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. 

Wednesday, July 09, 2014

Sheryl Sandberg: how not to say sorry

Sheryl Sandberg charmed the media and got to meeting the PM and the president during her recent visit to India. But the storm created by Facebook's experiment on its users' emotions refuses to die down. One privacy group in the US is reported to have filed a complaint with the US Federal Trade Commission.

I have been trying to figure out what precisely was the violation of privacy involved. I must confess the news reports are less clear than I would have liked. Here is what I read in the Guardian:
The study conducted over one week in 2012 and published in the Proceedings of National Academy of Sciences, hid "a small percentage" of emotional words from peoples' news feeds, without their knowledge, to test what effect that had on the statuses or "likes" that they then posted or reacted to.
I guess this is what is being interpreted as an attempt to manipulate the emotions of Facebook users. Another article, written by Geeta Seshu, quotes from the study itself:
The experiment manipulated the extent to which people (N = 689,003) were exposed to emotional expressions in their News Feed. This tested whether exposure to emotions led people to change their own posting behaviors, in particular whether exposure to emotional content led people to post content that was consistent with the exposure—thereby testing whether exposure to verbal affective expressions leads to similar verbal expressions, a form of emotional contagion.
Leaving aside the allegations of violation of privacy, there is the matter of Sandberg's reaction to the episode. Lucy Kellaway, FT's columnist quotes Sandberg as saying that the experiment had been “poorly communicated. And for that communication we apologise. We never meant to upset you.”

Kellaway calls this a "perfect lesson in how not to apologise" and proceeds to spell out why in the most scathing terms:
This was bad on four scores. She didn’t take personal responsibility. She didn’t say sorry for the thing itself. Her “didn’t mean to upset you” was patronising, and worse than that, a lie. The experiment was specifically designed to upset some users, by showing them negative comments. That was the whole point.
Geeta Seshu points that India has 100 million Facebook users, next only in size to that of the US and likely to overtake the US soon. The privacy issues are significant, Seshu warns and she thinks Modi should have raised the issue with Sandberg:

But coming back to India and India’s huge population of Facebook users, in the absence of a privacy law, there is a dire need for much more debate and understanding on how much of our data is up for grabs and how much of control we have over its use/misuse.  
Sadly, our Prime Minister, who should have been more alert to issues of privacy and surveillance, given the disclosure last week that the US government’s NSA had authorized surveillance of his own political party, seems to have looked the other way. 


Thursday, July 03, 2014

Should we worry about business houses owning media?

Reliance Industries' acquisition of control over Network 18 has generated some comment, albeit mostly on the Net, not the print media. There is concern over the implications of business houses or corporates owning or controlling the media, whether print or visual media. The Aditya Birla group  has a substantial stake in the India Today group and the Tata house controls Tata Sky. As Vanita Kohli Khandekar notes in a perceptive piece in BS, there is little people getting worked up over business groups entering, well, another business. Many of the large newspapers in the country are controlled by those who came from a corporate background.

The point is that as long as there is diversity in ownership, we need not worry unduly. Some business house will support the Congress, another will support the BJP and a third group may root for some regional party. What we need to ensure is nobody dominates, that is, there is plurality and diversity and that all conduct the media businesses in accordance with norms, in others, a regulator that keeps an eye on the media as a whole. Khandekar has valuable suggestions to make:
One, an independent-of-the-government media regulator with powers a la Federal Communications Commission (US) or Ofcom (UK). They set the business rules, keep a check on ownership, prevent the formation of monopolies, stop bad practices and create a healthy environment for free media.
Two, a law that forces any organisation in the news business to publish its accounts and every detail of who owns it, how it is funded, its revenues, and so on at fixed periods, online. This forced transparency will deter the "unsavoury" entrants, reduce hyper-competition and, therefore, the plummeting of standards.

