit is Head (Development & Programmes) and Visiting Research Fellow at the Institute of South Asian Studies, an autonomous research institute at the National University of Singapore. He can be contacted at isasap@nus.edu.sg. The views reflected in the paper are those of the author and not of the institute.

For a detailed illustration of different factors influencing India’s decision to engage Southeast Asia, see Sikri (2009), Challenge and Strategy Rethinking India’s Foreign Policy, Chapter 7, pp.112-115; Sage.

Major economies of the Southeast and East Asia, notably Singapore, Hong Kong, South Korea, Indonesia, Thailand and Malaysia, grew by impressive rates of 8-12% during the 1980s and early 1990s. Such remarkable rates of growth encouraged the coining of the phrase ‘Asian economic miracle’ for describing the region’s economic progress. The phrase became particularly a favourite with the International Monetary Fund (IMF) and the World Bank (WB).

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greater economic engagement. Besides, the emergence of the post-Cold War new international order also offered India an opportunity to reconnect to its neighbourhood on the basis of new fundamentals.

With the policy about to complete two decades, it is important to reflect on the policy and consider its future course. Such reflection should carefully analyse the need for expanding the scope and objectives of the policy. The world has changed considerably since the announcement of the policy. Global changes have been accompanied by fundamental shifts within Asia as well, primarily in the economic balance of power within the region. India, too, has advanced rapidly in its economic and strategic capacities. All these changes necessitate a close review of the ‘Look East’ strategy.

Economic Engagement The economic implications of the ‘Look East’ policy have been substantive. The direction of India’s trade with the rest of the world has undergone phenomenal changes as a result of the policy. India’s trade with its eastern neighbourhood was distinctly limited during the Cold War days. 4 Among the countries of the Association of Southeast Asian Nations (ASEAN), the economic exchanges were confined mostly to Malaysia, Indonesia, Singapore and Thailand. Trade with other major East Asian economies such as China, Hong Kong and South Korea were noticeably limited. Indeed, Singapore was the only country among those mentioned with whom the size of India’s bilateral merchandise trade was US$1 billion-plus in 1992-93 (US$1.2 billion) with Hong Kong coming a close second (US$935.4 million). 5 The scenario is very different now. Southeast and Northeast Asia have emerged as significant trading regions for India. India’s trade linkages with the ASEAN countries have deepened and widened. The ASEAN region and Northeast Asia presently account for more than 26.0 per cent of India’s total trade. 6 China has emerged as India’s largest trade partner with SinoIndian trade amounting to US$41.8 billion in 2008-09. Singapore (US$16.1 billion), Hong Kong (US$13.1 billion) and South Korea (US$12.6 billion) also figure among India’s top ten trade partners while Malaysia (US$10.6 billion) and Indonesia (US$9.2 billion) figure among the top twenty. 7 It is noteworthy that increasing exchanges are not confined to merchandise trade alone. Services trade between India and Southeast Asia and other East Asian countries has also increased significantly. Such increases are most visible through higher tourist flows and trade in information technology (IT).

Rise in trade with Southeast and Northeast Asia has been accompanied by simultaneous increase in cross-border investment flows. Singapore has emerged as the second-largest source of inward foreign direct investment (FDI) into India by contributing 9.0 per cent (US$9.5 billion) of India’s total FDI during the period April 2000-December 2009. 8 Japan 4 5

6 7

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Japan was an exception and one of India’s largest trade partners.

Handbook of Statistics on Indian Economy, Reserve Bank of India (RBI), Mumbai, India; Computed from ‘Direction of Foreign Trade – US Dollar’, Table 137, pp 223-225; See http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/137T_HB150909.pdf. Accessed on 27 March 2010. http://commerce.nic.in/eidb/ergn.asp. Accessed on 27 March 2010.

Singapore, Hong Kong, South Korea, Malaysia and Indonesia were ranked 6th, 8th, 10th, 14th and 18th respectively among India’s major trade partners for the year 2008-09. http://www.dipp.nic.in/fdi_statistics/india_FDI_December2009.pdf. Accessed on 28 March 2010.

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and South Korea are the other major sources of inward FDI for India. Investments from Malaysia and Indonesia have also been on the rise in recent years. 9 At the same time, India’s investments in the ASEAN have increased more than three-fold from US$108.1 million in 1995-96 to US$380.4 million in 2007-08. 10 Singapore garners the largest share of outward FDI from India while such investments are becoming substantive in Malaysia and Thailand as well.

The ‘Look East’ policy has also been instrumental in India’s pursuit of formal economic framework arrangements with different countries in the region. The India-Singapore Comprehensive Economic Cooperation Agreement (CECA) has been one of India’s most successful bilateral trade pacts, both in terms of its scale as well as scope. India has a freetrade agreement (FTA) with Thailand and is at a fairly advanced stage of formalising a trade pact with Malaysia. Similar efforts are also on with Indonesia. Moving further eastward, India has entered into a Comprehensive Economic Partnership Agreement (CEPA) with South Korea. A similar agreement with Japan is in the final stages of negotiations. Despite considerable opposition to the contrary, efforts are also on to move towards a FTA with China. The most significant of all the framework agreements, and in many sense one of the biggest successes of the ‘Look East’ policy, has been the FTA with ASEAN. This FTA that has come into force from 1 January 2010 with an ambitious trade target of US$50 billion by 2010 11 has the potential for emerging into one of the most successful economic agreements in Asia.

The ‘Economics Plus’ Aspect While economics has certainly been the strongest fundamental of the ‘Look East’ policy, there has been an ‘economics plus’ component to the policy as well. This pertains to India’s playing a relatively bigger role in the strategic affairs of the Asia-Pacific. As far as involvement with the ASEAN is concerned, beginning from a sectoral dialogue partner in 1992, India has graduated to becoming a full dialogue partner (1995), member of the ASEAN Regional Forum (1996) and finally a summit-level partner (2002). From a larger regional perspective, India’s entry in the East Asia Summit (EAS), which represents the ASEAN+6 combine, 12 enables it to have a firmer foothold in the strategic affairs of the Asia-Pacific. It needs to be noted, however, that India is yet to be a member of the Asia-Pacific Economic Cooperation (APEC).

The Outlook How should India’s ‘Look East’ policy shape in the years to come? Economic engagement will continue to remain a vital aspect of the policy. India needs to engage its Eastern 9 10

11 12

Ibid.

Palit, Amitendu (2009), India’s Economic Engagement with Southeast Asia: Progress and Challenges, ISAS Working Paper, No. 60, 4 June 2009; http://www.isas.nus.edu.sg/Attachments/PublisherAttachment/ ISAS_working%20paper_59_21102009182431.pdf. Accessed on 28 March 2010. http://commerce.nic.in/PressRelease/pressrelease_detail.asp?id=2461. Accessed on 28 March 2010.

The EAS includes the ten countries of the ASEAN (i.e. Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) and Australia, China, Japan, India, New Zealand and South Korea.

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neighbours in a vigorous and constructive manner for multiplying its economic engagement with the region. The foremost initiatives in this regard should include efficient implementation of the FTA with ASEAN. The emphasis should be on reducing transaction costs of using the FTA on both sides.

