Growth and Welfare: Rising Income And Declining Satisfaction

Bharat Dogra
The Statesman, 31 october 08

In recent years whenever our ruling politicians have been told about increasing problems and discontent of the people, they have responded in various ways. They never forget to draw attention to the high rate of economic growth. “Look at the 9 per cent growth rate, things can’t be bad”. But what politicians forget is that there is an increasing disconnect between the growth rate and GNP figures on the one hand and the real well-being of people on the other. This leads to growing disenchantment with existing economic indicators like the GNP. So much so that the French government, responding to people’s changing perceptions, has now launched efforts to find other indicators which can be a better reflection of the real condition of the people.

Even the 23 high-income OECD countries, which are supposed to be the biggest achievers and beneficiaries of the existing path of development, are discontented.

The Human Development Report states: “Although per capita incomes in the OECD countries now average $20,000, surveys reveal growing insecurity and considerable dissatisfaction.” In Britain, a study by the New Economics Foundation which prepared an index of ‘Sustainable Economic Welfare’ revealed that during 1975-1990, the GNP rose by about 33 per cent but sustainable economic welfare fell by about 50 per cent.

Quality down

In a survey on the changes in the quality of life by the British Social Science Research Council covering a five-year period, the people who were interviewed almost unanimously said that their level of consumption had gone up yet the quality of life had gone down during the last five years. They feared that this trend of increased consumption and a decline in the quality of life would continue over the next five years.

Most countries have registered an increase in life expectancy in recent decades; but this has been accompanied generally by an increase in chronic health problems, physical as well as mental. The Director-General of WHO said recently, “Increased longevity without quality of life is an empty prize.” The state of the World Health Report 1997 (WHR) prepared by WHO went a step further when it added, “Longer life can be a penalty as well as a prize. A large part of the price to be paid is in the currency of chronic disease.”

In Britain, for instance, General Household Surveys after a 16-year gap revealed a 50 per cent increase in ‘long standing illness’ and a 75 per cent increase in acute illness during the preceding two weeks. Walter Yellowlees, a highly experienced doctor of this country said in a paper presented at the Royal College of General Practitioners : “I believe it is true to say that in those countries which have achieved unparalleled advance in technological skill in medicine and in what is called standard of living, we are witnessing the decay of man ~ the decay of his teeth, his arteries, his bowels and his joints on a colossal and unprecedented scale.”

Suicide rates are known to be quite high among some of the most economically prosperous countries, raising disturbing questions. In Australia (what appears to be a land of fun and fortune), suicide rates are reported to be among the highest in the world. As many as ten per cent of Australians commit some form of self-harm.

China is supposed to have the most impressive record of economic growth in recent years. However, a recent study by WHO, Harvard University and the World Bank noted that China also has one of the highest suicide rates in the world ~ about thrice the world average.

In India, the price rise is disconnecting the common people from the widely publicised data of high economic growth. The impact is worse than what is indicated by official statistics of inflation. In recent interviews with weaker section families, this writer found that people would time and again come back to talking of the impact of inflation regardless of what question was being asked.

However, even before the present phase of inflation, middle class families were also complaining of a sense of deception ~ of seeing their cash gains being lost in the middle of other, frequently bigger changes.

Many people complain bitterly about the steep hike in educational and medical expenses. With the increasing privatisation of education, people have more diverse options for their children’s education and careers, but for many of them this gain has come at too heavy a price. There is increasing economic tension as limited income gains are more than wiped out by sharply rising educational expenses from early school to the university level. At the same time, there has been a decline in the standard of government schools and closer career linkages with expensive educational institutions so that few options may be left for the people to opt out of the expensive system.

The lack of options is becoming even more difficult in the case of medical treatment. In most parts of the country, the standards of government hospitals and public health centres have been allowed to deteriorate. Simultaneously, there has been a proliferation of private hospitals and nursing homes, including several in the ‘five-star’ category. People are torn between the desire to avail the treatment here and the prohibitive expenses. A single serious illness or accident in a family can eat up all savings, perhaps also lead to indebtedness. Close family ties push people to seek better and convenient medical treatment at all costs, leaving behind a legacy of debt and economic stress even in the middle of rising cash earnings. Steeply escalating expenses of medicare and medicine cause tension and uncertainty among people regarding how to cope with a medical emergency.

Lopsided growth

Although India has been known for its closely-knit families, the trend towards a breakdown of ties has increased. This is partly because of the same factors that promise a rise in monetary gain. The disruption of family life leads to stress and depression, above all for children, and increasing economic problems as well.

Growing inequalities in the wake of fast but lopsided growth leads to social tension and a feeling of being left out among many people. In the middle of all the glitter and glamour of fast economic growth, many may feel squeezed out or alienated compared to those who can join in the celebrations. Thus in a situation of rising inequalities, in terms of relative gain and loss even many of those who have not lost in real terms may nevertheless feel like losers. Such feelings get aggravated in times of inflation when the majority suffer a huge pinch even as the party goes on uninterrupted for a select few.

There needs to be a wider and deeper realisation of these factors which matter a lot for the well-being of people beyond the statistics and rhetoric of growth and GNP. A better realisation of the real basis of people’s well-being will make it possible for economics and governance to become more involved in the true welfare of people.

The writer is a social activist

REFORMS GONE HAYWIRE - A wholesale repudiation of progressive taxation

Ashok Mitra
The Telegraph
November 29, 2004

The word, ?comprador?, of 16th-century vintage, has its roots in the Portuguese language. It has, however, travelled far and wide since. It originally meant a native house-steward, at least so suggest the dictionaries. Gradually, in the heady colonial days, comprador came to connote a native servant employed as head of the native staff, and as agent, by European commercial and business houses. In the course of the past century, particularly in the context of Latin America, the expression has assumed a more pointed significance. A comprador is now an individual who not only acts as agent representing foreign interests, but who, in addition, almost as a matter of principle, places the interests of foreigners above those of his native country.

Political economy in Latin America is full of rich debates concerning traits and symptoms of compradorism as well as stages and phases of the comprador epoch. The reverberation of these debates has not quite reached India. This is understandable, for Indian scholars have greater respect for pucca Western strands of thought. That does not mean though that the practice of compradorism has lagged behind here. The decade of the Nineties is for India about as important, one is almost tempted to say, as the final decades of the 18th century were for the advent of the Romantic era in Europe. Indians have learnt in the course of this decade that to be gracious to foreigners is the quintessence of economics; that is to say, the interest of foreigners must precede national interests. Which is why in 1994 the American consultancy group, Enron, was allowed to float a power-plant company in Maharashtra whose equity was to vest one hundred per cent with the Americans, while the bulk of the investible funds needed for it were to be provided by Indians.

The Indian authorities also agreed to sign a power purchase agreement which accepted as commonplace the notion that the Enron corporation would sell power to the natives at a price much, much higher than the price paid for per unit of power produced by plants installed by Bhopal?s Bharat Heavy Electricals in several places in the country. Intense debate took place in parliament over the wisdom of the deal struck with Enron, but all questions raised by doubters were brushed aside.

Foreigners, the nation was informed, know better; foreigners are ipso facto efficiency personified, and we must, for efficiency?s sake, pay them through the nose. There was some gossip that, to facilitate the adoption of such a stance by the ministry of finance and the ministry of power in New Delhi and the state government of Maharashtra, some money had passed hands. Even if the gossip had some basis, that was, however, an integral part of comprador culture. Native agents are ? foreigners take it for granted ? entitled to some bucksheesh for services they render, services that most of the time go against the native country?s interests. It is a different matter that Enron was soon found out to be, in the United States of America itself, a crooks? opera, and the projected power plant at Dabhol came to an ignominious end.

The recent hullabaloo over the legitimacy or otherwise of subsidies for oil and gas supplied to domestic consumers tells a story which has a grotesque overlap with the Enron incident. The terms of the power purchase agreement signed with Enron amounted to offering a hefty subsidy to the foreign firm. Such a subsidy was then considered to be a noble act. A different tune is now being sung over the persistent public demand that the domestic price of oil and gas supplied to domestic consumers be subsidized through a reduction in import and excise duties. Such slashing of duties is akin to subsidy, which the public is being told, is sin; one must not charge for a product a price lower than its cost, such practice allegedly retards economic efficiency.

It is all great fun. Those in authority are aghast at the suggestion to subsidize domestic consumers. There could be greater sins. Forget Enron. Barely a couple of years ago, exactly such a sin was committed by the government of India when, following directives from the World Trade Organization, it lowered import tariffs on 500-odd farm products, including wheat, cotton, tobacco, copra and rubber. In effect, by lowering the tariffs, the Indian authorities offered subsidies to foreign producers and exporters so as to enable them to lower their prices and thereby eject the home produces from the Indian market. In consequence, hundreds of Indian farmers experienced indescribable hardship; some of them were driven to commit suicide. Tariffs were lowered and subsidy offered to foreigners at the cost of Indian farmers; the government was not at all concerned if, in the process, domestic interests were adversely affected; comprador ethos was in uninhibited flow: sin is no sin if committed to further foreign interests.

The dictum has gradually attained respectability. Subsidies are all right if they promote foreign interests; they are otherwise if they promote a domestic cause. Lowering excise duties on oil and natural gas is resisted by the authorities because such a reduction will offer relief to domestic consumers. This, according to the authorities, is impermissible; domestic consumers are not foreigners.

Come to think of it, the country?s taxation policy, already incorrigibly pro-rich, has gradually undergone a comprador tilt as well. This is only natural, since taxes and subsidies are aspects of the same phenomenon: a tax is a negative subsidy, a subsidy is negative taxation. Since 1991, while direct taxes have been continuously lowered for companies, including foreign companies and upper income groups, indirect taxes have been raised. Lowering direct taxes is equivalent to offering subsidies to affluent citizens and foreigners. On the other hand, a stiffening of indirect taxes, the incidence of which falls mostly on the relatively poor, is akin to lowering subsidies for the poor.

