Prem Shankar Jha

A quarter of a century ago, at the formal  White House press conference that followed Indian prime minister Narasimha Rao’s one-on-one meeting with President Bill Clinton during his state visit to the United States in April 1994, President Clinton had heaped lavish praise upon  India for doing what no other modern country  had succeeded in doing before. This was to create  a stable nation  state  using the tool of democracy, instead of War. Clinton  said this because it was the very opposite of the way in which nation states had been created  in Europe in the tumultuous century that had preceded the signing of the Treaty of Westphalia, in 1648.

Till the advent of globalization, the archetypal European Nation State  had hard frontiers, a unitary political structure and a culturally homogeneous population  with a single national language. This uniformity had been imposed upon its citizens through a mixture of education, cultural assimilation and ethnic cleansing.

The process had been violent. It had begun with the Hundred years War , the most bloody and ruinous that Europe  had experienced till then. It reached its Valhalla in the 31-year period of the 20th century that embraced  two world wars, the Russian revolution, the Turkish pogrom of Armenians, and the  Holocaust. Altogether, this ”Age of Catastrophe”  claimed more than a hundred million lives.

But human perceptions have been slow to catch up with reality. So, even after  the second world War the European Nation State remained the only accepted model for a viable  modern state.  In the Age of Decolonisation that followed, 131 new nations became members of the United Nations. All but a few started out as democracies but only two, Costa Rica and India,   succeeded in sustaining and stabilising it.

The similarity, however, ended there: Costa Rica is a very small, unitary State with a population of just over 4 million. India by contrast is the second largest nation in the world, with a population of 1.3 billion, with 12 major and scores of smaller ethno-national groups, most of which have their own language, long histories as independent nations,  and  strongly defined cultural identities.

Under the sagacious leadership of Mahatma Gandhi, the Congress party was able to fuse them into a single nation because, unlike the majority of the other newly emergent nations, it  made no attempt to create a replica of the European Nation State.  Instead it celebrated India’s diversity and used democracy and federalism to create unity  within it.  What emerged after three decades of fine tuning was  a “federation of ethnicities” – that the Indian Constitution explicitly describes as a ‘Union of States’ in which each ethno-national group enjoyed an equal place within a framework defined by the Indian Constitution.

The Mortal Threat India Faces

This is the  unique achievement that is now under mortal threat. For in the elections to the national Parliament held in  2014, power passed decisively from the Congress party, into the hands of its main rival, the Bharatiya Janata Party (BJP), which considers India’s religious and  ethnic diversity to be not its strength but its weakness,  and is committed to replacing it with a muscular , hyper-nationalist Hindu Rashtra ( Hindu nation), bound together by  Hindutwa ( Hindu-ness) a Hindu cultural identity,  in which non-Hindus can  be accepted,  but  never on equal terms with the Hindus.

In contrast to Hinduism, which is less a religion than a way of life and is at least three  millennia old, both Hindutva and Hindu Rashtra are synthetic concepts, created only 96 years ago, in 1923. Their progenitor was a Maharashtrian intellectual,  Vinayak Damodar Savarkar who  passionately believed that the ethnic and religious diversity of India was the main stumbling block to the creation of a revolutionary movement strong enough to force the British out of India.

Savarkar argued in his now famous book,  Hindutva, that Hinduism had to develop the cohesion that Muslims all over the world had shown to resist Britain’s abolition of the Caliphate, whose titular head had , for centuries been the ruler of the Ottoman empire.  It was the rapid spread of this  Khilafat ( opposition) movement among Indian Muslims that gave concrete shape to his concept of Hindutva. The Muslims, he argued,  were capable of uniting rapidly to defend an institution located a quarter of a world away that they barely understood, because of the unity their religion gave them.  Hindus who had no church, and no clergy comparable to those of Islam and Christianity had no such capability. If they wished to free their motherland from slavery. they needed to develop it

The three essentials of Hindutvahe concluded, were a common nation (rashtra), a common race (jati) and a common culture or civilisation (sanskriti). The impress of European Fascism  on his thinking  was reflected by the similarity of this slogan with the German Nazi party’s ein volk (one people), ein reich (one nation), ein Fuhrer (one leader). And just as the Nazis decided that Jews could not be a part of this ‘volk’, Muslims and Christians could not belong to the Hindu jati (genus), because their sanskriti (culture)  and their prophets originated outside of the Hindu civilisation.

The threat to India arises from the fact that economic globalization has made  the European model of the  Nation State obsolete. The BJP and RSS’ effort to duplicate it in India has therefore come a hundred years too late. The most they can hope to achieve now is to turn India into an extreme Right wing citadel  State. But, as the  European experience with German fascism and the  disintegration of the Soviet Union  has shown,  this  is foredoomed because it  can lead only to war or rebellion, followed by disintegration.  Either of these will bring about the end of the great democratic experiment of building a modern nation state through democracy that Gandhi, Nehru and their colleagues in the Freedom movement embarked upon in 1947.

Averting this looming disaster is going to be a Promethean task. It cannot be done  by appealing to traditional caste loyalties and deal-based politics to overthrow the BJP any longer. Since the BJP’s challenge is an ideological one, it can  be fought only by exposing its  hollowness and inherent destructiveness and remind all Indians of true religious and ideological mooring, which is in religious syncretism – the constant effort to create harmony between religions and cultures, in place of conflict.

The Congress’ constant  description of itself  as a ‘secular’ party  has made it an easy target for the votaries of Hindutwa,  because of the aura of irreligiosity that surrounds the word. The guiding philosophy that has underpinned not only the modern Indian state but all major empires in India’s history, and from which India’s comfort with ethnic and religious diversity springs,  is not secularism or even pluralism, but religious syncretism. This springs from the philosophy and practice of  ‘Dharma’.

 Dharma -the antidote to Hindutwa

Dharma is the original faith of Vedic India. There is no reference in the Vedas, the oldest texts of the Indo-Aryan civilization,  to a Hindu Dharma, because the word ‘Hindu’ was coined by the Persians 3,000 years ago to describe the land of the Sindhu ( I.e Indus) river. It was brought to India from Persia more than two  millennia later by the first Muslim invaders who came through Afghanistan and Persia.

Dharma was not a religion in the modern,  exclusivist, sense of the word, because the Messianic religions that are now the subject of  most discourses on religion had not even been born when the word was coined. Dharma prescribed the right way of living: it dwelt at length on how people needed to relate to each other and to the wider world and the cosmos that surrounded them.

The Rig veda differentiates between different forms of dharma, such as prathama Dharma ( the first duty), Raj Dharma (the duties of the King to his subjects) and Swadharma ( our duty to ourselves). But every one of these centers around the concept of human duty, which is “to uphold, to support, to nourish”.

“Dharma” was the word  Gautama Buddha used to describe his sermons on the four noble truths and the eight-fold path. Western students of comparative religion, have done Buddhism a disservice by presenting it as a new religion, because this has made it one among several religions, including the three Messianic religions, Judaism, Christianity and Islam.

Buddha’s use of the Vedic term suggests that he considered himself to be a social reformer and not a prophet. What he had rebelled against was the corruption of Dharma, and the growth of Adharma. These were  caused by self-absorption, avarice, expensive and impoverishing ritual, and Brahminical control. Buddhism was, in fact, the first great recorded rebellion against organised religion in human history. Buddha’s use of the Vedic term suggests that he considered himself to be a social reformer of Dharma ( the Buddhist Dhamma) and not a prophet founding a new religion.

