Prem Shankar Jha

Kejriwal’s decision marks a tactical withdrawal from a field of battle in which he could not win. But the dismay provoked by his announcement shows that the disempowered millions have seen it as a defeat.

After three years of relentless effort, India’s democracy has finally succeeded in breaking Arvind Kejriwal’s back.

Last week, the Aam Aadmi Party leader apologised to former Punjab minister Bikram Singh Majithia for having called him the state’s drug lord. He followed this with apologies to the son of former Congress minister Kapil Sibal, and BJP minister Nitin Gadkari. With each apology, his stock among the ordinary people has sunk lower. And unfortunately, he has several more apologies to go.

Kejriwal’s detractors are openly jubilant. And they are not confined to the BJP, but are spread across all party lines. For despite the rapidly increasing polarisation between the BJP and the opposition, all seem to be in complete accord that Kejriwal and the AAP are upstarts in politics and must be destroyed.

Relentless targeting

Narendra Modi’s onslaught on AAP is well documented. It began in April 2015 with his pliant lieutenant governor, Najeeb Jung’s physical seizure of the offices of Delhi’s Anti-Corruption Bureau, and the ejection of police officers serving in it. The move was designed to pre-empt the investigation of 70 cases of corruption and extortion in the Delhi administration, nine-tenths of which involved policemen and officials of the three municipal corporations.

In the months that followed, armed with a notification issued by his own home ministry, and a judgment given by a one-judge bench of the Delhi high court that despite article 295(a) of the constitution, Delhi state was no different from the Andamans, the LG rejected bill after bill passed by the Vidhan Sabha. He took away the chief minister’s right to choose his own officers; transferred those who worked closely with him, or carried out their duties diligently without even warning, let alone consulting, him; got the CBI to ‘bring in for questioning’ no fewer than 150 junior officials and left them in no doubt that their future depended upon their diligence in reporting all the plans and decisions of their ministers to the Central home ministry.

When this cut the government off from feedback on the implementation of its policies and decisions – and forced Kejriwal to delegate the task of information gathering to his MLAs by appointing them as unpaid parliamentary secretaries to his ministers – the Election Commission, headed by a Modi appointee, suddenly found them guilty of holding offices of profit and disqualified them.

Kejriwal took all this without flinching. He refused to be provoked by this flagrant abuse of law and the constitution into intemperate responses that would give his opponents the opportunity to depict him as an iconoclast who did not know how to govern. He held his party and government together against Modi’s relentless attempts to break his government by splitting the party. And he showed the country that the people of Delhi were standing solidly behind him. When a lone defector from his party contested the bye -election that followed on a BJP ticket, he lost the seat he had won by 24,000 votes as a member of AAP, by 22,000 votes. Last week, the Delhi high court struck down the EC’s order disqualifying AAP’s MLAs.

Why BJP feels threatened by AAP

Modi’s sustained assault on Kejriwal and the AAP shows that the Sangh parivar has taken the party’s challenge seriously. For as a movement built upon ideology, it has been quick to recognise the threat from one that is built upon a radically different ideology – that of class conflict. The opposition could have profited from the presence of AAP but lacks the far-sighted leadership that can do so. AAP’s most unforgiving detractor has been the Congress. The Congress has never forgiven it for first defeating, and then annihilating it in two successive elections in Delhi. As a result, it has adamantly refused to have anything to do with the party, even when not doing so runs the risk of handing victory on a plate to the BJP.

Two recent interactions highlight how deep the animosity runs. When a pall of smoke from burning paddy straw descended upon Delhi from Punjab and Haryana in October, Kejriwal tried to contact Captain Amarinder Singh, the chief minister of Punjab, to set up a meeting. He received no reply. Not deterred, he telephoned several times, but met only stony silence.

That this was not simply a maharaja disdaining contact with a ‘menial’ became apparent four months later when Kejriwal tried to contact Rahul Gandhi repeatedly to cement an alliance in Gujarat. Kejriwal proposed neither an electoral alliance nor a sharing of seats. What he offered was to set up candidates in a number of constituencies to divide the BJP’s vote and allow the Congress to win. He knew that AAP did not have enough of a following in Gujarat to win any seats on its own, but it could cut into the votes of the BJP and enable the Congress to win. But the Congress did not respond. Rahul Gandhi, too, did not take Kejriwal’s calls. How costly this proved became apparent when the BJP won 18 out of its 99 seats by a margin of 5,000 or fewer votes, and 9 of them with a margin of less than 2,000.

The AAP had weathered the attacks of the Central government; it could also have weathered its political isolation. But what finally seems to have broken its back was not the political system, but the spate of defamation cases that had been lodged against Kejriwal and his lieutenants for the allegations of corruption they had hurled against political notables belonging to both the BJP and the Congress during AAP’s rise to power.

Weaponising defamation

Libel and defamation are serious issues, but there is a huge difference between allegations that are essentially political, and therefore of a non-specific nature, and those that are personal – which may destroy a human being’s family life, reputation and capacity to work and earn a livelihood.

Kejriwal and his party members had made innumerable allegations of corruption and criminality against political parties, and specific persons. But their purpose had been to highlight the corruption and criminalisation of politics, and not specifically the individuals alleged to have benefited from it. In doing this, they had voiced what has become a virtual truism.

The Association for Democratic Rights regularly publishes lists of the assets declared by candidates for political office, and of the criminal indictments standing against their names. Both in the Lok Sabha and the Vidhan Sabhas, around one third of the members and a larger proportion of the candidates, have criminal records or cases pending against them. A disturbing proportion – amounting to a majority in many state legislatures – are indicted for one of the six most serious crimes in the Indian Penal Code, i.e. murder, rape, kidnapping, arson, armed robbery and the illegal possession of arms. By the same token, the declared assets of the majority of candidates bear no relationship to their earning capability, or education. And no one has any idea how much individuals and political parties spend on elections or day-to day expenditure and how they raise this money.

Ordinary Indians do not need these statistics to understand just how completely their democratic system has disempowered them. They come face to face with this every time they go to a government office to obtain a license, a permit, an authorisation, a ration card, to collect their pension, obtain a refund on taxes, or simply collect their food ration from a fair price shop. Today none outside a thin political crust consisting of criminals and second generation politicians – princelings – stands much chance of entering politics, let alone winning a seat. Add to this a bureaucracy completely shielded from accountability to the public, and the disempowerment of ordinary Indians is complete.

This is the disempowerment that the movement against corruption that Kejriwal first joined was committed to fighting. This is what he formed the Aam Aadmi Party to fight against when he realised that petitions, demonstrations and public interest litigation would not suffice to break the nexus that had developed between corruption, crime and political power. It was inevitable, therefore, that AAP would highlight the corrupt and predatory nature of our political system. And since the mere names of many prominent politicians and their backers were already bywords for the abuse of power, that his party would use their names in its campaigns.

Our common sense tells us that if we separate the individuals who have been allegedly defamed from the systems that they have propped up and prospered under, then taking their names can be considered defamatory. But if they are part of a corrupt and criminalised political system – and a political party refers to them in order to draw the public’s attention to the extortion and corruption that has hollowed out the democratic system – then defamation of the individual cannot be considered the main purpose of taking his or her name. In doing so, therefore, AAP’s leaders may have been technically at fault, but not morally so, for their purpose was not to impugn and punish the individual but reform the political system.

American law does recognise the difference. The first amendment to its constitution and numerous Supreme Court judgments have made it exceedingly difficult to file suits alleging the latter kind of defamation. Findings of defamation are not unknown, but have been extremely rare. Unfortunately, Indian jurisprudence has gone the other way. India is one of the few democracies in the world to still retain criminal defamation as a separate offence from civil defamation. Moreover, judges routinely admit defamation cases on the flimsiest of pretexts. The federal structure of our judiciary has allowed individuals and political parties with deep pockets to harrass defendants by filing the same case in every state where a report of the allegation has been carried in the press.

Arvind Kejriwal is not facing 33 defamation cases because he defamed 33 persons, but because there are cases filed against him in 33 courts. While the defendant has to prove his or her innocence in every court, it requires conviction in only one of them to send him to jail. Fighting such multiple indictments requires endless stamina, enormous amounts of time and very deep pockets. Few defendants have all three. The plaintiffs, of course, know this. That is how they have been able to turn even the judicial system, that many consider the last pillar of democracy, into an instrument of oppression.

Kejriwal’s decision to apologise marks a tactical withdrawal from a field of battle in which he could not win. But the dismay provoked by his announcement shows that the disempowered millions have seen it as a defeat. His opponents are jubilant, but in the long run there is nothing to rejoice about, for Kejriwal’s defeat is democracy’s defeat.

The lesson that the poor have learned from this is that they cannot end their disempowerment by democratic means. From this, it is a short step to concluding that Indian democracy is itself a sham. And from there it is only a slightly longer step to violence. The Aam Aadmi party rocketed to success in Delhi because it offered an alternative to bandhs, gheraos, processions, hunger strikes and attacks on public buildings as ways of forcing the state to accede to their wishes. If it is crushed by a tacit coalition of all the political parties that form part of the criminalised elite of the country, then at least one section of the public may come believe violence remains the only alternative left open to them.

There is a lesson that the opposition needs to learn: AAP may not have the numbers, but Kejriwal has the ideological platform that the vast masses of India crave. Its appeal is to the youth and the growing professional class of the country. In this respect, Kejriwal’s personal appeal is similar to that of Bernie Saunders during the US primaries in 2016. To defeat Modi and the BJP’s brand of ‘Hindutva’, the opposition needs to gain the support of these two groups in society. Therefore, they need to work with AAP, not try relentlessly to isolate it. If they fail to do so, while large numbers of these classes may not vote for AAP in its present avatar, they may, like millions of young people in the US, choose not to vote at all.

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The attack on Anshu Prakash has given the Modi government a sword of Damocles to hang over Kejriwal’s head. Given its relentless efforts to paralyse the AAP government, there’s no telling how this opportunity will be used.

 

The alleged assault on Anshu Prakash, the chief secretary of Delhi, by some angry MLAs of the Aam Admi Party (AAP) at the home of chief minister Arvind Kejriwal on February 19, has become the latest battleground in the long drawn out war between the Narendra Modi-led BJP government that rules India and the Kejriwal-led AAP government that rules Delhi.