Indian economic policy has therefore evolved into a compound of two principal objectives: first, promoting the interests of foreigners against those of the native crowd, and second, furthering the interests of the rich by putting an increasing squeeze on the poor. This is economics made easy, and is being religiously put into practice by the craftsmen at work in New Delhi.

Examples of how far the government has proceeded in the pursuit of these twin goal are indeed galore. Consider, for instance, the Central Electricity Act 2003. Subsidy, the act echoes, is sin; cross-subsidy is equally so. The state electricity boards have been enjoined by the act not to charge affluent consumers at rates higher than costs and use the proceeds of such higher charges to offer lower rates to poorer consumers. Cross-subsidy of this nature is supposed to be bad economics. The act, passed last year, has the vociferous support of the government of India and its various institutions, including the Planning Commission.

Nobody seemingly bothers to consider that abolition of the principle of cross-subsidy is really a wholesale repudiation of the structure of progressive taxation, the centrepiece of public finance in the Western world since the middle of the 19th century. According to the doctrine of progressive taxation, the rich have the ability to bear a higher rate of taxation compared to the poor, and therefore deserve to be taxed at a higher rate. Receipts from tax-payers in upper-income ranges, taxed at higher rates, have, over the past 150 years, provided the funds in country after country for essential social services specifically aimed at ameliorating the conditions of the poorer classes. The Central Electricity Act 2003 and its proponents have gone on record defying this basic canon of public finance. And we are supposed to accept all this in the name of economic reforms.

VIRUS IN THE PLAN - Bizarre fiscal arrangements between the Centre and the states

Ashok Mitra
The Telegraph, 21 January

The quinquennial event — the National Development Council’s approval of the five-year plan as prepared by the Planning Commission — is now no more than a charade. A plan is supposed to set rigorous targets for the economy as a whole as well as for its individual sectors, at the same time indicating meticulous measures to reach such targets. All that has fallen by the wayside in the free-for-all milieu of the liberalization era.

The 11th five-year plan, as ratified by the NDC last month, is nonetheless not an altogether vacuous exercise; it is intended to serve a particular objective: imposing the will of the Centre on state governments. This or that state chief minister may be totally opposed to the approach and contents of the plan. He or she must still walk the plank and fall in line with what is archly referred to as the consensus on the plan. Were a state government to refuse to go along, the Planning Commission will cut it out of all plan assistance; since the state disagrees with the projects and programmes constituting the plan and would like to go its own way, it cannot, it will be told, expect any financial accommodation from the commission.

Two outflows from the national exchequer form the lifeline of a state government: (a) statutory allocation recommended by the Finance Commission as per provisions of the Constitution, and (b) grants recommended by the Planning Commission for approved schemes under the five-year plans. The Finance Commission is formally appointed by the president every five years and empowered to decide the distribution between the Centre and the states of the revenue receipts collected by the Centre through income tax and excise duties; it also determines the inter se allocation among the states of the amount going into the state pool. In addition, it is authorized to recommend grants-in-aid to the states for specific purposes.

On paper, this constitutional arrangement for equitable distribution of funds between the Centre and the states looks fine. Given Article 74 of the Constitution, which makes the president a tool in the hands of the Union council of ministers, it is, in effect, the Centre which decides the Finance Commission’s composition and terms of reference. This Commission has in course of time become the deus ex machina to thrust the fiscal philosophy of the Central ministry of finance on the ambit of activities of the state governments; their statutory dues are now subject to conditions set by the commission on behalf of the Centre.

The experience of the states with the Planning Commission is not any different. This commission is not even a constitutional body. It was set up, way back in 1950, by a resolution of the Union cabinet, and functions just like any Central ministry. It acts as the eye and the ear of the Centre; it proposes what the Centre wants it to propose.

Consider the 11th five-year plan as prepared by the Planning Commission. It endorses New Delhi’s pet views on appropriate modalities for national development. The pursuit of free-market policies, it is confident, will ensure that the spurt of growth, already evident in the services and industry sectors, will continue during the 11th plan period, thereby engineering ±10 per cent annual rate of growth in gross domestic product. The only question mark is apparently with regard to agriculture, where the current annual rate of growth is only 2 per cent. For GDP to grow at 10 per cent, the rate of growth of farm output, the commission thinks, must double. Such an eventuality can take place, it further thinks, in case corporate bodies are invited to enter the rural sector and engage in contract farming.

The ruling idea of the Centre is the ruling idea of the commission; other considerations are of no consequence. Common sense suggests that once contract farming invades agriculture, small and middle farmers — as well as landless agricultural workers — will be at the mercy of corporate entities. Even if, for argument’s sake, it is assumed that farm growth will pick up, thanks to invocation of corporate magic, there will be no surcease though of distress in the countryside. Corporate bodies can be expected to insist on greater mechanization of farming, rural unemployment is therefore bound to grow. With peasant masses being no match in bargaining power to the giant invaders, both wage rates and prices at which small farmers sell their output will decline. The social unrest likely to ensue will nullify the prospects of accelerated farm growth too.

To nobody’s surprise, the plan says not one word on what is, by far, the most effective means for reducing agrarian unemployment: land reforms. Close to 40 per cent of the country’s farming population, the National Sample Survey estimates indicate, are either landless or very nearly so. Land redistribution, along with provision of cheap credit, could have provided these hapless millions with gainful work, which might have contributed to higher output as well. But it is a different sort of land redistribution the Planning Commission has in mind: transferring land from the poorer peasants to the care of sponsors of the special economic zones. What is envisaged is a state-of-the-art version of Cornwallis’s Permanent Settlement; the new set of landlords will have total sway over the commandeered land and, what is more, will allow huge tax concessions and licence to brush aside the country’s labour laws.

This must be one of the reasons for the plan document waxing extra eloquent on the supposed boons of labour-market flexibility. The expression is a euphemism for a regime that permits entrepreneurs to introduce the hire-and-fire practice, a most common feature in the United States of America. Should the change sought for come about, with industrial units increasingly opting for capital-intensive technologies, labour would be ruthlessly weeded out on the pretext of the need for efficiency to meet global competition. The same situation will then emerge in the urban sector as contract farming will bring about in the countryside: segmented growth of output accompanied by aggravated unemployment. Till now, labour displaced from agricultural and industrial sectors could try to eke out a living by joining activities like petty trading in the informal sector. That possibility will evaporate if, egged on by New Delhi, big business enters the retail trade.

It is in this context that the existing fiscal arrangements between the Centre and the states appears so bizarre. Agriculture, land use, industrial relations, et al belong to the State List in the Seventh Schedule of the Constitution and exclusively under the jurisdiction of the states. No matter, the Planning Commission, an extra-constitutional body, putty in the hands of the Centre, directs the states on policies and measures to be enforced in these areas. In case the states demur, they will be cut off from funds.

The day after the NDC met in December last to approve the 11th plan, the prime minister held a separate meeting with state chief ministers to discuss what he described as the virus of Maoist violence; a special Central force has been proposed to tackle the problem. The prime minister can rest assured: with the kind of plan he and his colleagues are plotting in New Delhi, discontent among the poor and the deprived will progressively multiply, often exploding not just in Maoist depredations, but in the form of interminable caste, ethnic and communal clashes too. If states are starved of funds, or are advanced funds on condition that they agree to implement the Centre’s carefully crafted anti-poor policies, viruses of diverse genres are to have a field day in the country.

EAT, DRINK AND BE SECURE - Food security and water security go hand in hand

ASHOK GANGULY
The Telegraph, 22 January

There was a record fall in global foodstocks last year owing to a number of factors. These include changing dietary patterns in developing countries, diversion of agricultural land used for wheat, oilseeds, and so on, to grow corn for bio-fuel production in the United States of America and Europe, and the impact of climate change resulting in unusually heavy rains, floods and storms in some parts of the world and prolonged drought in others.

The rise in world prices of food- grains, after many years, has led to the coining of a new term, ‘agflation’. This is a primary cause of rising inflation, especially in poorer countries, where 50 per cent or more of family income goes towards food consumption.

Some see the rise in international food prices as an advantage for farmers since, logically, their incomes should be increasing. However, in developing countries, because of a complex mix of subsidies, price support and procurement mechanisms, much of the gain from rising food prices remains unrealized in the hands of the farmers.

The fall in global foodstocks, the rise in the prices of cereals, oilseeds and pulses, and the reluctance of governments to interfere with subsidized farming, are primarily why the World Trade Organization’s Doha round remains in limbo, and may not even see the light of day.

The growing consumption of fossil fuels, together with its impact on global warming and climate change, is now universally acknowledged, although how to deal with the problem remains unresolved. Non-conventional and renewable energy sources are being aggressively promoted as substitutes. These fall into three categories: unconventional energy sources which are ten to twenty years away from commercialization, such as hydrogen fuel cells and silicon nano chips. Then there are currently applicable technologies such as solar cells and wind energy although they need financial subsidies to be viable. Furthermore, nuclear power is, once again, gaining acceptance as an important source of clean energy. In addition, there are the agro-based renewable sources such as corn, sugarcane and rapeseed, which, though subsidized, are already being commercially used around the world.

Somehow the impression that bio-fuels are environment friendly has gained popularity, although there is no basis to this assumption in scientific reality, as these contribute equally to carbon dioxide emissions. On the contrary, while diverting more land to growing crops for the production of bio-fuels may provide psychological relief for energy security, such land diversion is already pushing up food prices and depleting world foodstocks.