At the same time, ongoing negotiations on the FTA pertaining to trade in services and crossborder investment should be expedited. Quick and successful conclusions of the ongoing negotiations are important for pushing trade in services given the enormous potential which such trade has. Furthermore, implementation of the FTA in its full scope (i.e. trade in goods and services) is also essential given the implementation of the ASEAN-China Free Trade Area (ACFTA). The ACFTA became operational on 1 January 2010 and covers a population of more than US$1 billion with a total trade of US$450 million.13 The economic scale of the ACFTA is larger than that of the India-ASEAN FTA. Delays in services negotiations and lack of progress on the India-ASEAN FTA will only increase difficulties for India as far as deepening its market access in the region is concerned.

There is a more fundamental issue. India needs to address in determining its future approach to the ‘Look East’ policy. This pertains to the strategic role that it envisages for itself in the East. While the ‘Look East’ policy has enabled India to position itself as a key player in the Asian region post-Cold War, 14 primarily on economic grounds, it is time for India to decide whether it wants to upgrade its strategic involvement beyond economics in the regional affairs. Indeed, in this regard it is important to take note of Singapore Senior Minister Mr Goh Chok Tong’s recent observations on India requiring to proactively ‘engaging east’ rather than only ‘looking east’. 15 India’s aspirations to play a larger role in the world stage must be matched by adequate efforts aiming to posit itself as a more influential strategic force in the regional architecture of the Asia-Pacific.

Why has India, till now, not been as strategically proactive in the East as it should have been?

From an economic sense, India has been deploying its efforts and resources in a manner that does not indicate any overt prejudice towards the East. Along with negotiations on the FTA with ASEAN, it has continued negotiations with the European Union (EU) along with active participation in multilateral trade negotiations. The stance of the negotiating strategies indicates that India grants as much weight to its East as to its West in pursuing market access talks. However, the global financial crisis and the decisive shift in the balance of the global economy should convince India about engaging the East more vigorously, both economically and strategically. India, despite being aware of the phenomenal rise of the East, has probably not been able to reconcile to the reality that the rise of the East is being accompanied by a steady strategic marginalisation of most of the West. The aftermath of the financial crisis may just drive home the point.

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http://www.chinapost.com.tw/business/global-markets/2010/01/02/238966/China-ASEAN-FTA.htm.

Accessed on 30 March 2010.

14 See, Chak Mun (2009), India’s Strategic Interests in Southeast Asia and Singapore; Macmillan, Delhi; Chapter 6, p.146.

15 ‘Global Shifts a Challenge for East Asia: SM Goh’, The Straits Times, Singapore, 21 March 2010, p. 2.

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ISA S Insights No. 97 – 8 April 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

G.P. Koirala: Nepal’s Democracy Icon 1 S.D. Muni 2 The paper recalls the life and achievements of G.P. Koirala, the first Prime Minister of Nepal’s elected Parliament in 1991, and subsequent Prime Minister on five more occasions.

Highlighting the vacuum created by G.P. Koirala’s death and his absence from Nepali politics, the paper explores the possible ramifications and the political outlook for Nepal.

Any narrative of Nepal’s struggle for democracy will revolve around the three Koirala brothers namely, Matrika Prasad (M.P.) Koirala, Bishweshwar Prasad (B.P.) Koirala and Girija Prasad (G.P.) Koirala. Matrika Babu, as the eldest of the three brothers was popularly known, tried to institutionalise Nepal’s post-Rana democratic aspirations without much success. B.P., the younger one fought hard against an assertive and autocratic monarchy all his life, but failed. The youngest of the three, G.P. Koirala, or G.P. as he was known to his friends and admirers, made the most impressive contribution in democracy’s march towards success in Nepal. He was the front runner of Nepal’s two major people’s movements (Jan Andolan I & II) in 1988-89 and 2005-06 respectively. The first movement abolished the authoritarian Panchayat System established in 1962 by King Mahendra in the aftermath of his coup against the elected Parliament in December 1960. The second abolished the perverted autocratic monarchy headed by King Gyanendra who had crowned himself after the ghastly Royal massacre of June 2001, in which his brother, King Birendra, and his entire family were wiped out.

The author’s acquaintance with all three Koirala brothers was through G.P. Koirala. Way back in 1968, there were efforts to release his elder brother and Nepal’s first democratically elected Prime Minister, B.P. Koirala, who was rotting in King Mahendra’s prison since December 1960. The Indian Ambassador in Kathmandu in 1968 was a veteran Congress leader, Raj Bahadur. The author was then in Kathmandu for fieldwork pertaining to his research. He knew Ambassador Raj Bahadur personally, as both were from the western Indian state of Rajasthan. G.P. Koirala persuaded the author to request the ambassador to get his brother’s release expedited.

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This article draws on the long personal association that the author had with G.P. Koirala for more than four decades.

S.D. Muni is Visiting Research Professor at the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS). He can be reached at isassdm@nus.edu.sg. The views reflected in the paper are those of the author and not of the institute.

The atmosphere in Kathmandu at the time was loaded with the prospect of growing Chinese influence. An ugly incident in the national exhibition (Ramelo Mela), when some Nepali youth ransacked a Chinese stall in protest against King Mahendra’s photo being downgraded against Chairman Mao’s portrait, had created a public mood in favour of democratic leaders.

Those were the days of the “Great Cultural Revolution” in China. As indications for his brother’s release got firmed up, G.P. Koirala became very excited. He wanted to go to his hometown in Biratnagar to meet the family and prepare politically for the release. The author was affectionately persuaded by him to accompany and spend a few days in ‘Koirala Niwas” in Biratnagar. Those few days in ‘Koirala Niwas’, gave the author a rare opportunity to know the Koirala family members from close quarters. The whole family was a part of the political struggle. They lived a simple and rather hard life. G.P. Koirala’s wife Sushma died at a very young age in an accident. His daughter, Sujata, an infant then, was brought up by G.P. Koirala’s sister-in-law, Nona Koirala, married to his elder brother Keshav Koirala, who also died later fighting against the King’s coup. G.P. Koirala’s deep involvement in the struggle left him with very little time for his young daughter.

The author’s contacts with the Koirala family subsequently grew in strength. G.P. Koirala and Keshav Koirala visited him in the hostel of the Indian School of International Studies (ISIS) in Sapru House, New Delhi, where he was writing his doctoral dissertation as a guest from the University of Rajasthan. The author was asked to take the responsibility for Sujata as her local guardian for a short while as she was being admitted in a school in New Delhi.

During these visits, the author saw G.P. Koirala’s craving for the good things in life, as an urge to compensate for his harder days in the field of fight for democracy. From 1974 onwards, the author joined the faculty of Jawaharlal Nehru University (JNU), where he occasionally hosted G.P. Koirala and other leaders of the Nepali democratic struggle like B.P. Koirala and Pushpa Lal Shrestha (a communist leader). Later, Rishikesh Shah, Baburam Bhattarai and Hisila Yami (both were then students in JNU and are now Maoist leaders) became frequent visitors to the author’s residence. The author’s contacts with the Koirala family continued during his stay in Varanasi (1985-86), where he was teaching in the Banaras Hindu University (BHU) as a professor of political science. B.P. Koirala died in 1982 from cancer soon after losing the referendum of 1980. Both the Koirala family and the democratic struggle were in disarray then.