The conflict between the haves and have-nots

Two weeks after that sorry episode, an uneasy calm prevails. Prakash attended a cabinet meeting on the state budget on February 26, with a polite, but unnecessary reminder that there should be no repeat of what happened a week earlier. And state government officials who had earlier considered going on strike but compromised by holding a candlelight protest for five minutes every day till the government gave a written apology to the chief secretary, are carrying on their work on the basis of written instruction alone.

This situation cannot continue indefinitely. Prakash’s FIR has accused the government of a premeditated conspiracy involving the entire party, to assault and humiliate him. This has given the Modi government a sword of Damocles to hang over Kejriwal’s head. Given its relentless efforts during the past three years to paralyse, discredit and humiliate the AAP government, there is no telling when he will use it.

Were he to do so, it could become the spark that sets fire to India’s fragile democracy. For Delhi is not a run-of-the-mill state and AAP is not a run-of-the-mill party. AAP is the first political party to be born that has made the transition from appeals based on caste, creed and ethnicity, to appeals based upon class solidarity.

By the same token, while Delhi NCT is a relatively small state, it is today what most of India will become tomorrow — an urbanised, industrialised state with a large, unorganised, and therefore extremely insecure, small industry and services sector. These are the conditions in which class politics was born in 19th century Europe. AAP therefore represents not only the poor of Delhi but the have-nots of the future, industrialised, Indian state.

As Europe’s experience has shown, for democracy to survive the conflict between the haves and have-nots must be resolved through mutual respect and compromise. But in India the political and economic developments of the past three decades have made this more and more difficult. AAP’s attempt to harness class power to democratic change therefore needs to succeed. If it is crushed, change will eventually come , but it will be violent.

The crisis caused by the events of February 19 must therefore be diffused. But for that it is essential to first understand exactly what happened.

Anshu’s FIR

Prakash has claimed in his FIR that he was virtually forced to come to the chief minister’s house at midnight on February 19, to “discuss with Chief Minister & Deputy Chief Minister the issue of difficulty in release of certain TV Advertisement relating to completion of three years of current government in Delhi”, and then in effect gheraoed by 11 MLAs or unidentified persons, berated for delaying the release of the AAP government;s publicity celebrating its third year of government, shouted at, abused, threatened with wrongful confinement for the entire night and finally manhandled and beaten up without provocation by two MLAs .

He was able to get out of the room and get to his car with difficulty. Prakash concluded his charge sheet by stating: “ I request you to take action as per law as the assault was premeditated and in conspiracy of all present with intention to criminally intimidate, cause hurt with motive to deter me from discharge of my lawful duty and compel me to follow unlawful directions. None of the persons present in the room made any effort to save me”.

AAP’s version of events

If half of what Prakash has alleged is true then it would create a cast iron case for the use of article 356 of the constitution to dismiss the government. But AAP’s version of what happened that night is so completely different that it needs to be reported in full:

Kejriwal had fixed the meeting not to discuss advertisements but to discuss how to mitigate the hardship being inflicted upon 2.5 lakh families by glitches in the linking of their ration cards to their Aadhar cards. This had been made mandatory in January but, like demonetisation and the introduction of the Goods and Services Tax (GST), was badly bungled in practice.

This was not a new, much less a suddenly concocted , problem. That the linking of ration cards under the National Food Security Act to Aadhaar cards has been creating problems for workers on the margins of society had been known for some time. Sex workers in Mumbai and other cities had complained as far back as in 2016 that they were unable to buy food on their ration cards any more because the shopkeepers wanted to see their Aadhaar cards.

On March 8, last year, a month after the Modi government made the linking mandatory, the Delhi Rozi Roti Adhikar Abhiyan (DRRAA) had filed a public interest litigation in the Delhi high court against linking food rations to Aadhaar. The network, which consists of around 30 non-profit organisations working on food-related issues, had petitioned the court to strike down the notification. The court had appointed a commissioner to examine the issue on the ground.

Prakash was aware of the problem because Kejriwal had taken him around earlier to several locations where rations had been withheld. According to Kejriwal, the two had planned to meet later to discuss how to remove the roadblocks but a spate of marriages and other engagements had made finding a common free evening difficult. So Kejriwal had suggested meeting late at night after all such functions were over. The meeting called for midnight emerged out of these constraints. Contrary to reports in some papers, therefore, Prakash had not come two hours late to a meeting scheduled for 10 pm.

The meeting, however, went wrong from the very start. In all, 11 MLAs were waiting to meet the chief secretary when he arrived, and within minutes they found in Prakash a convenient lightning rod to vent their anger. Prakash, understandably, resented this and asked Kejriwal for permission to leave. Kejriwal admonished the MLAs to restrain themselves and apparently asked the chief secretary to give them five minutes, since they had come a long way to meet him. Prakash agreed but the MLAs began venting their anger on him once more. At that point Prakash told them that he was not answerable to them, but only to the Lieutenant Governor. According to someone who was present in the room, that was when the scuffle began.

The fact that Prakash was manhandled was confirmed by the medical report, which noted that he had a swelling and scratches around his head. But it could not have lasted long because Prakash was able maintain decorum and again ask Kejriwal for permission to leave the room before heading for his car. CCTV footage showed that from the moment he entered till the moment he left, he had been in the compound of the CM’s house for just over seven minutes. The longest that he could have been in the meeting room was therefore not much more than five minutes.

On leaving 6, Flagstaff Road, Prakash immediately phoned the Lieutenant Governor Anil Baijal. Despite it being well past midnight, Baijal immediately picked up the phone and asked Prakash to come to Raj Niwas straightaway. He also called the chief of police who arrived promptly. There followed an hour of discussion, after which Prakash went home without filing an FIR.

Prakash again did not register an FIR immediately the next morning, but went straight to the secretariat, where he called the heads of the various associations of Delhi civil servants to his office and related   what had happened the previous night. AAP interlocutors suspect that he did so to instigate a strike, but he may have done this only to nip the growing turmoil in the secretariat, as the news of the previous night’s events began to spread. Only then did he file his report on what had happened.

‘Political suicide’ 

Comparing the two versions of this unsavoury episode one finds only three points of complete disagreement between them. The first is on the subject that Prakash had been summoned to discuss. Here the complete absence of any reference to the ration card issue in his FIR smacks of prevarication. Had the delay in releasing advertisements commemorating the completion of AAP’s three years in power been the sole cause of the meeting Kejriwal would not have had 11 MLAs waiting to meet the chief secretary when he arrived.

The MLAs too would have had no reason to come on their own because while the delay might have affected the image of the party as a whole by denying knowledge of its achievements to the people, it could in no way harm the image of individual MPs. A discussion of advertisements alone could not therefore have generated the anger among the MLAs that led to the scuffle.

The second difference – the evasiveness of AAP spokespersons on whether the chief secretary was actually beaten or not – is easier to understand: with Prakash Jarwal and Amanatullah Khan already in jail on the charge of assaulting a government official during the discharge of his official duties, even the most oblique admission could have helped to convict them and sentence them to years in prison.

But it is the third difference – on the motive that underlay the alleged attack on the chief secretary – that is the most pregnant with meaning. Neither version denies that Prakash was, in effect , manhandled. But while the AAP version gives a clear, and easily confirmed, motive for the anger of the MLAs, for Prakash’s accusation to be credible one has to assume that the Aam Aadmi Party leaders, knowing that the Modi government has been on a never-ending hunt for an excuse to destroy it, had taken a collective decision to commit political suicide and spend a good part of their lives in jail.

This is absurd: as Kejriwal is believed to have remarked, “If I had wanted to get Anshu beaten up, would I have invited him home and got it done in my meeting room?”

This accusation of a premeditated conspiracy casts a different light on what happened after Prakash left the chief minister’s house, and raises several questions. First, why did he not register an FIR straightaway, but telephone the LG instead? Second, was it by chance that the LG was awake well past midnight, and his phone was not on the silent mode? Or was he waiting for a call from Prakash? Third, what was the need for Baijal to summon Delhi’s chief of police to this meeting at such an unearthly hour and, to do so even before Prakash had arrived and given his report? Fourth, why did Prakash not register the FIR first thing the next morning, but spend the entire morning meeting office bearers of the various Delhi state government employees associations, before submitting his FIR in the early afternoon?

There can be perfectly legitimate explanations for these actions, but none for the allegations he makes in the last para of his FIR. For unless the entire ration card story is a concoction, and Kejriwal brought 11 MLAs to his home with the intention of letting them beat Prakash up, there is no way in which his description of the assault as “premeditated and in conspiracy of all present to criminally intimidate, cause hurt with motive to deter me from discharge of my lawful duty and compel me to follow unlawful directions” can be true.

Fall like dominoes

I have not come to this conclusion lightly. I have known Anshu Prakash for 32 years from the time when he was an IAS probationer in Mussoorie, and have known him well. In these years, I have seen him hold many jobs and interact with the public on several occasions, and my respect for him has grown steadily. I therefore find it hard to believe that he drafted the final paragraph of his FIR. Its clumsy, lawyerese, English does not reflect his command of the language. And he, more than anyone else, must know that the distress caused by glitches in the Aadhar-ration card link is real, so all that the AAP government has to do to blow up the accusation of a criminal conspiracy is prove that there are indeed 2.5 lakh, or a similar number, of ration card holders who have not been able to access their subsidised rations because of the Aadhar link.

Since I have not been able to speak to Prakash since this crisis erupted, I have not been able to get his side of the story. But I do not doubt for a moment that he was roughed up and humiliated on the night of February 19. But I also suspect that he was required by his seniors to insert charges that could be used to justify the dismissal of a government elected with the largest vote share in the history of Indian democracy.

If this surmise is correct, then Prakash is in the same unenviable position in which every state and all-India services officer who has served the Kejriwal government has found himself or herself since it came to power. For, in a manner strongly reminiscent of the way he ruled Gujarat in the aftermath of the riots of 2002, Modi has abruptly transferred or thrown trumped up accusations of corruption against every senior officer who has served the state government sincerely. Scores of lower level officers have also been summoned by the CBI, made to wait all day long before being called in, and then warned never to forget that their first loyalty must be to the central government.

To understand what can happen, it is not necessary to understand how it will happen. When Gavrilo Princip assassinated Archduke Franz Ferdinand and his wife Sophie in June 1914, he triggered a war that consumed 19 million lives in four years, destroyed both the German and Russian monarchies, and cleared the way for the rise of Adolf Hitler.

