Prem Shankar Jha

Prime Minister Narendra Modi during his visit to China in May 2015. Credit : PTI

Prime Minister Narendra Modi during his visit to China in May 2015. Credit : PTI

When Delhi ignored Beijing’s quiet demarches to let sleeping dogs lie in Arunachal Pradesh, not only did the Vice foreign minister Liu Zhenmin summon Ambassador Ashok Kantha to express his “strong dissatisfaction and staunch opposition” to Narendra Modi’s visit in February 2015, but the entire text of his protest was released by the Foreign office, and carried in full by Xinhua , the next day.

China, he said  “has never recognized the so-called ‘Arunachal Pradesh’ unilaterally set up by the Indian side. It’s an universally recognized, unevadable fact that significant disputes do exist on the eastern section of the China-India border…. the so-called “Arunachal Pradesh” was established largely on the three areas of China’s Tibet — Monyul, Loyul and Lower Tsayul currently under Indian illegal occupation. These three areas, located between the illegal “McMahon Line” and the traditional customary boundary between China and India, have always been Chinese territory”.

However Liu kept the door open for resuming the convergence towards strategic cooperation that had taken place between Hua Hin and Durban. He again said that China placed importance on developing relations with India. He said the two countries, ‘as neighbors and the top two developing countries in the world, share broad prospect on cooperation at various levels’.

He expressed ‘the hope that the Indian side should treasure the sound momentum in the growth of bilateral relations, march toward the same goal with China and abide by the important consensus on the border issue’ and “called for the Indian side not to take any action that may complicate the border issue and stick to the general orientation of resolving the issue through bilateral negotiations so as to maintain the overall growth of bilateral relations”.

But the significance of this very public demarche was lost upon the Indian media, which did not even mention it. So two months later, surreptitiously, and therefore unnoticed yet again by the media, Modi sent four Indian warships to join a US carrier fleet in the South China Sea to enforce the freedom of navigation within it less than a week before his return State visit to China. With that all ambiguity about where India stood on the central strategic issue of our age, was dispelled.

Inspite of this China pulled out all the stops to welcome Modi later that year. Xi took an entire day out of his calendar to spend it with him in Xian. Li Keqiang spent in all 13 hours with him. The joint statement issued after the visit began by acknowledging “ the simultaneous re-emergence of India and China as two major powers in the region.” This was something Beijing had never before conceded and was obviously intended to keep the door open for serious further engagement on international issues. But Indian commentators either did not notice the shift or took it as an acknowledgement of India’s growing power and influence that required no quid pro quo.

Spread over several paragraphs was also a commitment by both countries to put the border dispute in cold storage and not allow it to hinder the further development of cooperation between the two countries. It reiterated that the two governments were determined to ‘actively seek a political settlement of the boundary question’ and ‘resolve outstanding differences, including the boundary question, in a proactive manner’. They agreed to exchange   regular visits and make full use of the opportunities provided by the presence of their leaders at various multilateral fora to hold consultations on bilateral relations and issues of regional and global importance. It again affirmed that an early settlement of the boundary question served the basic interests of the two countries and should be pursued as a strategic objective by the two governments.

But what was absent from it was any reference to strategic cooperation. This was glaringly obvious in the last, and from China’s point of view most important, section of the statement, sub-titled Shaping the Regional and Global Agenda. Given India’s explicit support for Vietnam’s rights in the South China sea, it came as no surprise that the statement steered clear of making even an oblique reference to the disputes that bedevil the region. But the joint statement did not even make a reference to the need to ensure the freedom of navigation in it.

China has stated, times without number, that it has no intention whatever of blocking free movement of commerce within it. Asserting a common commitment to protecting this freedom, possibly qualified by and explicit reference to commerce, would have balanced the reference to it in the Indo-US Joint Strategic vision statement of January 25. Its absence suggests that India either felt no need to establish such a balance or baulked at including any statement that would dilute the tacit commitment it had made to the US.

Equally significant was the absence of any reference to the civil war and humanitarian crisis in Syria, any explicit condemnation of ISIS and, most significantly, any welcome of the US and EU’s agreement with Iran. There was not even the implied criticism of the US’ quest for global dominance and a unipolar world that BRICS’ Delhi declaration had contained. Nor was there an endorsement of a multi-polar world order. It was as if the Delhi meeting of BRICS had never taken place.

Although Narendra Modi had taken a huge business delegation with him, and came back with $22 billion worth of state and corporate investment commitments, the joint statement concentrated only on terrorism, border demarcation, and the bilateral trade imbalance. The possibility of redressing this by facilitating large amounts of Chinese investment in India was only touched upon in passing. There was no reference in the joint statement to China’s proposal to form a Regional Cooperation Economic Partnership or to the One Belt, One Road (OBOR) plan into which it was absorbed, and no indication on whether India would join it or not.

The joint statement also showed that China had begun to hedge its bets. It ‘understood and supported’ India’s aspiration to play a greater role in the United Nations (no mention of the Security Council) and, in language that foreshadowed the US’ welcome of India’s interest in joining APEC, it ‘took note’ of India’s desire to become a member of the Nuclear Suppliers’ Group.

Since then, as the Modi government has ploughed ahead, China’s withdrawal of its offer of strategic cooperation, and return to its older policy of isolating, and neutralising India, has gathered momentum. It opposed — and prevented — Masood Azhar from being declared an International terrorist by the UN Security Council. It is opposing India’s membership of the Nuclear Suppliers’ Group. It has committed $14 billion to building a tunnel under the Great Himalayan range, roads, bridges and a rail link to end Nepal’s dependence on India for access to the rest of the world. It has committed $13 billion to building ports, roads and power plants in Sri Lanka and a whopping $45 billion to developing Pakistan’s road, rail, port and nuclear power infrastructure.

When these projects are completed Pakistan’s infrastructure will not only far outstrip that of India but also, by creating an alternate route for its exports to Africa and Europe through Pakistan, shower so much foreign exchange upon it by way of transit fees that it will never again have to turn to India for help as it did in 2012.

Prem Shankar Jha is a senior journalist and author of Twilight of the Nation State: Globalisation, Chaos and War, and Crouching Dragon, Hidden Tiger, Can China and India Dominate the West?

This is the third part of the series of Indian foreign policy under the Narendra Modi government. The first two can be read here and here.

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File photo of Prime Minister Narendra Modi and Chinese President Xi Jinping. Credit: PTI

File photo of Prime Minister Narendra Modi and Chinese President Xi Jinping. Credit: PTI

China and India’s relationship had begun to warm after the two countries signed the Agreement for Peace and Tranquility in the Border Regions, in 1993. Not only did trade between them grow at an astonishing pace, but they found themselves on the same side of the fence on a growing range of issues, from climate change to the invasion of Iraq and the need to build a multipolar world order. The first unambiguous signal that China was willing to set bilateral issues like the border dispute and Tibet aside in search of closer and more structured cooperation on strategic issues came from former premier Wen Jiabao, when he asked for a meeting with Manmohan Singh, who was then prime minister, on the side-lines of an ASEAN conference at Hua Hin, Thailand, in October 2009.

Confrontations on the Line of Actual Control (LAC) had multiplied during the previous three years. Tensions had heightened further in 2008 when a mini-revolt broke out in Tibet on the 50th anniversary of the Dalai Lama’s flight to India, that the administration in Tibet ascribed to a conspiracy hatched in Delhi and Lhasa. Finally, by September 2008, prolonged attention in the international media had begun to turn a visit by the Dalai Lama to Tawang, Arunachal Pradesh, to inaugurate a new hospital, into a confrontation between the two Asian giants that was threatening to spill over into war.

The need to defuse the mounting tension was apparent, so Delhi welcomed Wen’s initiative. What no one asked was why it was Wen, and not Singh, who had initiated the meeting. The media concluded that China had caved in when India ‘stood firm’ on the Dalai Lama’s visit to Tawang and that this was the way to deal with it in future.

Detailed briefings given by the Chinese foreign office after Wen’s return showed that what Beijing had wanted was to find a way of preventing unwelcome media attention from forcing the two countries into a confrontation that neither wanted. The issue was speedily settled when Singh decided to ban the international media from Tawang, which is beyond the Inner Line, and allowed only a handful of Indian correspondents to cover the event. The rest of the discussions between him and Wen ranged over strategic issues that affected both China and India.

Beijing’s relief was writ large in the despatches of Xinhua and reports in Global Times. In diplomatic demarches, what is not said is usually more important than what is. The statements emanating from Beijing referred once more to the Himalayan impasse as a border dispute and not as an illegal occupation of ‘southern Tibet’. Premier Wen said it would be resolved ‘gradually’, and would not be allowed to impede cooperation on other issues. The term ‘South China” was not used. C-3S, the Chennai based centre for China Studies , summed up China’s goal pithily: “Premier Wen Jiabao, obviously conveying a message from the Chinese leadership, conceded there was enough space in the world for both China and India to grow”.

The breakthrough at Hua Hin created the launch pad for a Chinese bid to raise the level of Sino-Indian cooperation from the tactical to the strategic level. A participant at a closed door conference on India=China relations held by the Lee Kuan Yew school of International Affairs in Singapore, in 2012, defined it as follows: “There can be five levels of relations between two countries – ranging from total opposition (level 1) through occasional tactical cooperation (level 3) to strategic collaboration ( level 5). China and India are on level 3. We would like to take it to level 5”.

Measured by this yardstick, China and India began moving from level 3 to level 4 at the annual BRICS meeting at Sanya, on Hainan Island, in April 2011. They began to move from level 4 towards level 5 during the fourth and fifth BRICS summits at New Delhi and Durban in 2012 and 2013.

The trigger for broadening the scope of cooperation from the economic to political and strategic issues was provided by NATO’s abuse of the UN Security Council’s no-fly-zone resolution to embark upon regime change by force in Libya, and follow it up with a similar covert attack on Syria. For China, as indeed for Russia and India, the message was clear: The invasion of Iraq in 2003 had not been an aberration. For the US, victory in the Cold War had rendered the UN charter obsolete. The Westphalian international order that it embodied, and which insisted that force must be the weapon of last, and not first, resort was therefore well and truly dead. The world was returning to the ‘constant state of war’ that the 17th century British philosopher Thomas Hobbes had described as the state of nature. China decided that it could no longer rule out becoming America’s and Nato’s next target (only two years later Russia did become the US’s next target).