After the victory of the first Jan Andolan (1989-90), G.P. Koirala emerged on Nepal’s national scene in a big way. He was the first Prime Minister of the elected Parliament in 1991 and then became Prime Minister on five more occasions. His last Prime Ministership was from April 2006 to August 2008, after the victory of the Jan Andolan II (2005-2006). During this period, he had the unique distinction of being both the head of the government and the state, as the monarchy had been abolished in 2007.

There was hardly any occasion since 1990, either during the author’s visits to Nepal, or G.P. Koirala’s visits to New Delhi, when the two did not get to meet. The author was contacted thrice by G.P. Koirala from King Gyanendra’s prison in February 2005, when he was in the Naval College of Warfare at Mumbai. Koirala wanted as much help as possible mobilised from India, not only to get him and his associates out of prison, but also to fight King Gyanendra’s repression. During his many visits to Delhi in 2005 and 2006, he had long discussions with the author on delicate issues of Nepal’s peoples’ movement. After April 2006, when he headed the interim government of a Republican Nepal, there were occasions when the author was taken directly from the Kathmandu airport to meet him in the Baluwater 2

Prime Minister’s Residence. There were also occasions when he vented his ire on India’s role in Nepal and the Maoists’ manoeuvres to dictate the peace process. The author saw him last in a hospital in Singapore in November 2009, when even from a sick bed, he tried to prevail over the Maoists to accept his proposal of establishing the High Level Political Mechanism (HLPM) under his leadership to guide Nepal’s peace process.

Groomed in a family of democrats and mentored by his elder brother, G.P. Koirala was a true fighter. His political career started with the successful organisation of the Biratnagar jute mill strike in 1948 against the autocratic Rana system. This strike established his credentials as a great organiser, which got further reinforced on later occasions, whether through carrying out a plane hijacking (in 1974), mobilising arms for the Nepali Congress’s struggle after King Mahendra’s 1960 coup, or leading the two Jan Andolans. His domineering style of functioning got him into conflict with other Nepali Congress and national leaders like Ganeshman Singh, Krishan Prasad Bhattarai, Shailaja Acharya, Mahendra Narayan Nidhi and Sher Bahadur Deuba. No one, however, could challenge him in his grasp and hold of the grassroots. He delivered on all occasions and kept up to his commitments.

Though authoritative and feudal in personal style (generous and benign to his admirers and supporters and uncompromising to those who defied him), Koirala’s courage and commitment to the cause of democracy was unflinching. He refused to compromise with King Birendra, when his party was split to weaken him, and he refused to succumb to King Gyanendra, when he dissolved the Parliament in 2002. G.P. Koirala had launched the Jan Andolan II then itself, though it gathered momentum only after King Gyanendra’s takeover of direct power in February 2005. He never endorsed or became a part of the royal political manoeuvres to weaken parliamentary institutions or democratic political parties. He was not a Gandhian. He had no hesitation in using violence and unlawful methods in the fight for democracy. He even allowed the Maoists to retain arms in the aftermath of the victory of Jan Andolan II because the possibility that the Royal Nepal Army could make moves to frustrate the victory could not be ruled out. However, he never endorsed the use of violence and armed coercion against a democratic system. That is why he was for using all available force, including the army, against the Maoists during 1996-2001. After 2006 also, he consistently stood against the Maoists’ militant Youth Communist League and their proposal for a wholesale integration of their armed cadres into the regular Nepal army.

Besides his firm grip over Nepal’s grassroots politics, he also had a remarkable ability to be ideologically resilient in advancing the cause he had committed himself to. There has been no political leader in Nepal during the past sixty years who was equally comfortable in dealing with the royalists and the revolutionaries at the same time. His credibility with the international community during the most testing times in Nepal’s political history was also unmatched. His practical approach to politics could pull diverse forces together under his leadership on a single platform. This was so ably demonstrated during the two Jan Andolans.

It was his resilience that let him have his way on the outcome of both these peoples’ movements. He made the Maoists agree on the reconvening of the Parliament as against an all party conference for election of the Constituent Assembly in April 2006. The HLPM was a unique device not only to keep himself at the centre of political dynamics, but also a forum to keep the Maoists engaged even when they were kept out of power. Though he refused to let his party join the coalition led by the Maoists in May 2006, he never approved of the Maoists leaving the government, the way they did in May 2009, on the question of sacking the army chief.

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Though surrounded by various controversies around his persona, politics, and policies, G.P. Koirala was the tallest political leader of his times. Even when he was being shifted from one hospital to another, wearing an oxygen mask, people in Nepal keenly awaited his next political move to unfold. From President and Prime Minister, to various party leaders and diplomatic representatives of the international community in Nepal, everyone looked for his guidance and help. He was nominated by the Nepal government for the Nobel peace prize in acknowledgement of his role in ending the Maoists’ insurgency. His overt affection for his daughter and the consequent eagerness to ensure her political future, for which he was criticised most in his last days, reflected his emotional vulnerability. He was probably yearning to compensate for his fatherly lapses in Sujata’s upbringing during her childhood. A master political strategist, G.P. Koirala was also bereft of a grand vision and sense of history, unlike his brother. If that was not so, he would have consolidated democracy during the decade of the 1990s, by avoiding, or at least delaying, the rise of the Maoist insurgency. That would have ensured that the post-2006 peace process did not falter on the power ambitions of its incumbents.

He passed away at a time when he was needed most. His party is in a state of internal chaos and the peace process is passing through its most critical stage of survival. If the Nepali Congress leaders do not manage the succession issue with consensus and unity, they will push the party into internal conflict and political erosion. The answer to the peace process lies in recreating the consensus that ensured the success of Jan Andolan II. Only Koirala had the ability and skill to forge the national consensus, which is so badly needed for completing the process of constitution making for new Nepal.

His absence surely leaves the room open for the Maoists to display their resilience and creative leadership potential (if they have any) in taking the peace process forward. For this, the Maoists have to take the first step in bridging the trust deficit with other political parties and forces, by reiterating their commitment through actions, and not only words, to a peaceful and democratic conduct in politics. They must gather the internal organisational courage to disband their militarist outfits. There are powerful vested interests, both within and outside Nepal, which may not like the emergence of a Maoist-led coalition government.

But such a government seems to be the only viable and orderly way to advance the peace process.

The breakdown of the national political consensus, G.P. Koirala’s absence, and the prospect of the Maoists dominating the political scene has also encouraged the royalists to assert themselves. There are even demands for the revival of the monarchy and doing away with the concept of a secular and inclusive (federal) state. But these regressive forces must remember that the ground reality of Nepal has changed so much that it has no room for the revival of the archaic forces and institutions. It was his failure in grasping the essence of this ground reality that led King Gyanendra to his fall and the abolition of monarchy.