When Solomon Bandaranaike offered to ban the use of Tamil as a second language to win an election in 1956, he lit a match that sputtered for 27 years before bursting into flame and nearly consuming Sri Lanka. And when Mohamed Bouazizi, a roadside vendor in Tunis set himself on fire in January 2011, he had no intention of starting a conflagration in the Arab world that shows no sign ending.

India may not be the next country where something like this will happen, but it is already on the list.

 

https://thewire.in/politics/anshu-prakash-aap-assault-spark-fire-indian-democracy

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What really happened at the not-at-all-secret meeting with former Pakistani officials at Mani Shankar Aiyar’s house.

When Congress party chief Rahul Gandhi threw Mani Shankar Aiyar to the wolves after he described Prime Minister Narendra Modi as a ‘neech kism ka aadmi‘, he presented Modi with a juicy target. On December 8, at a rally in Banaskantha, Modi alleged that after he became prime minister in 2014, Aiyar had travelled to Pakistan to get him “removed” to improve relations between the two countries. Modi said the Congress had then tried to muffle the episode, and did not take any action against Aiyar.

Two days later, at a pre-election rally in Palanpur in Gujarat, he roared, “Now, news is that the Pakistan high commissioner, the foreign minister and Manmohan Singh met at his (Aiyar’s) house just before the Gujarat polls…This is a serious issue. I want to ask what was the reason for this secret meeting with Pakistanis”. To this he attached a seemingly unrelated statement: “Former Pakistan Army Director General Arshad Rafiq was willing to help make [Congress leader] Ahmed Patel the chief minister.”

Political mudslinging is routine in democratic elections, and its pitch invariably rises as voting day draws near. But I can think of no parallel in history to this relentless public demonisation of a single individual who holds no political office and has been disavowed by his own political party. It tells us two things about Modi: that he is seriously rattled by the feedback the BJP  has been getting from Gujarat; and that he will stop at nothing to secure victory in Gujarat.

Here is a list of falsehoods that Modi has been relentlessly propagating.

First, as almost everyone who attended the dinner (including this writer) has emphasised, there was nothing secret about the meeting. The invitations were not sent on WhatsApp, Express VPN, Viber or any other encrypted messaging system, but on ordinary Gmail. The first invitations were sent out almost a month earlier and were followed up by Aiyar’s office. This was followed by phone calls from either Aiyar or his secretary to determine if one was coming. It is difficult to imagine that none of these calls are monitored.

The government was fully aware of the meeting because two of the guests, Manmohan Singh and Hamid Ansari, have  ‘Z’ category protection from the Special Protection Group (SPG). The SPG not only inspect the premises and cordon off access points if they feel it is necessary, but have to be given a full list of the guests for pre-vetting. Modi has asked why Aiyar did not “inform” (i.e. get permission from) the Ministry of External Affairs when he was entertaining the Pakistan high commissioner and foreign minister (he conveniently forgot the word ‘former’). The answer is that since Aiyar is neither a minister nor a government official, no such prior information is required nor expected.

Third, there was no speculation about Delhi’s hottest topic – the Gujarat elections. The polls were not mentioned at all at the meeting. Even the word Gujarat was not uttered during the discussions either before or after dinner.

Fourth, Ahmed Patel’s name never came up at any point during the meeting. Modi’s repeated assertion that the Congress party is taking help from Pakistan’s intelligence to oust the BJP in Gujarat and intends to make “their man” the chief minister is based on a single Facebook post by someone calling himself Sardar Arshad Rafiq. The post has been shunned by every news channel in India except the notoriously pro-Modi NewsX, and is almost certainly manufactured by the same BJP troll factory that dubbed ‘Pakistan zindabad‘ onto a video of the JNU students’ union president Kanhaiya Kumar’s February 9, 2016 speech on campus to facilitate his arrest and incarceration in Tihar Jail two days later.

How easy it is to do this was demonstrated on December 4 when, hours after Modi reminded listeners at a rally in Gujarat that Aurangzeb too had come to the throne because he inherited it, a fake video began to circulate on YouTube, showing Rahul Gandhi signing his nomination papers at the party office in front of a portrait of Aurangzeb. The video had been morphed from the real footage which showed a portrait of Mahatma Gandhi. Modi, of course, twisted history completely out of shape, for Aurangzeb came to the throne through war and fratricide.

So if the invitees did not talk about Gujarat or Ahmed Patel, what did we talk about? The short answer is the quest for peace. The bond that united everyone in the room was a firm belief that neither India nor Pakistan could ever achieve their full potential without burying the hatchet. And this could not be done without burying the past. Contrary to what Modi wants people to believe, the gathering was not one of doves. On the contrary, the majority of the former foreign secretaries and high commissioners to Pakistan present that evening were sceptical of the possibility of restoring peace in the near future.

The discussion centred on the obstacles that needed to be removed first in both countries. These included not only the intensifying militancy in Kashmir, but also the role of the Pakistani army in nurturing terrorism and of the ISI in Kashmir. Several of us asked what the point was in seeking a diplomatic solution, when the Pakistan army so obviously had the final say on relations with India. Some suggested that it might be better to involve the armies of both countries in the talks, but this did not gain much traction.

Former Pakistan foreign minister Khurshid Kasuri took pains to dispel this pessimism. He reaffirmed, not for the first time, that there was indeed a four-point agreement between our countries signed by Manmohan Singh and former Pakistan President Parvez Musharraf; and that despite everything that had happened since 2007, this remained the only viable framework for peace. He  asserted, as he had in his book Neither Hawk nor Dove, that Musharraf had constantly kept four top army commanders, including former army chief General Ashfaq Parvez Kayani and the ISI chief in the loop.

He was emphatic that this was the only way forward and that the Pakistan army was not as rabidly Islamist as the Indian media often portrayed it to be. He pointed out that by the time an officer got to be a general, he had spent several years obtaining a degree at the National University of Science and Technology (NUST), where there were students from 30 countries, and had attended several courses at military academies abroad. Thus no matter where he began, his entire life was spent broadening his perspectives.

However, Kasuri expressed great anxiety over the worsening situation in Kashmir. “No government in Pakistan will be able to take a step forward towards a settlement if the situation in Kashmir continues to worsen.”

Why is Modi going to such extreme lengths to rouse Islamophobia in Gujarat? The only possible explanation is that some difference in the response of his audiences during his recent spate of rallies has made him sense the possibility of defeat in Gujarat. Islamophobia had enabled him to snatch a victory after the Gujarat riots in 2002. He believes that it will enable him to do so again.

At first sight this looks like exaggerated paranoia, for in the 2014 elections the BJP had secured a mammoth 60% of the vote in Gujarat, while the share of the Congress had plummeted to 33%. But a closer look shows that a large part of this resulted from the abstention of Congress voters from casting their vote. The voter turnout in Gujarat was the third lowest in the country, after Kashmir and Bihar.

This time, the turnout in the first phase, although still lower than in 2012, has shown a substantial recovery, especially in the traditionally Congress Saurashtra region. Reports from Surat suggest that a substantial protest vote has developed there as well. So Modi’s apprehension may be well-grounded. That would explain his willingness to play with fire and stoke Islamophobia once more.

When Patriotism Becomes Treason

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Rahul has committed the cardinal sin of politics: he has abandoned his bravest general at the height of a battle that he could very well have won.

By disgracing Mani Shankar Aiyar and virtually throwing him out of the Congress party, Rahul Gandhi may think that he has improved its chances of winning the elections in Gujarat. But if there is any conclusion that not only Gujarat’s but also India’s voters will draw from his hasty rebuke of the Congress party’s most senior, most loyal, most eloquent and most fearless member, it is not that the Congress is morally superior to the BJP, but that he is unfit to lead the Congress and unfit to govern the country. For Rahul has committed the cardinal sin of politics, and statecraft: he has abandoned his bravest general at the height of a battle that he could very well have won.

What is worse, he has cut down the only member of the Congress party who was doing any serious damage to the image that Narendra Modi has built of himself in the eyes of the people. That is, of course, why Modi singled him out for destruction. Instead of defending Aiyar or, better still, leading a counterattack on Modi, Rahul and the entire Congress party joined in his destruction. No matter what gloss his party’s spin doctors now try to put on this action, there is only one conclusion that the public can draw from this: Rahul does not have what it takes to be a leader, let alone the prime minister of the second largest country in the world.

To appreciate the sheer magnitude of Rahul’s loss of nerve, it is necessary to follow the train of events that preceded his public rebuke of Aiyar closely. While inaugurating the B.R. Ambedkar International Centre in Delhi, Modi said that the Congress had, for years, suppressed the memory of Ambedkar and belittled his contribution to nation building, solely to promote the “interests” of one family. No one was left in any doubt about which family he was referring to.

Modi’s remark was, to say the least, in poor taste. As the British had found out during the first Round Table Conference in 1931, Ambedkar was an ardent nationalist and the respect the Congress held him in is writ large on every page of the constitution. The Ambedkar Centre was conceived by the Congress government of Narasimha Rao in 1992, and if there was any reason for the delay in its creation it has to be shared by every political party in the country including the BJP. Modi could have taken credit for expediting it, but it was a truly national project so there could not have been a better moment to remind all Indians of their common commitment to the removal of the inequities of caste from our country. But Modi could not resist the temptation to take a cheap, unsubstantiated dig at not just the Congress, but the Gandhi family.

It would have been surprising indeed if this had not left a bad taste in the mouths of many of those present. So Aiyar had every right to voice his distaste for what Modi had said. Why, then, did Rahul turn so hastily, and so publicly, upon him? The official excuse is that by calling Modi a “Neech kisam ka aadmi”, he had given Modi a chance to claim that the Congress was denigrating him as a member of a ‘neech’ jaat (caste). This would alienate some of the lower castes who traditionally supported the Congress and give Modi a victory in Gujarat. Rahul swallowed this hook, line and sinker. As Congress president, he did not even ask Aiyar for an explanation first. He simply joined Modi in denigrating a senior and loyal member of his own party.

Rahul is so far removed from the party he now commands that he did not remember that Modi had tried to play the same card when Priyanka Gandhi had similarly called him ‘neech’ during an election rally in Amethi in 2014. But Modi’s ploy did not work, for the Congress candidate won in Amethi by 1.07 lakh votes. He should have remembered, because he was the candidate.