A critical difference

Describing Buddhism as one of several prophetic religions, as most students of comparative religion in the west habitually do,  has obscured a critical difference between Hinduism, Buddhism and other mystical religions on the one hand,  and the Messianic ones—Judaism, Christianity and Islam, on the other. Messianic religions have to be professed. Belonging to the latter requires a profession of faith in it and a repudiation of other faiths. It is a surrender of oneself to the ‘true’ God, and its reward  is the possibility of gaining absolution for one’s sins through repentance, in this life.

Mystical faiths, of which Dharma is the oldest,   have to be lived. Only virtue in this life can gain the soul freedom from the chain of rebirth. Dharma  requires no profession of faith, no submission to a single prophet. And it offers no easy absolution from sin. It is the Hindu way of referring to Buddhism, as Bauddha Dharma, and the remark that Hindus frequently make even today – “yeh mera Dharma hai” ( This is my duty) that capture its essence.

The idea of Religion as a set of beliefs that have to be practiced and not merely professed is not limited to Hinduism and Buddhism, but has managed to carve out a niche in Islam and Christianity as well. In the 11th and 12th centuries, it found a home in a Christian sect called the Cathars (or Albigenses) in southern France and Spain, and in some branches of Shia Islam such as the Alawis of Syria, Iraq and Turkey.

Not surprisingly, both sects have been treated as heretical apostates by the clergy of orthodox Christianity and Islam. In AD 1200, Pope Innocent III launched a little known Fourth Crusade against the Cathars, and instructed the knights and Barons who joined it to kill all they met without mercy, and leave it to God to sort out the heretics from the true believers. As for the Alawis, the most recent of innumerable attacks upon them in Syria has still not ended.

But in the sharpest possible contrast, the encounter  between Dharma and Islam in India has been peaceful. Dharma’sfirst encounter with Islam occurred when Arab traders came to Gujarat and built mosques there in the 8th and 9th centuries. Not only did this not spark religious conflict but, as contemporary Jain texts recorded two centuries later, when an Afghan invader, Mahmud of Ghazni,  attacked the famed Somnath Temple ( Temple of the Moon God) in Gujarat, the Arabs who had by then been living there for generations, joined in the defence of the temple and died to protect it. The fact that Somnath was a Hindu temple did not matter to them. It had to be defended because it was important to the Hindus among whom they lived.

The second, more prolonged, interaction between Dharma and Islam occurred after the establishment of the Delhi Sultanate by another Afghan invader Muhammad Ghori, in 1193 AD.  The period that followed  is the one  that the RSS would like to erase from Indian memory, if not from history.

But it was a period in which there was an unprecedented flowering of art, music and literature. It was the time of Amir Khusro, the first Indian pet who wrote in Persian. It was the time when Indian and Persian music and dance fused to create a distinct new Genre, the khayal gayaki and the Kathak dance.  It was the period during which the delicate penmanship of Persian miniature painting fused with the vivid colours of Hindu art to create a profusion of Moghul, Rajput, Kangra, Basohli and other schools of miniature painting in India. It was the time when the Indo-Islamic architecture that has given the world wonders like the Taj mahal, and Humayun’s Tomb, was born.

Hindutva’s selective memory 

The ideologues of Hindutva ignore all this and prefer to dwell on the defeat of the Rajputs, the destruction of temples and the conversion of large numbers of Hindus to Islam during this period. This is a manufactured litany of defeat, that  they use to fan hyper-nationalism, Hindu religiosity and hatred of the Muslims.

But here too,  their  ‘memory’ is selective and distorted. The Rajputs, who then ruled most of north India were ,admittedly, driven into the wilds of Rajasthan. But their defeat arose from the superior military technology of the invaders — such as the superiority of cavalry over elephants, and of archers over infantry – and not from any innate superiority of the (Muslim) fighters. On the contrary, the conquerors recognised the valour of the Rajputs and quickly inducted them into their armies.

The votaries of Hindutva harp endlessly about the damage the Muslim invaders did to the Hindu polity and society, but they again choose to ignore the fact that the same Muslim dynasties saved India from the greatest scourge of the Middle Ages – the Mongol invasions that ravaged Europe. Like other impoverished groups from the Asian steppes, the Mongols first tried to invade India. Their first foray, in 1243, took the Delhi Sultanate by surprise and the Mongols  were able to come all the way till Lahore, now Pakistan’s most beautiful city,  and sack it to their leisure.

But that was the last time they were able to enter the plains of India. Ghiyasuddin Balban, the ruler in Delhi at the time, created a standing army – India’s first – built a string of forts along the border and prevented all subsequent invaders from getting far into the plains of Hindustan. After his death, another warrior king of the Delhi Sultanate, Alauddin Khilji, inflicted two successive defeats on them in 1304 and 1305, with such great slaughter that they turned towards Europe and never returned.

Temples were admittedly destroyed, and precious art, sculpture and architecture irretrievably lost, but the motive of the invaders, like that of invaders everywhere else in history,  was pillage not forced conversion to Islam. All but a fraction of the conversions that took place in the next 400 years were voluntary.

The converts came from the lower Hindu castes. They converted because Islam offered an escape from the iniquities of caste – in much the same way as Buddhism had done two thousand years earlier, and as the Bhakti ( devotion) anti-Brahmin movement in south India had been doing since the seventh century, well before the arrival of the Muslims. Far from being a blot on the conquerors, these conversions were an impeachment of the Brahmanical, temple-centred Hinduism from which they had been systematically excluded.

Reconciliation between Hinduism and Islam

In northern India, the encounter between Islam and Hinduism proved beneficial to both in important ways that the Sangh parivar prefers not to remember. In Hinduism, it weakened the link between religion and the state by cutting off the single most important source of patronage to the temples. As state patronage dwindled, Brahmins, who had previously flocked to the peeths and mutts were forced to remain in their villages and tend to the spiritual needs of the villagers. The emphasis in their functions, therefore, shifted from presiding over elaborate temple rites to providing guidance on the issues the villagers  faced in their everyday lives. The importance of ritual in Hinduism therefore declined and that of Dharma increased.

Hinduism  met the challenge from Sufi Islam by disseminating the core ideas of Dharma, already espoused and rejuvenated by the Bhakti movement,  through the literature, poetry and song of Tulsidas, Surdas, Kabir, Rahim, Mira Bai, Tukaram, Chokhamela and a host of lesser-known poets, bards and singers. The interaction between the two made Hinduism accessible and mellowed Islam further, to the point where except for scripture, little remained of what had divided the one from the other. No couplet I know captures this more succinctly than one by Kabir that I learned as a child and have never forgotten:

Moko kahaan dhoondhate bande, Mai to tere paas me;
Na Mai Mandir, na Mai Masjid, naa Kaaba Kailash me.

(Where dost thou seek me oh devotee, for I am right beside thee; Not in a temple, nor in a mosque, not at the Qaaba, nor on Mount Kailash, shalt thou find me).

This profound reconciliation between Hinduism and Sufi Islam is perhaps best reflected in the writings of Guru Nanak and the other gurus of Sikhism. And it was not confined to the villages. It was codified by no less august a person than Emperor Akbar as the Din-e-Ilahi, the religion of God, at the height of the Moghul empire. Some British historians have hailed it  as an attempt at founding a new religion based on universal tolerance. Others have dismissed it as a religion that never had more than 19 followers.

In fact, Akbar had no such intention. The Din-e-Ilahi was no more than a distillation of what today’s corporate world would call “current best practices” of the heterodox population of India.  It propagated sulh-i-kul – universal peace – and urged ten virtues upon the realm. Among these were: liberality and beneficence; forbearance from bad actions,  repulsion of anger with mildness; abstinence from worldly desires; frequent meditation on the consequences of one’s actions and “good society with brothers so that their will may have precedence over one’s own”, in short, putting the well-being of one’s fellows ahead of one’s own.