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ISA S Insights No. 98 – 7 May 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Karzai’s Balancing Act: Bringing ‘China’ In? Shanthie Mariet D'Souza 1

Abstract China’s interests in Afghanistan are perceived to be mainly economic. It is unlikely that the March 2010 Sino-Afghan joint declaration, following President Hamid Karzai’s visit to China, will bring about a dramatic change in the present Chinese policy of abstaining from military engagement in the conflict-ridden country. However, as the scenario of United States (US) withdrawal from Afghanistan looms large, China will have to prepare itself for a much larger and crucial role for long-term stabilisation and reconstruction of the war-ravaged country given that its interests would be at stake. Its friendly ties with Pakistan would continue to be a great leverage when it decides to pursue such a policy.

President Karzai’s three-day state visit to China, beginning 23 March 2010, culminated with the establishment of the China-Afghanistan comprehensive cooperative partnership. This first visit after the Afghan President’s re-election evoked immense international attention as an attempt by a beleaguered leader to indulge other big powers in the region at a time when he faces increasing criticism on corruption, cronyism and electoral reforms at home and abroad.

Considering the fact that China’s role in Afghanistan thus far has remained limited, this visit has sparked speculations regarding increased Chinese engagement in that country. In a joint declaration, Chinese President Hu Jintao emphasised on five aspects of the cooperative partnership - (1) political and diplomatic; (2) economic and trade; (3) humanitarian; (4)

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Dr Shanthie Mariet D’Souza is a Visiting Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. She can be contacted at isassmd@nus.edu.sg. The views reflected in this paper are those of the author and not of the institute.

security and police affairs; and (5) multilateral efforts to build the comprehensive cooperative partnership of good-neighbourliness, mutual trust and friendship for generations. 2 Both Afghanistan and China pledged to step up greater economic engagement and cooperation in the security sector. The three agreements signed by the two countries span wide-ranging economic and technological cooperation that include providing favourable tariffs for some Afghan exports and technical training programmes. The reported bilateral trade which reached US$155 million in 2008, is set to further enlarge following the inking of these agreements. 3 President Hu Jintao has called for deepening political ties, while urging greater cooperation in mining, agriculture, hydro-electric and irrigation and infrastructure projects.

China has further expressed its willingness to ‘support and aid Afghanistan in its peaceful reconstruction and support Afghanistan’s efforts to establish sovereignty, independence and territorial integrity’. 4 Chinese Prime Minister Wen Jiabao pledged to extend aid and economic support for Afghanistan’s reconstruction, while calling for both nations to jointly fight terrorism and drug trafficking. Beijing has pledged to provide a grant worth 160 million Yuan (US$23.4 million) to Afghanistan. In a separate meeting, Chinese Defence Minister Liang Guanglie pledged military assistance to Afghanistan in talks with his Afghan counterpart Abdul Rahim Wardak.

China’s Economic Strategy in Afghanistan China's early economic assistance to Afghanistan dates back to the mid-1950s when the two countries established diplomatic relations and Chinese engineers built hospitals and water conservancy projects. During the Soviet intervention in Afghanistan, Beijing played an active role in the anti-Soviet resistance by providing weapons and training along with the US and Pakistan. Sino-Afghan relations did not normalise until 1992, when the mujahedeen captured Kabul and established a new ‘Islamic State of Afghanistan’. In the ensuing fratricidal warfare between various mujahedeen factions, China withdrew its diplomatic staff from Kabul in

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(a)‘Karzai visit yields major pacts’, China Daily (25 March 2010), www.chinadaily.com.cn/china/201003/25/content_9637982.htm. Accessed on 26 March 2010; (b) ‘China, Afghanistan plan closer partnership as Karzai concludes state visit’, People’s Daily Online (25 March 2010), http://english.peopledaily.com.cn/90001/90776/90883/6930867.html. Accessed on 26 March 2010.

These levels are relatively low compared to bilateral trade between India and Afghanistan of US$358 million for the fiscal year April 2007 to March 2008. Jayshree Bajoria, ‘India-Afghanistan Relations’, Council on Foreign Relations, Backgrounder, (22 July 2009), www.cfr.org/publication/17474/indiaafghanistan_relations.html. Accessed on 27 April, 2010.

‘Afghan and Chinese presidents sign trade agreements’, BBC (24 March 2010), http://news.bbc.co.uk/2/hi/8584331.stm. Accessed on 25 April 2010.

Afghan President Signs Economic Agreements on China Visit, Radio Free Europe Radio Liberty (RFERL), (24 March 2010), www.rferl.org/content/Afghan_President_Meets_China_Leadership/1992126.html.

Accessed on 10 April 2010.

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February 1993 and did not reopen its embassy until February 2002. 5 Since then, China’s interest in Afghanistan has been mainly economic. In May 2003, China and Afghanistan signed an Economic and Technical Cooperation Agreement, which provided US$15 million to the Karzai government in Chinese grants. Since 2002, China has provided about 900 million Yuan (US$130 million) in aid to Afghanistan. In 2009, China has almost written-off Afghanistan’s debt by pledging US$75 million as grant assistance over the next five years. 6 The security and development agenda of Afghanistan has been largely dominated by the US and its allies. Though viewed with scepticism by Beijing, it has largely worked to its advantage. Since 9/11, the US’ primary focus on the ‘Arc of Instability’ from the Middle East to South Asia has diverted critical military resources and high-level attention away from China and the Asia-Pacific, compelling the US to function in the region with ‘one hand tied behind its back’. 7 On the contrary, China having stayed out of military engagement has been able to focus on its economic growth and resource exploitation elsewhere as in Afghanistan and Africa.

China’s interest in Afghanistan remained marginal until Karzai’s government opened up its energy, mineral and raw materials to foreign investment. In 2007, China emerged as Afghanistan’s fifth-largest trading partner, behind Pakistan, European Union (EU), the US and India. China has been involved prominently in Afghanistan’s infrastructure development, including telephone networks, irrigation projects, public hospitals, and several other reconstruction projects. Chinese companies like Zhong Xing Telecommunication Equipment Company Limited (ZTE) and Huawei have sought collaboration with the Afghan Ministry of Communications to implement digital telephone switches. Moreover, Chinese companies and workers have been hired by the EU for various reconstruction projects, including road restoration and infrastructure development. 8 Though the bilateral relations during 2001 - 2006 remained at best cordial, it was in 2007, having won the contract for the copper mines in Aynak that Afghanistan emerged prominently in China’s economic calculus. Since then China's growing economic clout has 5

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For further details on the history of Sino-Afghan relations see ‘China and Afghanistan’, The Ministry of Foreign Affairs of the Peoples Republic of China (25 August 2003), www.mfa.gov.cn/eng/wjb/zzjg/yzs/gjlb/2676/t15822.htm. Accessed on 15 April 2010.

China’s assistance pales in comparison to India’s pledge of US$1.3 billion and is the sixth largest bilateral donor.

Abraham M. Denmark, ‘The Impact of China’s Economic and Security Interests in Continental Asia on the United States’, Testimony before the U.S.-China Economic and Security Review Commission (20 May 2009), www.uscc.gov/hearings/2009hearings/written_testimonies/09_05_20_wrts/09_05_20_demark_statement.ph p. Accessed on 26 March 2010.