BRICS’ Delhi declaration in 2012 was therefore twice as long as the one issued at Sanya. It contained the most comprehensive criticism of the failures of the West that had been voiced by any group of countries since the end of the Cold War. It demanded that the sovereignty, independence and territorial integrity of all states, be respected. It condemned the attacks on Libya and Syria, and warned that the threats to Iran “must not be allowed to escalate into conflict”. And it explicitly called for the establishment of a multi-polar world order.

The Delhi meeting gave a fresh impetus to China’s efforts to forge strategic cooperation with Delhi. President Xi Jinping made this clear at the Durban meeting of the BRICS heads of government in March 2013, within months of succeeding Hu Jintao.

The signal was a change in the wording of the joint statement with Singh on the border dispute. From saying that the two countries would “gradually narrow differences on border issues” it read that they would “strive for a fair, rational solution framework acceptable to both sides as soon as possible”.

Break with protocol by President Xi

At the Durban meeting, Xi also broke protocol when he told Singh that Chinese Premier Li Keqiang’s first foreign visit would be to India. On May 13 – days before Li Keqiang’s visit – Wei Wei, China’s ambassador to India, took what was for the Chinese government the unprecedented step of writing an op-ed piece in The Hindu, urging the Indian government to set aside the border dispute and focus attention on developing closer relations between the two countries. As in all diplomatic statements the words and phrases he used conveyed precise meanings.

“The China-India boundary question a problem left over from history … At present, the comprehensive development of China-India relations has created favourable conditions for solving border-related issues. …To strengthen good-neighbourly and friendly cooperation with India is China’s strategic choice and established policy which will not change. … Both sides “should proceed from a strategic height and a holistic perspective…. and strive for a fair, reasonable and mutually acceptable solution to the boundary question at an early date”.  (emphases added)

The message could not have been more explicit: China regarded the border dispute as a legacy of the past, and wanted to get beyond it as soon as possible in order to cooperate with India on strategic issues of the future. The more China-India cooperation increased in the future, the easier would it be for both countries to find a mutually acceptable solution. One could not, however, find in history the solution to a problem created by history. One had, instead to go back to first principles and approach the task with a willingness to compromise.

Li Keqiang’s visit to India a few weeks later was an unqualified success. A senior Indian official who was present at his meeting with Manmohan Singh told me that their discussion had gone so well that it could have been choreographed. Singh summed up his own impressions in a formal statement when he said, “ I am delighted that there are so many areas of convergence between us on which there is a great deal of meeting of minds”.

Li’s visit set the stage for President Xi Jinping’s visit to India 16 months later. In the intervening months signs of the importance that Beijing attached to changing the locus of its relations with India multiplied. The Indian national day reception at Beijing in January 2014 was attended by the vice president of China, who delivered a 10 minute speech extolling the ties that had existed between China and India since antiquity.

Six months later, when ambassador Ashok Kantha, who had replaced the current foreign secretary S. Jaishankar, presented his credentials, he was one of only two out of 14 ambassadors whom President Xi asked to stay back for a short talk.

Finally, President Xi himself met national security adviser A.K Doval when he visited Beijing on September 8, 2014 to prepare for his India visit. The last senior official who was granted this courtesy by a Chinese president may have been Henry Kissinger in 1970.

Too mired in the past

In Delhi, unfortunately, only those closest to Manmohan Singh and key members of the foreign policy establishment fully grasped the signals that Beijing was sending. The intelligentsia, with only a handful of exceptions, remained too deeply mired in the past to shed its defensive mind-set towards Beijing. This was even more true of the government that Narendra Modi established, for he not only made it a virtue to cut all links with those who had made policy during the UPA regime, but also with those who had done so under Atal Bihari Vajpayee. As a result, the new government treated President Xi’s visit more as a bilateral mending of fences, not unmixed with elements of theatre, than the culmination of a long and patiently sought rapprochement.

Whatever President Xi Jinping may have wanted to achieve during his visit was, however, sabotaged when Chinese troops surrounded an Indian outpost at Chumar, in eastern Ladakh, only days before he arrived in India. With no clear idea of the reasons behind his visit, most Indian analysts and media pundits jumped to the conclusion that he had deliberately arranged for this to happen during his visit in order to remind Modi of just who had the whip hand in Ladakh.

They could not have been more wrong. According to an Indian diplomat who was present in Ahmedabad when Modi bluntly asked Xi Jinping what had happened, the Chinese president replied, “I don’t know”, but promised to find out when he returned to Beijing. For any head of state, let alone that of China, to have to admit ignorance to his counterpart when on a state visit must have been embarrassing, if not humiliating. Again no one asked why Xi should have exposed himself to it by timing the intrusion for the day before he reached India. That he wasn’t simply saying the only thing he could have said when confronted by Modi became apparent when, on September 21, barely a day after he returned to Beijing, Xi issued a stern reprimand to the PLA to follow the dictates of the party’s military commission.

But in the next seven months, as Modi visited Japan, the US, South Korea, Australia, signed the Joint Strategic Vision for the Asia-Pacific document with Barack Obama and ignored Beijing’s privately voiced protests, it became apparent to China’s strategists that he had either not understood its overtures, or had decided to reverse the foreign policy of the UPA and its preceding three governments and edge into a closer embrace with the US. As a result its attitude towards India also began to change.

Prem Shankar Jha is a senior journalist and author of Twilight of the Nation State: Globalisation, Chaos and War, and Crouching Dragon, Hidden Tiger, Can China and India Dominate the West?

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By drawing even closer to the United States and signing binding agreements, India is giving up years of carefully calibrated balance in its foreign policy.

File picture of Prime Minister Narendra Modi and President Obama in the White House in June. Credit : PTI

File picture of Prime Minister Narendra Modi and President Obama in the White House in June. Credit : PTI

This is the first of a three-part series on India’s foreign policy.

In two lacklustre years of governance the BJP has done very little to fulfil its promise of economic revival and vindicate the trust that the people of India had bestowed upon it. That may be why its propagandists have worked overtime to portray the signature of the Logistics and Supply Memorandum of Agreement (LEMOA) with the USA, and President Obama’s designation of India as a “major defence partner” as a huge success in his foreign policy.

With very few exceptions, commentators in the national media have fallen in line with this assessment. Only a few have noticed that in his eagerness to cement a closer defence relationship with the US Modi had given away India’s most prized asset – its zealously guarded independence of foreign policy – in exchange for a barrage of flattery and a bunch of verbal assurances that do not even add up to the proverbial thirty pieces of silver .

Declaring India a major defence partner has cost the US nothing. Unlike NATO or the US’s defence treaty with Japan, it is not a mutual defence pact and does not bind the US to coming to India’s aid if it is attacked. The most that India can possibly aspire to is a relationship somewhat similar to that of the US with Israel, where the US constantly reiterates its determination to come to Israel’s aid if it is attacked, but not via a defence treaty.

But India is not Israel. Its India-born American community is rich, and becoming politically more influential by the day. But it can never, even remotely, aspire to the power to shape US policy. American military power is not, therefore, ever likely to be deployed against India’s two main adversaries, Pakistan and China: Pakistan because it too is ‘a major non-NATO ally’, and China because it is simply too big for an already war-weary nation to take on.

In sharp contrast, the commitments that India has made to become worthy of this award (for that is all it is) are concrete, onerous and, worst of all, open-ended. Indian diplomats who have been involved in the negotiations insist that, unlike the Logistics Supply Agreement (LSA) that the US has signed with its other allies, it does not give the US Navy and Air Force an automatic right to use Indian bases while waging its wars. What it will facilitate automatically is the refuelling, restocking and repair of their craft at Indian naval and air bases during joint exercises, anti-piracy and other UN-sanctioned operations in the Indian Ocean.

This is the assurance that Defence Minister Manohar Parrikar had rushed to Beijing to give to the Chinese after postponing the signature of LEMOA at the last minute during US Defence Secretary Ashton Carter’s visit to Delhi in April. But in practice, these caveats against automatic involvement in America’s wars are hollow because Delhi will find it exceedingly difficult to deny these facilities to the US once the latter has committed itself to a military operation – because of the angry reaction that will provoke in the US media, and the Congress.

LEMOA is also only the thin end of a rather fat wedge. The US has made it clear that signing it will make it easier to acquire sensitive dual-use technologies. But to get the most out of it, India will have to sign two supplementary “foundational” agreements, the Communication and Information Security Memorandum of Agreement (CISMOA) and the Basic Exchange and Cooperation Agreement (BECA).

The US needs these to ensure that sensitive technological information shared with India does not get passed onto ‘unfriendly’ countries. But this concern will cut both ways. Its immediate result will therefore be to cut India off from access to cutting edge Russian armaments and technology.

A big loss

This will not be a small loss. In the late 1980s and early 1990s, as the Soviet Union began to come apart, it could have been argued that India did not really have any alternative but to turn to the West for advanced weaponry. But that is no longer true. The S-400 surface-to-air missile batteries, Sukhoi-35 multi-role aircraft and long-range cruise missiles that Moscow unveiled in Syria last year show that the technology gap between the US and Russia has not only narrowed but, in some important areas, reversed.

There is nothing comparable to the S-400 in the western armoury, and the Su-35 costs a quarter of what India has committed itself to paying France for the Rafale. So no matter how Modi’s propagandists try to dress it up, these three agreements will lock India into permanent dependence upon American, European and Israeli suppliers and make it pay through the nose for what it gets.

Thus when CISMOA and BECA have been signed, India will lose its capacity to act independently and will become a permanent appendage of the Western alliance. To see how this could work out in practice, Modi has only to pick up the phone to Pakistan’s Prime Minister Nawaz Sharif or, better still, ask General Pervez Musharraf about how Pakistan came to join the War on Terror after 9/11.

The difference between Modi and his predecessors is that the latter were not prepared to pay this price. Manmohan Singh, Atal Bihari Vajpayee and Narasimha Rao had coped with China’s rise by assuaging its anxieties about Indian intentions in Tibet and rapidly deepening the economic relations between the two countries. But they had simultaneously asserted India’s right to deal independently with the countries around the South China sea, to continue sheltering the Dalai Lama and to allow him to run a virtual government in exile from Dharamshala.

All three also steadily deepened India’s relationship with the US, but carefully avoided making military commitments that would limit their options in the future. Vajpayee refused President George W. Bush’s request for Indian troops to pacify Iraq after the 2003 invasion, and Manmohan Singh studiously refused to sign the logistics supply, and its supporting agreements, with the US throughout his time in office.