In Hindi, there is no automatic connection between the words ‘neech’ and ‘jaat’. The closest translation of ‘neech’ in English is ‘immoral’ or ‘unsavoury’. But Modi’s attempt to link it to caste in Gujarat had nothing to do with attracting lower caste votes. His precise statement was, “They have called me a neech jaat. This is an insult to Gujaratis.” This was therefore an appeal to Gujarati nationalism, but one designed to capture the vote of upper caste and upwardly mobile Gujaratis only – so the Patidars. That he felt compelled to use it again shows how uncertain the BJP is of retaining the Patidar vote.

How much damage has Rahul’s abandonment of his own general done to the Congress? There is no way to tell for sure, but it will be greatest among the swing voters who voted for the BJP and forsook the Congress for the first time in 2014. The BJP’s vote share jumped by 12%, from 48% in the 2012 assembly elections to 60% in the parliamentary elections of 2014. The Congress’s vote fell by 7%, from 40% to 33%. If the 12% switch back to the Congress, the BJP will still have a wafer-thin margin of 3%. This is what Modi is sparing no effort to retain. Rahul’s action has made it a lot easier for him to do so.

Rahul Gandhi Is Narendra Modi’s Strongest Ally

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The Emergency may be the most controversial part of her legacy but Mrs Gandhi’s greatest contribution to India was the way she handled the economic, political and foreign policy challenges the country faced after 1966.

Indira Gandhi is the most controversial prime minister that India has had. A third of a century after her tragic and untimely death, an older generation of Indians remembers her mainly for India’s victory in the 1971 war, and the Emergency. Scholars have also accused her of undermining democracy by splitting the Congress in 1969, repeatedly sacking chief ministers to concentrate power in her own hands, and splitting the party a second time for the same purpose in January 1978. But the poor of India remember her for her programme of ‘Garibi Hatao’ and still call her ‘Amma’. On the foreign policy side, all of us, without exception, remember with pride the way in which she stood up to Nixon and Kissinger during the run-up to the Bangladesh war. . .

The end of the Nehruvian honeymoon

So vivid is the image we have of the later Indira that very few remember the young and unsure, woman who came to power after the sudden death of Lal Bahadur Shastri in January 1966. Even fewer, therefore, appreciate the difficult circumstances in which she did what she did and her immense contribution to stabilising the nascent India she inherited. For in January 1966, the country was in the grip of a multi-faceted crisis, and did not even know it.

The production of food grain had hit a plateau in 1961. The resulting food shortage had combined with two wars in 1962 and 1965, and the worst drought of India’s history in 1965, to generate the kind of inflation the country had never known and therefore had never dealt with. Inflation and a closed economy had landed us in a foreign exchange crisis – the first of many. Devaluing the rupee was the only way forward, and the World Bank had been urging India to do this since 1961. But the Nehru and Shastri governments had procrastinated till India had run out of time.

As if this was not enough, two wars in four years had emptied India’s coffers. And two successive droughts had brought the poor to the verge of starvation, to be saved only by PL 480 wheat from the United States.

The challenges she faced within the party were no less severe. In 1966, most people believed that Indira Gandhi had been chosen as prime minister because of her father’s charisma and because the “syndicate” believed that she would be more malleable than her seasoned opponent, Morarji Desai. But the party’s organisational leaders were also disenchanted with Nehruvian socialism. Huge sums of money had been sunk into heavy industries in the public sector that had yet to yield even a notional surplus on investment, let alone profits and dividends that could be ploughed back into growth and employment. The increasing uncertainty about finding jobs had created a rising wave of discontent among students. In mid-1966, this had turned violent.

These challenges could not be met without taking hard decisions, but the country was not aware of the need for them because it did not know that it was in a crisis. The glow of independence had not faded. The 1950s had been a honeymoon period in which almost nothing went wrong: food production grew rapidly because cultivation was extended to most of the remaining arable land in the country. Industrialisation was not hindered by foreign exchange shortages because of the sterling balances inherited from the war. Nehru had carved a niche for India on the world stage. People, therefore, trusted the government implicitly and could not imagine that the difficulties they had faced were anything more than temporary.

The first devaluation and after

Indira Gandhi’s first important decision therefore shattered this cocoon of security. In June 1966, she devalued the rupee by 57.5%. The move shocked the country and aroused bitter criticism in parliament from both Left and Right. Had it succeeded in rebalancing the economy speedily, her future economic policies might have been very different. But first, a $900 million aid package that the World Bank had promised to meet the increased cost of imports till exports picked up was held up in the US Congress. Second, India was hit by its second consecutive, and equally severe, drought in 1966. As a result, by the time the promised aid began to trickle in, prices had risen by a full 32% and neutralised the price advantage that devaluation had been intended to give to India’s exports.

The devaluation did eventually boost India’s exports. From barely one per cent a year between 1952-53 and 1965-66, export growth jumped to 14% a year between 1968-69 and 1982-83. The Green Revolution, which had been piloted through a recalcitrant Congress by food minister C. Subramaniam, also took off in 1967. So good was the response of the economy in the years that followed that despite another drought in 1972 and a four-fold rise in oil prices the next year, India began to record balance of payments surpluses in January 1976, and continued to do so till the second oil price hike in 1979-80.

But it took two years for this recovery to begin. By then, the Congress had lost four major state assemblies and come within 10 seats of losing its majority in parliament in the 1967 general elections. This, and a pronounced leaning towards the left-wing of the party under the influence of ideologues like P.N Haksar and Mohaan Kumaramangalam, was the true reason behind the Congress split of 1969.

Who split the Congress?

Critics have accused Indira Gandhi of being an autocratic prime minister who weakened Indian democracy split, citing her splitting of the Congress in 1969 and her declaration of the Emergency in 1975 as proof. The truth is rather more complex. Space does not permit a study of the Emergency, but there is ample evidence that the 1969 split was forced upon her by the party organisation in an attempt to wrest control over economic policy

The spark that set it off was the selection of a successor to President Zakir Husain after his untimely death in 1969. The syndicate chose N. Sanjiva Reddy over the incumbent vice-president and briefly acting president, V.V Giri, and did it rather obviously without consulting Mrs. Gandhi. She had every good reason to oppose this. First, V.V Giri was already the acting president. Second, choosing Reddy broke an immensely important unwritten convention drawn from Westminster’s democracy, that like the British constitutional monarch, the Indian head of state had to be an eminent, non-political, person. V.V Giri fulfilled this requirement because, as vice-president, he had not only been far removed from current politics but was a highly respected veteran trade union leader. Sanjiva Reddy was, on the other hand, very much a practicing politician.

Despite this, Indira Gandhi first sought to avoid a showdown with the syndicate. She filed Reddy’s nomination but when Giri decided to compete as an independent, announced that she preferred an open vote. Had the syndicate agreed, there would have been no split in the party when Giri won. But by then, its members had the bit between their teeth so when Congress president S. Nijalingappa found that two-thirds of the Congress parliamentary party had declined Indira Gandhi’s implicit invitation to revolt against the organisation, he took the unprecedented step of expelling the sitting prime minister from the Congress party, nor renamed Congress (O) while Indira Gandhi’s party was called Congress (R). In the March 1971 general election, she won handily, securing 350 seats to the 51 seats won by the ‘National Democratic Front’ led by the Congress (O), Bharatiya Jan Sangh, the Swatantra and socialist parties.

Over the years, many personal motives have been ascribed to Mrs. Gandhi for defying the collective will of the party organisation and refusing to resign. But history will back her because she was defending not only the primacy of the prime minister over the party but the party in parliament over the party organization. As the eminent French political scientist, Maurice Duverger, pointed out in his classic 1957 work Party Politics, these are the two fundamental principles that distinguish democratic from ideological political parties.

The birth of Bangladesh

Indira Gandhi’s determination to be a prime minister in substance and not only in form was vindicated within only days of the 1971 election, when the Bangladesh crisis erupted. Only a leader with a clear vision of India and immense national pride would have been able to resist the subtle blandishments of western leaders who wanted India to absorb the 10 million refugees from East Pakistan and let sleeping dogs lie. The members of the syndicate were all seasoned politicians, but they were, in the end, provincial leaders without this vision. It is, therefore, doubtful whether they would have remained unmoved. Indira Gandhi, by contrast, had inherited a clear-cut idea of India from her father, and developed it through her own education and experience. So she had no difficulty in giving the West a clear-cut warning of her intentions and developing a multi-pronged strategy to safeguard India’s security.

Contrary to a near-universal belief, Indira Gandhi did not have her heart set upon breaking up Pakistan from the very beginning. Confronted by a seemingly endless flow of refugees into West Bengal, Mrs. Gandhi first did her best to persuade General Yahya Khan to allow the Awami League of Sheikh Mujib-ur-Rehman to form the government in Pakistan. When she failed, she sent emissaries to all major countries, and herself went to several European capitals and to Washington, to make they put pressure on Pakistan to release Sheikh Mujib. But to insure against failure she made the army train the Mukti Bahini, and draw up contingency plans to invade East Pakistan if it became necessary. This was her second use of both stick and carrot to achieve her goal, the first having been the election of V.V Giri as president. In both cases, force was her weapon of last resort.

The Bangladesh war, and the Congress’s sweeping victory in the state elections a year later, marked the high point of Indira Gandhi’s prime ministership. The Emergency is considered the lowest. But as I have argued earlier in these columns, it was the product of her understandable, and probably justified, belief that stepping down from the prime ministership then would have left the country in even greater turmoil than it already was in. She also redeemed herself in the peoples’ eyes by resisting every exhortation to extend the Emergency and holding a fresh general election in 1977 despite the near-certain knowledge that she would lose.

On Her Birth Centenary, We Need to Pay Tribute to the Early Indira Gandhi

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Gasification of rice straws can solve the problem of air pollution, and with it many others, if only the government was willing to employ it.

