Wednesday, July 30, 2014

West's strategy: ignore Gaza, focus on Russia

Western governments have chosen to turn a blind eye towards the horrific killings in Gaza, apart from making anodyne statements that equate Israel's brutal measures with rockets fired ineffectually by Hamas. Instead, they have ratcheted up tensions in Ukraine, aimed clearly at pushing Russia on the defensive through harsher sanctions.

The US and western nations claim that they know it was a Russian missile supplied to pro-Russian separatists that brought down MH-17. Even if true, it is hard to prove that it was a deliberate act of killing. At worst, the separatists would have judged wrongly. The mistake would be no different from the downing of an Iranian civilian airplane by an American warship in Iranian airspace over Iranian territorial waters and in the course of the normal flight of the airplane. That too was a mistake: the Americans mistook the place for a military craft. The Americans refused to apologise and eventually settled for compensation of $62 mn.

In the case of MH-17, the facts have yet to be established clearly. What we have so far is pure speculation from the western propaganda machine. Atimes brilliant columnist Pepe Escobar has some hard-hitting things to say about this and he warns us about what to expect when the black boxes are decoded by the Brits:

Based on the wealth of info now in the open, the top probability of what caused the MH17 tragedy was an R-60M air-to-air missile shot from a Ukrainian Su-25 - and not a BUK (there's also the possibility of a double down; first an R-60M and then a BUK). The R-60M is very fast, with an ideal engagement distance of up to five kilometers. That's how far the Su-25 detected by the Russians (they showed the graphics) was from MH17.

SBU - Ukrainian intel - for its part confiscated the recordings of Kiev control tower talking to MH17. That would certainly explain why MH17 was overflying a war zone (Malaysian Airlines revealed they were forced to). Hefty bets can be made the recordings are now being "doctored".

Then there are the black boxes, which will not de decoded by the Malaysians or by the Dutch, but by the Brits - acting under Washington's orders. As The Saker blogger summed up the view of top Russian specialists, "the Brits will now let the NSA falsify the data and that falsification will be coordinated with the SBU in Kiev which will eventually release the recordings who will fully 'confirm' the 'authenticity' of the NSA-doctored recordings from the UK." To make it more palatable, and erase suspicions about Anglo-American foul play, the Dutch will announce it. Everyone should be forewarned.
Take a look also at a piece by M K Bhadrakumar on how the West is moving resolutely forward to box in Russia. The objective, he argues, is not containment of Russia alone but sustaining US dominance of the world order:
The rest of the world understands perfectly well what the new Cold War is all about. Even the Europeans aren’t duffers, they too comprehend what is going on, as their great reluctance to isolate Russia testified all these weeks and months. 
Most certainly, there is no ideology involved here. It is not a war on socialism or on terrorism, nor is it a war about Ukraine or Russia intrinsically. In plain terms, the new Cold War is about the perpetuation of the US’ global dominance. 
Without the Bretton Woods system, without NATO, without nuclear superiority over Russia, the US faces the prospect of becoming a vastly diminished power over time. Without the trans-Atlantic leadership, it gets reduced to what it used to be before World War I one hundred years ago — an influential regional power in the Western Hemisphere.
In the meantime, hell will continue to be unleashed in Gaza.

Tuesday, July 29, 2014

Hindu obscurantism?

On TV yesterday, I saw a panel discussion involving Dina Nath Batra whose books claim that ancient Hindus had knowledge of television, stem cell research etc. Karan Thapar was asking his guests whether there was any historical basis for these views. The historians on the panel scoffed at the suggestion and Thapar himself was ridiculing Batra's contentions.

This morning, I stumbled across a quote from Robert Oppenheimer, the father of the atomic bomb at a website about aspects of Hinduism:
While he was giving a lecture at Rochester University, during the question and answer period a student asked a question to which Oppenheimer gave a strangely qualified answer:
Student: “Was the bomb exploded at Alamogordo during the Manhattan Project the first one to be detonated?
Dr. Oppenheimer: “Well — yes. In modern times, of course.
Some people suggest that Oppenheimer was referring to the Brahmāstra weapon mentioned in the Mahabharata.The appreciation didn’t stop there. So much so he always gave the book (Bhagavad Gita) as a present to his friends and kept a copy on the shelf closest to his desk.
As is well known, watching the first ever atomic explosion at Los Alamos  in the Nevada desert, Oppenheimer was moved to quote from the Viswaroopa scene of the Gita, Brighter than a thousand suns, the splendour that is me. As the mushroom cloud reached its peak and the enormity of the destruction it wrought became evident, Oppenheimer was reminder of another line from the Gita, I am become death, destroyer of all worlds. 