The success of this careful balancing act is testified to by the fact that during this period it was not only the US but also China that began to woo India. Modi’s precipitate action – taken without any of the open discussion and extended parliamentary debate that had preceded the signing of the Indo-US nuclear agreement in 2008 – has ended this hard-won equidistance and the power to influence world events that went with it.

What is even more disturbing: while it has crowned Obama’s attempt to yoke India to his goal of containing China with success, it has wantonly thrown away the best opportunity India had, or may ever have again, of making a lasting peace with China and harnessing its enormous financial, technological and managerial resources to accelerate India’s industrial development.

Breaking from Nehru’s legacy

The US must have sensed its opportunity when Modi signalled his willingness, probably during his first visit to Washington in 2014, to make a clean break with Jawaharlal Nehru’s legacy in foreign policy. Barack Obama lost no time in capitalising upon this and accepted Modi’s invitation to be the guest of honour at the 2015 Republic Day celebrations. The reason why he did so at such short notice surfaced when the two leaders signed the ‘U.S.-India Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region’ on January 25.

Encased in the fluff of mutual praise was the one paragraph that mattered: “Regional prosperity depends on security. We affirm the importance of safeguarding maritime security and ensuring freedom of navigation and overflight throughout the region, especially in the South China Sea.” As Srinath Raghavan has pointed out in The Wire, China has a far stronger interest than the US in preserving the freedom of navigation in the South China Sea because all but a small fraction of its trade, and more importantly its import of oil, travels through it. What the US is insisting on maintaining, therefore, is the freedom of navigation for military vessels and aircraft.

In April 2015, this agreement bore its first fruit when four Indian warships joined a US-Japan task force spearheaded by the American super-carrier, the John C. Stennis, ostensibly to assert freedom of navigation in the South China sea. This one action, which received virtually no mention in the Indian media, revealed how little they, and Modi himself, understood the basics, let alone the nuances, of the power-struggle that is taking place in international relations today. For at the time this happened, he was within days of making his first state visit to China.

It is possible that Modi was only paying China back in its own coin for timing its intrusion into Ladakh’s Chumur sector to coincide with President Xi Jinping’s visit to India in September 2014. But if this was indeed his intention, then he had not been briefed about the overtures that China had been making to forge a closer strategic relationship with India ever since 2009 and the strategic convergence that had taken place in their world views since then.

Prem Shankar Jha is a ‘senior journalist and author of Twilight of the Nation State: Globalisation, Chaos and War and Crouching Dragon, Hidden Tiger: Can China and India Dominate the West?
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Security forces in Kashmir during the violence in Srinagar following the killing of Burhan Wani. Credit: PTI

 

When I read that Burhan Wani, the iconic leader of the new militancy in South Kashmir, had been killed, I should have felt at least a twinge of relief. Instead all I felt was overwhelming pity for his family and despair for my country. For his death has not brought peace nearer in Kashmir, any more than the killing of Osama bin Laden has ended the threat from Al Qaeda, or brought peace to the Middle East.

Instead, as the eruption of rage after Wani’s death shows, it has only deepened the estrangement between Kashmir and the rest of India, and brought the moment closer when, if this killing goes on, insane rage will grip the youth of that benighted paradise once more and plunge it towards its own, and perhaps India’s, destruction.

Every titbit of information that has surfaced suggests that the encounter, if not the actual killing, was choreographed. Despite the extraordinary precautions that Wani had taken to make his group in South Kashmir difficult to infiltrate, the Kashmir police had succeeded in doing so. It knew that news of his death would set Kashmir on fire, so it chose a day of the week, a time of the year and, if reports are to be believed, a time of day that would minimise the impact of his death on the people.

But these tactics did not work and Kashmir is now perceptibly closer to the tipping point than ever before. So why is the government persisting with a counter terrorism strategy that, it must know, will only make things worse?

It was not as if it had no other options. Wani was only 22 when his life ended. Although he had joined the Hizbul Mujahideen seven years ago, he had not committed any truly heinous crimes. The Kashmir police had registered four serious cases against him, two of firing upon and injuring sarpanches, and two others of firing upon the police and the Rashtriya Rifles.

None of these had resulted in a death. So why was it so necessary to kill him? Why was no attempt ever made to persuade him to give up violence and pursue his goals peacefully? That is what governor Girish Chandra Saxena’s administration had succeeded in doing with Yasin Malik, Shabbir Shah and the militants of the 1990s. Why did no one even try?

The answer is that in the early ‘90s it was the militants who were on the offensive. The Indian state had resorted to violence with reluctance. Apart from defending themselves, the security forces used force mainly to protect civilians involved in the administration of the state, political cadres of mainstream parties and government buildings and facilities. Force was also used to underline the futility of challenging the writ of the state, but the goal was always to use a mixture of force and persuasion to make the separatists eschew violence in favour of negotiation and accommodation.

Vajpayee’s strategy

This strategy came close to success in 2002 when Atal Bihari Vajpayee rammed through a free and fair election over the strenuous objections of then Kashmir chief minister, Farooq Abdullah, facilitated the formation of a government that the Kashmiris did not consider a tool of New Delhi and launched a visionary initiative to settle the Kashmir dispute with President Musharraf of Pakistan.

The process continued with Manmohan Singh and a high point was April 5, 2005 when the first buses between Srinagar and Muzaffarabad crossed the Jhelum at Kaman post on the cease-fire line after a lapse of 40 years. Men, women and children lined the road to Srinagar dressed in their best clothes and greeted the bus form Muzaffarabad with flowers and song. It was a spontaneous outpouring of joy, such as Kashmir had not witnessed in a quarter of a century.

But the healing process that began then ended abruptly with the UPA government’s crackdown and return to police raj after the Amarnath land scam, and the BJP’s blockade of the Srinagar-Jammu highway in 2008.

That ‘crackdown’ began the return to the nightmare days of the early ‘90s. When, inspite of it, there was an unexpectedly high turnout in the valley in the December 2008 elections, Delhi seized this to claim that militancy had ended; all that was left to do was mop up its remnants and seal the border to keep infiltrators out of the valley.

That unfortunate boast ended Delhi’s dialogue with the Hurriyat. Throughout his second term in office, Manmohan Singh did not meet its leaders even once. This left capturing or killing ‘terrorists’ the only way to mop up the disaffection that remained. The task was delegated to the Kashmir police.

The resurgence of militancy today can be traced back directly to this self-serving deceit. To obtain information the police use the only methods it is familiar with: round up all known suspects and apply third degree methods to sweat information out of them. In the last six years this has turned the Kashmir police into a terror machine.

Loss of civic rights

Credit: Sunandita Mehrotra

Credit: Sunandita Mehrotra

All those who get onto its charge sheets, be it as a militant, a stone pelter or an agitator, immediately lose their civic rights. From then on they are liable to be  summoned to the police station at any time of the day or night and insulted, humiliated, tortured or beaten up, at the will of the station house officer. This has turned life into an uncertain hell not only for them but also their families, who face suspicion and ostracism once they begin to receive visits from the police.

One way out is to become an informer. The other is to become a militant. Wani chose the latter. There was nothing in his family background that had predisposed him to rebellion. His father was the principal of a secondary school, his elder brother had been studying for his PhD in economics when he was killed by the police last year. Burhan was 15 when he and his brother were stopped, abused and humiliated by the police while on a joyride with a friend who was testing out a new motorcycle. Whatever happened then was sufficiently humiliating to turn him into a militant and bring him onto the police’s history sheets.

By the time he was killed, Wani had become the single most potent threat to the Indian state in Kashmir. But the threat he posed was ideological. By the yardsticks of the ’90s, his movement was still tiny and the wounds it had inflicted on the Indian state were no more than pinpricks. What made him a threat was his capacity to inspire. For there was a ‘purity’ in his revolt that the movements of the ‘90s had lost long ago. He had never crossed the border into Pakistan; he was not motivated by religious ideology, he did not want to join Pakistan and he was not in anyone’s pay. His was an apolitical revolt born out of pure rejection: he represented a Kashmiri nationalism that simply wanted to cut its links with India and become free to be itself.

But it was precisely these qualities that made it worth the government’s while to open a channel of communication with him with a view to restarting the search for a political settlement. Killing him was therefore the most self defeating thing the Indian state could have done.

If the government does not want Kashmir to spin out of control once more, it must stop the killing now. The first step would be to declare a unilateral cease-fire, wipe the police’s history sheets clean and give all those on it a respite from fear. The second would be to give full support to chief minister Mehbooba Mufti in her efforts to heal the wounds inflicted on the Kashmiri psyche. The third would be to equip the police to deal with stone pelters and others without using lethal force, inspite of every provocation to do so.

Only if these steps bring back peace will the government be able to look for ways to bring Kashmiri nationalists back to the negotiating table once more. The door to this room has been shut for so long that there is no way of knowing whether it can be opened again. But that does not exempt the government from the need to try.

Prem Shankar Jha is a senior journalist and author of Twilight of the Nation State: Globalisation, Chaos and War and Crouching Dragon, Hidden Tiger, Can China and India dominate the west?
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The media is rife with speculation about why the government refused to extend Raghuram Rajan’s tenure as Reserve Bank of India (RBI) governor. The ideas are endless: the Rashtriya Swayamsevak Sangh was unhappy with his remarks on intolerance; his policies were, to quote Subramanian Swamy, “anti-national in intent”; he orchestrated a huge campaign in the media to make the government keep him on; P. Chidambaram, and therefore, one presumes, the Congress, was still backing him. Therefore, Rajan deserved the same fate, of summary ejection, that 360 consultants to the United Progressive Alliance government suffered when the Modi government came to power.

Alongside these ideas are predictions of the harm that the Indian economy is likely to suffer from Rajan’s expulsion: foreign investment will stream out of the country because his removal will signal a return to autarchy, and therefore unpredictability, in policy-making; the rupee will depreciate dramatically and inflation will re-surface. The timing of the government’s move, only days before Britain’s Brexit referendum, has also faced criticism, because it will magnify all these effects, should Britain decide to leave the EU.

Buried in all the speculation is the possibility that the government sacked Rajan because of his stubborn refusal to lower the interest rates. But even that is being seen as a political move designed to assuage the wrath of powerful industrial and construction lobbies in the country, and not as a hugely belated response to a decade-long dear-money policy that has each year destroyed industrial growth, bankrupted the entrepreneurial class and blighted the future of six to seven million youth who would otherwise have found jobs.