Akbar’s goal was not proselytization. Unlike the great Mauryan emperor, Ashoka’s Buddhist edicts of  1800 years earlier,  Akbar issued no edicts. Nor did he create a religious police to oversee their observance.

The significance of the Din-e-Ilahi lies  in what it did not prescribe: It did not ascribe primacy to Islam, and it did not give a special place to Muslim clergy within the structure of the state. Instead, it declared emphatically that “he (the emperor, i.e. the state) would recognise no difference between [religions], his object being to unite all men in a common bond of peace”. The entire document was, therefore, a restatement of Dharma in a contemporary form. If any “ religion “ can claim to have emerged the victor in the grand ideological battle that ensued after thearrival of Islam in India, it is Dharma.

Among Hindus  the practice of Dharma has been – and remains – sullied by its endorsement of the notion of ritual purity and pollution that is associated with caste. But its core idea, that true religion is not what we preach but what we practice, has remained the driving force behind all movements for religious reform from the Buddha till the present day. It is what Swami Vivekananda electrified the ‘Parliament of Religions of the World’ in Chicago in 1893 with, by explaining that Hinduism does not merely tolerate, but accepts, all the great religions of the world because they are like different paths up the same mountain, or different rivers that flow into the same sea.

Even the blood-soaked partition of India and  Pakistan in 1947 did not kill off the syncretic impulse in Islam. It has led to a sustained study of the writings of Dara Shikoh, the grandson of Akbar, and his successor Shah Jahan’s eldest son and heir apparent in Pakistan.  Dara Shikoh was  a scholar of Sanskrit and translator of the Bhagavad Gita, one of Hinduism’s holiest texts. He had made no secret of his fascination with Din-e-Elahi, and of his intention to propagate it throughout his realm, before  his life was cut short by his youngest brother,  Aurangzeb.

In 2010, the noted Pakistani playwright, Shahid Nadeem, wrote a play, ‘Dara’, that highlighted his syncretism, as a protest against the rampant Islamic sectarianism that Partition had unleashed upon Pakistan and was, even then, tearing it apart.

Three years later, two Pakistani historians from GC University, Faisalabad, published a peer-reviewed paper in the International Journal of History and Research titled Dara Shikoh: Mystical And Philosophical Discourse‘, which highlighted his belief that “the mystical traditions of both Hinduism and Islam spoke of the same truth.”

This is the awe-inspiring syncretism of religion in the land of Dharma. It is what has made Indian Muslims virtually immune to the lure of the Islamic State in Syria and Iraq:  Against the 27,000 to 31,000 Europeans who joined it, the number of Indian Muslims was only 106.  Of these, only three went directly from India. The rest were recruited while they were migrant workers in the Gulf.

This is the awe-inspiring syncretism of India that  the votaries of Hindutva and Hindu Rashtra are bent upon destroying . Hindutwa is therefore  the complete   antithesis of dharma.

From Where Has Hindutwa emerged?

In the 1920s, the desire to militarise Hinduism  could perhaps have been condoned, for  it was  a counsel of despair. The Congress was still only a middle-class debating society, Mahatma Gandhi’s doctrine of satyagraha (passive resistance in order to paralyse government)was still largely untried, and the British had taken to shooting down or  hanging freedom fighters after labelling them terrorists. But the last shred of this justification lost its raison d’etre when  India gained its freedom.  For the creation of Pakistan had fulfilled at least one of the goals of the RSS – it had rid India of all the Muslims who did not accept that they were part of Savarkar’s  ‘Hindu sanskriti’.

The one-third who stayed in India had therefore declared their alleigiance to India  with their feet. So what fuelled the frantic rage against Partition that the RSS vented in  immediate aftermath of Independence? Why did they rejoice openly when Mahatma Gandhi was assassinated and lionize his assassin, Nathuram Godse? And what has made them continue to demonise Indian Muslims after they had ceased to be a threat to “Hindu” India?

The explanation is that the RSS’s goal was not simply to oust the British from India, but to take their place in order to  create  a Hindu India moulded to fit their image of Hindu Rashtra.

Today, the Sangh parivar is trying to pass off Savarkar and Keshav Baliram Hedgewar, the founder of the RSS, as freedom fighters. But the biographer of Hedgewar, and some of the remarks of his successor Golwalkar show, from the Dandi Salt March in 1929 till Gandhi’s Quit India call in 1940, the RSS stoutly opposed every attempt to secure freedom through the Gandhian way of  satyagraha (passive non-cooperation),  and even offered its cohorts to the government to act as civil guards to quell the unrest that Gandhi’s call would generate.

To the RSS, freedom was less important than power. It needed more time to create the Hindutva legions with which it hoped to storm to power. And as with fascism in Europe, it required an enemy that it could persuade people to hate and fear, to facilitate their creation.

Caught by surprise by the  Partition, which Mountbatten announced only in March 1947, the RSS made an attempt, nonetheless, to seize power in the wake of the turmoil unleashed by it and the assassination of Mahatma Gandhi. That got it banned for several years, but the seizure of power remained its unswerving goal through all its subsequent vicissitudes.

What happens now?

The BJP’s second victory in 2019,  has removed all the political and constitutional hurdles to achieving the goal that the RSS had set itself in 1923.  Narendra Modi has brought it to power on a wave that will almost certainly sweep through the state assembly elections as well,  and give it the  majority in the upper house of parliament that  it needs to change the constitution of India. But he, and the RSS are in a hurry and have little  appetite for the debates that wll rage in parliament and civil society when the government  presents bills for radically altering the structure of the constitution.   As a result it is resorting to legal sleight of hand to start ethnic cleansing, and to dissolve the constitutional safeguards that protect  India’s ‘federation of Ethnicities”.

 

Ethnic cleansing began in earnest within weeks of its coming back to power.  The government  finalised  a National Register of Citizens in Assam, that left out  1.9 million persons who had  lived in the state  with their families and children for five and more decades. To house them ‘temporarily’ till they are repatriated to Bangladesh or elsewhere, the government is   building “detention” camps for them all over Assam, and  has issued a directive to the administrative heads of all of India’s 724 districts to chalk out sites for building similar camps in their districts when the need for them arises.

That the intended targets are Muslims immigrants from Bangladesh became apparent when the BJP government in Assam asked for an  amendment to the citizenship rules that would allow it to limit the externment only to Muslim immgrants from Bangladesh.

The  assault on India’s religious syncretism has been launched in the one  place  where it had continued to flourish till well after Partition, and where it still survives today. This is the state of Jammu and Kashmir. On August 5, the government used a constitutional sleight of hand to dissolve the statehood  of Kashmir, and turn it into a “union territory” and administer it directly from Delhi, without any reference to its legislature or people.

The closest parallel in history to BJP’s victory this year is Hitler’s return to power in March 1933. The Nazi campaign too was based upon hatred and paranoia. Its targets were principally the Jews, but also the Gypsies whom they considered another inferior, polluting, race and the Communists.

Like the BJP today, the Nazis took advantage of the collapse of the German economy after the Wall Street Crash of 1929 to seize power in 1930 with 33% of the vote. Three years later, their hate rhetoric had pushed up their vote to 43%. Within days of the January 1933 results, its storm troopers duped a Communist sympathiser into setting the German parliament building on fire and helped him do it. In the anti-Communist hysteria that followed, Hitler was able to win the March 1933 elections,  persuade President von Hindenburg and the German parliament to pass an enabling act giving him extraordinary powers,  declare him hancellor for life and thus destroy the Weimar Republic. His storm troopers then systematically attacked Jews, Gypsies and Communists, set up internment camps and when these became too expensive to maintain, sent them to the gas chambers.