It would be pertinent to make a distinction between China's role as a donor and contractor. For example, the China Machine-Building International Corporation (CMIC) was awarded contract by the United States Agency for International Development (USAID) in January 2005 for the design, manufacturing and erection of a 18.5MW hydroelectric turbine-generator of the US-funded Kajaki rehabilitation project. Coincidentally, this is Afghanistan's largest integrated irrigation project built by the Morrison-Knudsen, a US firm in Helmand in 1953 and destroyed during the US military operations in October 2001. Likewise, Chinese companies are working as contractors mainly for USAID-funded projects as well as those of the Europeans.

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been most telling in its relations with Afghanistan. It is already a major source of consumer goods for Afghanistan. Since 2006, China has applied zero tariffs on 278 items of export products from Afghanistan. 9 Although the Afghan economy accounts for less than one-tenth of one percent of China's overall trade, the availability of cheap natural resources on its western border is of tremendous interest to China.

China’s Quest for Resource and Energy What attracts China to Afghanistan is the latter’s reserves of unexplored natural resources and energy. Afghanistan, which has the potential of serving China’s surging demand for resource and energy, has witnessed a parallel development similar to China’s rapid advance in conflict-ridden and resource-rich countries of Africa. 10 In 2007, China’s Metallurgical group won the US$3.5 billion bid to develop the 28-square-kilometre Aynak copper field in Logar province out-bidding Western competitors like the US firm Phelps Dodge. This group is also favoured to win the rights to iron ore deposits at Hajigak, when bids are considered in later part of 2010. The Aynak copper field, the largest foreign investment in Afghan history, is estimated to be the largest undeveloped field in the world with the potential for US$88 billion worth of ore. 11 It also involves the construction of a US$500 million worth of 400megawatt coal-fired power plant, hospital, mosque and a freight railroad passing from the Xinjiang Uygur Autonomous Region (XUAR) through Tajikistan to Afghanistan.

The huge prohibitive costs notwithstanding, the Chinese Metallurgical group is willing to invest in the insurgency afflicted Logar province. This is in conjunction with China’s larger regional economic strategy of development of its underdeveloped western regions and linking them with regional trade routes through Central Asia, South Asia, Iran and Middle East. In recent years, the region has witnessed highly visible and substantial Chinese investments into the Gwadar port (Baluchistan province) and Karakorum Highway in Pakistan and a multibillion dollar pipeline from Kazakhstan to Xinjiang Uyghur Autonomous Region (XUAR).

China has also inked a US$100 billion 25-year energy contract with Iran. Afghanistan and Pakistan are seen as key transportation and trade links to actualise this strategy extending from Iran to China. The Gwadar port facilitates China to import 60 per cent of its energy needs from the Middle East. 12 Beijing plans to connect the port with Xinjiang to secure a more efficient delivery of energy resources to meet its surging domestic demands.

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‘China, Afghanistan forge closer economic ties’, Xinhua, (24 March 2010), http://china.globaltimes.cn/diplomacy/2010-03/515723.html. Accessed on 27 March 2010.

‘China & Africa’ in The Chinese Community in South Africa’, The China Monitor, Issue 21, The Centre for Chinese Studies, University of Stellenbosch, (August 2007), www.ccs.org.za/downloads/monitors/CCS%20China%20Monitor%20August%2007.pdf. Accessed on 27 April 2010.

Ron Synovitz, ‘China: Afghan Investment Reveals Larger Strategy’, Eurasianet (3 June 2008), www.eurasianet.org/departments/insight/articles/pp060308f.shtml. Accessed on 21 April 2010.

In 2003, China imported 51.0 per cent of its total crude imports from the Middle East. While the Gwadar port is perceived to provide ‘strategic depth’ for Pakistan against the Indian Navy southwest from its Karachi

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Such investments are largely in sync with China’s long-term goal of developing its volatile western region, an area of priority in China's 12th Five-Year Plan (2011-15). Following the July 2009 ethnic violence, Beijing has increased its attention and resources to the development of its two restive provinces - the XUAR and the Tibet Autonomous Region. In the narrow strip of the Wakhan Corridor, where China shares the shortest land border of 76km with Afghanistan, Beijing is funding the construction of a new road, supply depot, and mobile communications centre that will facilitate greater connectivity and trade across the border. 13 There are numerous indications suggesting that China is set to increase its investments and presence in Afghanistan in the near future. Afghanistan has substantial reserves of oil and natural gas in the northern parts of the country. The Afghan oil reserves were recently upgraded 18 times by a US geological survey with estimates pointing to a mean of 1,596 million barrels, while its natural gas reserves were upgraded by a factor of three, at a mean of 15,687 trillion cubic feet. 14 Likewise, Afghanistan has substantial deposits of iron ore between Herat and the Panjsher Valley, gold reserves in the northern provinces of Badakshan, Takhar and Ghazni, and copper fields in Jawkhar, Darband, and Aynak. 15 Not all of these resource-rich areas are situated in the relatively stable northern and north-western regions.

These untapped resources would further increase China’s interest in Afghanistan. For instance, China’s demand for iron ore and copper has increased exponentially. The rising demand for natural gas has compelled China to explore alternate overland energy supply diversification in the neighbouring states in Central Asia, and also potentially in Afghanistan.

China benefits from a comparative advantage to most other foreign companies, since the roof

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naval base that has long been considered vulnerable to blockade by the Indian Navy. China’s primary interests in the ‘naval anchor’ are to continue consolidating its all-weather relationship with Pakistan through large-scale collaborative development projects, to diversify and secure its crude oil import routes, and to gain ‘strategic foothold’ in the Indian Ocean, Arabian Sea and Persian Gulf. Ziad Haider, Baluchis, ‘Beijing, and Pakistan’s Gwadar Port’ Georgetown Journal of International Affairs, (Winter/Spring 2005), www.stimson.org/southasia/pdf/GWADAR.pdf. Accessed 25 April 2010.

There are talks of China opening the Wakhjir Pass, the only high-mountain pass between Afghanistan and China in the Hindu Kush at the eastern end of the Wakhan Corridor linking it with the Tashkurgan Tajik Autonomous County in Xinjiang. See Christian Le Mière, ‘Kabul’s New Patron? The Growing AfghanChinese Relationship’, Foreign Affairs (13 April 2010), www.foreignaffairs.com/articles/66194/christian-lemiere/kabuls-new-patron. Accessed on 17 April 2010.

Nicklas Norling, ‘The Emerging China-Afghanistan Relationship’, Central Asia-Caucasus Institute, (14 May 2008), www.cacianalyst.org/?q=node/4858. Accessed on 9 April 2010.

According to recent estimates, Afghanistan is projected to have 1.6 billion barrels of oil and 440 billion cubic meters (bcm) of gas, deposits of ferrous and non-ferrous metals, iron ore and gold. The Chinese are particularly interested in the country’s extractive sector as noted by the frequency of visits by Chinese delegations. Author’s discussions with government officials and locals during field visit to Afghanistan in May-June 2007. Also see Roman Muzalevsky, ‘The Economic Underpinnings of China’s Regional Security Strategy in Afghanistan’, Eurasia Daily Monitor, Vol.7., Issue.75, Jamestown Foundation, Washington DC, (19 April 2010), www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=36285. Accessed on 23 April 2010.