Although the technology to convert agricultural waste into bio-fuels is a more attractive proposition and may become commercially attractive in the future, the process technologies are still at an early stage of development and, in any case, are unlikely to be any more climate-friendly compared to the crops being used at present to produce fuel supplements. Thus, the problem of energy security remains far from clear at this point in time, while the issue of food security is emerging as a serious problem.

The problem of food security is exacerbated by the fact that, in countries like China and India, the diet of the growing middle class now includes more meat, poultry and eggs. To grow farm animals and poultry requires much more agricultural feedstock per unit of output compared to the crops being consumed directly by humans. Amongst vegetarians in India, the per-capita consumption of pulses and edible oils is growing as well, pushing up the international prices of these commodities.

The production of foodgrains and the level of foodstocks have also been adversely affected by climate change. Climate change is considered responsible for prolonged droughts in Australia and in parts of the US. On the other hand, there are now more incidents of unseasonal heavy rains and floods in other parts of the world. In India, the precipitation during the monsoon months may not have changed significantly, but rains have become erratic, with sudden outbursts of heavy rains followed by long periods of lull, besides being unevenly distributed. This is generating a great deal of uncertainty in the agricultural sector and a drop in farm productivity. There are other longstanding factors for the decline in agriculture such as the over-use of soil, fertilizers and chemicals.

Food security and water security go hand in hand. In the absence of good water-management, and with the diversion of irrigation-water to grow crops for bio-fuels, it is important to include water-availability while assessing the equation of food and energy security.

In India, it is claimed that more than 99 per cent of monsoon precipitation flows into the sea. The absence of water-harvesting and other conservation measures is leading to a shortage in per-capita water-availability, in cities as well as in rural areas. Experts claim that water shortage will be even more acutely felt before that of climate change.

The issues of diverting agricultural land for bio-fuel production, the problems related to energy security and climate change and, finally, reducing per-capita potable water availability pose challenges and opportunities of unprecedented dimensions. Renewable sources for bio-fuels have severe limitations which need to be better comprehended and dealt with. Harvesting rain water, in cities and in rural watersheds, has become urgent. Use of genetically modified seeds, and original research and new technologies in manufacturing, transportation and services are the stuff of a new economic revolution. Since all these issues affect each of us, they need to be aired more widely in the public domain. Food and fuel prices edging out of the reach of the common people, compounded with decreasing availability of potable water, needs collective effort and cannot be left solely to experts and policy-makers.

Growth momentum - Strength & Resilience Can Overcome Obstacles

SS Kothari
The Statesman, 11 December

The Indian economy has entered a high growth trajectory which ought to be sustained. India has the potential of becoming a developed nation by the middle of this century, if not earlier. The growth in GDP in 2006-07 has been 9.4 per cent ~ one of the highest in the world. Investment in the year has risen to 35.1 per cent, while savings have increased to 34.7 per cent. What is significant is that the savings and investment ratios are moving towards alignment with those in East Asian “miracle countries” ~ Malaysia, Singapore et al.

While moving in the high growth trajectory, difficulties will have to be overcome. Consider the present situation. The RBI has increased the cash reserve ratio (CRR) to 7.5 per cent from 7 per cent, impounding about Rs 16,000 crore particularly to manage excess liquidity in the economy consequent upon massive capital inflows. The status quo in respect of the bank rate and repo rates has been maintained. Although wholesale price inflation has been reduced from 6.4 per cent in April 2006 to 3.1 per cent in mid-October this year, RBI is concerned over high food prices and volatile international oil prices.

Money supply

Money supply at 21.8 per cent is above the RBI’s target of 17.5 per cent; the acceleration is due to fiscal spending and exchange market interventions. The partial impact of the international prices of crude oil and food, which could accentuate consumer prices, is indicative of suppressed inflation which has a disturbing potential for the future.

There have been massive inflows of FII and FDI and the Reserve Bank had to resort to intervention to check the rise in liquidity and increase in the value of the rupee. With effect from August 2007, it had increased the CRR to 7 per cent. CRR deposits do not bear any interest. The value of the rupee increased substantially from Rs 46 per dollar in July 2006 to presently below Rs 40 per dollar. These measures reduced liquidity, but not to the desired extent.

The effect of these measures however resulted in a sizeable increase in the interest rate structure. And they have impacted the growth rate to some extent. Industrial production which increased by about 11.1 per cent in the first half of 2006-07 came down to 9.2 per cent in the first half of the current year. During the same period, the growth of the manufacturing sector declined from 12.3 per cent to 9.7 per cent.

Industrial production during September 2007 declined to 6.4 per cent as compared to 12 per cent in September 2006. Manufacturing growth was reduced to 6.6 per cent against 12.7 per cent in September last year. This has been attributed to deceleration in consumer demand largely due to high interest rates.

Not only consumer durables, but the growth of infrastructure industries also declined during the half year 2007-08 to 6.6 per cent from 8.7 per cent in the corresponding period in 2006-07: crude petroleum 0.7 per cent (4.1 per cent last year); petroleum refinery sector 9.8 per cent (12.3 per cent); steel 6.6 per cent (12.2 per cent) and cement 8.3 per cent (10.6 per cent). This was principally due to a sharp decline in infrastructure growth to 6 per cent in September 2007 as compared to 10.6 per cent in September last year.

Actually there has been a decline in bank credit from 33 per cent in June 2006 to 23 per cent in August 2007. It is felt that higher interest rates on working capital and other loans by banks to industry were adversely affecting profitability, cost of industrial expansion and investment. High interest rates, with US Federal rate cut, provide a stimulant to further capital inflows.

The RBI has a dual perspective: of price stabilisation as also sustaining the momentum of growth. Monetary policy and fiscal policy should be integrated by the government and RBI. This will ensure that the growth trajectory of the economy is not hampered. If the momentum decelerates, it would be difficult to regain it.


RBI has a distinguished record of insulating the economy against international crises. The Indian economy was not affected by the 1997 East Asian meltdown. As regards inflation, the wholesale price index is around 3 per cent, which is quite below the RBI’s target of 4-4.5 per cent. Regarding the consumer price index, the prices of food articles have to be brought down more by supply side measures. Monetary measures are not likely to have much of an impact.

International prices of crude oil are unconscionably high exceeding $90 a barrel. Three measures are recommended for the domestic sector: the issue of bonds to oil companies; some increase in the domestic prices of petrol and diesel; and reduction in excise and other taxes which constitute a sizeable portion of prices.

The value of the rupee may be allowed to rise to around Rs 38 per dollar. This reduces the total cost of oil imports and prices of intermediates and the capital goods for industry. The interest rate structure should be brought down by RBI in the interest of sustaining the momentum of growth. Taking a slightly longer term view, the finance minister is optimistic that both industry and services could reach a growth rate close to 10 per cent for 2007-08. This implies that 83 per cent of the economy is growing at the rate of 9 to 10 per cent.

The International Monetary Fund has cautioned against measures to decelerate capital inflows. FDI inflows should be welcomed. The Planning Commission, in the context of formulating the 11th Plan, is also in favour of relaxing FDI norms in key sectors like insurance, private banking, broadcasting, defence production, print and electronic media, as also air transport, asset reconstruction firms and cable networks. This would stimulate transfer of technology which is critical for improving competitiveness.

Critical elements

The plan will also urge the government to consolidate gains from FDI by reducing delays in state level clearances. Growth should also be made more inclusive by effective monitoring of poverty alleviation programmes at the national and state levels. As regards FIIs, SEBI has rightly imposed restrictions on fresh investments through participatory notes (PNs) and directed that derivatives-based PNs should be wound up in 18 months. SEBI is also modulating the broad direction on three critical elements ~ access, products and disclosure of investor’s identity so as to allow entry of “good money” only. Anti-money laundering guidelines will be an important element in the formulation of a disciplinary code for FIIs. Thus with regard to registering new FII’s, their credentials and creditworthiness should be scrutinised and easy accessibility to markets restrained. In any case, SEBI is the best judge on how to regulate and modulate FII inflows.

The Indian economy has acquired considerable strength and resilience and it has the ability to overcome obstacles to growth.

The writer is a former member of the Lok Sabha

Indian farmers need human rights

C. Raj Kumar
The Hindu, 7 December

We may have reasons to be pleased with the growth rate and economic development of the country, but there is an urgent need to recognise the growing sense of frustration and disillusionment among the farmers.

Extreme poverty and its human rights consequences are numerous. But the ability of the system of governance to respond to such consequences has unfortunately been limited. While the normative framework for upholding human rights is reasonably well-established in India, enforcement remains a key challenge. This is most pronounced in the traumatic saga of farmers committing suicide in different parts of India. It is clearly one instance where institutions of governance have not been able to respond effectively to the extreme impoverishment prevailing among the farmers. One cannot help but wonder how our country is not able to deal with this depressing issue, when the story of India shining is highlighted, both domestically and globally. Obviously, the benefit of economic growth has not sufficiently percolated, resulting in the gap between the rich and poor widening. There is something fundamentally unethical in the system of governance that does not value in right measure the lives of the poor and vulnerable. It is indeed a fact that the poor and the marginalised have always found it difficult for their voices to be heard. But they have a right to hope that the system of democratic governance that we have institutionalised in our country would slowly but definitely respond to the crisis of extreme poverty among farmers.

Today, the statistics relating to farmers’ suicides is indeed alarming. Andhra Pradesh, Karnataka, Madhya Pradesh, and Maharashtra have witnessed 89,362 suicides between 1997 and 2005. A recent study by Professor K. Nagaraj of the Madras Institute of Development Studies notes that on average, one Indian farmer committed suicide every 32 minutes during all these years. Since 2002, that has become one suicide every 30 minutes. It demonstrates the seriousness of the issue. While we may have reasons to be pleased with the impressive growth rate and economic development that the country is witnessing, there is an urgent need to recognise the growing sense of frustration and disillusionment among the farmers and other poor and vulnerable sections of the populace. We cannot sustain the present level of increasing disparities of income and wealth or for that matter demonstrate our inability to stop the farmers committing suicide. The question that deserves deeper examination by all concerned is with regard to why farmers are committing suicide and how to prevent them.