The Nazi experiment ended in the defeat, destruction and vivisection of pre-war Germany. The Hindutwa experiment has just begun, and we cannot predict with certainty where it will end. But the future looks grim. The Modi government has another four years and eleven months to go. Only an opposition,in parliament, and civil society, that rediscover Dharma, and pits it against  Hindutwa, has any chance of stopping the rush to disaster.

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Despite his advanced age of 74, and the complete absence of any material or verbal evidence that he was involved in any of his son’s affairs, the Delhi high court and Supreme Court have refused to grant bail to Chidambaram.

The ED, CBI Role is Unsurprising in Bail Denial to P. Chidambaram, Not So the Courts
Former finance minister P. Chidambaram after leaving the CBI court in New Delhi on August 22, 2019. Photo: PTI/Ravi Choudhury

On November 15, a single judge bench of the Delhi high court once again refused to grant bail to former finance and home minister P. Chidambaram in the INX Media money laundering case.

This is the fifth time, between them, that the Delhi high court and Supreme Court have refused to grant bail to a 74-year-old man whose health has deteriorated dangerously while in prison, and who is therefore even less of a “flight risk” than the prosecution tirelessly alleges him to be.

Not only did the judge, Justice Suresh Kumar Kait, refuse bail, but his verbal opinion, delivered in court and reported in the Hindu, convicted Chidambaram of a variety of crimes even before the CBI and the Enforcement Directorate had framed a case against him.

The Hindu reported that the bench

“was of the opinion that the prima facie allegations against Chidambaram are serious in nature and that he played a key and active role in the case. While declining the bail plea … the judge said granting relief to such offenders would send a wrong message”.

Please examine the phrases italicised above and reflect on the fact that this was a bail hearing, not a sentencing. Chidambaram was not “an offender”. That had yet to be proved. Nor had the government adduced, or in the mass of conjecture it had released to the media, voiced anything but a suspicion that Chidambaram may have “influenced” the Foreign Investment Promotion Board (FIPB) to overlook certain “irregularities” in the INX Media case.

Chidambaram has a legal and constitutional right to be treated as innocent until proven guilty. But the bench seemed not even to be aware of any such right.

The right is habeas corpus – in plain language, the right to freedom. The law allows this to be curtailed in exceptional circumstances. These are when the court has reason to suspect that the defendant will flee the country and escape its jurisdiction, and when there are solid grounds for believing that if left free he has the capacity to tamper with the evidence by bribing, intimidating, or killing  the prosecution’s witnesses.

What the law does not allow the prosecution to do is incarcerate a suspect before it has collected even prima facie evidence of his or her possible guilt. Even less does the law allow a government to imprison a suspect in order to give itself time to find, concoct, or coerce ‘witnesses’ into providing the evidence that it does not have.

Habeas corpus was, admittedly, a much abused right even before Modi came to power. But never before had it been used by a government to pick out and target specific political rivals, with the express purpose of wiping out all democratic opposition to itself. Yet that is exactly what the courts have made themselves a party to doing.

An examination of Justice Kait’s finding on the merits of Chidambaram’s request for bail shows that he has lifted paragraph after paragraph of the ED’s submission opposing the grant of bail, and presented them as his “Findings on the Merit,” on Chidambaram’s bail application. To say that he did not apply his mind would therefore be an understatement.

Sadly, the practice of simply allowing the ED or another prosecuting agency to,  in effect, write the decision of the high court is far from uncommon. Another Delhi high court judge did exactly the same thing in Rohit Tandon vs. The Enforcement Directorate in 2018.

The sole difference with what Justice Kait has done is that in the Rohit Tandon case, the judge copied the ED’s accusation into her judgment, which was perhaps more egregious than what Justice Kait did, which was to use it in his bail ruling.

Chidambaram is only  one  of hundreds, and if we include Kashmir , thousands,  of political leaders  and civil rights activists who are  languishing in jail without trial as the police, the CBI, or the ED search for evidence of real or imagined wrongdoing, with which to bring them to heel.

Their appeals for bail come up regularly before one high court or special judge, or another, and are routinely rejected. Is it possible that this egregious dereliction of duty is now universal in the Indian judiciary? The very thought is chilling, and its implications for democracy, and the future of our benighted country, dire.

Chidambaram’s case, however, stands out boldly even against this grim background. He was arrested by the CBI on August 21, just 16 days after the government turned Kashmir into an open-air prison, and, as of today has been in prison for nearly 100 days without any charge having been framed against him.


India’s former finance minister P. Chidambaram looks on as he leaves a court after a hearing following his arrest, in New Delhi, August 22, 2019. Photo: Reuters/Anushree Fadnavis

He is being kept in jail to give the CBI, and the Enforcement Directorate – both now complete puppets of the ruling government – time to find the evidence  that might make it possible for them to secure a conviction.

The charge levelled against him  by the CBI and the ED is that in 2007 and 2008, he allowed his son Karti Chidambaram to use his  name to persuade the Foreign Investment Promotion board to regularise a clandestine infusion of Rs 305 crore worth of foreign investment into INX Media Private Ltd. For this, he is alleged to have accepted bribes amounting to $3 million.

So much has been written about this case for so long and with so much deliberate misinformation, that it is now virtually impossible to make sense of the allegations against father and son without going back to the very beginning of the alleged scam, which was perpetrated by Peter and Indrani Mukherjea in 2007.

Here, to the best of my understanding, is what happened and how the case against them has been concocted.

In March 2007, at the height of India’s eight year economic boom, INX Media applied for permission from the Foreign Investment Promotion Board, to sell Rs 4.62 million equity and preference shares with  a face value of Rs 10 each to foreign investors . The Mukherjeas also applied for permission to invest a part of the proceeds in buying a controlling stake in a second company they wanted to establish called INX News Ltd.

In May 2007, the FIPB gave them permission to sell the 4.62 million  shares but told them that they needed to make  a separate, application for permission to create INX News. But by then, the Mukherjeas  had put the new shares on the market, so the sale proceeds had begun to flow in. But what came in was not Rs. 4.62 crore, the figure that the government and the media have been endlessly harping  upon today, but a whopping Rs. 305 crores.

The money came in through three companies based in Mauritius. Mauritius has been a thorn in the Income Tax department’s side since the 1990s, because after economic liberalisation, tax concessions given to citizens of Mauritius had made the island a tax haven for foreign companies wishing to invest in India. So, not surprisingly, this inflow caught the attention of the Financial Intelligence Unit of the Ministry of Finance.

In January 2008, therefore, it alerted the Income tax department to the large inflow of funds into INX Media. This is the genesis of the money laundering charge that the Mukherjeas are facing, and of which Indrani Mukherjea has now been pardoned in exchange for testifying that both the Chidambarams had accepted bribes for regularising it.

There was, however, nothing inherently illegal about the inflow because in May 2007 the Indian economy was at the height of its explosive growth, and the market price of INX Media’s existing shares was Rs 862 per share . The inflow of only Rs 305 crore therefore suggests that the new share issue had fetched an average of Rs 660 per share.

This was a perfectly reasonable price because it fully discounted the likely fall in INX Media’s share price when such a large volume of new shares entered the market. But it left the managers of the share issue abroad with a large sum of money that could not be invested in the new company. It is possible, therefore, that this was chanelled back to INX Media through three companies headquartered in Mauritius.

The Mukerjeas got their second permission in May 2008. But by then, Lehman Brothers had declared bankruptcy and the global financial crash had begun. In India, the Sensex was nosediving from a peak of 20,000 in January 2008 to 9,000 by August. Advertisers stopped paying their bills, and the INX media group found itself headed for bankruptcy.

The Mukherjeas therefore sold INX Media in 2009 for whatever they could get for it and resigned from their posts in the group. By then, an audit of the company by Temasek holdings had raised the suspicion that they had siphoned Rs 150 crore out of the company, before jumping ship.