Delhi’s air pollution has reached a level of severity where alarm has turned into panic. Every morning its citizens wake up with dread in their hearts, to a dark grey sky. These are not clouds: take a flight to Mumbai, or anywhere for that matter, and at 3,000 feet you will burst forth into a crystal blue sky. Below, on the ground, visibility is down to between 100 and 200 metres; the air spells of smoke. Children waiting for school buses, or the hapless ones who are forced to live in slums cough and sneeze in the frigid, poisonous air. Every day for the past nearly two weeks, the air quality index has been between 400 and 478 – over eight times the permissible maximum. By contrast it is currently 16 at Ooty, Wellington and Coonoor in the Nilgiris and not much higher in Shimla and Kasauli. But only the rich and the retired have the privilege of escaping to these havens in the mountains or to others by the sea.

The threat pollution poses to people is increasing. But contrary to what some environmentalists would have us believe, it is an unequally distributed threat. If you are in your teens or even your 60s, healthy, active, do manual work or play sports, and don’t smoke, the impact is minimal. It is your infants, your children below five or six and your aged parents – who are frail, may be prone to asthma and cannot stop coughing – who are face imminent risk of death. Both the very young and the elderly cannot be treated with antibiotics, or for very long, without causing complications.

So the smog prevents their lungs from healing and turns these into factories for growth of bacteria. Pollution therefore kills mercilessly at both ends of the spectrum of life. As infant mortality dwindles and the aged live longer, the threat from pollution becomes more severe.

Till as recently as a year ago, environmentalists were blaming urbanisation, incessant construction, the rising number of cars and two wheelers on the road, lengthening traffic jams, Diwali firecrackers and the burning of  garbage in the open air for most of the pollutants that now regularly hang in the Delhi air. They were only partly right, for the annual pall of smog arrived in Delhi last year a week before Diwali. This year, Diwali came a month early, on October 19, and thanks to the Supreme Court ban, there were relatively fewer firecrackers let off in the capital. But still, the pall of smog came on October 30, almost exactly the same day as last year.

Residents of Delhi think this smog is their special problem, and the scores of environment watchers who have raised Delhi to the top of their lists encourage them to do so. But this smog is now a North India problem. The trail of cancelled flights and severely delayed trains, and the multiple car crashes on the Yamuna Expressway to Agra last week showed that visibility was equally poor hundreds of kilometres from Delhi. In fact, a blue pall of smoke hangs across the whole of northern India every year from late October till the winter rains finally come, if they come. Even Bharatpur, 200 km south of Delhi, is no longer spared.

Problem deeper than stubble burning

This new and deadly threat has been created by the burning of millions upon millions of tonnes of rice straw in the fields of Punjab, Haryana and western Uttar Pradesh after the crop has been harvested. It is a product of the Green Revolution – and is, therefore, the price we have been paying for the food security that it has given to the country. So it is hardly surprising that no one, either in Delhi or in Punjab, has the faintest idea of what to do about it.

Chief minister Arvind Kejriwal has met Haryana chief minister Manohar Lal Khattar and asked him to enforce, and if necessary raise, the fines on stubble burning as an immediate measure. He has also been trying to meet Punjab chief minister Amrinder Singh for days, but to no avail. But even if both Punjab and Haryana agree to penalise stubble burning more harshly, it will have little or no impact on stubble burning. For if farmers cannot remove the stubble from their fields very soon after harvesting their paddy, they will not be able to sow the wheat crop. The dilemma they face was highlighted by the Aam Aadmi Party’s own party chief in Punjab, Sukhpal Singh Khaira, when he defied the state government’s order and ceremonially burnt crop stubble on October 15.

There is an impression in Delhi that the problem is only the stubble that is left after the crop is harvested. Based on this, there are proposals to deploy rotary root stubble digging machines to plough it back into the soil and enrich it. But stubble is the lesser part of the problem. The greater part is the rice straw and husk that gets left behind after threshing and milling. Punjab harvested a colossal 18 million tonnes of paddy in 2016, but with it came 34 million tonnes of straw and husk. Since rice straw is no longer fed to cattle in Punjab and Haryana, it too is being burned. In fact, what Khaira is seen setting fire to in photos of the event published in Punjab newspapers is mostly rice straw.

Possible solution

The only way to avoid burning straw and stubble is to find another use for the crop residue. Fortunately, there is a way. This is to not burn the straw and stubble but gasify it in a two-stage process that yields a fuel gas that can meet cooking, heating and power generation needs in the village in the first stage, and any type of transport fuel – diesel, aviation turbine fuel, methanol or CNG – in the second.

Gasification is the incomplete burning of biomass or coal in a limited supply of air or oxygen. While full combustion yields only large amounts of carbon dioxide, gasification yields a substantial   amount of hydrogen, carbon monoxide and methane.

Two other chemical processes, called the Fischer-Tropsch synthesis and the water-gas shift reaction, which have been in use for more than a hundred years in the petro-chemicals industry, can  convert this mixture into any type of transport fuel one desires, from CNG to diesel, methanol and aviation jet fuel. They can also produce dimethyl ether, which is a heavy condensate gas that can effortlessly replace LPG as a cooking gas.

The technology chain described above has been perfected to the point where it is now possible to convert any form of biomass – from urban solid waste to crop residues – into transport fuels. In 2011, British Airways signed an 11 year purchase agreement with a US-based company, Solena fuels, to set up a plant outside London that would convert 575,000 tonnes of London’s municipal solid waste into aviation turbine fuel every year.

Three other airlines signed memoranda of agreement with the company to do the same. But those, and several other projects that were in the pipeline in Europe, went into cold storage in 2014 when oil prices crashed for the third time since 1985, making future fuel prices uncertain. However, earlier this year, a Texas-based company S.G Preston signed an agreement to provide Quantas with 800 million gallons of Aviation turbine fuel a year, obtained from biomass.

Benefits beyond combatting pollution

In India, the large-scale induction of this technology can not only end the annual invasion of smog, but greatly increase farm incomes and save the country valuable foreign exchange. It can therefore solve a multiplicity of problems: give urban solid waste a value and get it off the streets; stop the burning of straw and stubble; and give the farmers a valuable ‘lean’ gas to use for cooking and generating electricity locally and provide them with biochar, a solid, carbon-rich residue that they can briquette and sell to large scale modern bio-fuel plants of the kind that are being planned for Europe and the US.

Biochar is 70-80% pure carbon, and contains no sulphur, so it is similar to superior varieties of imported coal, and will fetch a similar price. At present, India is importing coking coal for blast furnaces at Rs 22,300 per tonne, if farmers can get half that price for their biochar from bio-fuels plants, they will add Rs 20,000 to the Rs 70,000 that they gross from every hectare of land under paddy.

Finally, it will save foreign exchange. Punjab, Haryana and western UP produce close 45 million tonnes of rice straw and stubble. This is sufficient to produce between 15 and 20 million tonnes of transport fuels. The reduced dependence upon oil imports will convert India’s 1.5% balance of payments deficit into a comfortable surplus.

These are not over-the-horizon technologies of the kind that are continuously being proposed by high-tech global corporates abroad to their own and developing country governments, but tried and tested ones, with some of which Indian industry is already familiar, that need only a stable transport fuel pricing environment to take off. India could, for just this once, be a pioneer in providing an enabling price and marketing environment instead of the eternal laggard that it is today.

Prem Shankar Jha is a senior journalist and author of several books. His most recent book, on combating climate change, titled Dawn of the Solar Age: An End to Global Warming and to Fear, is being released by Sage Publications next month. He was a member of the Energy Panel of the World Commission on Environment and Development, 1985-88.

 https://thewire.in/197679/delhi-smog-air-pollution-paddy-burning/
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Demonetisation has resulted in, at best, marginal improvements in India’s tax compliance and digitisation. But at what cost?

Ever since Prime Minister Narendra Modi’s surprise announcement of a year ago, demonetisation has been the single most hotly-debated issue in India. Modi and members of his government have given a series of justifications for the sudden move, shifting ground from one to the next as each in turn has lost its emotional appeal. One year after the move it is possible to make a dispassionate appraisal of its impact.

Modi’s first justification was that it would destroy large hoards of black money. In a way that he never explained, this would enable him to put thousands of rupees into the bank accounts of the poor. In fact, very little black money was destroyed: only Rs 16,800 crore in old money did not get converted into new. Needless to say, no money has come into any bank accounts.

His second justification was that it would cut off the funds for terrorists. This too has not had any perceptible impact on ‘terrorism’ in Kashmir, but even if had, the success would have lasted just till Pakistan’s ISI was able to forge the new bank notes. His third justification, that it would root out black money by forcing shell companies indulging in benami transactions out into the open has some validity, for the government has deregistered more than 217,000 companies and disqualified 319,000 directors.

But while this drastic sweep is welcome, it is difficult to see how it relates to demonetisation. This cleansing operation has been done by the Ministry of Corporate Affairs, and it is difficult to see why the weeding out of companies that had filed no returns or annual accounts could not have done it without the aid of demonetisation.

Modi’s final assertion, that demonetisation has been be a giant step towards a cashless economy, is equally open to question, for while both the number of taxpayers and the tax revenues have risen, neither has departed significantly from the long-term trend in India. The single most unambiguous indicator of a shift towards a digital economy would have been a sharp increase in the number of outstanding credit cards. But after a small surge from 829 million debit and credit cards in October 2016 to 886 million in March 2017, this has sunk back to 853 million in September 2017, an increase of only 3.1% over 11 months.

All in all, therefore, demonetisation has resulted in, at best, marginal improvements in tax compliance and digitisation, but at what cost? It is when we draw up the debit side of the balance sheet that the tally turns heavily negative.

First, whether well intended or not, demonetisation was badly bungled and therefore imposed not just severe but also unnecessary hardships upon the poor of the country. If the intention was to destroy black money hoards, then demonetising the Rs 1000 notes could have been justified, but demonetising the Rs 500 was little short of criminal. For in value terms by 2016, the Rs 500 was the most heavily-used currency note in the country, accounting for 45% or Rs 7,89,000 crore worth of the total currency while Rs 1000 notes made up Rs 6,32,000 crore. A better step would have been to issue Rs 5,000 and Rs 10,000 notes to which black money held as cash would have come flocking, and then withdraw them from circulation altogether.

But Modi was in a hurry; the crucial Uttar Pradesh elections were only three months away and he needed to do something dramatic to make sure the BJP would win. So he personally jumped the gun. There is an abundance of evidence that the central bank machinery, including governor Urijit Patel, did not approve of it. In the fortnight after demonetisation, he refused to say a single word in support, leaving the finance ministry’s economic affairs secretary to defend it day after day before the media.