The continuing suicides have brought out the urgency of dealing with the issues relating to governance, vote bank politics, farmers’ rights, and parliamentary intervention:

Ineffectiveness of the governance machinery: There is an urgent need for the different institutions of administration to galvanise support to respond to the crisis of governance. The problems of suicide and extreme poverty among farmers need to be urgently addressed by the joint efforts of the State and Central governments. The bureaucracy has to find ways to formulate and implement the right kind of policies that will change the situation. There is no room for delay, as we cannot afford to be lethargic on this issue. In its report, aptly titled Serving Farmers and Saving Farming, the National Commission on Farmers has noted thus: “Some areas in the States of Maharashtra, Andhra Pradesh, Karnataka and Kerala have been affected by a serious agrarian crisis, leading occasionally to farmers’ suicides. The time has, therefore, come when we should focus more on the economic well-being of the women and men feeding the nation than just on production.” The recognition of the human development perspective by all institutions of governance becomes critical for responding effectively to deal with the problem of farmers committing suicide.

Vote bank politics and the vulnerability of farmers: In democratic politics, different constituencies create legitimate pressures to initiate and support policies that are of deep concern to them. Politicians and political parties in India, like elsewhere, also take up issues with an eye on vote banks. Although they constitute a significant vote bank, the issues of deep concern for the poor, marginalised, vulnerable and disempowered farmers tend to be ignored. On the issue of suicides, it is the extreme poverty, vulnerability and lack of political voice that have made them ignorable, if not completely voiceless. This has created a situation where even though numerous reports relating to farmers committing suicide have been brought to the headlines, not much seems to have been done to change the situation. Of course, there have been visits by dignitaries to the villages, where these suicides have occurred and comprehensive relief packages have been announced but unfortunately, this has not changed the situation. It is important for other actors to take up the cause of farmers so that the political brass and powerful bureaucracy can better recognise the situation.

Extreme poverty

Human rights of farmers: There is little doubt that the human rights of farmers are violated due to their extreme poverty situation, leading to them committing suicide. The report of the U.N. independent expert on the question of human rights and extreme poverty, Dr. Arjun Sengupta, has underlined the importance of this inevitable link: “Any society would recognise that poverty is something repugnant and unacceptable because it represents denial of human dignity. However, in order to make the eradication of poverty a human rights entitlement, there has to be a categorisation of the social forces that would be prepared to make the necessary sacrifices by redistributing resources or by mobilising special services and targeted programmes.” It has to be recognised that farmers’ suicides are indeed a violation of their human rights. The rights institutions need to consider how to approach this issue. It becomes the duty and responsibility of institutions such as the National Human Rights Commission and the State Human Rights Commissions to respond to this problem. They will have to engage with the State and Central governments to impress upon them the need for taking cognisance of farmers’ suicides, given the huge consequences such incidents have on the family members and the community as a whole. There is a case for creating a Special Rapporteur on Farmer’s Rights. Civil society has an important role to play in this regard. Farmers’ suicides are a continuing disaster, and it does not need natural disasters such as earthquakes or tsunami for disaster management efforts to be activated in India. Farmers’ suicides are an ongoing disaster that needs necessary response, including support to the victims from governmental and non-governmental actors.

Need for parliamentary intervention: The issue is serious enough to call for a special session of Parliament to discuss it threadbare. Prime Minister Manmohan Singh visited a number of districts where the suicides were particularly high. The government announced a special rehabilitation package to mitigate the distress of farmers. Unfortunately, these measures have not been able to make a significant difference to the ground reality. The discussion in Parliament that is being proposed is not only to actually culminate in specific policy outcomes leading to urgent reforms, but more important to sensitise and make aware the Members of Parliament about the deplorable situation. This is precisely what parliamentary democracies are expected to do when dealing with crises.

It was none other than the first Prime Minister of India, Jawaharlal Nehru, who poignantly remarked in 1947: “Everything else can wait, but not agriculture.” With Parliament currently in session, it is an opportune time to hold a special session to discuss the issue as it is one of the most disturbing contemporary human rights challenges of India’s governance.

(C. Raj Kumar is Associate Professor of Law at City University of Hong Kong and Honorary Consultant to the National Human Rights Commission in India.)

High & low of oil prices - The Quicksand Of Consumption, Imports And Losses

Bharat Jhunjhunwala
The Statesman, 7 December

Oil prices have shot up by 35 per cent in the last four months and have now touched an all-time high of $95 a barrel. State-owned oil companies, however, continue to sell at lower prices because the government is concerned about the fallout on the coming elections in Gujarat and Himachal. Oil companies are incurring huge losses in the process which is expected to reach an astronomical level of Rs 70,000 crore by the end of the financial year. This is approximately 10 per cent of the total budget of the Government of India.

Oil companies are issuing bonds which are being bought by the government in order to make up for this loss. Technically, the loss is borne by the companies while the government owns assets in the form of bonds. But this burden will ultimately fall on the people of the country. Just as the loss incurred in business cannot be made up by continually borrowing from one’s brother, similarly the loss incurred by public sector oil companies cannot be made up by endlessly borrowing from the government.

The loss suffered by the oil companies is always incurred by the government which owns them. This policy is like that proposed by Charvaka ~ borrow today and drink ghee because no one knows what will happen tomorrow.

Reduce taxes

One suggestion that may help surmount this problem is for the Union and state governments to reduce the taxes on petroleum products. This will immediately provide relief to the oil companies. For example, the taxes may constitute about Rs 20 out of the price of Rs 40 for a litre of petrol. Oil companies are getting only Rs 20 out of the sale. Reduction in the taxes by Rs 10 will increase the receipts of the oil companies by same amount and reduce their loss.

But this too is a fictitious solution. The revenues of the government will be less and it will have to impose higher taxes on other items such as match boxes and bicycle tyres to make up for the loss. The burden of the higher taxes will fall on the people. We must face the hard truth that there is no free lunch. The oil that we are consuming cheap today will have to be paid out of our hard-earned income tomorrow. Instead of tinkering with such non-solutions we must consider the pros and cons of increasing the domestic price of oil.

If the price of oil is lower than the global levels, it can have a negative impact. The low price adversely affects our economic sovereignty. It encourages people to burn more oil which, in turn, forces the oil companies to import yet higher quantities. We sink into the quicksand of ever increasing consumption, imports and losses. Higher consumption of oil makes our economy more energy-intensive. Oil supplies can be curtailed in the event of a war or a natural catastrophe such as tsunami and that will inflict great damage on our economy. The bullock-driven water wheel can continue producing food without these imports but not diesel-driven tubewells.

High consumption of oil also affects our political sovereignty. We have to make friends with dictatorial regimes like those of Saudi Arabia and ignore the violations of human rights of the people in Nigeria by their government in order to secure our supplies. Our income is geared to the consumption of oil and we have less money to develop an ambitious programme to help other developing countries. We also have less money left to buy or manufacture radars, fighter planes and patriot missiles. We have had to make a less-than-equal agreement with the United States to obtain supplies of uranium because we consume a fair amount of energy.

The importance of oil in preserving national sovereignty has been highlighted by the editor of Newsweek, Fareed Zakaria. In an essay written in 2005 he contended that the most important issue for America’s foreign policy is to reduce the domestic consumption of oil. That would lead, he says, to a decline in the global price of oil and have the following consequences: (i) The cash obtained by Saudi Arabia and Iran which gets into the hands of terrorists will be reduced; (ii) Autocratic governments like those of Saudi Arabia will not be able to bribe the Wahabi imams and suppress demands for democratic reforms; (iii) Iran would not be able to fund its nuclear programme; (iv) President Putin of Russia will not be able to destroy competing centres of power or continue the "disastrous" war in Chechnya; and (v) President Hugo Chavez of Venezuela will not be able to rebel against American influence. The success of American foreign policy, says Zakaria, will depend on the reduction in the consumption of oil by America. That holds equally for us. Less consumption of oil and other forms of energy will give us more free play in international politics.

A lower price of oil prevents the development of alternative sources of energy. This writer had an opportunity to study the working of gobar gas plants in Shyampur village near Hardwar some time ago. At least 50 gobar gas plants were in operation successfully for more than 20 years. The LPG gas cylinders became available in the mid-nineties at a low price. Farmers found it easier to cook food with LPG than with gobar gas. They were saved the work of having to mix water with gobar to be fed into the plants, drying the slurry, maintaining the pipelines and water supply, etc. This alternative source of energy was dismantled as soon as cheaper LPG became available. The same applies to wind, solar, micro-hydel, thorium and bio sources of energy. Cheap oil distracts our attention from these sources and traps us into imports.

Other alternatives

The government should consider other alternatives to issuing bonds and reducing taxes. The main reason for not passing on the increase to the consumer is to protect the common man from the price rise. The simple solution is to pass on the same money to the consumer directly. Our population totals approximately 112 crore. Of these about a third are poor. Taking the average size of a family to be four, the number of poor households is about nine crore. The Rs 70,000 crore being spent by the government to insulate oil companies from high prices can be paid to these households directly. Each household will get Rs 6,700 per year.
Alternatively each household will get Rs 2,200 if the amount is given to all families irrespective of the level of income. Such a payout will be politically rewarding. The burden of increase in the price of oil will then fall mainly on those who consume more energy in gas-fired geysers and room heaters, air-conditioned cars and the like. This policy will be a boon for the common man. He will get more money than he spends on the purchase of expensive oil.

The larger benefit to the country will be that high prices will lead to reduced consumption of oil and help preserve our economic and political sovereignty. It will also encourage development of alternative renewable sources of energy which will be beneficial for mankind in the long run.

