All entries for March 2005

March 31, 2005

Delhi Missing the Point

Asia Times, 31.03.2005

The sale of F-16 fighters to Pakistan by the US should come as no surprise to India. The deal had already been finalized in the 1980s, only to be blocked in 1990 by the US administration because of Pakistan's nuclear ambitions. Last year, the remaining sanctions on India were lifted by the government of President George W Bush in view of the country's growing economic presence in the world. Similarly, India should have expected conciliatory moves from the US toward Pakistan after it literally allowed the US to dictate its foreign policy since September 11, 2001.

So when Indian Prime Minister Manmohan Singh expressed "great disappointment" at the F-16 deal, it pointed at another incidence where Indian diplomacy has failed to foresee a rather obvious event.

On her recent visit to India, US Secretary of State Condoleezza Rice said, "What we're trying to do is break out of the notion that this is a hyphenated relationship somehow, that anything that happens that's good for Pakistan has to be bad for India, and vice versa." India's vehement and open opposition to this deal and the dejected expression that followed it will only pour cold water on the country's aspirations not to be equated with Pakistan in most geopolitical discussions pertaining to South Asia. India looks on itself as a rising regional, and possibly global, economic and military power, yet an indifferent attitude to this deal would have gone a longer way to bolster that image than the sniffles of a child who didn't get his cookie.

There are reasons to believe that this deal would do little to alter the strategic balance in the subcontinent. First, as a US State Department official put it, India had been contemplating a "very large" purchase of fighters long before this deal was sanctioned. Models in the race include French Mirage 2000–5s, Swedish JAS-39 Gripens and Russian MiG-29s. Thanks to the recent announcement by the US, India can also add F-16s and F-18s to this list.

Lockheed Martin has also gone a step beyond and confirmed that it will be willing to upgrade the F-16s to Block 70 levels, especially catering to the particular needs of India, very much as the Russians did with the Su-30. Moreover, even without this new purchase, India already operates fighters at par with if not superior to the F-16 Block 52 being offered to Pakistan, the MiG-29, Mirage 2000 and Su-30MKI. It does not appear that a few dozen F-16s will change the entire dimension in favor of Pakistan.

Second, although India has constantly denied that it wants to get sapped into an arms race, indulging in one would not necessarily be bad for the long-term interests of the country. After all, one of the reasons the Soviet economy never reached the levels of the US was the massive amount it spent on military hardware. India can do the same – draw Pakistan into an arms race by making some big purchases. Owing to nationalist pressures, Islamabad will be forced to do what it can to match India's rapidly growing capabilities. The defense-spending ratio already stands at 5:1 in favor of India – Pakistan would not feel safe to let it slip further.

Once the Pakistani economy was under pressure owing to this race, India could push for economic concessions, such as a South Asian free-trade area, a policy long torpedoed by Pakistan owing to fears of Indian competition. With less money at its disposal to fund infrastructure projects or invest in the economy to create jobs, Pakistan may have no choice but to sign a trade accord and let Indian companies provide jobs to its economy.

Third, India should remember that "friends are not permanent, interests are". Pakistan has been favored by the US for the past half a century or so for valid strategic reasons. During the Cold War, it acted as a deterrent to a pro-Soviet India. During the Afghan war, it helped the US and the mujahideen throw the Russians out of the country. After September 11, 2001, President General Pervez Musharraf went out of his way to help in the "war on terror". Even after being exposed to life-threatening attacks by extremists in his country, he has cooperated with the coalition forces in whatever way he can. It is still not clear whether India definitely wants to join the US camp – so why shouldn't the US have an "insurance" partner in Pakistan in the region? It makes sense to the strategists at the Pentagon.

What India needs to do is make itself more attractive as a partner than Pakistan. India's obvious advantage lies in its rapidly growing and very large economy. India needs to liberalize quicker and give foreign firms (especially US firms) incentives to invest in India, beyond software and information-technology services. A preferential trade agreement between the US and India would open up huge avenues for businesses on both sides.

Once India made its presence felt in the business lobbies in the United States, its weight as an ally would decisively shift vis-a-vis Pakistan. To put things in context, US-India trade in 2003–04 hovered around the US$20 billion figure, compared with a nearly $300 billion figure for US-China trade. The US attitude toward Taiwan has been affected directly as a result. These days the Pentagon often issues restraining calls on Taiwan, and is surprisingly quiet on China's harsh labor regulations since US companies might be affected as a result. A booming bilateral trade between India and the US would not only be beneficial for a large number of Indians, but would also help the country establish itself as a firm US ally in the region, and ensure US support or neutrality in any future disputes with Pakistan.

As has so often been the case, the Indian media are sounding alarm bells even before the planes have been transferred to Pakistan. They will probably be delivered in batches, with the entire fleet being handed over probably within the next five years or so. Also, what is evident is that amid all this apparent disappointment and protest, there remains an inferiority complex in the Indian press. What India needs to do is stop crying over spillled milk, and make the most of the good options it has with Uncle Sam.