Three, a high-quality, independent, taxpayer-funded broadcaster. If Doordarshan was a world-class news channel, it would force the private ones to aim for better quality like the presence of BBC has done in the UK.
The last point cannot be over-emphasised. I have noted in my blogs that DD has improved quite a bit. (Rajya Sabha TV's Samvidan on Sunday, which is about the making of the Indian constitution, is a model of quality programming). One hopes that under the new government, DD gets the support it needs in order to provide the lead to private players. 

Punish bankers, not banks

We have another mega-settlement for another mega-violation in banking. BNP Paribas has agreed to cough up $8.9 bn for violations of US sanctions against specified countries. An article in FT argues that the fines are disproportionate and that they hurt shareholders rather than bankers. Banks have no choice but to settle when American regulators come after them. This enables regulators to impose enormous fines and it also boosts the political fortunes of those who work for regulators:

These huge and disproportionate sanctions are the result of an unseemly competition between rival US regulatory agencies, each keen to mark its turf and get its teeth into the prey, while promoting the careers of political appointees. They are abetted by a legal system in which criminal indictment carries potentially fatal consequences. An institution that is accused of wrongdoing swiftly finds itself losing the confidence of investors and counterparties, making it impossible to do business. Its life saps away long before a case reaches trial. In these circumstances, banks have little option but to cough up.

The author argues that  regulators in Europe are more reasonable in the fines they impose and that a better way of punishing the banks would be impose higher capital requirements. This would also reduce profitability and hence the incentives for top bankers to misbehave.

The article is right in saying that the sins of bankers should not be borne by shareholders; it is also right about disproportionate fines. But it misses the central point: bankers who violate the law must go to jail. Imposing fines on the legal entities called banks hardly punishes the bankers. Another article in the FT makes this point tellingly:
Indeed, institutions do not break laws – individuals do. Lest there be any doubt on this point Benjamin Lawsky, the superintendent of New York’s Department of Financial Services stated that “BNP employees – with the knowledge of multiple senior executives – engaged in a longstanding scheme that illegally funnelled money to countries involved in terrorism and gdeenocide.”
So there you have it. And the punishment? About a dozen employees have been dismissed and others will be demoted to suffer pay cuts. A number of senior executives are departing. It would be interesting to know on what terms and with what perks. But no individual who was cited for wrongdoing will go to prison.......If no one goes to jail and the fine does no permanent damage, the settlement becomes more a transaction tax than a deterrent. It is unlikely to be seen as justice in the eyes of the public – people who tend to go to prison when they break the law.

Monday, June 23, 2014

The mind of Ajit Doval

Much has been said about the exploits of Ajit Doval, the new National Security Advisor, as a spook. He's said to be the only Intelligence Bureau chief to have been awarded the Kirti  Chakra for bravery. One has read that he penetrated the Golden Temple posing as an ISI officer, managed to get into a dargah in Pakistan disguised as a Muslim, negotiated the surrender of Naga militants and also negotiated the release of the hostages on board the Indian Airlines plane in Kandahar.

No doubt about the man's prowess as a spook. The interesting question now is: what are his views on major issues of national security? An article in the Hindu provides a fascinating glimpse into the mind of Mr Doval. Here are some interesting snippets:

“I consider infiltration of Bangladeshis the biggest internal security problem. Bangladesh supports the demographic invasion of India.”

In his view, “the most effective way of dealing with terrorism would be to identify boys who have got the courage of conviction to match that of the fidayeens and who are capable of taking risks. Identify them and put them in action".

Mr. Doval does not trust the United States — as is typical in officers of his generation. He warns that the U.S. “will seek to outsource their counter-terrorism to Pakistan” as they withdraw from Afghanistan. He was scathing of the U.S.-India nuclear deal, bitterly warning in 2006 that “it will stunt India’s emergence as a genuine nuclear weapon state, cripple its strategic deterrence, and reduce it to a US satrapy.” 

I found Mr Doval's views on the Indo-US nuclear deal striking. On the face of it, Mr Doval appears to be have missed an important fact: the deal is not about nuclear energy or even nuclear weapons alone. It is about getting access to advanced US technologies that can help propel economic growth. Or does Mr Doval think that even the latter is not crucial to India?