The pressing priority

The truth is that Rajan should have gone earlier. He had to go because he had continued to oppose rate cuts for two years even after his own, invented justification for keeping them up – namely, the persistence of inflation – was no longer relevant. Today, the only thing that responsible media should be discussing is how to minimise the immediate fallout his departure will cause. But that, unfortunately, is the last thing on everyone’s lists.

There is no doubt that the timing of Rajan’s departure is unfortunate, but whatever turbulence follows Brexit (if it happens) will be short-lived. The main threat to the economy will stem from the uncertainty that the change of so key an official will create, especially among foreign portfolio investors. The longer the government keeps the position vacant, the worse the situation will become. Should some of the investors pull their money out, the resulting fall in share prices will trigger the herd mentality and cause further, much larger, withdrawals.

So, no matter who did what, the government’s absolute first duty is to announce a successor without any further delay. That successor has to meet several requirements:

Firstly, their professional qualifications must be stellar and beyond question. Only then will the international financial community be convinced that the government is only changing the governor and not undermining the autonomy of the RBI.

Then, they must be a first-class economist who can explain and justify his or her decision to lower interest rates with sound economic logic. This must not be seen as another victory of crony capitalism.

Finally, the transition from the regime of Rajan to that of his successor – the time they take to become familiar with subordinates at the RBI and the members of its advisory committees, as well as learn the technicalities of the bank’s working – should be as short as possible.

The best candidate

There are any number of excellent Indian economists who meet the first two qualifications. And any one of the RBI’s present deputy governors meets the third. But finding a successor who meets both the first two and the third requirements will not be easy.

There is, however, one person already associated with the Modi government who meets all three needs to the fullest extent. That person is Bimal Jalan.

Jalan is an economist by profession and has numerous books to his credit. He is perhaps the only ‘outsider’ (to the Indian Administrative Service) who has risen to become the finance secretary, an achievement that speaks volumes for his ability and tact. He was the governor of the RBI for six years, from 1997 to 2003, and is therefore well-known among, and held in high regard by, the international financial community. Most of all, it was he who, while working closely with the then finance minister Yashwant Sinha, steered the Indian state through the aid cut-off that followed the May 1998 nuclear weapons tests, and then out of the recession of 1997-2002, onto the 8 to 9% growth path, by halving bank lending rates between 2000 and 2003.

To do the former, Jalan had to attract Foreign Direct Investment from Indians living abroad, and he did so by raising interest rates at the beginning of 1999. This killed an incipient industrial recovery that had begun under the spur of huge harvests in 1997 and the sudden jump in disposable income caused by the Fifth Pay Commission awards a year later. But Jalan began to lower interest rates less than two years later as NRI money poured into the Millennium and India Resurgent Bonds that the government floated in international markets to offset the sudden cut-off of foreign aid.

By the beginning of 2003, lending rates had halved, but the share markets were reviving as promoters turned to them to raise risk-free capital for investment. It took only one spark to ignite the sharpest stock market boom India has experienced to date, and this was provided in May, 2003, by Maruti Udyog’s decision to sell 20% of its shares to the public. This sale was oversubscribed 13 times, and the gold rush began. It did not peter out till eight years later, in 2011, and then, as in 1995, it was the morbid fear of inflation in a Congress government that brought it to its end.

Rajan was a stranger to those events, as he was in the US as they unfolded. Jalan, however, was completely a part of the whole experience.

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Fake encounters have become common but India needs to get back to rule of law, however weak and slow it may be.

DG Vanzara in a file photo. Credit: PTI

DG Vanzara in a file photo. Credit: PTI

In her 22 minute televised press conference attacking the UPA government’s decision to revise the home ministry’s affidavit to the Gujarat high court on the Ishrat Jahan encounter killing, Union Commerce Minister Nirmala Sitharaman hurled not one but two accusations against the Congress. The first was that it had ‘created a charade’, of an innocent girl being killed in cold blood by a brutalised police, when it knew from its own intelligence inputs that she had been a member of the Lashkar-e Taiba cell that had been sent from Pakistan to kill chief minister Narendra Modi. As my article in The Wire showed last week this was pure political jousting.

But in the furore that followed Sitharaman’s second, more serious, allegation slipped into peoples’ minds through the cracks created by the first. This was that by unleashing the CBI on the case, and allowing it to interrogate officers and men of the Gujarat police endlessly in their search for evidence with which to discredit the Modi government, the UPA had divided and demoralised the police and security agencies, and harmed the country’s security.

To make this accusation Sitharaman glossed over the fact that the CBI had had to be brought in because the reaction of the Gujarat government to affidavits presented to the Gujarat High Court by two ‘whistleblowers’ in the government, S.P. Tamang, chief metropolitan magistrate of Ahmedabad, and Satish Verma, member of the Special Investigation Team set up by the Gujarat high court after it received Tamang’s report, showed that it had no intention of indicting its own police personnel.

Both had presented evidence to the court that the four had been killed in cold blood at least six hours earlier, and that whatever the other three might have been, Ishrat Jahan could not possibly have been a Lashkar terrorist.

Debate on faked encounters

When Gandhinagar took no action it left the Centre with two choices: turn a blind eye, or turn the case over to the CBI. It started out to do the former but in 2009, with faked encounters in Punjab, Assam and Kashmir already a subject of anguished debate in the country and media empowered by satellite TV and internet, this option was closed. Embarrassing Modi was a bonus.

Why did Gandhinagar make itself complicit in the killings? The short answer is that by 2009 faked encounters had become a part of India’s unwritten code of criminal justice. When the Ahmedabad CBI court dismissed the CBI’s charges against former home minister Amit Shah, he did not say “God and our courts are just, I have been vindicated”. He said , “these accusations were politically motivated. There have been far more encounters in other states. Gujarat has had the fewest encounters, and also has one of the best records in maintaining peace.” Why, he asked in short, were we singled out?

However repugnant one may find his reasoning, it would be less than just to dismiss it out of hand, because ‘encounters’ have been the Indian State’s way of dealing with dangerous criminals and insurgents since well before independence. In the 1920s Sultana Daku was caught and hanged by the British under due process of law, but large numbers of others simply disappeared. After independence, in its half century long bid to clear the Chambal ravines the Madhya Pradesh Police killed more than 500 dacoits. A majority, police sources told me then, were killed after being captured. It was to avoid this fate that others surrendered.

In 1980 and 1981, during the chief ministership of V.P. Singh, the UP police killed more than 2,000 dacoits in Uttar Pradesh. The newspapers of the time were rife with accusations of fake encounters and the deaths of innocents. But that campaign did curb the menace of dacoity in the state and open the way for its development.

Integral part of counter insurgency

In more recent years fake encounters have become an integral part of counter insurgency operations in Punjab, Kashmir and the North-East. In Punjab, in particular, this policy was forced upon the police by the acute shortcomings of the criminal justice system, and by the insurgents practice of killing judges, and the families of high profile policemen to paralyse the this criminal justice system.

The insurgencies have all but ended, but the practice of letting the police be the judges and executioners of persons considered too dangerous to allow back onto the streets, has taken on a life of its own. Today, dozens of bodies are being recovered from the state’s irrigation canals every week. According to Inderjit Singh Jaijee, the human rights activist who brought this to light, many are farmers who have committed suicide, but the majority are what he terms ‘missing people’. At a time when Punjab is being overwhelmed by drug smugglers with powerful political patrons, the possibility that many of these are captured drug smugglers cannot be ruled out.

Initially Kashmir suffered less from the disease of fake encounters than Punjab. But, contrary to what Kashmiris had expected, fake encounters, extortion and other crimes committed by the police multiplied after 1996, when the elected government shifted the responsibility of ‘mopping up’ the remaining ‘terrorists’ from the security forces to the police. Today it is their frequent misuse of power in the rural areas, and continuation of the bestial practice, also adopted in Punjab, of awarding prize money to those who bring in the heads of alleged terrorists, that is mainly responsible for the resurgence of terrorism in South Kashmir.

In Gujarat, the growing disquiet in civil society was not stoked, much less manufactured, by the Congress. It became the focus of civil society’s disquiet because none of the conditions that had made people condone the shortcuts employed by other state governments existed there. Gujarat did not face an insurrection, and the handful of home grown and imported terrorists who came there after the 2002 riots had not even tried to kill judges or policemen’s family members.

Turf wars between smugglers

It had a large and variegated Muslim population with a prosperous middle class component. The communal riots that it had experienced every few years since 1969 had been triggered by turf wars between rival gangs of smugglers and illicit liquor vendors, and not religious passion. Had the riots of 2002 not taken place the state would in all probability, have remained entirely free of terrorism and encounters, whether genuine or fake.

The Godhra train burning and the riots that followed changed everything for they were the very first to be covered by television. Previously people had only read circumscribed reports. This time millions actually saw the burnt bogey of the Sabarmati express and the corpses being carried out from it. Nearly 2,000 people died in the riots that followed, and for the first time the killing was fanned by pure communal hatred.

Without waiting for an enquiry Modi and his cabinet jumped to the conclusion that the Godhra train burning was the work of Muslim terrorists and adopted a pro-active policy of prevention in anticipation of terrorist reprisals.

The custodial killings that occurred between 2002 and 2005 ,for which 32 police officers and men await trial today, were the outcome of that policy. They were therefore not only morally indefensible, but actually increased the threat of a future communal insurrection by showing Muslim youth how casually their fundamental right to life could be taken away from them.

Nirmala Sitharaman is right when she says that the controversy over the Gujarat encounter killings has demoralised the security apparatus of the country and seriously weakened it’s security. But curiously enough, the officers and men indicted for them blame the Modi government, and not the Congress for their plight.

Vanzara’s letter

Their monumental sense of betrayal was captured by D.G. Vanzara, director-general of Gujarat’s anti-terrorism force and widely known as its ‘encounter specialist’, in the letter of resignation from the India Police Service, that he wrote from jail on September 1 2013. Forfeiting all his post-retirement benefits Vanzara wrote:

To the best of my knowledge, nowhere in any part of the country, such a big number of police officers were/are arrested and continuously being kept in the jails for such a long period of time except in the state of Gujarat. The most notable part of the whole episode is that they are made to suffer in the jails, inspite of the fact that they had been, and are, loyal soldiers of this government who fought incessant war against Pakistan inspired terrorism with complete honesty, integrity and sincerity without falling prey to any of the mundane temptations…. 

With the passage of time, I realized that this government was not only not interested in protecting us but it also has been clandestinely making all efforts to keep me and my officers in the jail so as to save its own skin from CBI on one hand and gain political benefits on the other…..