The author is former Professor of Economics, Indian Institute of Management, Bangalore.

NEVER A FREE LUNCH - India’s dependence on foreign fund inflows is cause for worry

S.L. Rao
The Telegraph, 3 December

The sensitive index of the Bombay Stock Exchange has risen from 5591 at the end of 2003-2004 to 6493 in 2005, 11280 in 2006, a range of 8929 to 14652 in 2007 and in the year 2007-8 so far between 12455 and 18814. Most Indian investors must now believe that there is a Santa Claus after all. Even the small fall last week was followed by another large rise. But is this likely to be sustained? Conditions have become much more difficult, markets have probably reached their peak range, the only direction for the next few months is erratically downwards, and that may be true for gross domestic product growth as well.

Indian economic growth rates stimulated the stock markets. Average growth in the last three years was 8.6 per cent while the investment rate rose by 30 per cent, financed largely by domestic savings, not by savings of others overseas (unlike the United States of America that uses savings of others by a high current account deficit). Our current account deficit — highest among comparable countries despite the rise in the balance of trade deficit (imports in relation to exports) — is lower than before. Expansion in domestic demand accounts for all the growth. The result of this rising demand is that supply constraints rule today in every sphere — tradable manufactured goods, physical infrastructure and social infrastructure.

The last time this happened was in the late Nineties when there were substantial capacity additions as a result of capacity shortages. These capacities became surplus when demand fell and overall growth declined. It was 2003 before new investments took place and additional capacities were created.

That may not be repeated. This time there is substantial and growing public as well as private investment in infrastructure, and a consumption boom. Interest rates came down sharply towards the late Nineties and despite rate increases since, are far lower than in earlier years. However they remain higher than in developed economies. With relaxations in external commercial borrowings, overseas borrowings have surged. Borrowings have been invested in new capacities and domestic and overseas acquisitions. Overseas acquisitions obviously add to the risks of default if the acquisitions fail to produce early rewards or are not serviced on schedule. Defaults will hurt India’s credit ratings.

Equity investments by overseas investors have risen sharply and they have added a continuing and substantial inflow of foreign funds into stock markets. The low interest rates in the US and Japan, the India growth story, relatively lower price/earnings (almost half) ratios in India as compared to China, the perceived security of Indian investments, the easy repatriation of funds, have all combined to produce this inflow. In addition there are the ECBs which have added to liquidity.

The Reserve Bank of India has tried to soften the inflationary impact of this liquidity by hesitant raising of interest rates, and more often by raising the cash reserve ratio. The surge in liquidity continues, with its inflationary potential.

So far, despite the expansion of liquidity (21 per cent in money supply over the year), inflation has been contained. This is largely due to declining import costs, but chiefly due to subsidized fuel and power prices despite rising imported crude prices. Fuel subsidies alone add about Rs 80,000 crore to oil company losses. By leaving them out of the deficit calculation, the government is able to show a fictitiously lower fiscal deficit which is yet higher than that in comparable developing countries.

Apart from concealing inflation numbers by subsidizing consumer prices for fuels, prices of primary products (food and so on) are rising. Hence the claimed inflation in the wholesale price index hides the reality. The wholesale price index shows a much lower rise in price than what most consumers actually pay.

The RBI is obviously concerned by this fictitiously low inflation rate. It has already restrained ECBs and further RBI actions can be expected soon to restrain liquidity. The RBI is unlikely to easily raise interest rates because that will attract further foreign fund inflows, add to liquidity and, also, adversely affect industrial growth.

The question is whether rising stock prices, large foreign fund inflows, apparently low inflation, high levels of GDP growth are sustainable for long. The astonishing rise in equity prices (by 50 per cent in one year) could turn negative because of many factors — a decline in domestic and export demand, rising rupee exchange value reducing export margins, swamping of the domestic market with cheap imports, a monsoon failure, collapse in foreign economies and rise in oil prices. Brazil and China have had much higher rises in stock prices but may not be as vulnerable.

China has for many years managed to hold its currency values at stable levels despite much larger inflows of funds. This is perhaps because a greater part of Chinese inflows are in more stable direct investments and also because of substantial export surpluses. If the inflows into financial markets increase as they are now doing, the volatility of such funds might make currency stability more difficult to maintain.

Export surpluses might fall if the American economy declines, as it shows signs of doing. China may have to impose higher interest rates to contain the adverse impact of decline in the dollar. China also cannot switch to the euro as other countries can, because of its huge dollar holdings, whose value will be hit if it makes such a switch. However, a decline in exports may not hurt the Chinese economy too adversely because the value added within China by exports is relatively small.

In India, the easy availability of cheap foreign funds, the boom in equity markets, and substantially increased government investment in physical infrastructure, social spending and agriculture have stimulated industrial investment, domestic demand and not exports. Hence a decline in the US economy will not have too much of an adverse effect on India. What will hurt us however, is a decline in foreign funds inflows. This can happen if interest rates rise in the US, Japan and Europe; if domestic demand declines; if the monsoon fails (unlikely since it has been quite good till late in the season); if the RBI constrains liquidity by too much or raises interest rates to contain inflation; and if there is political instability.

Equity prices have risen too fast, too quickly. Unlike in the past, Indian shares are responding more to future expectations than current performance. Slowing down of industrial production, rising crude prices — adding to already high government deficits if correctly calculated, rising rupee values, rising imports, falling exports are worrying signs. If fuel subsidies are cut, inflation will rise. If subsidized prices continue, government spending on other sectors must inevitably be reduced. This will hurt growth. Rating agencies might downgrade India into a higher risk category. This will also hit Indian company borrowings and foreign fund inflows. If the US raises interest rates to moderate inflation and improves the exchange value of the dollar, fund inflows will be hit again. If American demand for imports declines, we might not be as badly affected, but will face increased competition from cascading Chinese imports into India.

Thus, while we are insulated to some extent from an American economic downturn, our dilemma is our heavy dependence on volatile foreign fund inflows, and the sharp increase in crude prices. We may exult about our foreign exchange reserves. But reining them in could hurt economic growth. Growth has vastly increased government tax revenues and stimulated public investment in physical and social infrastructure. These could significantly improve the human condition in India.

The Indian economic situation is not as good as it seems. Oil prices are very high and we will have to manage them without raising inflation. The government will have to restrain growth and reduce dependence on volatile foreign funds. Perhaps the next government will have to take this action. The stock markets are unlikely, until the world economy stabilizes, to show the spectacular increases of the last year.

The author is former director-general, National Council for Applied Economic Research

Meghalaya mortgaged to coal lobby

Patricia Mukhim
The Statesman, 3 December

In 2005, the Meghalaya Adventurers Association headed by national award winner Brian Kharpran filed a public interest litigation in the Supreme Court challenging the rampant mining of coal and limestone around what is reputed to be one of Asia’s longest cave system. On hearing the case, the apex court directed the Meghalaya government to come up with a policy on mining. This task has proven to be the biggest challenge to the government as mining in Meghalaya is a licentious, laissez faire exercise.

Meghalaya has some of the most extraordinary cave systems which attract speleologists from across the world. Kharpran, himself an avid caver, has mapped several of these, making it easier for adventurers to explore them with lesser casualties. Kharpran is part of several international organisations that look at caves not merely as protected spaces but as crucial repositories of a unique biodiversity.

When the apex court gave its directive, JD Rymbai was chief minister. At that time the then chief secretary constituted a committee comprising officials, coalmine owners and members of the MAA, to work out a fair policy. But Rymbai lost his chair to DD Lapang and the committee was short-circuited. It might sound weird but the portfolio of mining and geology went to none other than an MLA representing the coal belt, who is himself a coal trader. This man had made his millions from coal and contested the elections merely to have a taste of power. He ensured that the committee was buried alive and replaced the bureaucrat who showed enthusiasm to draft the mining policy with one who is known for his acute craftiness to keep politicians happy.

Now, two years down the line Meghalaya is yet to have a mining policy, even as reckless exploitation of coal and limestone has destroyed the entire eco-system of those areas where the minerals occur. Water bodies have been systematically poisoned. Forests are denuded without any qualms despite the existence of a top heavy state forest department and also the presence of the ministry of environment and forests in Shillong. Unregulated quarrying continues anywhere and everywhere, often devastating catchment areas which used to be sources of fresh water. Coal is mined unscientifically through the rat hole method, making it not just a wasteful venture but also very dangerous for miners.

In the absence of a mining policy, abandoned mines have not been reclaimed. They are a holocaust waiting to happen. Should an earthquake hit this place the destruction would be enormous, also because Meghalaya is located in a very vulnerable seismic zone. Lumshnong in the Jaintia Hills is rich in coal and limestone, but the area also houses the amazing Krem Kotsati cave whose entrance is already blocked by debris accruing from limestone and coalmining activities. Exploiting limestone requires blasting. This is extremely dangerous for the caverns as they could be destroyed forever.

Blind followers of the cult of exploitation, such as the coal and limestone lobby, consider caving a voyeuristic hobby of the affluent town-dwellers. Little do they bother to educate themselves that life is not for one generation and one species only. Other creatures have as much right as the greedy coalmine owner to live in an environmentally sustainable atmosphere.

Besides, caves are more than grottos. They house a rich bio-diversity which influences climate to a large extent. Living in the underground world of caves is an astonishing array of creatures. Although all live underground, their ecosystem is linked to the surface above and any changes that humans make here can affect their subterranean habitat, natural heritage and biodiversity. Cave creatures play an essential role in underground ecosystems by decomposing organic matter and recycling nutrients through the food web. Many of them are very rare, and include ancient, primitive forms no longer found on the surface. They provide important information for studies of evolution and ecology. It is crucial therefore to maintain the natural surface vegetation for the survival of cave ecosystems.