As if this was not shortsighted enough, not only had the new notes that would replace the old not been printed, but the government did not remember that neither the new Rs 500 nor the Rs 2,000 note was of the same size as the old ones. So they could not be dispensed until all the million-plus ATMs had been re-calibrated. This prolonged the shortage of cash in the economy: as late as April 28, 2017, only 90% of the currency withdrawn had been replaced. By this time, a hundred people had died while trying to get their own money out of the banks.

What did demonetisation actually achieve? The simple answer is that by sharply reducing the money supply in the economy, it caused a huge immediate reduction in the generation of the Gross National Product (GNP). By how much can be understood by examining it through the lens of Fisher’s Quantity Theory of Money? The fundamental postulate of this theory is summed up in the equation MV = PT, where M is the supply of money; V is its velocity of circulation or the number of times money changes hands during a year; P is the average price level of all commodities in the market and T is the total number of sale transactions during a year.

After eliminating double counting (which occurs, for instance, when an intermediate product such as steel is first sold as steel and then re-sold as part of a car), PT is the GNP of a country. So when M nosedives, the GNP has to go down by the same proportion. By how much it will actually go down depends upon the proportion of total transactions that are carried out in cash, as against through bank transfers. In India, while 90% of the volume of transactions is estimated to be in cash, since most big ticket and bulk sales outside agriculture take place through the banks, the value of transaction in cash is in the neighbourhood of 68%. The demonetisation of 86% of India’s cash should have reduced PT, and therefore the GNP, by 58%.

How long this impact lasted would depend upon how rapidly the demonetised notes are replaced. Full replacement did not take place till some time in May, so assuming that the average shortage of cash tapered off evenly to zero by early May, the average reduction in GDP should therefore have been around 29% over these six months and half of that – 14% – for the full year. So how has the government been able to claim that the only impact has been a fall in growth of GDP from 7.3% in July till September 2016 to 5.7% in April to June this year?

A part of the reason is that employers and workers in the unorganised sector resorted to desperate stratagems to tide over the shortage of cash. Till December 31, the cut-off date for converting old notes into new, employers in the construction, other unorganised sectors of industry and trade, continued to pay their workers with the old currency notes leaving it them to queue at the banks to exchange it every week. Many vendors in the cities used this respite to install credit card machines or enrol in Rupay or other online payment portals. All this helped to prop up the money supply and therefore reduce the shock. By December 31, when the conversion facility was withdrawn, about half the old banknotes had been replaced.

But the second, more important reason is that the Central Statistical Office still relies on extrapolation of growth rates from the formal to the informal sector to estimate output and growth rates in a large part of the latter. Its projections in December 2016 of what GDP growth would be during the whole of the fiscal year, till March 2017, stated this explicitly. It does not, therefore, have a way of estimating the impact of a catastrophe that strikes only the informal sector.

How seriously this can distort its preliminary estimates was demonstrated by the Unit Trust of India’s crash in 2000. This was not reflected in India’s GDP figures till 16 months later because the CSO used to calculate growth in the non-banking financial Sector by extrapolating from the data for the banking sector. When the crash was factored in, the GDP growth estimates had to be reduced by 1.1%.

The full impact of the demonetisation only became apparent when the Economic Survey, Volume 2, noted that the rural India was in the grip of deflation, because while agricultural output had grown by 2.3%, its value had increased by only 0.3%. That meant that average prices had fallen by 2%.

The fall reflected the shortage of purchasing power in the rural economy and helped to complete the story of demonetisation. After the note conversion facility was withdrawn, construction and unorganized sector industry could no longer pay their workers, who were mostly migrant labour from other tates. So faced with having to choose between staying on in the cities and scrabbling for work, and going home to their villages to eke out a living on what they had saved till then, most of them chose the latter.

For weeks in January, therefore, newspapers reported that streams of migrant workers were returning to their homes. When they got back, many sought work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). This was reflected in a 30% increase in the number of applications for MGNREGA jobs. But MGNREGA gave only 100 days of work. So by the beginning of summer, that income stream too had dried up. That is when the sharp drop in their cash savings began to be reflected in a decline in their purchasing power.

While Supporters Clutch at Straws, Demonetisation Balance Sheet Is Awash With Red Ink

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The first step towards reviving political dialogue and ending the rule of the gun in Kashmir is for New Delhi to announce that it is committed to restoring full autonomy within the constitution to the entire state.

The Narendra Modi government’s dialogue with Kashmir has died even before it got a chance to be born. The fault does not lie with the leaders of the Hurriyat’s unified command, who last week rejected talks with the Centre’s interlocutor, but with the government in Delhi that speaks in many voices and does not know what it wants.

Hours after home minister Rajnath Singh announced his government’s decision to seek peace in Kashmir through a dialogue, Prime Minister Modi ruled out any discussion of restoration of full autonomy for the state within the constitution as a possible solution by accusing P. Chidambaram, who has been advocating this, of speaking the language of Pakistan.

Not to be outdone, Dineshwar Sharma, the newly-appointed interlocutor, has given a spate of interviews to the media within a week of his appointment that have virtually eliminated the space for a dialogue even before Kashmiris got a chance to decide whether they would participate in one.

There is something so hasty and ill-informed about Modi’s Pakistan remark that one is forced to ask whether he is really capable of taking on the delicate task of restoring durable peace in Kashmir. For autonomy within India is absolutely the last thing that Pakistan wants, or indeed has wanted since the day it was born. Pakistan wants all; repeat all, of Kashmir Valley. It has tried twice to get it by force, in 1965 and 1989, and is trying to do so again today.

Ceding Kashmir to Pakistan and keeping Jammu and Ladakh was the ‘Dixon Plan’ that Sheikh Abdullah and Jawaharlal Nehru had categorically rejected in 1947. This was also the plan with which the President Pervez Musharraf came to Delhi in July 2001. Musharraf learned a great deal from that visit and, for a brief period, Pakistan was prepared to trade a settlement that did not redraw boundaries in Kashmir, for the larger gains that would accrue from peace with India. But that moment has passed and may never come back.

Today, Modi’s unrelenting war on terrorism in Kashmir has revived Pakistan’s hope that the Valley will somehow shake itself free of India and turn to it for protection. It will, therefore, resist such a solution tooth and nail, and will kill, and kill again, as it did in the ‘90s, to prevent it. Its targets will once again be Kashmiris who are prepared to accept a solution short of breaking away from the Indian Union. So how, when he spoke of autonomy, was Chidambaram speaking the language of Pakistan?

Sharma has obviously not read the chapter in former French President Charles De Gaulle’s memoirs on the ‘virtue of silence’. But he could at least have asked himself why his two predecessors, K.C. Pant and N.N. Vohra, never spoke to the media throughout their tenures. He could also have waited till he had read theirs, and the Dilip Padgaonkar team’s, reports, not to mention those of the round table conferences of 2006, before he began to air his views. But he did no such thing. Instead, although he has tried to be non-committal in his interviews, every idea he has expressed has narrowed the space for dialogue till there is virtually none left.

For instance, his insistence on describing everyone who has picked up the gun in Kashmir as a terrorist amounts to an absolute refusal to make any distinction between terrorists and freedom fighters. But accepting this difference has been a precondition for negotiations to end insurgency all over the world, not to mention in Nagaland, Mizoram and Assam. In Kashmir, the V.P. Singh and Narasimha Rao governments fought the insurgency of the ‘90s with the intention of bringing the insurgents to the negotiating table. That is the goal that the Modi government has completely forsaken today.

Its treatment of all insurgents as terrorists has not only reversed this policy but goes against the grain of the most widely-accepted definitions of terrorism today. These are the US government’s Title 22, Chapter 38, U.S. Code no. 2656f, which defines it as “premeditated, politically motivated violence perpetrated against noncombatant targets by subnational groups or clandestine agents,” and the definition proposed by a high-level UN panel in 2004 and endorsed by UN secretary general Kofi Annan, that terrorism is “any action that is intended to cause death or serious bodily harm to civilians or non-combatants, when the purpose of such an act is to intimidate a population or government”.

Most of the attacks by armed Kashmiri youth in the past two years have been directed at the security forces and police. The few against civilians have targeted government officials and panchayat members. Unlike the last years of the 1990s insurgency, when some Kashmiri militants had taken to exploding bombs in crowded places, there has been no random killing of civilians in the past three years, let alone killings designed to intimidate the population. Nor are the insurgents in South Kashmir having to coerce villagers into giving them shelter as the insurgents, and fidayeen sent by Pakistan, had to do in the ‘90s. It is therefore difficult to categorise these attacks as acts of terrorism.

The way ahead lies in a dialogue within Kashmir

To grasp how far removed Delhi is from understanding the political reality in Kashmir, it is necessary to describe the risks that any Kashmiri leader willing to talk to Delhi has to run. First he or she has to live in constant fear of assassination. All the seven nationalist leaders who met George Fernandes in 1990 were assassinated in the following months. Mirwaiz Maulvi Farooq, the father of Mirwaiz Umar Farooq, was assassinated in May of the same year three weeks after he gave an interview to BBC in which he discussed how peace could be brought back to the Valley. Qazi Nisar, the mirwaiz of South Kashmir and a founding member of the Muslim United Front, which fought the state elections in 1987, was assassinated in 1994.

Among others who have met this fate are the brother of Hurriyat leader professor Abdul Ghani Butt, killed in 1996 to dissuade Hurriyat from even thinking about fighting the 1996 election; Hurriyat executive committee member and head of the Peoples’ Conference, Abdul Ghani Lone, shortly after he announced that his party would contest the 2002 elections; and Mirwaiz Umar’s completely non-political uncle, Mir Mushtaq Ahmad, killed in 2004 six weeks after the Mirwaiz had come to Delhi to meet the Deputy Prime Minister L.K. Advani.

In a deliberate act of intimidation, Pakistan’s Inter Services Intelligence advertised its hand in the last two killings by choosing May 21, the anniversary of Mirwaiz Mauvli’s assassination to kill Lone, and by setting fire to Mirwaiz Umar’s 106-year-old school in Srinagar to virtually coincide with the killing of Ahmad.

The most recent reminder of the threat under which nationalist leaders live was the nearly successful attempt to kill Fazal Qureshi, the most respected member of Hurriyat’s executive committee, in 2009, six weeks after he formally announced Hurriyat’s support for the four-point agreement forged by Prime Minister Manmohan Singh and President Musharraf in Delhi at a conference organised by the Centre for Dialogue and Reconciliation in Srinagar, at which I was present.