I, therefore, would like to categorically state in the most unequivocal words that the officers and men of Crime Branch, ATS and Border Range, during the period of years between 2002 to 2007, simply acted and performed their duties in compliance of the conscious policy of this government … we have simply implemented the conscious policy of this government which was inspiring, guiding and monitoring our actions from the very close quarters.” 

Vanzara’s letter contains no tinge of remorse, but also none of communal rancour:

A monstrous episode of Godhra train burning and equally horrible post-Godhra riots in Gujarat provided a pretext to Pakistan based terrorist outfits like Let, JeM and D gang under the direct supervision of ISI, to “convert Gujarat into another Kashmir” by exploiting the sentiments of the muslims all over the world.”

Listing 14 bomb blasts, five assassination attempts and two fidayeen attacks on the Rath Yatra and the Swaminarayan temple at Akshardham, he concludes: “I can say with pride that my officers and men not only successfully prevent(ed) Gujarat from becoming another Kashmir, but were also instrumental in providing a solid atmosphere of durable peace and security in the state”. 

The bulk of the letter is a violent diatribe against the Modi government, and Amit Shah in particular, for having abandoned his police force when it most needed their support.

This government suddenly became vibrant and displayed a spur of sincere activities only when Shri Amitbhai Shah, former MOS, Home, was arrested by CBI. It (engaged) Shri Ram Jethmalani, the most learned, senior most and highest paid advocate of India … and got him released on regular bail within (the) record time of 3 months of his imprisonment.

In contrast, when I, along with Rajkumar Pandian and Dinesh M.N, was arrested by the CID Crime, forget about providing the legal services, nobody from the government bothered even to provide a lip service to us or to our family members.  (The) Gujarat police … used to be one of the finest … in the country till the coronation of this government in Gandhinagar. Today the same proud police … stands totally shattered and demoralized (by)….. the continuous betrayal of jailed police officers since last six years”. 

Gujarat is not the only state in which the police feel betrayed. Within weeks of the end of the Khalistan insurgency in 1993 the Punjab police was assailed by a spate of indictments for carrying out fake encounters. The feeling of betrayal this generated in the police was highlighted when a senior superintendent of Police, A.S Sandhu, threw himself in front of a train to express his protest.

Re-instating indicted policemen

Today the Modi government is frantically trying to make amends by bailing out and re-instating indicted police officers. P.P. Pandey, police commissioner of Ahmedabad in 2004, was not merely released but is now the director general of police in Gujarat. Former assistant commissioner of police ( crime) in Ahmedabad, N.K. Amin, has been made the superintendent of Police for Mahisagar district.

Vanzara, who was released on bail in December 2014 on condition that he did not enter Gujarat, has been allowed to do so . He was greeted with flowers on his return to his village by no less eminent a person that DGP P.P Pandey, and is now being wooed by the BJP to join politics, while still being indicted for murder.

Modi does not seem to realise that the further the government goes down this road the more will India become a country that is not only without law, but one that flaunts its disregard for the very concept of law. When this realisation sinks in abroad, India will become not only an economic but also a political pariah.

This must not happen. The first requirement for containing and repairing the damage that has already been done is for all political parties to admit their culpability and jointly resolve never again to allow anyone in police custody to be killed, or punished in any other way, than through the due process of the law. Existing laws, like the National Security Act, allow incarceration for long periods. Prisoners deemed to be too dangerous to be incarcerated in their home state can be sent to jails in distant parts of the country. If it is deemed necessary to protect judges and witnesses, trials can also be held in these locations, and conducted in camera.

None of this involves rocket science. If it hasn’t been done so far—if government after government has continued to take the easy route of killing inconvenient prisoners, it is because clever lawyers have made a fine art out of subverting justice by raising procedural issues that make trials last forever. As Pakistan is showing with its 21st constitutional amendment and military tribunals, this too can be got around, although at some cost in terms of fairness and equity. But some legal process, however restricted, is a huge improvement over sanctioned, extra-judicial murder.

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Raising a ruckus over P. Chidambaram’s “second affidavit” in the Ishrat Jahan case will not make the truth about encounter killings go away

The bodies of Ishrat Jahan and others who were allegedly shot dead in police encounters

The bodies of Ishrat Jahan and others who were allegedly shot dead in police encounters

Sixty-nine years after its birth, India’s democracy is facing a mortal threat. A government – and a political party – with little respect for the law is using the law to harass and humiliate its political opponents. It may not be the only government in India to have done so. But it is the first Central government to do so, and it is pursuing its vendetta with a disregard for consequences that is threatening to tear the seams of democracy asunder.

In less than two years it has dragged Sonia Gandhi, Rahul Gandhi and Arvind Kejriwal, its principal opponents in the nation, and in Delhi, into court on flimsy charges that no self-respecting judge should have entertained. It has sent the police into Jawaharlal Nehru University, something no previous government had done, and arraigned JNU Students Union president Kanhaiya Kumar on the basis of a doctored video that its own propaganda factories have produced; it has kept the Patidar agitation leader in Gujarat, Hardik Patel in jail for 80 days, repeatedly denying him bail.

It is now contemplating dragging former home minister P. Chidambaram into court on the charge of having changed an affidavit the Union home ministry submitted to the Gujarat high court on the Ishrat Jahan encounter in 2009 in order to strengthen the case being made by the Central Bureau of Investigation against the then Gujarat home minister Amit Shah and a score of indicted Gujarat police officers and men. The Modi government’s opportunity to do this arose on February 12, 2016, when the 26/11 mastermind, David Headley, stated – while ‘cooperating’ with Indian interrogators – that the 19-year-old Ishrat Jahan was not an innocent bystander but a member of the Lashkar-e-Tayyaba.

Armed with Headley’s statement and a junior home ministry official’s claim that he had been coerced by his senior into preparing the second affidavit, Union home minister Rajnath Singh has sought to suggest that there was no fake encounter, that Ishrat Jahan was a suicide bomber and had been killed in a genuine shootout, and that Chidambaram fabricated evidence in order to create a case against Modi and Amit Shah.

Dangerously inflammatory statement

Union commerce minister Nirmala Sitharaman has gone a long step further and claimed that the purpose of the changed affidavit was to invite ‘the enemy’ to launch more terrorist attacks to assassinate Narendra Modi because they cannot fight him politically. “They are happy to play with the enemy… they wanted to quietly watch a terror plot bloom in order to eliminate a political opponent.” she said in a carefully prepared, 22 minute televised statement.

If this allegation were true, the Congress would be guilty of having violated the first principle of democracy – the replacement of the ballot with bullets. It would therefore provide a moral justification for the BJP to abandon democratic politics as well, and resort to brute force to destroy its opponents.

Sitharaman’s accusation therefore needs to be subjected to the most rigorous scrutiny possible. If it cannot be substantiated, it will rank as the single-most dangerously inflammatory statement made by any politician in India’s 69 years of independence.

Fortunately this allegation fails to cross the very first hurdle it encounters: a complete absence of motive. Had Chidambaram revised the first affidavit in late 2013, there would have been room to doubt his motives, for the Congress was clearly on its way out and the BJP had chosen Modi as its prime ministerial candidate. But in September 2009, when the home ministry filed its revised affidavit, the Congress had just won a huge victory in the national elections four months earlier, and the next Gujarat state election – where it would have to pit itself against Modi once more – was still more than three years away.

The BJP had lost a sixth of its 2004 voter base in 2009 and Modi had yet to replace L.K. Advani as its national leader. The economy was also at its peak, with GDP growing by more than 9%, industrial growth close to 14% and employment growing by 7 million a year. Inflation was also close to zero. So what could the Congress conceivably have gained from inciting the assassination of Narendra Modi?

Sound reason for revising the Ishrat affidavit

Second, the sequence of events in 2009 shows that there was a perfectly legitimate reason for the home ministry to order the filing of a second affidavit on September 29.

Its first affidavit, submitted at the beginning of August, had dismissed the LeT’s later retraction of its claim that Ishrat Jahan was one of theirs, and firmly backed the Gujarat government’s claim that there had been a genuine shootout. But five weeks later, on September 7, Ahmedabad metropolitan magistrate S.P. Tamang submitted a 243-page report on the killing to the Gujarat high court, prepared on his own initiative, that made a very convincing case that the four alleged terrorists had been kidnapped and brought to Ahmedabad a few days earlier, and killed in cold blood a day before the alleged encounter.

The crucial piece of evidence he cited was the pathologist’s finding that when the bodies were examined, they were already in rigor mortis, which had set in about six hours before the reported time of the encounter. Tamang gave a two-page list of police officers and constables who had been involved in the fake encounter.

More convincing even than the evidence he adduced were the precautions that he took to keep his findings secret from the entire city. In an unprecedented departure from practice, Tamang did not employ a stenographer, and did not use a computer, but wrote the entire 243-page report in long-hand. Tamang clearly did not trust even his personal staff and the inviolability of his computer. There can be no more eloquent testimony of the atmosphere of terror that the Gujarat police had created to keep its misdeed secret.

The Tamang report and the circumstances in which it was prepared may have delighted the Congress, but it also made it impossible for the home ministry to keep ignoring the LeT’s retraction of its initial claim. The revised affidavit did not reverse any conclusion it had reached in the first. It simply removed sections that referred to Ishrat Jahan.

Did the BJP only seize the opportunity created by David Headley’s identification of Ishrat Jahan as a suicide bomber? Or did it create it? Conspiracy theories are inherently repugnant but in this case the second possibility cannot be ruled out.

Headley’s confession has been accepted as gospel far too readily. “Jahan was an LeT member, Pakistani-American Headley said in his sensational disclosure while deposing before Special TADA Court Judge … on Thursday”, one online journal asserted.

In fact he did nothing of the sort. The video of this portion of Special Public Prosecutor Ujjwal Nikam’s interrogation, uploaded to YouTube, shows that Headley did not volunteer the admission. Nikam led him to it by the nose, asking no fewer than four leading questions, to name Ishrat Jahan a terrorist. The last two of which were “do you remember her name” and “was it Noorjahan Begum, or Ishrat Jahan, or Mumtaz Begum”.

Noorjahan and Mumtaz are names rarely, if ever, given to girls today because they were the titles, not names, of the wives of Mughal emperors Jahangir and Shahjahan. Noorjahan’s real name was Mehr-un-Nissa, and Mumtaz Mahal’s was Arjumand Banu. What is more, begum is a form of address reserved for married women. There is no possible way David Headley would not have understood what Nikam wanted him to say. How he, and his former ISI handlers in Rawalpindi, must have chuckled when the storm broke!