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of spending is almost limitless in sectors of strategic interest, which also speaks volumes about Beijing’s advantageous position in Afghanistan.

Understanding China’s Role and Interests in Afghanistan A stable and strong government in Kabul with a capable military able to patrol the borders is surely in China’s interest. To that effect, China over the years has offered Afghanistan military supplies and personnel training, some of it in the form of aid. However, Beijing has abstained from any military engagement in Afghanistan. The Chinese resource exploitation and ‘free-riding’ on the US and the North Atlantic Treaty Organization (NATO) security efforts in Afghanistan, while simultaneously out-manoeuvring American companies such as Phelps Dodge, has not been viewed positively by the American political elite. China’s Metallurgical group has invested in the Aynak copper mines in the insurgency-affected Logar province where the US and NATO troops provide security.

There have been suggestions by the Western powers, particularly NATO that the Chinese match their increasing economic profile in Afghanistan with active participation in the security sector and long-term stabilisation of the country. It is argued that the Taliban insurgency could pose threats to the Chinese investments in the days to come. Moreover, the scourge of drug trafficking, cross-border crime and smuggling also affects China’s interests.

Heightened concerns about Islamic extremism on its western border have intensified particularly since the Uighur riots in July 2009 and are likely to amplify with the talks of the US withdrawal from Afghanistan in the summer of 2011.

There are reasons to believe that the Chinese policy towards Afghanistan has been significantly influenced by Pakistan. China, over the years, has not pursued an overtly aggressive anti-Taliban policy. During the Taliban years, China indulged in back door dealing with the Taliban through Pakistan. In August 2008, two Chinese engineers working on a cell phone project in the North-West Frontier Province (NWFP) were captured by the Pakistani Taliban. While one managed to escape to safety, the other was released by the Taliban after the Zardari administration intervened. China has significant leverage in Pakistan to influence its course of action both in Pakistan and Afghanistan. The Turkistan Islamic Party (TIP), formerly the East Turkistan Islamic Movement, which China holds culpable for attacks in its territory, is based in the tribal areas bordering Afghanistan and Pakistan. The killing of Hasan Mahsum, the former TIP leader in South Waziristan by Pakistani security forces supported by Chinese intelligence officers in September 2003, is illustrative of the levels of counter-terrorism cooperation between the two countries. China stands to benefit by supporting Pakistan’s policy of regaining ‘strategic depth’ in Afghanistan, as a counterweight to increasing Indian presence and deepening the Indo-US partnership in the region.

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What apparently is guiding the current Chinese policy in Afghanistan is its wariness of the US long-term presence in the region. China views the Af-Pak strategy as ‘selective’ in targeting the Taliban and Al-Qaeda and not addressing ‘non-traditional security threats such as drug trafficking, arms smuggling and other cross-border crimes.’ 16 In 2007, according to Li Xianhui, Director of Drug Prevention in China’s Ministry of Public Security, 386 kilograms of heroin were smuggled into China from the Golden Crescent of Afghanistan, Iran and Pakistan - a total that exceeds the cumulative figure for 2001 to 2004. 17 The burgeoning counter-terrorism relationship between the US and Pakistan, its deepening relationship with India, and strengthening of linkages with Central Asia is viewed with concern by China as an American strategy of encirclement and undermining its spheres of influence.

There are significant differences in the Chinese and American perceptions regarding the nature of regime in Kabul. While the US emphasises on a Western type of democratic regime in Kabul, the Chinese leaders would rather let the Afghans choose a type of government based on their local culture, tradition and domestic conditions. The Chinese leaders have reassured President Karzai that Beijing will not join the chorus of disapproval over corruption, cronyism and electoral fraud plaguing his government. 18 In a significant political move, taken at a time when President Karzai received a delegation from the Gulbuddin Hekmatayr’s Hizb-i-Islami group of the Taliban insurgency for talks which the US views with scepticism, China has expressed support for the Afghan-led reconciliation and reintegration process. The March 2010 joint statement between Afghanistan and China further reaffirmed ‘the principle of non-interference into other countries’ internal affairs, its respect for Afghanistan's independence, sovereignty and territorial integrity, its respect for the Afghan people's choice of a development road suited to their national conditions’. 19

Karzai’s Search for Alternatives President Karzai has publicly reiterated his ambition to emulate ‘America’s democracy and China’s economic success’ in Afghanistan. This has been seen as a policy to strike a balance amidst great power rivalry, in consonance with the traditional policy of bi-tarafi (nonalignment or neutrality) that Afghanistan adopted during the Cold War, which ensured competitive aid-giving between the two superpowers benefiting the country.

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Sun Zhuangzhi, ‘Afghanistan reflects US' self-obsession’, China Daily (24 March 2010), www.chinadaily.com.cn/opinion/2010-03/24/content_9632407.htm. Accessed on 16 April 2010.

As quoted in Christian Le Mière, ‘Kabul’s New Patron? The Growing Afghan-Chinese Relationship’, Foreign Affairs (13 April 2010), www.foreignaffairs.com/articles/66194/christian-le-miere/kabuls-newpatron. Accessed on 17 April 2010.

Christopher Bodeen, ‘China Backs Karzai, Claims Total Agreement On 'Political Issues’, The Huffington Post (25 March 2010), www.huffingtonpost.com/2010/03/25/china-backs-karzai-claims_n_513113.html.

Accessed on 26 March 2010.

Christopher Bodeen, ‘China reassures Karzai of friendship’, The Washington Times, (26 March 2010), www.washingtontimes.com/news/2010/mar/26/beijing-reassures-karzai-of-friendship/. Accessed on 10 April 2010.

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President Karzai’s visit to China, which was followed by his visit to Iran within a week, raised hackles in Washington. Significantly, Karzai’s visit to China coincided with a high level US-Pakistan strategic dialogue. As the beleaguered Afghan president seeks to strike new relationships in the immediate neighbourhood, visits to these countries are being seen as attempts to break free from Western domination and criticism and establish his credentials as a regional leader. These visits described by the Western media as ‘slipping from the west’ have been linked to President Obama’s unannounced visit to Afghanistan on 28 March 2010 for ‘on the ground update’. 20 At one level, Karzai is taking a path to help develop an independent economic base and generate revenue for the Afghan economy to reduce the country’s dependence on external aid, a significant and necessary step for a ‘rentier state’. In this context, Chinese investments are seen to be generating invaluable service in generating employment, infrastructure development, and an enhanced state budget. The Aynak mine, in six years’ time, will generate employment opportunities for nearly 10,000 Afghans and the US$400 million of projected yearly royalties contributing to more than half of Afghanistan’s current annual state budget. All these remain crucial in providing key services and extending Karzai’s writ among the alienated populace in the insurgency-ravaged areas. A number of studies, including the World Bank’s 2004 report Mining as a Source of Growth have identified the mining sector to be a potential engine in Afghanistan’s state-building effort.