Meghalaya is perhaps the only mineral rich State without a mining policy. Coalmine-owners will do their best to thwart the policy because they prefer to operate in opacity. Since this powerful coal lobby financed the installation of the present government, naturally it has to protect their interests. So if the government which is elected to represent public interest is controlled by the coal lobby, then are we not all mortgaged and enslaved? Why talk of multinational funding agencies as sharks that threaten our economic and political freedom? In Meghalaya we have already sold our collective freedom to the coal mafia.

Since the eco-system in mining areas is completely defiled, drinking water is dwindling. What is available is water coated with sulphuric acid. The affluent coal dealers have already shifted base to Shillong, turning their backs on the ecological destruction they have caused. But the disempowered, with no voice to defend their rights, have to live and die in that ravaged environment.

Elections are just round the corner and this time more rich coal traders are in the fray It makes you wonder if one day the entire legislative assembly will be converted into a coal lobby’s stock market.

As a community, the tribals pride themselves on being the upholders of a noble philosophy that reveres mother earth. Today that philosophy stands on its head. Money has replaced all the noble ideals and the cultural capital bequeathed by our ancestors. Culture is not about things external. It represents the more durable intrinsic values. Culture encompasses the traditional value systems that have stood the test of time. When a society loses its cultural values it is reduced to an empty crust which will disintegrate rapidly. Today money is the destroyer of everything we hold dear to our hearts. If the environment dies, we die with it. What is the use of money then?

(The author is a Shillong-based columnist and activist, and can be contacted at patricia17@rediffmail.com.)

Chidambaram for subsidy re-look

Press Trust of India, 2 December

New Delhi, Dec. 1: With government saddled with a huge subsidy burden, finance minister Mr P Chidambaram today favoured re-visiting the sops once in three to five years to weed out relief to non-deserving sectors.

“We must re-visit subsidies once in three years or five years to remove non-merit sectors and focus on only deserving sectors,” he said replying to a debate in the Rajya Sabha on the Bills seeking supplementary grants for a total of Rs 33,290 crore.

However, Mr Chidambaram insisted that subsidy on food, fertilisers and some fuels would continue. “It is nobody’s case that all subsidy will go. We are not reducing subsidy for PDS. The budgeted provision was higher than the previous year and we have not increased the issue price of PDS (ration),” he said.

Addressing the full Planning Commission meeting last month, Prime Minister Dr Manmohan Singh had expressed concern over the mounting subsidy bill exceeding Rs one lakh crore on food, fertilisers and petroleum.After Mr Chidambaram’s reply, the House returned the Appropriation Bills on supplementary grants already passed by the Lok Sabha.

Squarely blaming state governments for “corruption” in distribution of foodgrains through PDS, Mr Chidambaram said an expert committee had found that only 36.38 per cent of allocated foodgrains reached the poor and a chunk got lost in leakages through “ghost” ration cards.

“It is an extremely alarming record and it is shameful”, he said. Asserting there was no fault in the supply of foodgrains by the Centre, he said state governments were “solely” responsible for distribution of foodgrains.

The finance minister expected that the agriculture growth would be close to four per cent this year and said without improvement in the farm sector, it would not be possible to address the fundamental issue of rural poverty and rural income.
“If growth (in agriculture) remains between two and three per cent, disparity will become wider,” he said. Mr Chidambaram said the government had set a target of achieving four per cent agriculture growth in the eleventh plan for which a number of initiatives have been launched. Responding to members' concern over the benefits of growth not reaching the poor, he said the government aims to achieve the double digit growth by the eleventh plan period.

He said it was only through accelerated growth that the government has been able increase its revenue and allot more resources to states.

Maharashtra ’s head-in-the-sand syndrome

P. Sainath
The Hindu, November 27

Vilasrao Deshmukh clearly believes he has been merciful towards those committing the ‘crime’ of suicide. Thanks to his government’s generosity, close to 32,000 farmers who have taken their lives in his State since 1995 have gone scot-free.

“Committing suicide is an offence under the Indian Penal Code. But did we book any farmer for this offence? Have you reported that?” — Maharashtra Chief Minister Vilasrao Deshmukh on farm suicides in Vidharbha.

That is the Chief Minister’s response to media questions on the ongoing farm suicides in Vidharbha. He has gone on record with that statement in an interview. (The Hindustan Times, October 31.) Leave aside for the moment this incorrect reading of the law. Mr. Deshmukh clearly believes he has been merciful towards those committing the ‘crime’ of suicide. Thanks to his government’s generosity, close to 32,000 farmers in his State wh o have taken their lives since 1995 go scot-free. Imagine what would happen should he decide to book them for their ‘crime.’ For the record, on average, one farmer committed suicide every three hours in Maharashtra between 1997 and 2005. Since 2002, that has worsened to one such suicide every two-and-a-quarter hours. Those numbers emerge from official data. This could be the State’s worst tragedy in living memory.

Of course, the question arises: who would he punish if he decides to enforce what he believes is the law? And how would he do so? Would their ashes be disinterred from wherever to face the consequences of their actions? Would the awful majesty of the law be visited upon their survivors to teach them never to stray from the path of righteous conduct? Or — more likely — would his government set up yet another commission to look into the matter?

Under Section 309 of the Indian Penal Code, attempting suicide is a crime. A suicide effort that succeeds places the victim beyond Mr. Deshmukh’s reach anyway. Beyond anything for that matter. As one of India’s foremost legal minds says: “the odd thing about suicide in India is that failing to commit it is a crime. One who succeeds in it is obviously beyond punishment. But the one who fails in his attempt to commit it could be in trouble. You could then be booked for ‘attempted suicide,’ an offence punishable by fine and even imprisonment.”

Abetment to suicide (Section 306) is also a crime. One that places Mr. Deshmukh’s government in the dock if we persist with this logic of ‘punishment.’ His Ministry has been widely criticised on the farm suicides in this State. Many point to the rash of suicides that occurred soon after the government withdrew the ‘advance bonus’ of Rs.500 per quintal of cotton in 2005. A move that tanked cotton prices and brought disaster to lakhs of farmers in the State.

Worse, his is a government which came to power that very year on a promise of giving cotton farmers a price of Rs.2700 a quintal. At the time, they were getting a mere Rs.2200 a quintal. A sum the government conceded was quite uneconomical. Further, neither the State nor the Central government took any steps at all to counter the distortion of global cotton prices. Prices crashed as both the United States and the European Union piled on subsidies worth billions of dollars to boost their cotton sectors.

To top it all, the Deshmukh government withdrew the ‘advance bonus’ soon after coming to power. That brought the price down to just over Rs.1700 a quintal. And the Centre did not raise import duties on cotton despite desperate pleas for such an action. This allowed the large scale dumping of U.S. cotton on this country, further crushing the farmers here. No, Section 306 is not something Mr. Deshmukh’s government would want to look into too closely.

But to be fair to Mr. Deshmukh, he is neither unique nor alone in this mindset. There is something wrong with a society where suicide data are put together by the National Crime Records Bureau (NCRB). The idea is in-built: suicide is a crime. From that flows Mr. Deshmukh’s simple notion of punishment. But he did not author the idea. He simply took it to unknown levels of insensitivity. With this statement, the Chief Minister outdid his previous effort when he made remarks about Vidharbha’s farmers that caused a furore. Remarks that suggested that they were both lazy and less than honest. Of course, he soon rallied to say he had been “quoted out of context.” (The Hindu, September 15, 2007). So maybe he will do so this time, too.

But he has certainly got the law out of context. What does Section 309 of the IPC really say? It states that “whoever attempts to commit suicide and does any act towards the commission of such an offence shall be punished with simple imprisonment for a term which may extend to one year or with a fine or with both.”

Fact: even the British Raj seems never to have used Section 309 against Mahatma Gandhi or other fasting leaders. And they had the excuse to do so when faced with, for instance, fasts unto death. This surely had less to do with humane behaviour than the hope that leaders like Gandhi would succeed in their fast unto death and rid the empire of a menace. Still the fact is: they did not resort to Section 309.

Mr. Deshmukh’s words suggest that he is holding himself back with much effort. If governments do start enforcing Section 309, the damage would be huge. For every farm suicide that occurs, there are a fairly large number of attempts that fail. Mostly, the police do not press the issue too hard. Even they see the ill logic of oppressing someone in misery who tries, but fails, to take his or her own life. (Such pressures have in a few cases, triggered a second — successful — attempt at suicide.) Following the ‘punishment’ logic would make life a living hell for those already in despair.


Decriminalising attempted suicide


For decades, social and legal workers and activists have struggled to decriminalise attempted suicide. One of them is Dr. Lakshmi Vijay Kumar, a consultant with the World Health Organisation on suicide research and prevention. As she puts it: “It’s a crazy law. One which only a handful of nations still retain. Most others have withdrawn it years ago. Apart from us, Pakistan, Bangladesh, Malaysia and Singapore seem to still have this kind of law. Sri Lanka too did but withdrew it in 1998. It’s a law that punishes those most in need of help. A move to repeal it went through the Rajya Sabha in 1974. The bill was also introduced in the Lok Sabha but that house was dissolved before it could see it through.” The Section was even struck down by a Supreme Court ruling in 1994. However, it was later reinstated by a full bench.

As we write, the Maharashtra Assembly is in session. In the tiny Assembly session ahead, the question of farm suicides is sure to crop up. Why is Maharashtra, with more dollar billionaires and millionaires than any other State in the country, home to the largest number of farmers’ suicides in India? Why is it that farm suicides in this State trebled between 1995 and 2005? Why did they go up so massively in a State where suicides amongst non-farmers fell marginally in the same period?