What is the compulsion that has made the BJP, if not coax David Headley into indicting Ishrat Jahan as a terrorist, then leap upon it a full 12 years after she was killed? The answer is that Ishrat Jahan’s is not the only fake encounter to have taken place in Gujarat during the tenure of Narendra Modi and Amit Shah. Thirty-two officers and men of the Gujarat police, including six senior officers, are either out on bail or have been languishing in jails for up to eight years, waiting to be tried for no fewer than five separate fake encounter cases.

When these come up in court, as they must one day, they will reveal that between 2002 and 2007 the crime branch of the Ahmedabad police had become a “killing machine” (a term senior New York Times correspondent Mark Mazzetti had coined for the CIA) not only for terrorists from Pakistan but also for eliminating other criminals whom the rickety and deadlocked judicial system could not punish, and, in some cases, even people unconnected to wrongdoing of any kind who happen to be in the wrong place at the wrong time.

Nothing reveals the damage that the five cases together can inflict more clearly than the “encounter killing” of Sohrabuddin Sheikh in November 2005.

Killing of Sohrabuddin

Sohrabuddin and his accomplice Tulsiram Prajapati were straightforward gangsters and assassins for hire. Both faced a number charges of criminal extortion from marble mine owners in Rajasthan and Gujarat, arms smuggling, and murder. According to the CBI, Sohrabuddin was taken off an interstate bus, along with his wife Kausar bi and Prajapati, taken to a farmhouse outside Ahmedabad, and killed in a staged ‘encounter’ – allegedly as a terrorist who was planning to assassinate Modi.

Three days later Kausar bi was strangled, taken to Illol village in Gujarat – the home village of D.G.Vanzara, director general of the state anti-terrorist task force – and cremated there. (The killing was later admitted by the attorney general of Gujarat before the Supreme Court). Prajapati, who was a crime branch informer, was initially spared.

No one doubted the police version of the Sohrabuddin killing till, a year later, drunken police officers boasted about it in front of a journalist, Prashant Dayal, who published a well-researched report in a Gujarat daily, Divya Bhaskar. Four weeks later, on December 28, Prajapati was killed in another staged encounter whose details were recounted in excruciating detail by the CBI in its charge sheet against Amit Shah.

These were the three ‘encounter killings’ for which the CBI indicted Amit Shah – then Modi’s home minister in Gujarat, in 2010. Dayal believed that the Gujarat police had carried out a Rs. 2 crore supari – contract killing – of Sohrabuddin, then killed his wife to silence her, and killed Prajapati in order to eliminate the sole remaining witness.

In its indictment of Shah, the CBI presented evidence of Amit Shah’s involvement. It also submitted cell-phone records, and audio and video tapes that, seemingly, implicated Shah in the conspiracy to eliminate Tulsiram Prajapati. Shah was arrested, but immediately granted bail and remained the home minister of Gujarat. But a dozen officers and men were sent into judicial custody.

This is simply not the kind of publicity that Modi can afford, either as the leader of the BJP, or as the prime minister of India. Nor is it, in the Information Age, something that India can. For the plain truth, which public trials of the indicted officers and men will reveal, is that there is hardly a state in the country where fake encounters have not become the police’s way of dealing with insurgents, terrorists and criminals.

This is the dirtiest side of India’s corruption-ridden democracy. The BJP’s leaders knows trading accusations with rival political parties is not the way to exonerate themselves. They also know high-profile trials that expose this pattern to the world  – and their own culpability – need to be avoided. The Narendra Modi-Amit Shah strategy is to try and contain the damage by making the encounter cases simply  disappear. That is not going to happen. What could disappear, if this no-holds-barred, law-be-damned effort continues, however, is democracy itself.

Prem Shankar Jha is a senior journalist and former adviser to V.P Singh.

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File picture of Prime Minister Narendra Modi with US Defence Secretary Ashton Carter. Credit: PTI

File picture of Prime Minister Narendra Modi with US Defence Secretary Ashton Carter. Credit: PTI

Modi government’s last minute decision to postpone the signature of a Logistics Supply Agreement with the US during the visit of US Defence secretary Ashton Carter to India last week is the most recent manifestation of the confusion that grips India’s foreign policy today .

The government has given no explanation for its sudden turnabout, so most analysts have concluded that it got cold feet because the agreement would have made India a party, even if passively, to all of the US’ future military operations in the region. This had aroused serious misgivings in the country and invited a vigorous attack by the Congress party.

But the fact that Defence minister Manohar Parrikar visited China only days after Carter’s visit to reassure Beijing that India would not let relations with ‘third countries’ affect its relations with China, suggests that it was a Chinese reminder that India could not run with the hare and hunt with the hounds indefinitely that may have provoked its second thoughts on signing the agreement.

It is doubtful whether the Chinese will be reassured though, for this is only the latest of a succession of about turns that Modi has made in the 22 months that he has been prime minister. In August 2014, he reversed a decade of steady improvement in relations with Pakistan by rejecting all the understandings that the UPA had reached with it and the Hurriyat over the future of Kashmir. Today, he is trying to rebuild those relations once again.

Six months ago, Modi reversed five decades of Indian support for Nepal’s evolution into a modern nation state by imposing, or at least doing nothing to prevent, an oil blockade of that landlocked state. Nepal’s riposte was to repudiate Indian bilateralism, formally welcome China into Nepal and join its One Belt One Road initiative.

But nothing is likely to prove more costly than its ambivalence towards China. Modi has spared no effort to deepen India’s relations with China. But he has simultaneously deepened India’s military cooperation with the US, Japan and Australia whose stated purpose is to contain China’s rise, militarily if necessary.

To Indian policy makers this may look like a clever balancing act but, coming on top of the UPA government’s gradual distancing of India from its old allies, such as Russia and secular nations in the Arab world, in favour of the US, the gulf sheikhdoms and Israel, it is giving the rest of the world the impression that India does not understand where its long term national interest lies, and is therefore a country that no one can rely upon.

China has already signaled its distrust of India’s moves by moving swiftly to Nepal’s aid, and blocking the designation of Masood Azhar as a terrorist by the UN. It seems also to have lost interest in getting India to join its One Belt, One Road initiative.

Two epic developments are responsible for these power shifts. The first is Globalization – the migration of manufacturing from the high wage economies of Europe and North America to Asia — that began in the 1970s. The second is the victory of the transatlantic alliance in the Cold war and breakup of the Soviet Union in 1991.

Globalisation

Over four decades, gradual de-industrialisation has hollowed out the economic base of the West’s military power by shrinking its revenue base just when its social security expenditure has been pushed through the roof by longer life spans and rising unemployment.

In Asia the hectic industrial development triggered by globalisation has done the opposite. First Taiwan, then Singapore, Hongkong, South Korea and Malaysia , and finally and most spectacularly China, have run budget and foreign trade surpluses, and accumulated massive reserves of Capital that have become the base of huge economic power. China has been able to leverage these into growing military power and hegemonic influence.

Had the resulting power shift been gradual the world could have adjusted to it peacefully. But the economic weakening of the West virtually coincided with its victory in the Cold War. This created a sense of entitlement to the fruits of victory, that enabled the US to launch, or support, a succession of attacks on so called ‘rogue nations’, with scant regard for the UN charter or the sanction of the Security Council.

Goes back to Kosovo

Beginning with Kosovo in 1999, it has launched, or supported, a succession of assaults on nations that posed no threat to it or any of its allies–Afghanistan, Iraq, Libya Syria, Lebanon, Palestine, and Yemen. Not one of these has created a democracy, protected human rights or promoted freedom. What they have done is to destroy the tenuous system of international law that upheld the Westphalian state system that the UN charter had underpinned.

American, and several Indian, analysts have made light of the destruction of the Westphalian state system. “The West’s victory in the cold war”, they say, “has created a unipolar world. We therefore need a new paradigm of international relations“.

This seemingly profound observation relies upon ignorance of history, to gain its spurious credibility. For the Westphalian system was created to put a check on precisely the propensity for conflict between nation states that has dragged the world into chaos today.

This propensity springs from fact that the modern European state was born in war and territorial conquest. Since the boundaries created by conquest did not coincide with ethnic fault lines they had to be continually defended. This was done by creating standing armies to defend them and erasing pre-existing ethnic loyalties to create a new loyalty to “the Nation”. The constant need for coercion to maintain it gave the nascent Nation-State System a built in propensity for war .

Like the League of Nations and the United Nations three centuries later, the Treaty of Westphalia, which was signed in 1648 after the ruinous Thirty Year War, was designed to prevent this from ever happening again. To this end the signatories agreed to respect each others’ sovereignty, not to interfere in each other’s internal affairs and to resort to war only as a weapon of last resort.

The Westphalian precepts were still taking root when the rise of industrial capitalism in the 18th century gave a fillip to the propensity for war by giving inter-State rivalry an economic dimension that it had lacked until then. Competitive industrialisation behind tariff barriers further hardened frontiers, and set off a race to colonize large parts of the world to ensure access to raw materials and create new markets for their products.

Despite this, peace was maintained for a hundred years after the Napoleonic wars by a tacit acceptance of British hegemony, backed by an international network of bankers who were perfectly willing to finance colonial expansion but demanded peace within Europe in return. Karl Polanyi collectively labelled them Haute Finance.

Unstable peace

But the peace these created was an unstable one. By the end of the 19th century Britain’s hegemony had begun to be challenged by Germany and the US. When the space for further expansion of nation-based capitalist systems was exhausted, competition boiled over again into not one but two world wars in a space of 31 years that claimed at least 70 million lives. Peace did not return till 1945 when hegemony within the capitalist system passed to the USA.

US hegemony was based upon the reputation it gained during the second world war as a defender of freedom , democracy and human rights, and cemented by its lead role in the framing of the UN Charter. But till 1991 its exercise of hegemony was constrained by the challenge of Communism and non-alignment. By the time these failed and the US was able to resume its quest for global hegemony, the Vietnam war and Globalization had sapped much of its economic strength.

Victory in the Cold War nevertheless re-awakened the US’ hegemonic ambitions just when, as Paul Wolfowitz noted in a Defence Policy Planning paper as early as 1987, the economic base needed to sustain them was shrinking. Wolfowitz’s solution, which soon became the mantra for both political parties in the US and was enshrined as a new security doctrine by President George W Bush in 2002, was to use military power pre-emptively to destroy potential rivals before they developed the capacity to challenge its supremacy.