Let I should be misunderstood, this is not an endorsement of Batra's works, I am not qualified to speak on the subject. I give the quote from Oppenheimer as it is of more than passing interest. 

Monday, July 28, 2014

BRICS Bank is a welcome idea

The Brics Bank will happen thanks, in large part, to the determination of the leaders of both India and China to make it happen. PM Modi let the Chinese proposal of locating the bank in China go through so that the idea could move forward. Xi Jianping settled for equal sharing of equity and voting rights.

Western commentators ask what binds the Brics together. Well, what binds together Israel and the Arabs in the UN or, for that matter, the US and Russia? The point is that international institutions subserve common interests. Initial lending by the bank will be small- say, $40 bn -$60 bn. But that's the financing that developing countries get for infrastructure from the World Bank. So even this small amount positions the bank as a direct competitor to the World Bank. Ditto with the $100 bn contingency fund for BoP crises. At least developing countries will not be entirely the mercy of the IMF-World Bank hereafter.

More in my EPW article, BRICS Bank future hinges on governance.

Tuesday, July 22, 2014

MH 17: We need the truth, not western hysteria

I wrote yesterday about western attempts to whip up hysteria against Putin over the downing of MH 17 without understanding the context in which the incident happened- or, for that matter, without getting to the bottom of what happened. The west think they have Putin cornered. International opinion over the shooting of a civilian aircraft, they hope, will stop Putin in his tracks where Ukraine and the countries that surround Russia are concerned.

Well, the Russians have hit back quickly, as this report in FT outlines. They seem to have proof that MH 17 was tracked by an Ukrainian military aircraft. More revelations should be forthcoming from Russia in the days ahead.

Read also this article in atimes. The author raises the all-important question of motive in the incident:
So who profits?
The key question remains, of course, cui bono? Only the terminally brain dead believe shooting a passenger jet benefits the federalists in Eastern Ukraine, not to mention the Kremlin.

As for Kiev, they'd have the means, the motive and the window of opportunity to pull it off - especially after Kiev's militias have been effectively routed, and were in retreat, in the Donbass; and this after Kiev remained dead set on attacking and bombing the population of Eastern Ukraine even from above. No wonder the federalists had to defend themselves.

And then there's the suspicious timing. The MH17 tragedy happened two days after the BRICS announced an antidote to the IMF and the World Bank, bypassing the US dollar. And just as Israel "cautiously" advances its new invasion/slow motion ethnic cleansing of Gaza. Malaysia, by the way, is the seat of the Kuala Lumpur War Crimes Commission, which has found Israel guilty of crimes against humanity.

Washington, of course, does profit. What the Empire of Chaos gets in this case is a ceasefire (so the disorganized, battered Kiev militias may be resupplied); the branding of Eastern Ukrainians as de facto "terrorists" (as Kiev, Dick Cheney-style, always wanted); and unlimited mud thrown over Russia and Putin in particular until Kingdom Come. Not bad for a few minutes' work. As for NATO, that's Christmas in July.

Monday, July 21, 2014

Downing of MH 17: a sober perspective

The shooting down of Malaysian airline MH 17 has drawn condemnation all around. Rightly so, for international civilian flights should not become part of hostilities raging anywhere in the world and particularly when neither the airline nor its passengers are in any way involved with the hostilities.

At the same time, one cannot help noting that the condemnation of the incident has quickly been sought to be turned into a condemnation of Russia and its role in the Ukraine conflict, with most of the western media duly obliging. This is uncalled for. In the first place, judgement must be reserved until an independent enquiry is completed and its findings become available. The west may have reason to believe that the shooting is the work of pro-Russian separatists but this has to be established.