Karzai having emphasised on ‘regional cooperation’ as a plank for Afghanistan’s development, has participated as an observer in the summits of the Shanghai Cooperation Organization (SCO). A grouping of Central Asian nations, SCO is viewed as a counter to the US dominance in the region. Afghanistan’s entry into the South Asian Association of Regional Cooperation (SAARC) has opened its traditional economic and cultural linkages with other South Asian countries. President Karzai’s increasing overtures towards India is seen as an effort to balance the influence of neighbouring Pakistan, with which Afghanistan shares a difficult relationship. In early March 2010, Karzai hosted the Iranian President Mahmoud Ahmadinejad, almost at the same time as the US Defence Secretary Robert Gates was visiting Afghanistan. While Karzai emphasised on the need to re-establish warm ties with a ‘brother nation’, Ahmadinejad used his brief visit to criticise the US military presence and increasing civilian casualties.

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‘In Afghan Trip, Obama Presses Karzai on Graft’, The New York Times (28 March 2010), www.nytimes.com/2010/03/29/world/asia/29prexy.html?pagewanted=all. Accessed on 20 April 2010.

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Conclusion Economic interests remain central to China’s involvement in Afghanistan. However, it remains to be seen for how long it can choose to pursue ‘only economic activity’ in Afghanistan. Given the dangers of Islamic extremism engulfing the region and spilling over into its restive Xinjiang province coupled with increasing cross-border drug trade, China will have to do a policy rethink. It may not tantamount to joining the US-led war, but would certainly involve steps that would have direct implications on the peace and stability of Afghanistan. China will have to prepare for a scenario of the US withdrawal from, or downsizing in Afghanistan, and the challenges posed by such an eventuality. In the prescription of a regional solution for Afghanistan’s woes, China will have a critical role to play. The present Sino-Afghan cooperative partnership might not mean as much as the comprehensive strategic partnership agreements with its all-weather ally, Pakistan, but has significant pointers of a change in China’s thinking in anticipation of the US draw down from Afghanistan. Given China’s political and military relationship with Pakistan, it has considerable leverages to influence the latter’s Afghan policy, which will be critical to any long-term stabilisation efforts in Afghanistan.

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ISA S Insights No. 99 – 11 May 2010 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Management of Fiscal Stress: Are Greece’s Solutions Relevant for India?

Sasidaran Gopalan and S. Narayan1

Abstract The financial crisis in Greece and the measures to tackle it have led to a considerable debate on how fiscal deficits should be managed by countries facing fiscal stress. While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile countries like Spain and Portugal might default, the turmoil has also exposed deeper fears that government borrowing in bigger nations could be unsustainable. To some degree, these concerns are relevant for countries like India and those staring at similar numbers. In this context, this piece explores the relevance of the proposed Greece’s solutions for India in managing its fiscal stress.

The problems of Greece are already beginning to affect the financial markets in the rest of the world. According to the New York Times2, ‘already, jittery investors have forced Brazil to scale back bond sales as interest rates soared and caused currencies in Asia like the Korean won (KRW) to weaken. Ten companies around the world that had planned to issue stock delayed their offerings, the most in a single week since October 2008. The increased global anxiety threatens

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Sasidaran Gopalan is a Research Associate at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be reached at isassg@nus.edu.sg.

Dr S. Narayan is the Head of Research and a Visiting Senior Research Fellow at ISAS. He was the former economic adviser to the Prime Minister of India. He can be reached at snarayan43@gmail.com.

New York Times (8 May 2010), http://www.nytimes.com/2010/05/09/business/global/09ripple.html?ref=business

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to slow the recovery in the United States (US), where job growth has finally picked up after the deepest recession since the Great Depression. It could also inhibit consumer spending as stock portfolios shrink and loans are harder to come by.’

The financial crisis in Greece and the measures to tackle it have led to a considerable debate on how fiscal deficits should be managed. Several countries are facing fiscal stress, including the United Kingdom (UK) and the US, and to a greater extent, Portugal, Spain, Italy and Ireland.

While the immediate causes for worry are Greece’s ballooning budget deficit and the risk that other fragile countries like Spain and Portugal might default, the turmoil also exposed deeper fears that government borrowing in bigger nations like the UK, Germany and even the US is unsustainable. In short, it is a warning call to all countries living beyond their means. After contemplating over the last few days, the European Union (EU) Finance Ministers have managed to work out an emergency loan package worth Euros 750 billion, that includes a mechanism for the states to guarantee loans taken out by the European Commission, the bloc’s executive body, to support ailing economies. The package consists of a special-purpose vehicle through which the euro area states would guarantee on a pro rata basis up to Euros 440 billion, in addition to a emergency European Commission funding worth Euros 60 billion and the International Monetary Fund (IMF) contributing up to Euros 250 billion.

The total debt burden for Greece appears to be in excess of Euros 400 billion, 140 per cent of the country’s Gross Domestic Product (GDP). The debt is substantially held outside the country, but largely in the Eurozone, and hence, technically, in its own currency. During the next two years, Greece would have to repay close to Euros 110 billion of debt. The Eurozone is offering a financial lifeline through a rescue package worth 110 billion Euros (of which the IMF is chipping in 30 billion Euros), in return for an undertaking by Greece to consolidate its fiscal position by nearly 11 per cent over the next three years, thus reducing its fiscal deficit from 13.6 per cent in 2009 to 3.0 per cent in 2014. If Greece is allowed to default, apart from the collapse of the Greek economy, the negative contagion would have had serious ramifications on the other EU members (most notably Germany) holding Greek bonds in significant proportions, and the Euro in general.

To some extent, these worries are relevant for India as well. The high fiscal deficit and the current account as well as revenue deficits have been taken seriously by the Government, and fiscal management concerns in India have led to the reiteration, at policy levels, of a fiscal discipline road map.3 There are significant differences in the Indian debt from the Greek debt, and the consequences of management in the two countries are likely to be different.4

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See, Union Budget (2010-11), Speech of the Minister of Finance, India, http://indiabudget.nic.in/ub201011/bs/speecha.htm.

See, also Islam. M, ‘Should the sovereign debt crisis worry Emerging Asia?’, forthcoming (2010).

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India’s gross fiscal deficit5 (budgeted estimates) for 2009-10 stands at 9.7 per cent of the country’s GDP, while Greece’s fiscal deficit stands at 13.6 per cent. In order to consolidate the fiscal position, as a part of the conditionalities of the bail-out package, Greece has to undertake severe belt tightening measures. How many of those options are available for India?

Table 1: Receipts and Expenditure of the Central Government (Rs. Crore)

Item

2004-05

2005-06

2006-07

2007-08#

2008-09 (B.E.)

2008-09 (P)

2009-10 (B.E.)

Revenue Receipts

305991

347077

434387

541864

602935

544651

614497

Revenue 384329 Expenditure

439376

514609

594433

658118

791697

897232

Revenue Deficit

78338

92299

80222

52569

55183

247046

282735

Capital Receipts

192261

158661

149000

170807

147949

336818

406341

Capital 113923 Expenditure

66362

68778

118238

92766

89772

123606

Total 498252 Expenditure

505738

583387

712671

750884

881469

1020838

Fiscal Deficit

146435

142573

126912

133287

330114

400996

125794

Notes: BE – Budget Estimates; P – Provisional; # - Based on Provisional Actuals for 2007-08.