Nothing more was therefore heard of the INX media “scam” till 2017, a full nine years later. How did it get revived in 2017, and why was the target no longer Karti, but also his father? There is a single answer to this question: in 2015 Indrani Mukherjea and her husband Peter Mukherjea were arrested for the murder, in 2012, of Sheena Bora, her daughter by a previous marriage.

The police allowed it to be known that a financial dispute between mother and daughter was the cause of the murder. But for many in Mumbai, this confirmed a widely held belief that the Mukherjeas had parked the money they had allegedly siphoned off in an offshore account in Sheena Bora’s name.

Indrani Mukherjea may have come to the BJP’s notice in December 2016 when, at a trial hearing in Mumbai, she asked the court for permission to publish 700 verses from the Bhagavad Gita that she had translated from Sanskrit into English, and followed it up with a letter requesting this permission from the Patiala House court in February.

Whether this was so or nor, the fact remains that the CBI registered an FIR, alleging irregularities in Foreign Investment Promotion Board clearance given to INX Media for receiving overseas funds to the tune of Rs 305 crore in 2007 and accusing Chidambaram of using his influence as Union finance minister in May 2017 only three months later.

Both the Chidambarams have strongly disputed this allegation. Karti claims that he was never hired by the Mukherjeas to represent them. FIPB officials of the time have also deposed that they never even met Karti.

Karti was interrogated intensively by the CBI, arrested on February 28, 2018 and he spent 24 days in CBI custody before getting bail from the Madras high court and the Supreme court. In May this year, he was elected to parliament from Tamil Nadu, and remains, technically, a free man.

But his father has not been so lucky.

Despite his advanced age of 74, and the complete absence of any material or verbal evidence that he was involved in any of his son’s affairs, Chidambaram has been denied bail in anticipation, then bail by the CBI’s special judge Ajay Kumar Kuhar, then bail by Justice Sunil Gaur of the Delhi high court (who was tipped to be appointed as the chairman of the Appellate Tribunal under the Prevention of Money Laundering Act, but no formal announcement has been made public yet), then most surprisingly by the Supreme Court, and most recently by Justice Kait of the high court. 

Today, based on the sole and so far completely unsubstantiated accusation by a woman accused of murdering her own daughter, and who would say or do anything to avoid life imprisonment, if not the death penalty, the CBI and the Enforcement Directorate are coercively interviewing every friend and associate of Karti Chidambaram to establish how $3 million – the sum that Indrani Mukherjea claims to have paid to him and his father – have been siphoned away abroad through a dozen different shell companies. It is doing so in spite of the fact that Peter Mukherjea has categorically refuted Indrani’s allegation.

This blatant witchhunt has made a mockery of the rule of law. But what is worse, it has exposed just how seriously hollowed out not only the CBI and ED are, but also the judiciary, the last remaining pillar of India’s tottering democracy.

https://thewire.in/law/ed-cbi-bail-denial-chidambaram-courts-law

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In their blind pursuit of a model of nationhood that stands discredited, Messrs Modi and Shah have brought India and Kashmir to the edge of a precipice.


Kashmiri men gather around the body of Nasir Ahmad, a suspected militant, during his funeral after he was killed in a gun battle with Indian soldiers, in Arwani village in south Kashmir’s Anantnag district, October 16, 2019. Photo: Reuters/Danish Ismail

 

Do the learned judges of the Supreme Court – who will soon begin to hear the petitions against the way in which the Narendra Modi government hollowed out Article 370 of the constitution and dissolved a state – fully appreciate the gravity of the responsibility that a desperate civil society has placed on their shoulders?

One suspects they do, but view it with distaste because it will force them even further out of their zone of comfort as the court of final appeal on legal issues into becoming the court of final appeal in a seemingly constitutional, but in reality intensely political, issue where no one can foretell what the outcome of their decision will be. 

In this invidious circumstance, the temptation to concentrate on the letter of the constitution and leave the safeguarding of its spirit to parliament must be overwhelming. But that is precisely why their lordships must resist it and, taking courage form the judgment given by the Justice J.S. Khehar-led bench upholding appeals against the National Judicial Accountability Act, reaffirm that Indian democracy has not yet attained the maturity at which its constituent parts can be relied upon not to act in a manner that endangers the structure of the whole. 

In Kashmir, that danger is not merely present but palpable. Prime Minister Modi would like us to believe that eliminating Article 370, even though done by sleight of hand, would ultimately be welcomed by Kashmiris. Because apparently it will free them from the clutches of a handful of powerful and corrupt families, open the gates for investment to flood into the valley, and bring them the employment and prosperity that has so far eluded them.

He would like the court to believe that his government laid siege to eight million people and robbed them of the rights and freedoms that define their humanity for more than two months only for their own good. This is a plea that would make any civilised government squirm with shame because it implies that Kashmiris are little different from cats and dogs whom one has to discipline. 

Kashmiris have begun to show that they cannot be turned into household pets within days of the government beginning to relax its iron grip upon the Valley. They are doing this by resorting increasingly to the sole mode of protest left open to them: that is non-cooperation or, to use a word all of us should be familiar with, satyagraha.

Schools and colleges are nominally open but have few teachers and fewer students; despite the lifting of curfew, shops remain closed except for the few hours permitted by militants. There has been little overt violence so far. Barring a few acts of grenade throwing and stone pelting at security forces, and the killing of a Punjabi truck driver who, in his innocence, was transporting apples from Shopian to the market in Jammu, the Valley is relatively calm.

But this is the electrically-charged calm that precedes a storm.

Among middle class Kashmiris, there is relief that their post-paid mobile telephones are working, and that they can once again communicate with their relatives, especially with those working, or studying, in the rest of India. 

There is relief also among parents of school-going children, as hope revives that they may still be able to make up the time they have lost and sit for their board examinations without being at a severe handicap.

There may also have been initial relief among traders and shopkeepers as hopes of making at least limited sales in the few weeks left before the end of the festive season revived. But with only a few days left for Diwali, the tourist season and the Amarnath Yatra cut short, and the imminent shift of the Durbar to Jammu for the winter, that fugitive hope is also turning into despair.


Women protest on the streets in Kashmir. Photo: Avani Rai

As winter sets in, Kashmiris will begin to add up not only the economic, but the psychological and emotional cost of the lost summer: the lost fruit crop; lost revenues from the abrupt end of the tourist season and the Amarnath Yatra; the chasing away of thousands of migrant workers who brought revenue to the Valley; and the total absence of the Durga Puja and Dussehra rush of tourists from Bengal.

Parents will fret for the rest of the school year over the lost school time of their children; traders and shopkeepers will stare at godowns and shelves still packed with unsold goods, and wonder how they will meet their debt and the often extortionate interest they have to pay on it. Ghoda wallahs, houseboat and shikara owners , hoteliers and restaurateurs, taxi owners and drivers, and the young men from the villages who come into Srinagar, Pahalgam, Gulmarg and such places to work for them during the tourist season, will be wondering how they will subsist during the long winter that lies ahead.

So, as the nights grow longer, the power cuts become more prolonged, and the deepening cold bites into their bones, the Kashmiris’ sense of abandonment will grow stronger. Among the old, it will bring despair; among the youth, a mounting rage that, sooner or later, will break through all remaining restraints and burst out in unpredictable ways.

It is the youth whom the Modi government needs to fear. When he came to power, there were only a few Burhan Wanis among them. By the Kashmir police’s own estimates, in 2014, there were only 86 young Kashmiris in the new group of militants being nurtured jointly by the Hizbul Mujahideen, Jaish-e-Muhammad and the Lashkar-e Taiba in south Kashmir. After Modi initiated his ‘zero tolerance for terrorism’ policy, by January 2019, the security forces had killed 813 militants, of whom 235 were killed in 2018 alone. But despite, or more precisely, because of that, the number of active militants had grown to more than 300.