March 09, 2005

Self Delusion

The Telegraph, 09.03.05

Delusion rules in Sunanda K. Datta-Ray’s “Out of service” (Feb 26), where the author argues that wealth creation is given a backseat in the United States of America or the United Kingdom. Perhaps the author has forgotten that the two countries he mentions have the most business-friendly environment in the entire developed world, except possibly Japan. The UK is the country where Richard Branson, Rupert Murdoch, Laxmi Mittal, and so on are venerated. The US is the nation which produced Microsoft, General Motors, IBM, WalMart. The author confuses the idea of good governance with wealth generation. All the problems he mentions — at the post office, bank or government departments — are organs of the colossal Leviathan the Indian state has become. Because the British and American governments limit themselves to maintaining law and order and operating basic public services, it is able to focus better and consequently provide acceptable services.

In India, the state not only does the above, but also runs hotels, steel mills and airports. No wonder it has failed to perform on all fronts. The so called “quality” which Datta-Ray talks about, would return to Indian society only when the people are given a free hand in generating wealth. Innovation would follow from this, and not from the hope that the state would perform a miracle.

March 08, 2005

Rich in Rhetoric

The Telegraph, 08.03.05

Ashok Mitra needs new ideas for his column. An article, which was supposed to discuss the implications of the assembly elections, has once again become a rant against “imperialistic” foreigners, India’s “rich favouring” economic policy and other such tiresome rhetoric (“Love’s labours lost”, Mar 4). Mitra thinks that now the republic exists only for the rich. He should have said instead that the republic before 1991 used to exist only for the rich. In the 13 years of liberalization which Mitra so hates, millions of Indians have been lifted out of poverty. China, one may argue, has done the job faster. Guess why? Faster liberalization. If the pro-rich policies failed so miserably, as Mitra would have us believe, why is the difference so stark between the countries under the “iron triangle” and those in western Europe? Why is it that North Korea is a wasteland and South Korea a member of the Organization for Economic Cooperation and Development? Why are the east Asian tigers so highly developed while the South American communist states are not? The evidence goes against Mitra.

Mitra disagrees with allowing foreign direct investment in retail, construction and mining. Why should our miners continue to work in medieval conditions just in order to keep out foreign technology? What is wrong in letting in the American retail giants if they help improve their Indian counterparts? Greater competition has produced stronger domestic firms. Look at Wipro, Infosys, Satyam, Dr Reddy's, Ranbaxy — the list could go on.

Mitra thinks that allowing FDI in construction would mean alteration of India’s landscape. Does he think Mumbai’s slums are part of India’s proud heritage? I want to see a Shanghai repeated and bettered in Mumbai. But Mitra of course would rather have the slums.

March 06, 2005

Is the world a free market?

The Telegraph, 04.03.2005

By Jagdish Bhagwati,
Oxford, £ 11.89

The economist who wrote this book has been labelled by left sympathizers “the world’s foremost free trader”. While making clear his perspective on globalization, Jagdish Bhagwati deals a blow to the arguments of celebrated economists like Amartya Sen and Joseph Stiglitz, rendering much of them paralyzed. Perhaps it is Stiglitz’s Globalisation and its Discontents that inspired Bhagwati’s title. Bhagwati writes persuasively and has facts, common sense and historical evidence to back his points. Coupled with these are his wit and sarcasm which make his opponents’ arguments look insipid.

The core of Bhagwati’s argument revolves around the debate over the economic implication of globalization, especially in the developing world. Too much has already been written about how bad economic integration is, and how it has led to the ruin of poor countries, and how organizations like the WTO and IMF are purely satanic.

For Bhagwati, there is no question about the goodness of globalization. It has, he feels, a potential to do far more good than it has already done. He shows through empirical analysis and evidence that poor public policy outlook in regions such as east Asia and Latin America — and not free trade — is behind their financial meltdown. Bhagwati lists the fruits that open trade have borne countries across the world, poor or rich. Hence, globalization does not need a “human face”, it already has one. Bhagwati attributes the evils often associated with globalization to poor governance, hegemonic tendencies of developed countries, hypocritical double standards of international organizations and pure ignorance.

The book moves forward at a brisk pace, demolishing every pseudo-edifice of mercantilism on the way, making for great entertainment to the reader.

However, there could be reservations about two arguments. First, Bhagwati’s argument, the classical liberal one put forward by Adam Smith and David Ricardo, of “comparative advantage”, is not convincing enough. It is true that most countries will indeed find their niche in the world market to develop their unique selling points, but at least in two circumstances, this could not be the case. One, when the country concerned has no resources to export. And two, when a country’s companies are wiped out in their infancy by giant MNCs, becoming dependent on the latter for employment and on imports for consumption. To resolve this, surely we need to return to Smith and List’s notion of “infant industry protection”, which says that a potentially competitive industry needs breathing space to realize its full competitiveness before being exposed to the cutthroat competition of the international market. Bhagwati’s argument on this issue is not always clear.

His arguments on multiculturalism being facilitated through globalization are rather idealistic. Indeed, Oriental cultures have made a great impact on the Occident, but surely the West’s control of the channels through which these interactions can occur undermines the whole process. As a result, in countries like India, the youth have increasingly failed to distinguish the native from the Western as “different”, invariably regarding the latter as superior and the former as inferior.

Such reservations aside, the work is nothing short of a masterpiece.

March 2005

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