Source: Reproduced from Chapter 3 (table 3.2, pg.40), Economic Survey of India, 2009-10, available at http://indiabudget.nic.in/es2009-10/chapt2010/chapter03.pdf

1) Is debt restructuring an option? The stock of outstanding government debt relative to GDP is a critical measure of sovereign credit standing. Debt restructuring can be plausibly undertaken when a country’s substantial portion of its outstanding debt is represented by external debt. A country's external debt is defined as the part of the total debt of a country owed to foreign creditors. With nearly 70.0 per cent of Greece’s national debt owned by foreign creditors, it can be an option for Greece. In the past, countries such as Mexico and Brazil have resorted to the restructuring of debt. Primarily, this has involved lenders

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The fiscal deficit figure reflects the combined deficit of the centre and the states. The corresponding figure for India’s gross fiscal deficit of the central government (alone) stands at 6.5 per cent.

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agreeing to give up some of their rights, and to write down outstandings, especially in terms of interest payments, and even accept a short payment of principal. If the lenders have deep enough pockets, then such asset restructuring exercises are possible. However, in the case of the Russian default of the early nineties, it brought down a major a lender in the US. With intertwined financial markets and instruments, a sovereign debt default is likely to have global consequences across financial and bond markets, and hence to be resorted only as a final, desperate resort. Though this has not been a part of the proposed bail-out package, as Martin Wolf6 notes in his latest column in the Financial Times, Greece cannot avoid debt restructuring in the near future. His argument is that the bail-out package will offer only temporary relief, and since Greece does not have the capabilities of growing its revenues to meet the obligations for the foreseeable future, it would have to resort to restructuring of debt. In short, this implies that banks in the US and Europe, most notably Germany, would have to write down their dues.

In contrast, the major share of India’s total outstanding debt is represented by internal debt.

Table 2: Outstanding Liabilities of the Central Government (As a per cent of GDP)

Item

200405

200506

200607

200708

200809

200910

(R.E)

(B.E)

Internal Liabilities

59.7

58.4

56.9

55.1

54.1

54.5

(a) Internal Debt

39.4

37.5

36.1

36.5

36.1

38.2

(i) Market Borrowings

23.4

23.3

22.7

22.1

24.4

28.7

(ii) Others

16.0

14.2

13.4

14.5

11.8

9.6

(b) Other Internal Liabilities

20.3

20.9

20.8

18.5

17.9

16.2

External Debt Outstanding

1.9

2.5

2.4

2.3

2.2

2.2

Total Outstanding Liabilities

61.6

61.0

59.3

57.3

56.3

56.7

Notes: R.E. – Revised Estimates; B.E. – Budget Estimates Source: Reproduced from Chapter 3 (table 3.6, pg.52), Economic Survey of India, 2009-10, available at http://indiabudget.nic.in/es2009-10/chapt2010/chapter03.pdf

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Martin Wolf, Financial Times (4 May 2010), www.ft.com/cms/s/0/de21becc-57af-11df-855b-00144feab49a.html

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India’s total debt as a per cent of the GDP is nearly 57.0 per cent in 2009-10 (BE). While the share of total internal debt as a per cent of GDP is 55.0 per cent, the ratio of external debt to GDP is only about 2.2 per cent. Though India’s external debt is growing in absolute numbers in the last five years, its proportion to GDP is relatively understated because of the aggregate growth in the size of the economy. Since the source of the debt is internal borrowings, any restructuring of debt would only worsen the balance sheets of the publiclyowned banks. During the last effort at writing down agricultural debt7, the Government had to step in to provide funds for the banks that had lent to agriculturalists, in a way, worsening its fiscal woes. Any restructuring of debt in India to take care of the fiscal problems would only worsen the position of institutions and individuals who are holders of the debt, and is therefore not an option.

2) How about exchange rate alignment? Observers note that, had Greece not shared a common currency with the EU, it could have relied on conventional tools like a devaluation of its own currency to bring back the costs in line by tightening its fiscal policy. A devalued currency would have in turn helped regain its lost competitiveness by contributing an increase in its exports and would have made the process of fiscal consolidation easier and less painful. But this option does not exist and has contributed to severe deflationary pressures in the economy.

In the case of Greece, the alignment with the euro is likely to have a cascading effect on each of the individual economies that is linked to the Euro, leading to speculation about the future of the Euro itself. In the case of India, faced with a growing current account deficit, and increasing short-term capital flows into the financial markets that are becoming necessary to hold the capital account balance, exchange rate management has become a dayto-day task for the Reserve Bank of India - a task of balancing the costs of imports with the expectations of exporters, and hence any sharp changes in currency management would be unlikely to affect the fiscal balance of the country’s public finances.

3) Fiscal restructuring is one of the key propositions put forward in the bail-out package for Greece. Contracting government expenditures by substantive amounts is the only way out to achieve fiscal discipline in the long-run. But since the economy is already in a depressed state, these measures are going to likely worsen the situation.

In the case of India, however, there is ample space for using this policy tool because of the subsidies doled out to various quarters. As a proportion of GDP, major budgetary subsidies were budgeted at nearly 1.7 per cent in 2009-10, in addition to the subsidies in the form of

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See, Union Budget (2009-10), Speech of the Minister of Finance, India, http://indiabudget.nic.in/ub200910/bs/speecha.htm.

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issuance of oil and fertiliser bonds amounting to about 1.7 per cent of the GDP. It is definitely possible to target these subsidies in a more effective way and reduce the subsidy bill, thereby creating a dent on the magnitude of internal debt India is facing. The only constraint would be that most of the subsidies are to important constituents, like the farmers and the middle class, and would be difficult to roll down.

Thus, the clear option available to India is to grow its way out of the fiscal deficit. With the economy growing at real terms at around 8.0 per cent, revenues in nominal terms are likely to exceed a growth rate of 15.0 per cent a year, and so long as fiscal borrowing growth is less than this number, it is possible to bring down the fiscal deficit numbers in the medium term - say by 2014. This does require careful inflation management as well as putting out of asset bubbles as and when they arise. But India has been adept in the past with regard to fiscal management - in fact; India has been good only at such critical fiscal management.

The problems of Greece are hence not likely to be the problems of fiscal management in India.

However, contagion effects through volatility in the financial markets, increases in interest rates for overseas borrowings and stickiness in new equity offerings cannot be ruled out - these would be near term effects, without affecting the overall growth story.

A key take-away from looking at various options available to India to tackle such debt problems is to grow its way out of the problem by emphasising on collection of tax revenues. The revenue receipts as a per cent of GDP has been declining in India. In 2009-10, this figure stood at 7.7 per cent, back to levels in 2005-06, after seeing an increase in this ratio in the in-between period.

Policy makers need to pay attention to this and corrective measures need to be taken to raise the tax revenues-to-GDP ratio.

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