To those unfamiliar with the morphology of insurgency, this may sound like a small number. But readers would do well to remember that in the Khalistani insurgency of the 1980s in Punjab, there were never more than 500 ‘A’ grade, i.e gun-using militants. But they were backed by about 15,000 persons categorised as B-high, B and C grade supporters, who sympathised with, and sheltered them. That insurgency lasted for ten years and took more than 41,000 lives, and only died out when Sikh ex-servicemen living in the villages took up arms against them.

In Kashmir, the August 5 shut down and scrapping of Article 370 has come after 30 years of harsh military rule, and five years of a merciless pursuit of young Kashmiri militants who have grown up within that repressive and violent world, and have therefore no knowledge of peace. 

An explosion is therefore as certain as tomorrow’s sunrise. All we do not know is what will trigger it and, given a relative paucity of firearms with the militants, what form the renewed attacks will take.

Today, all of Kashmir is watching the Supreme Court with an anxiety that borders panic. Few expect a court that has shown no sense of urgency in dealing with the petitions against the president’s order, to strike it down. But all are living in fear of another crackdown on the entire population as the date of judgment draws near. This time there will be no surprise. The people of Kashmir will be prepared for the worst, but so, unfortunately, will be the militants. 

Try as I might, I see no way therefore of avoiding a return to violence. And despite Pakistani Prime Minister Imran Khan’s professed determination to keep his people out of Kashmir in order not to give Modi a chance to blame it upon Pakistani terrorists, it is difficult to see how long he will be able to keep his countrymen out of it. What will follow is anyone’s guess, but there can be no doubt that Modi has taken India into dangerous territory and that he does not know how to find a way out of.

Their Lordships’ travails will not end there. The abrogation of Article 370 is only one of the issues the constitution bench will have to pass judgment on . The other is the dissolution of a state of the Indian Union, and its subjugation to direct rule by the central government.

Law is made as much by judicial precedent as parliamentary enactment. Their lordships must therefore bear in mind that if they uphold the president’s order on this occasion, then this, or any future government in Delhi, will be able to dissolve the statehood of any other state, group of states, or even all the states of the Union, especially if it has the parliamentary majority to do it through article 368 of the Constitution. 

That will open the road to turning India into a unitary nation state on the European model and realising V.D. Savarkar’s dream of creating a ‘Hindu Rashtra’. Under Article 371 of the constitution, 10 other states enjoy protections that other states do not have – a situation the government said was intolerable in the case of Jammu and Kashmir.

One has only to remember the agitations that preceded the formation of Andhra Pradesh, Tamil Nadu , Meghalaya, Nagaland, Manipur Tripura, Mizoram, Punjab, and even Gujarat, to know that any such attempt will be resisted as strongly by them as the Kashmiris are resisting it today.

In sum, if the Supreme Court allows the abrogation of Article 370 through the dissolution of the State of Jammu and Kashmir to stand, it will open the way for the future weakening and perhaps even disintegration of the Indian Union.

This is not meant to be an alarmist prediction: From the Mauryan empire after the edicts of Ashoka, till the 1857 revolt, that followed Lord Dalhousie’s promulgation of the Doctrine of Lapse, Indian history is replete with examples of attempts to centralise power beyond a point leading to the disintegration of empires.

In their blind pursuit of a model of nationhood that now stands discredited, and even despised, in Europe where it was born, Messrs Modi and Shah have brought India to the edge of this precipice. Only the Supreme Court can stop them from pushing us over it.

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The central bank and the finance ministry must be able to have a mature discussion on how much of the RBI’s reserves can be handed over to the government.

After Urjit Patel Drama, RBI Must Turn Its Attention to How It Can Help India's Economy

Arun Jaitley and Urjit Patel. Credit: PTI/Files

By resigning as the Reserve Bank of India’s governor without a shadow of warning, Urjit Patel has delivered a coup de grace to India’s tottering economy.

One does not have to be a psychic to divine what made Patel take this drastic action now. He was almost certainly instructed to transfer some of the central bank’s reserves to the finance ministry to meet its expenditure commitments. He had already refused point blank during the marathon board meeting of November 19. He must have suspected, or been warned, that if he did not agree, he would be directed to do so under Section 7 of the RBI Act.

The forerunners of the deluge that Patel has let loose have not taken long to appear. On Tuesday morning, the rupee was trading 112 paise lower and on Wednesday morning, it opened 0.33% down from Tuesday’s close of 71.87.

More falls are certain because most investors will conclude that, sensing the need to compensate for the losses in the current round of state elections, the BJP will use the central bank’s reserves to  go on a spending spree to recover ground before the general elections next year.

This may well be true. But even if, by a miracle, Patel’s resignation makes the government pause before raiding some of the RBI’s reserves, this is unlikely to save the Indian economy from the major problems that now stares it in the face.

The trouble ahead is writ large in the Rs 1,140,000 crore worth of stalled and abandoned projects, in the Rs 1,00,000 crore worth of irretrievable bank debt, in the more than 200 large firms struggling desperately to stave off bankruptcy, in the country’s struggling small and medium industry, in the falling rupee, not to mention India’s stagnant employment growth.

The resignation could not have come at a worse time. If there was a right moment for him to have registered his protest, it should have been on November 8, 2016, when Prime Minister Narendra Modi announced his controversial decision to demonetise Rs 500 and Rs 1,000 notes. But Patel has chosen to quit now, when two more years of suicidal economic policies have left the Indian economy in tatters and confidence abroad in the stability of the Indian rupee is at an all time low.

High interest rates

The inescapable fact is that the Indian economy has been hurt over the past decade by the intolerably high interest rates inflicted upon it. Inflicted by a central bank so single-mindedly focused on curbing an inflation that was not caused by an excess of demand in the domestic economy. That futile exercise led to a crash in demand for housing and consumer durables, and pushed up the interest burden and cost of infrastructure projects till investors simply left them incomplete and walked away.

Had anyone in the Modi government studied the experience of other countries  it might have been able to find an antidote to India’s epidemic of bankruptcies  long ago.

Today, only one narrow avenue remains open.

The first step is to lower commercial bank lending rates on medium and long term loans, of longer than three years to today’s core rate of inflation of 4%. Also, allow borrowers to refinance their existing debt at the new low rate and balance this by lowering interest paid on term deposits in the banks by 1 to 1.25%, in order to avoid a further constriction of bank revenues.

Readers may wonder how a 1 to 1.25% average reduction in interest paid out by banks to depositors will reduce outflows by enough to offset the fall in revenue from a 6% cut in lending rates. There are three reasons: first, only 37% of the commercial bank loans by public sector banks is for three years or more.

Second, most of the longer term loans within this category are now non-performing and therefore yield nothing. Finally, since even a 1% reduction in deposit rates will make some savings shift from the banks to the equity and bond markets, there will be a further reduction in the servicing cost of the PSB’s debt.

An examination of the balance sheets of several companies that are now facing bankruptcy proceedings before the National Company Law Tribunal shows that while many will be able to start meeting their liabilities if they are allowed to refinance their loans, a substantial number, including some of the biggest investors in infrastructure, will still remain in the red.

The Barack Obama model

To salvage the most important projects among these, the government will need to follow the example set by Barack Obama in the US in 2009, when he asked the Federal Reserve to buy a controlling share in General Motors and Chrysler, to save them from bankruptcy and bring in new management to turn them around. Not only did he succeed, but the Federal Reserve was able to resell its shares in the market at a profit within four years.