This is the true genesis of the US’ cavalier disregard for the UN charter and its determination to build a hegemonic world order. What US policy makers, other than President Obama, have still not realized is that hegemony is not the same thing as military dominance, and the resort to the second inevitably destroys the first by making the lives of peoples and nations less and less secure.

A quarter century after the end of the Cold War, it is no longer possible to ignore the fact that the effort to re-establish western hegemony has created not a new world order but chaos. Both the Westphalian and the unipolar world order are history. What has survived is the mindset, of constant suspicion and barely restrained aggression that characterizes relations between nation-states. This mindset views any improvement in a neighbour’s capabilities as a potential threat to itself, and therefore reduces international relations to a zero sum game in which if you gain anything I must necessarily be losing something, even if I cannot identify what it is.

This is the mindset that must change if humanity is to survive and rebuild a peaceful, livable world. Today when the merest whiff of trouble makes foreign investors rush out of a country,  starting a war with, or intervening clandestinely to secure regime change in, another country is an act of suicide.

The first requirement therefore must be to banish unilateral war and return to negotiation as the way to settle disputes. As Iran’s foreign minister Husain Jawad Zarif reminded an invited audience in Delhi in January 2015, this will only happen when negotiators eschew win-lose outcomes and start exploring bottom lines to find compromise solutions that leave both parties better off than before.

In his speech to West Point graduates in 2014 and, more concretely, in his dogged determination to push the Iran-EU nuclear deal through, President Obama has shown that he wants the US to eschew Bush’s pre-emptive first strike security doctrine and to abandon the pursuit of a unipolar world order in favour of a multi-polar order. But his term is ending and, as of now, even Hilary Clinton has said nothing that suggests that she understands the need for a radical change of direction. Until that happens, India will do well to steer clear of a closer involvement with it or its allies in the Middle East.

What the world needs now is not a new paradigm of international relations, but a powerful reaffirmation of the Westphalian paradigm with modifications to make it meet the needs of a culturally integrated world.   So long as the West resists this, or tries only to broad-base its quest for uni-polarity by forming ‘coalitions of the willing’, it and its friends will remain on the wrong side of history.

Russia, Iran committed to multipolar world

By the same token today it is Russia, China and Iran that are on the right side of history, for it is they who are most committed to building a multipolar world. This is apparent from the popularity Russia and Iran have gained by going decisively to the assistance of Syria and Iraq in the fight against the Islamic State. For no fault of its own India found itself on the wrong side of history during the Cold War. It must not make the same mistake again.

But this does not mean that it should simply switch sides. The role that it is best fitted to play is that of a mediator that can moderate conflict and bring warring nations back to sanity. This is a leadership role of a different kind from what India aspires to today, but it is one that it is ideally situated to play. This is not only because it is vast, democratic and unthreatening even to its immediate neighbours, but because it is the only modern state that has not been built through conquest and ethnic homogenization, but through negotiation and accommodation of differences. It is therefore comfortable with compromise and does not have to overcome the zero-sum mentality embedded in European nation states by their history and circumstances of birth, before initiating the quest for peace.

Prem Shankar Jha is a senior journalist and the author of Twilight of the Nation state: Globalisation, Chaos and War, published in 2006.)

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File photo of Prime Minister Narendra Modi and his Nepalese counterpart Khadga Prasad Sharma Oli meeting in Delhi last February. Credit: PTI

File photo of Prime Minister Narendra Modi and his Nepalese counterpart Khadga Prasad Sharma Oli meeting in Delhi last February. Credit: PTI

New Delhi has shown commendable restraint in dismissing an alleged news ‘scoop’ by Pakistan Today, that Pakistan’s Joint Investigation Team has concluded that the Pathankot terrorist attack was “ another False Flag” operation carried out by Indian security agencies to bring Pakistan into disrepute, and reiterating that its multi-level interaction with Islamabad to root out terrorism will continue .

But this only serves to highlight the confusion in other areas of India’s foreign policy today, for it is in stark contrast to the Modi government’s hectoring policy towards India’s other important neighbour, Nepal.

India’s 1850 km border with Nepal is not its longest but its most sensitive and indefensible one. All but a tiny fragment of the country lies south of the great Himalayan wall which has been India’s natural frontier in the north since pre-history. Thus, were any hostile power to gain ascendancy over the country, the entire Indo-Gangetic plain would be rendered defenceless.

In 1947 this possibility was remote. Nepal and India had fought much of their respective struggles for independence together. The Koirala brothers, who founded the Nepali Congress, found sanctuary from the wrath of the Ranas in North Bihar and took their cue unabashedly from Mahatma Gandhi and the Indian National Congress. Two years after gaining Independence, therefore, India expelled the Ranas and restored King Tribhuvana to power. Since then, for better or for worse, it has been mentoring Nepal’s transition into  modern statehood.

It sheltered the leaders of the democracy movement in the eighties and nineties and helped them to force King Birendra to accept of a constitutional monarch.

Difficult to frame a Constitution

It again sheltered the democrats when King Gyanendra declared an emergency in 2005, persuaded him to restore democracy in 2006, and persuaded the Maoists to end their decade long guerrilla war and return to parliamentary democracy. Since then Nepal has been trying to frame a constitution that empowers its ethnically diverse people in an equitable way. This has proved a decade long nightmare because its 29 million people belong to no fewer than 66 ethnic groups.

By the end of 2014, protracted negotiations in two Constituent Assemblies had produced a consensus in principle. Nepal would be a federal state divided into eight regions representing eight broad ethnic groupings, and while 165 members of parliament would be elected through the simple majority voting system, 110 would be elected through proportional representation. All that was left was to demarcate the eight regions, and decide whether to adopt the constitution by a majority vote or a consensus.

India had made no secret of the importance it attached to consensus. Prime minister Modi, who had signalled the importance India attached to it’s Himalayan neighbours by making his first and second bilateral visits to Bhutan and Nepal, urged the Constituent Assembly to strive for consensus during his second visit to Nepal, in November 2014.

But the differences proved intractable. In the summer of 2015 the Constituent Assembly ran out of patience and decided to adopt the new constitution by a majority vote, leaving the demarcation of the regions to be decided later. This set off an immediate, violent, protest from two major groups in the Terai, the Madhesis and the Tharus, who feared that this was a stratagem for restoring the domination of the hill peoples over the Terai.

When, despite this,  the Constituent Assembly adopted the new constitution on September 20, India had to choose between not intervening and allowing Nepal to learn from its own mistakes, or make it rethink its options by expressing its displeasure in a more concrete way. Narendra Modi chose the latter option.

Within hours Indian Oil Corporation’s tankers stopped carrying transport fuels to Nepal. From around 300 trucks and tankers a day the number dropped to between 10 and 15. In Nepal diesel, gasoline and kerosene stocks dwindled, prices shot up and a black market was instantly born. On September 23 the Nepali government imposed draconian fuel rationing, accused Delhi of imposing a blockade and, a short while later, took its complaint to the UN.

New Delhi blames Madhesi unrest

New Delhi’s spokesmen put the blame for the blockade upon the Madhesi unrest which, they claimed, had made truck drivers fear for their lives. But this was not convincing because the Madhesi agitation had begun 40 days before the fuel blockade began. What is more, the drivers of trucks carrying fruit and vegetables did not seem to share this insecurity.

Modi has been accused of imposing the blockade out of personal pique. But this trivialises a very difficult decision. Delhi understood that to enjoy legitimacy a democratic constitution had to be accepted by everybody, and not by only a majority. Ramming it down the throats of the Madhesis and Tharus without even an agreed demarcation of their regions would only exacerbate the conflict and make India’s position more difficult because of its shared ethnicity with the Terai.

New Delhi may have wanted Nepal to rethink its options, but unlike 1989, when Rajiv Gandhi’s year-long oil blockade ended absolute monarchy in Nepal, this time the cure is likely to prove worse than the disease, because the Nepali government has turned for help to China. And China now has both the capacity and the motivation, coming from its slowing economy, to help Nepal end India’s stranglehold upon it.

This became abundantly clear in the last week of March when Nepal’s prime minister, K.P.Sharma Oli paid a week-long visit to Beijing at the invitation of Chinese premier Li Keqiang. During the visit China signed a trade and transit agreement with Nepal that will enable it to trade with third countries through Tianjin, the port closest to Beijing,  pledged $216 million to build an airport at Pokhara, Nepal’s second largest city, and to build a bridge at Hilsa in the extreme west of the country to connect it by road to Tibet.

These projects will provide considerable psychological relief to Nepal but will reduce India’s coercive power to only a limited extent. What will come close to destroying it, however , is the proposed 562 km rail link between Lhasa and Kathmandu, for Lhasa is already linked by high speed trains to the rest of China.

China’s giant infrastructure companies, which face rapidly shrinking order books, have been eyeing this gargantuan project, which requires drilling a tunnel under Mount Everest, and other giant projects, like a nine dam, 40,000 MW, power project on the Big Bend of the Yarlung-Tsangpo (Brahmaputra) , for some time. Indeed Beijing’s entire One Road One Belt policy is driven very largely by the need to keep its companies, and their vast labour force, employed.

Modi’s decision to blockade, or let the Madhesis blockade Nepal (for Kathmandu the difference is immaterial) has removed whatever inhibitions Nepal had felt till then about the rail link project.

Chinese signals to Nepal

Equally important were the political signals that Oli sent out during his visit. He described China as Nepal’s “All Weather Friend”, a pointed invocation of China’s description of Pakistan ( whom China has now raised to ‘Iron Brothers Forever’), and a reminder that India is a friend only when it suits it to be one.

He also signed a free trade agreement with China and committed Nepal to participating actively in China’s ‘One Belt, One Road’ initiative. These are largely symbolic gestures when more than two-thirds of its trade is with India, but they signal the end of Nepal’s acceptance of Indian bilateralism.

The Madhesis suspended their agitation at the end of February and oil began to flow to Nepal once more. But neither capital seems to have realised that the blockade, and Kathmandu’s reaction, have brought India-Nepal relations to a fork in the road. Last week, after returning to Kathmandu, Oli said that India had lifted the blockade because it had proved futile. This was not only because it had drawn a barrage of international criticism but because Nepal had not succumbed to it.