Secondly, to say that it is Russia that is fomenting rebellion in Ukraine and that it is Russian weapons and support that must be held responsible for the shooting down ignores the full dimensions of what is going on in the region. Ukraine has been raining bombs on the pro-Russian people. In recent months, the separatists have sought to defend themselves by trying to bring down Ukrainian aircraft. Russia is helping the separatists who are predominantly Russian and have strong links to Russia.

Ukraine is being supported by the US and Europe. Western support to Ukraine, which has involved bringing Ukraine into a EU Free Trade pact and also attempts to bring it into Nato, is part of a larger design to pin Russia down to its neighbourhood with the help of nations that ring Russia. That would prevent Russia from projecting itself onto the international stage. This is the broader context in which the shooting down has occurred. It has been left to noted American scholar Stephen Cohen to present a sober and balanced picture of what's going on in the region:
Let me mention, because I think it’s relevant to what you’re covering here (the reference is to the news channel) your very, very powerful segments before I came on today about what’s going on in Gaza, the pounding of these cities, the defenselessness of ordinary people. The same thing has been happening in East Ukrainian cities—bombing, shelling, mortaring by the Kiev government—whatever we think of that government. But that government is backed 150 percent by the White House. 

Every day, the White House and the State Department approve of what Kiev’s been doing. We don’t know how many innocent civilians, women and children, have died. We know there’s probably several hundred thousand refugees that have run from these cities. The cities are Donetsk, Luhansk, Kramatorsk, Slovyansk—a whole series of cities whose names are not familiar to Americans. The fact is, Americans know nothing about this. We know something about what’s happening in Gaza, and there’s a division of opinion in the United States: The Israelis should do this, the Israelis should not do this. But we know there are victims: We see them. Sometimes the mainstream media yanks a reporter, as you just showed, who shows it too vividly, because it offends the perception of what’s right or wrong. But we are not shown anything about what’s happened in these Ukrainian cities, these eastern Ukrainian cities.

Why is that important? Because this airliner, this shootdown, took place in that context. The American media says it must have been the bad guys—that is, the rebels—because they’ve shot down other airplanes. This is true, but the airplanes they’ve been shooting down are Ukraine’s military warplanes that have come to bomb the women and children of these cities.

 There is another aspect to the tragedy that people have drawn attention to. The aircraft was using a route directly over the war zone that several other flights had steered clear of. Was the aircraft directed to that dangerous route? And by whom? See this story, for instance.

Wednesday, July 16, 2014

So much for "second generation" reforms

There is disappointment that Jaitley's budget didn't have much to offer in the way of "second generation" reforms. This was supposed to be just the right time. Two years from now, we would be approaching the next round of elections. Moreover, the government could now blame the state of the economy on its predecessor and justify reforms on that ground; further along, it would be difficult.

Why so? Well, because when the economy is floundering and people are in distress because of high inflation and lack of jobs, delivering "bitter medicine" is not easy, especially when it is not certain that the medicine will always produce the desired results. You can't have cash transfers unless you are reasonable sure these will work (so cash will reach correctly and there would be outlets from where people can access food, for instance). You can't privatise public sector banks wholesale and face the risk of a banking crisis. You can't allow foreign investors to gain control of companies in strategic sectors such as defence and insurance.

"Second generation" reforms can happen only in a gradual way and when conditions are more conducive. That's what the UPA thought and that's what the NDA is discovering. More in my article in the Hindu, Short-term costs, long-term benefits.

Did I read Nitin Gadkari's mind?

I wrote yesterday that it was futile to pin too much hope on PPPs in the present situation in which the model was broke. Along comes the following statement by Nitin Gadkari on how the government intends to proceed with road projects:
In a significant shift of policy, he (Nitin Gadkari) also said that public private partnership (PPP) model was not feasible at present for award of road projects due to a host of issues "created by the previous government" and that schemes will be bid out on engineering, procurement and construction (EPC) mode.
"Projects were bid out by previous government without even 10 per cent of the required land acquisition. Work could not start on the project where financial closure took place two years back. Banks withdrew financial closure...PPP mode is not possible now. We will work on EPC model for a few years," he said.
Unlike PPP model where the private sector has to fund the road building, in the EPC model, the government funds a highway, with private firms designing and building the road.