The second essential step, therefore, is  to persuade the RBI to transfer some of the reserves it holds within the central bank to a Special Facility that will buy controlling  shares in the most important and least severely indebted of the remaining companies.

Contrary to the impression created by the recent controversy between it and the ministry of finance, the RBI not only has the funds to do the buying, but the need for credibility abroad will ensure that it deploys the funds responsibly, chooses companies to buy into that are really capable of being revived, and not succumb to political pressure in making its choices.

It has the funds to do this because its two principal reserves, the Currency and Gold Revaluation Reserve (CGRR) and the Contingency Fund far exceed the maximum that any RBI committee has recommended. While the Subrahmanyam committee in 1997 had suggested 12% of total assets in each fund, the Usha Thorat committee had recommended 12.26% for the CGRR and 5% for the Contingency reserve.\

Today the CGRR  stands at 19.11%, and the Contingency Fund at 6.41%. The two together are therefore 1.52% above the limit prescribed by the Subrahmanyam committee and 10.4% above the Thorat recommendations.

If the RBI brings the CGRR down to Thorat’s 12.26% but simultaneously raises the Contingency Fund to 9%, it will be able to create a Special Investment Facility (SIF) with the remaining 5.5% and invest in the shares of companies in dire need of recapitalisation, without damaging confidence abroad in the RBI. The surplus amounted to Rs.198,967 crores in 2017-18.

This facility can be further enlarged by discontinuing, temporarily, the practice begun in 2014 of transferring all of the RBI’s annual profits to the government to help finance its budget, and transferring it for two years into the SIF. The net surplus in 2017-18 was Rs 50,004 crores. So this would add another Rs 100,000 crores to this facility by March 2020.

Asking the RBI to create the SIF will force it to take responsibility for reviving economic growth, something it has adamantly refused to do, even while it controls the one instrument that spells life or death for the economy. It will also have to understand the challenges industries faces both at home and abroad.

It will be forced to bring top flight industrial managers, past and present, onto its board and perhaps also look abroad for talent and ideas. Over time, this will end the poisonous dichotomy that exists today, without any need for strong arm measures by the government.

A Reserve Bank of India (RBI) logo is seen at the gate of its office in New Delhi, November 9, 2018. Credit: REUTERS/Altaf Hussain

The RBI can invest in the shares of companies in dire need of recapitalisation, without damaging confidence abroad in the bank. Credit: REUTERS/Altaf Hussain

Commercial and public sector banks

Two more bridges will still remain to be crossed. The first is how to make the commercial banks actually pass through the RBI’s cuts in policy rates to their borrowers. They have now enjoyed autonomy in setting their minimum lending rates (subject to guidelines set by the RBI) for several years, and may therefore drag their feet in doing so, as they did two years ago. The second is that the RBI lacks any experience of running an industrial or infrastructure enterprise, so may baulk at taking the responsibility for doing so.

These are real challenges that will have to be met with circumspection, but they cannot be allowed to block the reforms altogether. As to the first, the fact that the bad loans are almost entirely concentrated in the public sector may prove a blessing in disguise, because these are more likely to fall in line with the government’s wishes. Among them, the most stressed banks will do so first, because they will have the least to lose. After that, competition for business will make the rest fall in line.

As to the second, the RBI will have to hire retired professional managers from the private and public sectors to sit on their boards and bring in internationally renowned consultants to assist them. This will start a learning process within the bank that will end the dyarchy that has developed between it and the ministry of finance.

This learning process will take time, but the alternative, of allowing the present bankruptcy procedures to continue, will take much more.

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With 78 of the largest companies in the country are facing dissolution under the Indian Bankruptcy Code, India’s economy is heading for a meltdown.

 The 'Indian Flu', or Why the Crash of the Economy Is Imminent

Fitch Ratings has raised its estimate of India’s expected growth rate in 2018-9 to 7.8%. For anyone who has the least knowledge of business conditions in India today, this can only be a sick joke. For India’s economy is heading for a meltdown – 78 of the largest companies in the country are facing dissolution under the Indian Bankruptcy Code. Of them, 20 have already been declared insolvent and sent to the National Company Law Tribunal for dissolution.

Another 30 companies, all in the power sector, are also facing the guillotine because the Allahabad high court has denied them more time to sort out their woes. The debt of these companies alone amounts to Rs 140,000 crore. Among them are three giant power plants, the 4,000 MW Coastal Gujarat Power of Tatas, Adani power, Mundra and Essar Power. They are bankrupt because they had the temerity to base their plants and have been denied the right to set tariffs that will cover the higher cost of imported coal, by the Supreme Court of India.

Yet another 92 companies are on the chopping block because they are more than 180 days behind on their loan repayments. And as if that were not enough bad news, loan defaults by small companies have also doubled in the past year, signalling an imminent crisis in that sector as well.

The sickness has spread to the private financial sector. Infrastructure Leasing and Financial Services (IL&FS), a financial giant, has just defaulted on its interest payments and sent the stock market into a tailspin. Foreign investors have been leaving the Indian money market in droves: the rupee plunged to 71.7 to the dollar on September 20, against 65 on March 31, less than six months earlier. The RBI has halted the slide by raising the repo rate by a full half percent.

But how long will its finger keep the dyke from bursting?

Who, or what, is responsible? 

In a note he submitted to the Estimates Committee of parliament earlier this month, former RBI governor Raghuram Rajan has identified two causes: an “irrational exuberance from 1994 till 1996” generated in promoters (of new projects) by the prolonged spell of rapid economic growth that began in 2003, and the government’s failure to live up to its commitments to the investors.

“A large number of bad loans,” he points out, “were originated in the period 2006-2008 when economic growth was strong, and previous infrastructure projects such as power plants had been completed on time and within budget. It is at such times that banks (and, needless to say, promoters) make mistakes”.

A woman walks past the Reserve Bank of India (RBI) head office in Mumbai, India, December 6, 2017.
Photo taken December 6, 2017. Credit: Reuters//Shailesh Andrade/File Photo

Their chief mistake was to “extrapolate past growth and performance to the future” and accept projects with very little equity capital, that relied almost entirely upon loans. When the upswing ended with the onset of global recession in 2008 and demand slackened, many projects became unviable.

Fraud, in the shape of inflated capital costs, over-invoiced import bills and unacceptably low promoters’ capital has played a part, he wrote, but it is only a small one. Rajan placed the remainder of the blame upon “governance problems” – a euphemism for the Central and state governments’ failure to provide promised inputs, such as land free of encumbrances, coal, power, water, and transport connections. Unable to generate revenues, the investors ate into their equity capital to meet the mounting burden of interest payments, till there was none left. Then they walked away from them. This is the reason why India is saddled with up to 1,160,000 crores of stalled, “zombie “ projects and Rs 950,000 crore of largely irrecoverable debt.

Rajan’s analysis is cogent, but incomplete. India has never been free of “governance problems”. There was a spell of “irrational exuberance from 1994 till 1996, followed by a steep slump in 1997 that lasted till 2002. But there was no pile-up of abandoned projects and irrecoverable debt then.

His ascription of the current decline to the impact of global recession is also suspect. For the recession began at the end of 2008, but India’s slide into industrial stagnation and insolvency began three years later in 2011. In between, it recorded two years of the highest industrial and GDP growth that the country has known. Why this delay? The answer is the crippling interest rates that the Reserve Bank imposed on the economy in 2010-11 and is persisting with, in the face of catastrophe, today.

A simple calculation is all that is needed to show what high interest rates do to infrastructure investment: If the promoters of power and highway projects, for instance, borrow money at 5% a year their capital cost, if not repaid, will doubled in 14 years. At 10% it will double in seven years. At 12% — the rate that even blue-chip companies were paying until 2015 – doubling takes place in 5.5 years.