His remarks show that Oli has still not grasped what Delhi, with India’s vast experience of ethnic federalism, has understood all along — that no country can impose a Constitution upon a dissenting minority and remain a democracy for very long. The Madhesis have warned the government that they will resume their agitation in May. If Oli does not resume talks to arrive at an agreed demarcation of the eight regions before then, and relies on force again, the divide between the hills and plains of Nepal will widen further and imperil the unity of the country.

Had they been left to themselves Nepali politicians would have come to this conclusion sooner or later. But the support promised by China has given them false confidence, and lessened their awareness of danger. Modi’s faux pas has therefore pushed Nepal towards a relationship with China that could land it in the same predicament that Israel faces today. Unconditional American military , economic , technological and political support during and after the Cold War made it unnecessary for Israel to negotiate peace with its neighbours and the Palestinians when they had a chance to do so. Today the opportunity has passed: Israel faces rising terrorism, and does not know what to do.

Given the organising power of the social media, and the easy availability of arms in the black market, Kathmandu could find itself facing a similar situation in the Terai in not years but in months.

Does India want Nepal to go down this bitter road? The answer must be ‘no’. But to make it reverse tack Delhi must first stop treating Nepal as a de-facto protectorate, and help it to complete its transition to full nation-statehood. The first requirement for this is to respect Nepal’s sovereignty, scrupulously respect all treaty obligations and avoid intervening in its internal affairs.

This requires allowing its government to make, and to learn from, its own mistakes. In the immediate future, if Oli forces the Madhesis to resume their stir in May, India must still ensure that IOC’s oil tankers reach the distribution points within the country. This will involve forming convoys, cooperating with the Nepali army, and persuading the Madhesis that there are other, less destructive, ways of attaining their political goals. Delhi should remember that giving public support to the Madhesis movement can do to them exactly what Chinese support is threatening to do to Kathmandu.

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RBI governor Raghuram Rajan needs to halve India’s lending rates and allow companies to get out of debt in order to revive growth and undo five years of flawed policymaking

File photo of Finance Minister Arun Jaitley with RBI Governor Raghuram Rajan. Credit: IANS

File photo of Finance Minister Arun Jaitley with RBI Governor Raghuram Rajan. Credit: IANS

India’s tottering economy has reached a fork in the road.

On April 5, the Reserve Bank of India (RBI) will announce its policy for the next quarter. What it decides will determine whether the economy will recover or die.

For five years, since mid-2011, industry has been begging the government for a cut in interest rates, but the Reserve Bank of India has been adamant about keeping them up. As a result, the corporate giants have migrated to more benign pastures abroad, taking close to a hundred billion dollars with them. Indian industry has therefore languished, growing at rates below 3% a year – the lowest the country has ever known.

This dark epoch may at last be coming to an end.

It is now a foregone conclusion that the RBI will bring interest rates down. Earlier this week, finance minister Arun Jaitley told the media that what he wants is what everyone wants—a cut in rates. “I have done everything that [the RBI] wanted me to do. I have held the deficit at 3.9%. And I have brought down the deposit rates on provident funds and small savings. This will make it possible for the commercial banks to bring down their lending rates, without losing deposits to small savings accounts.”

RBI governor Raghuram Rajan has also indirectly signalled a rate cut by admitting that official estimates of GDP growth are almost certainly too high.

The question on everyone’s mind is how much the lending rates will be brought down. The markets have assumed a cut of 50 basis points, i.e, half a percent, in key policy interest rates. If commercial banks pass this, and earlier cuts, down fully, the lending rates could come down by more than one percent. In expectation of this, the Sensex has already re-crossed the 25,000 mark, and will doubtless rise further.

But will a 1%, or even 1.5%, cut in lending rates suffice to re-ignite economic growth?

The blunt answer is “No.” Indian enterprises are so deeply mired in debt that all this will do is prolong their death throes.

Where we are now

To understand why this is the case let us take a quick look at where the country stands:

A year ago there were Rs. 880,000 crores worth of “stalled” investment projects – which is just a polite way of describing projects that the investors had abandoned because they felt that carrying on was throwing good money away. Only a handful of these projects have been revived in the past year, and others have joined their number.

Not surprisingly, therefore, by the end of 2015, public sector and private banks had piled up a total of Rs. 400,000 crores of bad debt.

A lot more debt was on its way to “going bad,” for 415 out of 2300 large companies, heavily invested in infrastructure, were not making enough profit to pay the interest on their debt.

Today nine out of India’s dozen steel plants are insolvent and outstanding. Companies like Jaypee and Gammon India have piled up debts in excess of Rs. 33,000 and Rs. 15,000 crores respectively that they are unable to repay.

One by one, companies that had become brand ambassadors for India in the fiercely competitive global market have begun to fail.

Kingfisher Airlines, which had set a new standard of comfort and service in economy class flying, was the first to go, and it has gone all the way to the bankruptcy court. It was followed by Suzlon, which saved itself only by selling out to a foreign competitor and, in effect, ceasing to be Indian.

Jet Airways has done the same and become a subsidiary of Etihad airlines. Today, United Breweries (rechristened United Spirits), which had made its Kingfisher brand of beer synonymous with international cricket, is going the same way.

Unitech, one of India’s largest construction companies, has gone broke and its owners have spent time in jail before being bailed out. Behind Unitech is a queue of other construction companies inching towards a similar fate.

So far, like a caring undertaker, the Modi government has done everything it can to make these companies’ passage to the other world less painful. Loans have been ‘re-structured’ – a euphemism for having repayment conditions eased on a case-by-case basis – and laws have been changed to make the dissolution of bankrupt companies easier and quicker.

But since the Modi government has done nothing to change the basic conditions in the market that have driven these companies into crisis, the re-structured loans are also speedily souring.

The first step to economic revival

Can this economy be revived?

There is nothing magical or secret about what needs to be done.

The first step is to halve India’s brutally high lending rates from the present 11 to 15%, and allow all companies with a positive operating surplus, i.e, a higher current revenue than operating cost, to refinance their loans at the new rates of interest. For a very large number of companies, this will suffice to make them solvent once more.

To those who have uncritically accepted the quarter percent rate cuts that Governor Raghuram Rajan has been willing to concede so far, this cure may sound too radical.

But it isn’t. In 1999, the interest rate I was receiving on my five year bank deposits was 13.5%. By 2003, Finance Minister Yashwant Sinha and RBI Governor Bimal Jalan had brought it down to 6.5%. But the economy did not suffer because the economy was growing at an 8.2% (genuine) rate of growth. And I did not suffer because I had shifted my money into equity shares and multiplied my capital by 220 percent.

So where is the downside in this solution?

Today’s financial pundits never tire of reminding us that this makes for the revival of “inflationary expectations.” The surge in demand that will follow a sharp lowering of interest rates will, they fear, cause the economy to “overheat” and push up not only prices but also India’s balance of payments deficit. “Real” interest rates, they maintain, must therefore always be “positive,” i.e, above the rate of inflation. With the cost of living still rising at 5% and the REPO – the rate the RBI charges commercial banks that borrow from it – at 6.75% there is only limited room for a further cut.

This reasoning is, to put it bluntly, pure gobbledegook. To investors it is not the REPO but the borrowing rate that matters. Today, the prime lending rate of the commercial banks is 3% higher than the REPO rate, and the average borrowing rate is 4 to 4.5% higher. So, there is plenty of room for a sharp cut.

Waiting for something to grow. Credit: Shome Basu

Waiting for something to grow. Credit: Shome Basu

Misplaced theories

In any case, why must the real interest rate be positive?

China has financed its explosive growth for thirty years by paying negative real rates of interest on bank deposits. The downside of this – a huge excess of capacity in infrastructure and heavy industry – is only surfacing now, but has any Chinese person said, or written, that he or she wishes the growth had not taken place?

By the same token, for more than three decades, South Korea systematically used a variety of financial instruments, including negative real rates of interest, to foster the growth of private and state owned enterprises that it felt had the capacity to take on the European, American and Japanese multi-nationals that dominated the world market.

The truth is that “inflation targeting” and “positive real rates” are products of the neo-liberal dogma spawned by Milton Friedman and the Chicago school. These ideas have gained their popularity because they have served to legitimise the dominance of finance capital over industry in the de-industrialising western world. But they are, in the end, only dogma. And in India, they have been misapplied and have caused us to lose a crucial decade of economic growth – a decade that we may never recover.

Kaushik Basu, who was Rajan’s predecessor as Chief Economic Adviser in the ministry of finance, has summed up the worthlessness of dogma in his latest book An Economist in the Real World, as follows:

“One thing that experts know and non-experts do not, is that experts know less than non-experts think they do. Take for instance monetary and fiscal policies. Decades of careful research have given us important insights into these. But on many large questions we have little more than rules of thumb: if there is stagnation lower interest rates and inject liquidity; if there is inflation raise policy rates and the cash reserve ratios of the banks….

The reason these …work, at least tolerably…is evolution. Over time the wrong moves get penalised and their users either learn by watching others, or disappear themselves. In brief we get our monetary and fiscal policies right …in the same way as birds get their nest building right.”

Basu’s simile sums up everything that has gone wrong in policymaking during the past five years.

Rajan and his predecessor, Subba Rao, abandoned the wholesale price index and switched to using the cost of living index as a measure of excess demand, and imposed a high interest rate regime on the economy. However, what the cost of living index was measuring was not an excess of demand, but shortages of supply caused by the growing failure of the state to provide essential services like health, housing and education, and state government-administered increases in the price of foodstuffs, agricultural raw materials, transport fuels and power.

Today, every index of inflation – wholesale prices, the GDP deflator and the core rate of inflation – is zero or negative. So, either the RBI governor must learn from his mistakes and bring the interest rate down to half the present level over the next six to nine months, or he must “disappear.”

The second step towards revival

Sharply lowering the interest rate is only the first step towards revival.

The second step is for the government to help companies that are deeply mired in debt to be saved, in this way: convert a sufficient part of their debt into equity and then itself buy enough of the shares to instil confidence in the market that it does not intend to let the company in question fail. Here Jaitley could follow Basu’s second dictum – learn by watching others.

The shining example of success is President Obama’s rescue of General Motors (GM).

In 2009, when GM and Chrysler were about to declare bankruptcy, the US treasury spent $49.5 billion to purchase 500 million shares of GM, $1.5 billion to bail out some key ancillaries, and $3 billion in subsidies to make Americans replace old cars with new fuel efficient ones.

Not only was GM saved but three years later, the treasury was able to sell the 500 million shares to the public for $39 billion. What is more, it saved 1.2 million jobs and also earned $39.4 billion in taxes.

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