A spokesman for a shadowy organisation calling itself the al-Nasireen group claimed that it had carried out the attack because Qureshi had been playing an important role in a dialogue with New Delhi initiated by home minister Chidambaram.

The threat to their lives from Pakistan is not the only hurdle that Kashmiri leaders have to cross before they can enter into a dialogue with New Delhi. Another is the impossibility of entering into a dialogue with Delhi without losing influence, credibility and reputation in Kashmir. This happens when they come repeatedly to Delhi, meet leaders of the Indian government and achieve nothing.

The damage to them is multiplied when Trojan horses in the Indian or Kashmir government leak news of meetings that were supposed to have been secret to the media. It is completed when their interlocutors like former R&AW chief A.S. Dulat have disclose that they have been paying some Hurriyat leaders to keep them in line. This has happened so many times that there is no Kashmiri leader left who can guarantee that Kashmiris will abide by any settlement they reach with Delhi. All that the intelligence agencies’ discrediting of Kashmiri leaders has achieved is make the new generation of Kashmiris look for other leaders to follow and other ikons to emulate.

This is the background against which Hurriyat’s summary rejection of talks with Sharma needs to be understood. While this was only to have been expected, the wording of its criticism of Modi’s rejection of Chidambaram’s autonomy proposal sends a different message. Its crucial sentence: “if the GOI rejects the demand of its co-political party for restoration of autonomy guaranteed in the Indian Constitution, (then)… how will (it) address, or engage with, the Kashmiri people’s political will and aspiration of self-determination” is notable for the absence of the traditional red rags – the UN, a plebiscite, Pakistan and independence. Apart from reminding Delhi that there is an international dimension to the search for a solution it leaves the way to it through self-determination open.

Given the history of killings and betrayals, it will be futile for the present, or any future, government in Delhi to think that any of the separatist leaders will enter into a dialogue that has no clearly defined goal, no agenda and no overt commitment from Delhi. The only way to revive political dialogue and end the rule of the gun in Kashmir is for Delhi to announce that it is committed to restoring full autonomy within the Indian constitution to the entire state, ask the people of Jammu, Kashmir and Ladakh to define its contents, and offer to hold a fresh election to choose representatives of the three regions, if they so desire.

Seventy years after the Instrument of Accession was signed, it is perfectly possible that substantial changes will need to be made in the relationship of the three parts of the state. But they should be left free to decide what these should be, and bring their proposals to Delhi for ratification preferably with, but if necessary without, the involvement of Pakistan. This will replace the doomed dialogue between Delhi and Kashmir with a dialogue between the people of Jammu and Kashmir, and will be Kashmiris’ first step towards the empowerment they have been seeking.

Narendra Modi Government Has Wiped out Any Space for Dialogue With Kashmir

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However, the court also said that the constitutional scheme was prima facie tilted in favour of the lieutenant governor in the union territory of Delhi.

New Delhi: The Supreme Court on Thursday (November 2) observed that the constitutional scheme was prima facietilted in favour of the lieutenant governor in the union territory of Delhi. The five-judge bench however emphasised that the top official cannot “sit on files” for an unreasonable amount of time. He must refer matters where he disagrees with the state government to the president, said the court.

The bench of Chief Justice Dipak Misra and Justices A.K. Sikri, A.M. Khanwilkar, D.Y. Chandrachud and Ashok Bhushan also said that if there is a delay in clearing files, the LG must provide a reason for it.

“Article 239AA (of the Constitution) is unique to Delhi. Prima facie it appears that it gives more power to Lieutenant Governor unlike other Union Territories. LG in Delhi has the primacy under the Constitution,” NDTV quoted the bench as saying.

Justice Chandrachud, responding to the government’s complaint on held-up files, was quoted by Outlook as saying, “LG must give reasons for his decisions, which should be taken within reasonable time.”

Senior advocate Gopal Subramaniam, who appeared for the Delhi government, said that “an elected government cannot be without any power”. “More than 1.14 lakh vacancies are there, but I cannot fill it up and have to seek LG’s permission. I can’t take steps to stop deaths in sewers. This is hampering governance,” he had said.

The Delhi government has appealed in the Supreme Court against a Delhi high court order from August 4, 2016, which said that the LG is the administrative head of Delhi. “The Delhi high court actually said this LG has special powers greater than the president, greater than other governors of states,” Subramaniam said.

Writing on the high court’s judgment in The Wire, Prem Shankar Jha had said:

If the spirit of the Constitution and of democracy are respected, the Lt Governor of Delhi, or Puducherry should only have the power to refer disagreements between him and the chief minister to the President, as the 69th amendment permits him to do. Maybe that is what Governor Jung did initially. And maybe the central government is using him as a shield from behind which to destroy the AAP government. But if that is so, then Jung should never have lent himself to this ignoble purpose. For whichever way one looks at it, what is happening is a murder of democracy to which the Delhi high court has now unwittingly become a party.

AAP hopeful

Addressing party volunteers at AAP’s national council meeting, Delhi chief minister Arvind Kejriwal said if the Delhi government gets back the control of the anti-corruption branch (ACB), it will show the same charisma the 49-day AAP dispensation had displayed, referring to the time he governed Delhi between December 2013 to February 2014.

“The Supreme Court is hearing the case. God is with us,” he said, adding that something positive will come out of the case.

The apex court on Thursday commenced a crucial hearing to determine whether the elected government or the lieutenant governor enjoys supremacy in administering the union territory of Delhi, observing that the constitutional scheme was prima facie tilted in favour of LG.

The court said that Article 239AA of the constitution is unique with respect to Delhi and prima facie it appears that the LG is given more powers here, unlike in the other union territories.

In a tempered attack on the Centre, Kejriwal accused it of playing “dirty politics” and not allowing the Delhi government to perform as he sought to draw a parallel between the two governments.

Without naming Prime Minister Narendra Modi, Kejriwal claimed that the BJP government at the Centre had failed on every front and all sections of the society – the youth, farmers, businessmen, minorities, Dalits are unhappy with it. In comparison, everyone is happy with the AAP government, as it has catered to every section of society, he claimed.

“After being in power for two and half years, I can say this with confidence that a lot can be done, but their (the Centre’s) intentions are bad,” he said, adding that crucial legislations like the Janlokpal Bill and Swaraj Bill are stuck with the Centre.

Kejriwal has alleged several times in the past that the Centre’s is blocking the Delhi government’s work, using the LG. In October this year, while attacking the Modi government for alleged interference in the union territory’s affairs, he said, “I am the elected chief minister of Delhi and I am not a terrorist”.

(With PTI inputs)

https://thewire.in/193908/kejriwal-delhi-lg-supreme-court-case/

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For most of the past ten years, the economy has been suffering because of the unrelenting regime of very high real rates of interest that the RBI has imposed.

 

Finance minister Arun Jaitley portrayed the Rs 2,11,000 crore recapitalisation of public sector banks that he announced last week as the first essential step to reviving the economy. He is right: bank credit has stopped growing because all but a handful of public sector banks are so mired in ‘stressed assets’ – or irrecoverable debt – that they have lost the capacity to lend. But even this gargantuan bailout will not revive the banking system, let alone the economy, if it is not accompanied by measures that will address the root causes of the ‘stress’.

Jaitley believes that the fault lies entirely with the bank managers, who have lent ‘excessively’ in a ‘non-transparent manner’, and then ‘hidden’ their actions ‘under the carpet’. What is non-transparent is the meaning he attaches to these words. Is he saying that the fault lies entirely with public sector bank managers, who have been corrupt, inefficient or both, and have then hidden their misdeeds? The answer seems to be yes, because he has skilfully laced this with a justification of demonetisation. Both reforms, he claims, were necessary because ‘you cannot have an economy where the size of the shadow economy is much bigger than the apparent economy’. The cleaning out process that his government has bravely undertaken will revive growth in the long run all by itself.

The most charitable way of describing this reassurance is that Jaitley is whistling in the dark to keep the demons away. One look at the sheer volume of bad loans and its composition shows that the problem is far too pervasive to be attributable to the misdeeds of public sector bank managers, and has to be one that afflicts the entire economic system. In December 2016, this had reached the mind-boggling figure of Rs 9,60,000 crore. Of this, Rs 8,75,000 crore consisted of ‘restructured’ loans, whose repayment schedules had been changed to give the companies respite and allow them to become solvent. But till April 2017, this has allowed the banks to recover only Rs 46,245 crore of loans. Inefficiency and corruption, not to mention political pressure, may therefore have exacerbated the problem, but cannot be its cause.

Unrelenting high real rates of interest

The affliction from which the economy has been suffering for most of the past 10 years is the unrelenting regime of very high real rates of interest that the Reserve Bank of India (RBI) has imposed upon the country.

Its origins are to be found in the UPA government’s sudden shift of economic objectives, at the end of 2006, from promoting ‘inclusive growth’ to controlling inflation, and its ceding this task to the RBI. The only way that a central bank can do this is by squeezing credit and raising the real rate of interest. But this stratagem works only when the inflation has been caused by an excess of demand in the economy. When the price rise has been caused by a sudden shortage of supply, such as one caused by untimely rains or a poor monsoon, or by a sharp rise in global commodity prices, there is little that squeezing credit to domestic industry can do.

In such ‘supply side’ inflation, curbing credit and pushing up the interest rate depresses production, without bringing down prices. Persisting with a high interest rate policy therefore leads to ‘stagflation’. That is what India has been suffering from for the past seven years.

In January 2007, when then RBI governor Y.V Reddy first began raising interest rates, inflation (measured as it had always been by the wholesale price index or WPI) had only risen 2% over the previous ten-year average, to 6.6%. Reddy ascribed this to an ‘overheating of the economy’ caused by increased social spending on the Mahatma Gandhi National Rural Employment Guarantee Act and other welfare programmes, and took measures that raised the lending rates of commercial banks by a full 3% in the next nine months.

His diagnosis proved wrong. The proof of this came in the January-March quarter of 2008, when WPI inflation rose from 6.7% to 7.7%.