All the data on farm suicides carried in The Hindu (Nov.12-15) are from the National Crime Records Bureau, Ministry of Home Affairs, Government of India. They are not the data of this newspaper. Nor of Professor K. Nagaraj of the Madras Institute of Development Studies (MIDS) who authored the study reported in the paper. They are government data. So if Mr. Deshmukh’s outfit has different numbers for the State Assembly, it could be in danger of committing contempt of the house.

Maybe someone in the house will raise other questions too. Queries that go, as they should, way beyond the suicides. The suicides are, after all, a tragic window to a much larger agrarian crisis. They are a symptom of massive rural distress, not the process. A consequence of misery, not its cause. How many more commissions will the government appoint to tell itself what it wants to hear? When will it address the problems of price, credit and input costs, for instance? When will it, if at all, reflect on the role of cash crops in the crisis? When will it push Delhi to set up a Centre-State price stabilisation fund? When will it dig its head out of the sand?

SO NEAR, YET SO FAR - Development in the Northeast still awaits targeted planning

KRISHNAN SRINIVASAN
The Telegraph, 28 November

The Indian Northeast region, comprising about 5 per cent of the land area and 8 per cent of the population of the country, is one of the most complex in Asia, with about 200 ethnic groups, languages and dialects. These societies have lived in isolation not only from the rest of the country but also from each other, and both legal and illegal migrations have created new fault-lines in traditional societies. The whole area, where parochialism transcends nationalism or even regionalism, is in painful transition, trying to learn tolerance of other ethnic groups and adjust to the concept of planned development.

There is a tendency to assert that the Northeast is not ‘integrated’ with the rest of India because of ethnicity and insurgency, but this is only partly true; Arunachal Pradesh, which has the biggest number of tribes, is peaceful, while Manipur, which is prey to secessionist groups, is otherwise well integrated in terms of arts, culture and sports. Nagaland is the only state where militants are not reconciled to their tribal space being part of the Indian Union, though even there many people see benefits when compared to neighbours like Myanmar and Bangladesh.

There is another aspect to human integration: 90 journalists from Assam alone work in Delhi, 10 per cent of the information technology sector people in Bangalore are from the Northeast, hospitality sectors all over India look for and employ young people from the Northeast because they speak good English. Five thousand young persons from the region each year go to other states to find employment.

The Northeast comprises eight states with only 1 per cent bordering India — the rest of the borders are with Myanmar, China, Nepal, Bhutan and Bangladesh. India’s trade with the countries bordering the Northeast has gone up five times, but no impact is seen in that region because this commerce is through the seaports. The five-nation Bimstec was supposed to help the Northeast, but there is a lack of connectivity that precludes the opportunities leading to results.

Our import substitution economy after 1947 deprived the North-east of its natural markets, as did the 1971 Bangladesh war. There are massive imports into the region, and Chinese consumer goods are to be seen in every marketplace. The exchange rate is unreasonably low for Chinese imports and these goods have obviously not come through established channels. Illegal trade and smuggling exist because there is no trade facilitation.

There are three points for border trade with China at places where there is no dispute regarding the boundary; Lipulekh in Uttaranchal opened in 1993 and Shipkila in Himachal Pradesh in 1994. I led the Indian delegation to Beijing in 1994 that proposed the opening of Nathu-la to the Chinese. It then took nine years for the memorandum to be signed, and a further three for the border point to be opened for trade.

For 58 years after the Younghusband expedition of 1904, Nathu-la had been the main artery between India and China and made possible 80 per cent of the trade between the two countries. The expectation was that by 2010 trade at Nathu-la would represent 10 per cent of the total Indo-Chinese trade, namely $1 billion. Why 2010? Because the Border Roads Organization said it would take as long as that for the one-track road to be made into two lanes. Considering that India and China are among the two fastest growing world economies, and with Tibet itself growing at 12 per cent, Nathu-la should improve prospects for the whole Northeast, which has been left behind at about half of India’s growth rate.

However, the optimistic prospects envisaged for Nathu-la trade and its beneficial effects have not materialized, and do not look as if they ever will. If the Northeast opens up, would it be primarily for our exports or only for imports of cheaper Chinese goods? This question seems to obsess the decision-makers in New Delhi, who always want to play safe.

Progress in the Northeast depends on the creation of assets in power, infrastructure and opportunities. India may be looking East but evidently not to our own Northeast. The shocking fact is that 97 per cent of the natural resources in the Northeast, such as hydroelectricity, biodiversity and minerals, is not exploited. There is practically no private sector involvement. The entrepreneur does not need tax breaks and incentives from the state. What he looks for first are raw material sources, the potential market and logistics.

Tourism could transform the Northeast. Ethnologically and linguistically, the Northeast has historic links with south-west China and the Mon-Khmer peoples in Myanmar and Thailand. The structures for tourism are poor, but infrastructure is equally poor in south-west China, Tibet, Nepal and Bhutan, which are all also landlocked. Yet those countries and regions attract manifold numbers of tourists; Bhutan, Nepal, Tibet and Myanmar surpass by far the tourist numbers to the Northeast. There has been no use made of specialized promotion, such as adventure, veterans of World War II, wildlife, spiritual or other nostalgia (for tea planters and missionaries) or eco-tourism. Air connectivity to the neighbouring countries does not exist, and in the permit raj of inner line, restricted area, and protected area, permits are a serious obstacle.

The North Eastern Council was set up as long ago as 1971 and has been revamped many times since. Health and education are identified as priorities, along with employment, good governance and food security. The public’s interest in participating in development is high. But while multiple recommendations are drawn up, little or nothing is seen on the ground.

The Centre’s response has characteristically been, as in Kashmir, to throw money at the problem with no consideration of outcomes or accountability. In addition to the allocations in the state plans, there are funds from the NEC, and Central ministries since 1998 have allocated a non-lapsable 10 per cent of their budgets for the Northeast. There is reimbursement of expenditure incurred by northeastern states on security-related issues, funds for the modernization of the police, border areas development grants and other sources of funding too numerous to mention. Yet the minimum identified needs have not been met despite the massive funds poured into the region. With this cornucopia of funds, there has been great seepage and massive corruption. Effective measures to prevent this have neither been devised nor executed. Pumping in funds leads to distortions in the economy unless there are investments in real assets. The shift from agriculture to industry and services is going at a snail’s pace even compared to the rest of India.

There are legitimate fears of loss of identity — and the demand by various ethnic groups for increasingly more autonomy continues and has to be addressed. The need to protect the socio-cultural and religious practices of the various ethnic groups and to give them an effective say in running their own institutions has often been underlined. But there is no adequate devolution to the minority tribes in the autonomous areas and funds are not released directly to the autonomous councils.

The various ethnic fractures prevent cooperation in anti-militancy drives. The Union government has to deal with combating the 30-odd active militant groups both because of the states’ reluctance to get involved owing to the alleged lack of financial and human resources, and the Centre’s suspicion of the state governments’ ability to keep intelligence reports confidential. Even to resist illegal migration, HIV-AIDS and drug trafficking, there is little cooperation between the states. In other words, there is a lack of trust and faith all round.

This is the reason that so many aspects of governance in the region have been left to the supervision of the army, and the prolonged deployment of the military, which is unfamiliar with the local terrain, language, culture and social ethos, has led to serious recriminations and alienates the local people. After 50 years of existence in the Northeast, the armed forces act is viewed as tyrannical and it inspires hatred.

The Union government might want to look East but most of its bureaucrats in the region look West. Admittedly, life is difficult, and education facilities are limited. There are restrictions on the acquisition of property by ‘outsiders’. The result is that there is no long-term commitment on the part of the civil service. An administrative and police service for the region composed exclusively of officers from the Northeast is long overdue.

The author is former foreign secretary of India

NREGA: Dismantling the contractor raj

Jean Drèze
The Hindu, 20 November

A recent survey on NREGA in western Orissa points to a quiet sabotage of the transparency safeguards aimed at perpetuating the traditional system of extortion in rural employment programmes.

Once upon a time, rural employment programmes in Orissa (or for that matter in much of India) were safely in the hands of private contractors and their political masters. The game was roughly as follows. Private contractors were the direct recipients of “work orders,” and of the corresponding funds. They made money by submitting fudged “muster rolls,” with inflated employment and wage figures. A substantial part of the loot was recycled through the so-called “PC” (percentage) system, whereby various functionaries received fixed percentages of the amounts released. The contractors also had to pay tribute to their political bosses, for whom these funds came handy during election campaigns. This is the sort of situation that led P. Sainath to say that “everybody loves a good drought” — the peak season for rural employment programmes. Labourers, for their part, worked hard and earned a pittance.

The National Rural Employment Guarantee Act (NREGA) was supposed to bring about a radical change in this state of affairs. Under NREGA, rural labourers have a legal entitlement not only to work on demand but also to minimum wages. To prevent corruption, a wide range of transparency safeguards has been built into the Act. For instance, muster rolls are supposed to be kept at the worksite, displayed at the Panchayat Bhawan, and read out in public at the time of wage payments. Employment and wage details also have to be entered in the labourers’ “Job Cards”, to enable them to verify the records for themselves. Contractors are banned.

In some States, there is evidence of substantial progress in this transition towards a transparent and accountable system. In Rajasthan, for instance, contractors have virtually disappeared from NREGA and mass fudging of muster rolls is a thing of the past. Andhra Pradesh is also making rapid strides in this direction through strict record-keeping, institutionalised social audits and the payment of wages through Post Offices. In a recent survey of Surjguja and Koriya districts (Chhattisgarh), we found that in gram panchayat works, 95 per cent of the wages paid according to the muster rolls had actually reached the labourers concerned. This is a major achievement, especially in contrast with the situation just two years ago when a similar survey in the same area had uncovered evidence of massive fraud in the National Food For Work Programme.