Tuesday, July 15, 2014

Some late thoughts on the budget

I was travelling, so didn't have a chance to comment on the budget (not a bad thing, considering the deluge to which hapless readers and TV reviewers are subjected on budget day and thereafter).

Well, the budget is a tribute of sorts to the UPA government. I don't mean this a criticism of the present finance minister or the government. They may have been vociferous in their criticism of the UPA when they were in opposition. Now, having assumed office, they are better placed to appreciate the constraints, both political and economic, very well. So, there is very little of the "second generation" reforms in the budget. The unwillingness to tackle subsidies is glaring. I also noted the reference to maintaining the "public sector character" of banks. That means the NDA government will not allow government shareholding to fall below 51%; the PJ Nayak committee report on bank governance has been ignored.

The budget is mostly an attempt to balance the books and keep the fiscal deficit under control so as not to rattle the credit agencies and the markets. Has the finance minister done a good job of that? Will the fiscal deficit target of 4.1% be met? The task is difficult, chances are that the deficit will end up at around 4.5%, but it's not impossible, seeing what Chidambaram did in FY 2014-14- ruthlessly cut expenditure in order to meet the target.

I guess Jaitley will do likewise if the revenues he expects don't materialise. There is, of course, a price to pay. The combination of fiscal and  monetary compression will mean that growth will be the casualty and growth in 2014-15 will end up 5-5.5% rather than 5.5-5.9% as projected. What astonishes me is that most of the media criticism has been mild; a budget such as this coming from the UPA would have been savaged. Not that the media would be right in doing so. My own reading, as I said, is that both the UPA and the NDA governments have read the political economy correctly. There is only so much that can be done in the present environment without seriously antagonising the electorate.

Let me now turn to the infrastructure sector on which the FM has lavished a lot of attention. The broad trend in recent years is for the government to reduce its own role in investment and to leave it to the private sector to drive infrastructure through the mechanism of public private partnerships (PPPs). Jaitely's budget seeks to accentuate this trend. According to one estimate, central government investment (directly and through support to the state plans) in infrastructure will be only 15% of the total. The rest is left to the private sector.

That's a tall order. For two reasons. First, in all of the developed world and in China, infrastructure development has been largely the domain the state. The FM mentioned that India has the highest number of PPPs in the world today, 900. How come we lead in this one respect while lagging behind in so many others? Could it be that the world has understood that PPPs are the not the best way to develop infrastructure?

Secondly, the PPP model we have used thus far is broke. Every component has to be reworked: the bidding norms, the concession terms, dispute resolution etc. There are issues extraneous to the model that need to be fixed: land acquisition, environment clearances, fuel supply linkages etc. In other words, there are major institutional issues that need to be addressed in order to get PPPs going again. This won't happen in a hurry.

The budget overlooks these realities and instead expects that private investment will be lured by improving returns at the margin through various means:

  • Investment infrastructure trusts whose interest income will be exempted from tax\
  • Tax holiday upto 2017 for power companies
  • Less onerous CRR, SLR and priority sector norms for banks that raise long-term funds for infrastructure which will help banks lend at lower rates
All these will help improve returns. But the problem today is not the level of returns. It is variability in returns or risk. And that requires fixing the issues mentioned above. Once the demand side is taken care, supply of finance can be tackled.

I have serious reservations about the way bank finance for infrastructure is sought to be made cheaper. Lowering statutory requirements raises issues of risk management. A simpler way to reduce lending rates for infrastructure would have been been to allow banks to issue tax-free bonds. (Or simply revive development finance institutions with access to concessional finance). I also doubt that the level of bank recapitalisation budgeted, around Rs 11000 crore, suffices to give banks the confidence to increase loans to infrastructure in a big way.

There is one other issue in infrastructure today which cannot be ignored. Many of the leading companies are neck deep in debt. Their loans have to be restructured, they need to monetise their assets. Only then will banks will confident enough to lend. The bottomline: I can't see the infrastructure sector reviving in the near future.

Two people will be greatly disappointed with this budget, the BJP's mentors Jagdish Bhagwati and Arvind Panagariya. Wonder what they have to say.