Where the rise in prices had come from was apparent, because in the same 12 months, the rise in prices of basic metals, alloys and metal products accelerated from 12.6% to 19%. Quite obviously, credit curbs were doing nothing to restrain an inflation that was coming from a sharp rise in global commodity prices that was being fuelled by a six-year-long investment boom in China.

When the world economy went into recession in 2008, Reddy’s successor, D. Subbarao, brought interest rates down sharply at Prime Minister Manmohan Singh’s urging. For the next two years, industry enjoyed the highest growth rate it has ever achieved. And it did so without triggering inflation, for wholesale prices rose only by 0.8% in 2009-10 because global oil and commodity prices had fallen by 50-60%.

This again underlined the newly-formed connection between global and domestic inflation, but Subbarao did not see it. So when global commodity prices rose sharply once again on the back of China’s $586-billion fiscal stimulus programme, and WPI inflation shot up to 10.3% in March 2010, he promptly repeated Reddy’s mistake and raised interest rates once more.

In January 2007, when then RBI governor Y.V Reddy first began raising interest rates, inflation (measured as it had always been by the wholesale price index or WPI) had only risen 2% over the previous ten-year average, to 6.6%. Reddy ascribed this to an ‘overheating of the economy’ caused by increased social spending on the Mahatma Gandhi National Rural Employment Guarantee Act and other welfare programmes, and took measures that raised the lending rates of commercial banks by a full 3% in the next nine months.

His diagnosis proved wrong. The proof of this came in the January-March quarter of 2008, when WPI inflation rose from 6.7% to 7.7%.

Where the rise in prices had come from was apparent, because in the same 12 months, the rise in prices of basic metals, alloys and metal products accelerated from 12.6% to 19%. Quite obviously, credit curbs were doing nothing to restrain an inflation that was coming from a sharp rise in global commodity prices that was being fuelled by a six-year-long investment boom in China.

When the world economy went into recession in 2008, Reddy’s successor, D. Subbarao, brought interest rates down sharply at Prime Minister Manmohan Singh’s urging. For the next two years, industry enjoyed the highest growth rate it has ever achieved. And it did so without triggering inflation, for wholesale prices rose only by 0.8% in 2009-10 because global oil and commodity prices had fallen by 50-60%.

This again underlined the newly-formed connection between global and domestic inflation, but Subbarao did not see it. So when global commodity prices rose sharply once again on the back of China’s $586-billion fiscal stimulus programme, and WPI inflation shot up to 10.3% in March 2010, he promptly repeated Reddy’s mistake and raised interest rates once more.

As the rise in wholesale prices slowed in 2012, the UPA began to seriously consider lowering the cost of borrowing to revive the economy. To assuage the RBI’s worry that this might touch off an inflationary spiral, it also made changes in diesel and gasoline prices that would cut subsidies on petroleum products by more than Rs 50,000 crore in a full year and unveiled an ambitious programme to eliminate the Rs 1,90,000 crore of deficits accumulated by the state electricity boards, and bring the fiscal deficit down to 3% from 5.3%, over five years. But Subbarao remained unmoved and, citing vague inflationary threats in the future, marginally raised policy interest rates.

The only way to end this conflict was for the government to assert its constitutionally-mandated authority and force the RBI to lower rates. But the party was split between ministers who wanted growth and a party organisation that was morbidly afraid of the political fallout of inflation. It therefore did nothing and sealed its own fate.

Enter inflation targeting

The Narendra Modi government came to power with the full intention of restoring rapid growth. In his first ten months in office, Jaitley referred to the need to lower interest rates several times, but somehow lost sight of this goal at the precise moment when inflation disappeared from the economy. How did this happen? The only explanation is that he succumbed to Raghuram Rajan’s advocacy of “inflation targeting”.

Inflation targeting is the use of monetary policy to maintain credit and deposit rates in the economy that are higher than the actual or anticipated rate of inflation. Its purpose, as the name implies, is to keep inflation at a level that society can live with comfortably. The reliance on positive real rates of interest – or rates higher than the prevailing rate of inflation – developed in the 1950s and ’60s out of the failure of import-substituting models of growth in the first post-war generation of industrialising countries, notably including Taiwan, South Korea, Brazil, Argentina, Chile, Mexico and Turkey.

In all of these, and others, the import-substituting model of growth led to huge trade deficits that could only be contained by devaluation. But devaluation made imports more expensive and therefore fed back into inflation. This rapidly became a never-ending vicious circle. Positive interest rates therefore became the first essential step towards their transition into open, export-led economies.

Positive interest rates played a similar role in the transition of the socialist countries of the Warsaw Pact into market economies in the ’80s. However, the purpose in both sets of countries was only to check runaway inflation and stabilise the exchange rate in order to open the road to foreign investment and sustained growth. In all these countries, high real rates of interest were seen as a temporary weapon, to be dispensed with as soon as the inflation-devaluation-inflation cycle was broken.

All the governments knew that growth required an increase in capital formation, and that this would create inflationary pressures till the resulting stream of products and services entered the market. Managing these pressures required a constant, delicate balancing of interest rates, exchange rates and fiscal restraint.

Inflation targeting attained the status of a doctrine – a one-stop cure for all developmental ailments – only when it was adopted by the industrialised countries in the 1990s. For them it did prove a boon, but not for the reason that is now being peddled by monetary economists to the developing countries. For the rich nations with fully convertible currencies – the dollar, the euro, the pound and the yen – it was a way to continue living way beyond their means long after their industrial bases had withered away under the Asian onslaught.

The rationale for this developed out of Britain’s exchange rate crisis in 1992. Britain had been living way beyond its means, with very high inflation and large deficits in its balance of payments, since the early ’70s. Initially, the pound depreciated steadily against the dollar till it hit a low of $1.10 in 1976. Then North Sea oil hit the market and the pound recovered till it was once more worth well over $2 by the end of 1978. As was pointed out in a seminal book titled De-industrialisation and Foreign Trade by Robert Rowthorn and J.R. Wells, this rapid appreciation rang the death knell of British industry.

As the rise in wholesale prices slowed in 2012, the UPA began to seriously consider lowering the cost of borrowing to revive the economy. To assuage the RBI’s worry that this might touch off an inflationary spiral, it also made changes in diesel and gasoline prices that would cut subsidies on petroleum products by more than Rs 50,000 crore in a full year and unveiled an ambitious programme to eliminate the Rs 1,90,000 crore of deficits accumulated by the state electricity boards, and bring the fiscal deficit down to 3% from 5.3%, over five years. But Subbarao remained unmoved and, citing vague inflationary threats in the future, marginally raised policy interest rates.

The only way to end this conflict was for the government to assert its constitutionally-mandated authority and force the RBI to lower rates. But the party was split between ministers who wanted growth and a party organisation that was morbidly afraid of the political fallout of inflation. It therefore did nothing and sealed its own fate.

Enter inflation targeting

The Narendra Modi government came to power with the full intention of restoring rapid growth. In his first ten months in office, Jaitley referred to the need to lower interest rates several times, but somehow lost sight of this goal at the precise moment when inflation disappeared from the economy. How did this happen? The only explanation is that he succumbed to Raghuram Rajan’s advocacy of “inflation targeting”.

Inflation targeting is the use of monetary policy to maintain credit and deposit rates in the economy that are higher than the actual or anticipated rate of inflation. Its purpose, as the name implies, is to keep inflation at a level that society can live with comfortably. The reliance on positive real rates of interest – or rates higher than the prevailing rate of inflation – developed in the 1950s and ’60s out of the failure of import-substituting models of growth in the first post-war generation of industrialising countries, notably including Taiwan, South Korea, Brazil, Argentina, Chile, Mexico and Turkey.

In all of these, and others, the import-substituting model of growth led to huge trade deficits that could only be contained by devaluation. But devaluation made imports more expensive and therefore fed back into inflation. This rapidly became a never-ending vicious circle. Positive interest rates therefore became the first essential step towards their transition into open, export-led economies.

Positive interest rates played a similar role in the transition of the socialist countries of the Warsaw Pact into market economies in the ’80s. However, the purpose in both sets of countries was only to check runaway inflation and stabilise the exchange rate in order to open the road to foreign investment and sustained growth. In all these countries, high real rates of interest were seen as a temporary weapon, to be dispensed with as soon as the inflation-devaluation-inflation cycle was broken.

All the governments knew that growth required an increase in capital formation, and that this would create inflationary pressures till the resulting stream of products and services entered the market. Managing these pressures required a constant, delicate balancing of interest rates, exchange rates and fiscal restraint.

Inflation targeting attained the status of a doctrine – a one-stop cure for all developmental ailments – only when it was adopted by the industrialised countries in the 1990s. For them it did prove a boon, but not for the reason that is now being peddled by monetary economists to the developing countries. For the rich nations with fully convertible currencies – the dollar, the euro, the pound and the yen – it was a way to continue living way beyond their means long after their industrial bases had withered away under the Asian onslaught.

The rationale for this developed out of Britain’s exchange rate crisis in 1992. Britain had been living way beyond its means, with very high inflation and large deficits in its balance of payments, since the early ’70s. Initially, the pound depreciated steadily against the dollar till it hit a low of $1.10 in 1976. Then North Sea oil hit the market and the pound recovered till it was once more worth well over $2 by the end of 1978. As was pointed out in a seminal book titled De-industrialisation and Foreign Trade by Robert Rowthorn and J.R. Wells, this rapid appreciation rang the death knell of British industry.

By this standard, India has never been a high inflation country. WPI inflation averaged 7% during the ’60s, ’70s and ’80s, and has averaged barely 5% since 1993. By contrast, when Taiwan adopted ‘positive’ interest rates in 1957, its inflation had been running at 60% a year. Latin American inflation had been even higher. India did not therefore need to adopt inflation targeting. What is more, it did not need to adopt the cost of living, an index of supply shortages more than of excess demand, as the base from which to determine the ‘positive’ real rate of interest.

Between 2014 and the present date, demand inflation, which is imperfectly reflected by the WPI, has been very close to zero. But lending rates to industry have remained above 11%. The real rate of interest is therefore probably the highest anywhere in the world today.

At such high rates, investing in infrastructure projects is suicide, for interest payments can double capital costs in as little as seven years – long before they start yielding returns. That is why India is now saddled with Rs 11,40,000 crore worth of abandoned projects, and why 40 of its largest companies – the cream of its new entrepreneurial class – are facing ruin.

How the RBI Destroyed the Indian Economy

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