However, the same transition is proving quite slow in some other States. A recent survey of NREGA in western Orissa, for instance, suggests that the “contractor raj” is alive (if not well) in this region. This survey, initiated by the G.B. Pant Social Science Institute at Allahabad University, was conducted from 3-12 October 2007 by students of the Delhi University in collaboration with local volunteers. Thirty randomly-selected gram panchayats, spread over three districts (Bolangir, Boudh and Kalahandi), were studied. The survey included careful verification of “muster rolls” for one randomly-selected NREGA work in each of these gram panchayats.

The survey points to a quiet sabotage of the transparency safeguards aimed at perpetuating the traditional system of extortion in rural employment programmes. Before elaborating, a few words about how NREGA works in Orissa may be useful. To keep things simple, the main focus here is on works implemented by the gram panchayats (these account for the bulk of NREGA funds in Orissa). At the gram panchayat level, the main responsibility for implementing NREGA works lies with the Panchayat Executive Officer (PEO). In some panchayats, the PEOs are assisted by Gram Rozgar Sevaks, but they are yet to be appointed in most cases. Another key actor is the Village Labour Leader (VLL), who is supposed to be selected by the gram sabha for the purpose of “supervising” a specific worksite.

The role of the VLL is actually in transition. The VLL concept goes back to the Sampoorna Grameen Rozgar Yojana (SGRY), a predecessor of NREGA. At that time, the VLL was a de facto contractor. He or she received the work orders, spent the funds, arranged the works, and filled the muster rolls. Under NREGA, funds are routed through the panchayat and the VLL is supposed to be a mere worksite supervisor, who earns wages at the same rate as other labourers. In practice, however, the post of VLL continues to act as a convenient foothold for the contractors. In many of the sample gram panchayats, the VLL was a small-time contractor or an agent of local contractors. In about half of the 30 sample worksites, the survey team found evidence that a contractor was involved in this or other ways.

The breakdown of the transparency safeguards is well illustrated by the fate of the Job Card. The main purpose of the Job Card is to enable NREGA labourers to verify their own employment and wage details. In Orissa, however, this purpose has been defeated from the start due to the faulty design of the Job Card. For instance, there is no column for “wages paid” in the card, making it impossible for workers to verify their wage payments. Even the number of days worked is hard to verify, as the names of the labourer and worksite have been replaced by numerical codes. To decipher a labourer’s code, one has to refer to the first page of the Job Card, which is often in English! The meaning of the worksite code, for its part, is anyone’s guess. In this and other ways, the Job Card is virtually unreadable, even for trained investigators — let alone semi-literate labourers.

The fate of muster rolls is not much better. In most of the sample gram panchayats, it was observed that various “adjustments” in the muster rolls had become routine practice. For instance, a worker without a Job Card is often accommodated by “clubbing” his or her wages with those of someone who has a Job Card under the latter’s name. Similarly, team work performed under the piece-rate system is often recorded under the name of the team leader alone. Sometimes, adjustments are also made to meet the requirements of the online Monitoring and Information System (MIS). These and related practices, well-intentioned as they might be in some cases, open the door to further “adjustments” that serve different purposes. In fact, the pressure to make adjustments in some circumstances (e.g. meeting the requirements of the MIS) seems to have become a handy cover for fraudulent practices, such as inflating the wage payments and pocketing the difference.

The bottom line is that the records are virtually unverifiable. Job Cards have become symbolic documents, and almost any discrepancy in the muster rolls can be justified in the name of “adjustments.” In this opaque environment, contractors have a field day. The extent of the loot is hard to estimate, given the near unverifiability of the muster rolls, but the “PC system” provides some useful clues. According to fairly reliable sources (including several contractors), the PC system — where it applies — absorbs about 20 to 25 per cent of NREGA funds in the sample Blocks. The “profit” of the contractors, for its part, appears to be of the order of 10 to 15 per cent. This suggests that 30 to 40 per cent of NREGA funds are siphoned off in this area.

The silver lining is that, even in Orissa, the traditional system of extortion seems to be finding it harder and harder to survive. In fact, contractors are not particularly happy with NREGA; vulnerable as it may be, the system has become more difficult for them to control. They are apprehensive of a possible tightening of the checks and balances, and have started fading away in some places (in almost half of the sample gram panchayats, there was no evidence of their involvement).

In some of the sample gram panchayats (notably in the Boudh District), corruption levels in NREGA are already much lower, by all accounts, than in earlier employment programmes such as SGRY and the National Food For Work Programme. Strict implementation of the transparency safeguards is the best way to accelerate this process of “phasing out” of the traditional system of corruption.

This story would be incomplete without a mention of the tremendous potential of NREGA in the survey areas. Where work was available, it was generally found that workers earned close to (and sometimes more than) the statutory minimum wage of Rs 70 per day, and that wages were paid within 15 days or so. This is an unprecedented opportunity for the rural poor, and there was evident appreciation of it among casual labourers and other disadvantaged sections of the population. Some of them even hoped that NREGA would enable them to avoid long-distance seasonal migration, with all its hardships.

Further, there is plenty of scope for productive NREGA works in this area, whether it is in the field of water conservation, rural connectivity, regeneration of forest land, or improvement of private agricultural land. The challenges involved in “making NREGA work” should always be seen in the light of these long-term possibilities, and their significance for the rural poor.

(The author is Visiting Professor at Allahabad University, and a member of the Central Employment Guarantee Council.)

US, Left govt can do business: Kissinger- Jihad, not China, behind ties with India

JYOTI MALHOTRA
The Telegraph, 2 November

New Delhi, Nov. 1: The high priest of the international strategic community, Henry Kissinger, believes that the growing intimacy between India and the US has nothing to do with China but is founded on the common belief that jihadist Islam must be contained.

In an exclusive interview to The Telegraph, Kissinger rejected the much-debated assumption, both in India and the US, that a rising China, which implicitly threatens American dominance, had pushed Washington to negotiate the nuclear deal with Delhi.

The former US national security adviser, who remains a household name in India because of his perceived pro-Pakistan tilt during the 1971 war, is travelling to Calcutta on Saturday to meet the senior CPM leadership, led by Jyoti Basu and chief minister Buddhadeb Bhattacharjee.

“I have always gotten along well with communists. I have no message for them, I only want to have a discussion, to listen to their views. I’m not here to convert them…. I cannot see why the US cannot cooperate with a communist government,’’ Kissinger said.

He admitted it had been different in 1971. At the time Richard Nixon, the US President, according to recently declassified papers, had referred to Indira Gandhi as an “old witch’’ and sent the Seventh Fleet to the Bay of Bengal. Kissinger himself, furious that Indira had won over the Soviets in a defence pact, noted: “The Indians are bastards, anyway.’’

But Kissinger is a changed man. Over the last few days he has been the toast of Delhi, meeting everyone who matters — from Rahul Gandhi to Brajesh Mishra — and speaking on “India’s role in the Asian century’’. He will deliver a similar speech in Calcutta on Saturday.

Asked whether he defended his 1971 remarks, Kissinger said: “In the circumstances of the time, yes.’’

He pointed out that the comments came at a time “when we needed Pakistan to complete our opening to China’’ but that soon after the war, he had constituted a commission to promote Indo-US cooperation.

“I had great regard for Mrs Gandhi. The Indian leadership knew, Mrs Gandhi knew, that as soon as the war got over, we were promoting the autonomy of Bangladesh,’’ Kissinger said.

The arch-pragmatist, who was responsible for the US opening to China in the early 1970s so as to build a counterweight to the Soviet Union, has for the last many years openly lobbied on behalf of a number of Chinese companies.

Asked whether the wooing of India over the last few years, which had recently culminated in the Indo-US nuclear deal, had been founded on the common premise of hostility against China, Kissinger flatly rejected the suggestion.

“As someone who undertook the opening to China,’’ Kissinger said, “I am opposed to any policy which establishes China as a principal American adversary. For me that is not the real reason (behind the nuclear deal),’’ he added.

Kissinger said the real threat came from the radical Islamists, especially after September 11, 2001.

“We are not trying to woo India but trying to create a basis for co-operative action, much of which has to do with the Islamic world but has nothing to do with China directly.”

Asked, then, if the Islamic world, instead of China, was the common threat for India and the US, Kissinger said, “At this moment, it is the Islamic world, not because it is Islamic but because of radical, jihadist Islam.”

“We have common interests,” he added, “which is to enable Islamic societies to participate in the international system in the way India and other societies are (doing), without trying to overthrow (existing) institutions.”

Asked why India would join the US in such a venture, especially when the Bush administration had invaded Iraq without any real reason, Kissinger said, “We may have no choice… because India is in the Islamic world.”

“Of course,’’ he added, “nobody is forcing India to do anything.’’

During the interview, Kissinger spoke at length about the Indo-US nuclear deal, saying India should approve of the deal only if it believed it was good for the country.

However, he said, Delhi should also realise that according to the US, the deal would lapse if it was not completed during a particular administration. A new Congress would then need to negotiate a brand new agreement, he said.

Kissinger felt that the deadline for the deal to be passed by the US Congress could be pushed back as far as July 2008.

“If India can complete its internal processes in such a way that our Congress can still act on it by July next year, it can still be done. July is the outer limit, because after that the Congress goes into recess and by September, the election campaign would begin in earnest,’’ he said.

On China’s refusal to openly support the nuclear deal, Kissinger admitted that China “was probably not eager to see such an agreement’’. But he insisted that Beijing was not actively working against India.

“Both India and China are big countries, sometimes they will rub against each other… but I don’t believe it is desirable for India and China to be adversaries.”

Kissinger discounted the fact that India’s inability to domestically clear the nuclear deal would damage its international stature. Ever the pragmatic thinker, he said India’s friends abroad would understand while those who have doubts would have their misgivings reinforced.

Deal or no deal, Kissinger said, India was a growing power to reckon with. Of course, the process would be faster if India did clear the agreement.