Since the same high rates will simultaneously kill the demand for housing and make car and refrigerator loans unaffordable, investors will be hit from both sides. In addition to this the government reneges on its promises to provide the infrastructure needed for production, such as coal, power, water and transport, the only option left open to them will be to cut their losses and walk away. Rajan does not have a single word to say about this, because he is one of the high priests of the high interest rate regime that has bankrupted the country.

The evidence that this is indeed the cause of both the crisis in industry and in banking, comes from the pattern of bankruptcies. All but a few of the companies that are on the chopping block had dared to invest in infrastructure projects. The reason they had done so was that the public sector, which used to invest in infrastructure in the past, was no longer doing it. Public sector investment had been even more prone to delays because of the government’s failure to meet its commitments, but there were no stalled projects because it had the dual advantage of being loaned money by the banks at paltry rates of interest, and never having to fear bankruptcy.

Workers hold iron rods at the construction site of a bridge on the river Tawi in Jammu. Credit: Reuters

To justify their suicidal commitment to price stability, three RBI governors in succession – Y.V. Reddy, D. Subbarao and Raghuram Rajan – have argued that price stability will automatically lead to growth. They have been buttressed by a much touted finding of IMF and other neo-classical economists that, contrary to the previously unquestioned belief, high rates of inflation do not automatically raise the rate of economic growth, but actually lower it.

“Inflation targeting” was born out of his flaky belief. The RBI made this its Bible despite the fact that none of these studies had been able to establish a causal link from high inflation to low growth. And it did so in the face of compelling theoretical and empirical evidence that the causal chain runs in the opposite direction, i.e from economic growth to inflation.

Some inflation has to accompany industrialisation because it requires the diversion of a part of current investment from producing consumer goods to capital goods. Every government of a rapidly industrialising country has had to face this problem and has resorted to price and distribution controls, such as rationing, fair price shops and food coupons. South Korea had an average inflation rate of 21% during the three decades in which it became an industrial powerhouse, and China has become one only with the help of stringent price controls on essentials, and negative real rates of interest on bank loans. In India, by allowing the RBI to make price stability the sole goal of policy the elected government sacrificed growth at the altar of stability.

What has made the RBI impose this suicidal policy on the country, and why have two governments capitulated? The first reason, the suicidal adoption of “inflation targeting” by the RBI without realising that the rich nations have entirely different goals for adopting it than the poor, has been described at length in these columns on an earlier occasion. 

But the second, more pressing, reason is the imperative need to keep not prices, but the exchange rate stable. This has gained in importance with every year of high interest rates, because these have forced investors to borrow abroad, where loans have been available at rates as low as one to three percent, to keep their interest burden down.

Between 2008 and March 2015 around 300 of India’s largest companies borrowed Rs 4.5 lakh crores ($680 billion) abroad, mostly with maturity periods ranging from 3 to 20 years. Between March 2014 and March 2015, after Modi’s victory became certain, borrowings increased by $ 181.9 billion. This raised India’s outstanding external debt by 38% to $580 billion.

The euphoria was so intense that a very large part of the new debt was not hedged against the risk of a fall in the value of the rupee. As a result, in 2015, 59% of the $580 billion was vulnerable to devaluation.

For the borrowers, maintaining the exchange rate regardless of side effects therefore became a matter of life and death. The real, unspoken, goal of ‘Inflation targeting’ is to maintain not price but exchange rate stability at any cost. This quest has not only killed the real economy but created an imbalance between India’s foreign exchange debt and its reserves that has brought international hedge funds into the Indian money market, circling like wolves scenting a killing. What India is experiencing, therefore, is a mild version of the “Asian Financial ‘flu” that began in Thailand and spread to the whole of Southeast Asia in 1997 and 1998.

Unlike the Bank of Thailand in 1997, the RBI has had the sense to allow the rupee to depreciate in response the demand for dollars in recent weeks. But every few points drop in its value is increasing the risk of insolvency for the companies that have borrowed abroad. 

How to stem the collapse

The only way to stem a further collapse is to lower the interest rate on long and medium term loans drastically to 4% or less. This will allow the embattled infrastructure and heavy industries to refinance their loans and drastically reduce their debt burden. Since the lower rates will also revive the housing, real estate and consumer durables industries, these companies will have a far better chance of repaying their re-structured loans than they have had in the past seven years.

Why 4%? The short answer is that in no country in the 19th century did companies building infrastructure face real interest rates of more than one or two per cent. The US government provided much of the capital that American companies sank into 300,000 kms of railroads between 1870 and 1891 free of cost in the form of land and timber felling rights that they could sell in the market. In the 20th century, South Korea and China achieved their breakthroughs by raising capital at negative real rates of interest, in effect taxation of peoples’ savings. 

There is some risk that a sharp reduction of interest rates will cause an outflow of short term foreign investment . But this will get reversed when foreign portfolio investors see a sustained rise in share prices. More importantly, the availability of cheap capital that is free of exchange rate risk will end the long-term borrowing spree abroad by Indian investors that has precipitated the present crisis. The resulting reduction of demand for dollars will ease the pressure on the rupee.

But time is of the essence, for every day that the rupee continues to depreciate increases the repayment obligations of companies loaded with foreign debt and weakens their capacity to respond positively to measures designed to revive economic growth. One more attempt to avoid domestic collapse by propping up interest rates will bring on the foreign exchange crisis that the government is mistakenly trying to avert through monetary policy alone.

https://thewire.in/economy/the-indian-flu-or-why-the-crash-of-the-economy-is-imminent

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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.

https://thewire.in/192754/rbi-economic-crisis-inflation-targeting/

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Middle-class youth who supported Modi and gave him legitimacy are now seriously doubting his economic policies. That doubt will soon turn into rag

“The economy is in a tailspin. Yes, it can crash. We need to do a lot of good things to revive the economy”. These words are not mine, but Subramanian Swamy’s. Swamy is not a “pseudo-secular” critic of the BJP. He is a disappointed devotee of Prime Minister Narendra Modi who was, only last year, the BJP’s weapon of choice in its assault on Sonia and Rahul Gandhi in the National Herald case.

He is not the only one. Arun Shourie has been warning the country that Modi does not have a clue on how to revive the economy and has therefore turned to the most dangerous form of populism – communal polarisation – in a desperate bid to ensure victory in 2019. Still more scathing criticism has come from former finance minister Yashwant Sinha, whose critique of the government’s unbroken string of economic failures has brought forth no credible refutation, because none is possible.

Swamy is a reputed economist, and the other two are former ministers who have experience and inside knowledge to back their critiques. But what about the Aam Modi Bhakt – urban, educated, middle class and young? Does he still believe that Modi and Amit Shah are crafting a new economy in a New India, that can still bring ‘acche din‘?

The answer has been given recently by Ninad Vengurlekar, a Mumbai-based mechanical engineer and co-founder of a mobile-based education company, who spent a year doing a masters in education technology at Harvard University:

“Why did I support Demonetization?” I was taken over by our PM’s audacity, his resolve, his emotional appeal, and then tears. He said give me 50 days or else persecute me. I thought, if the head of the country is so confident about what he is doing, obviously he knows something that his critics don’t. My support to demonetization came from this trust in the PM. A billion people thought like me. I was not alone.

10 months later, a friend told me, “Bewaqoof banaya Modi ne.” I said,”Shayad”. And we both laughed at ourselves. But did Modi make a fool of the country? Maybe he did. But he never intended to. He was genuine when he believed that there is black money that would be unearthed out of demonetization. It will break the backs of terror organisations. Corruption will be dealt a severe blow by killing the cash economy and digital transactions will be up. Yes, UP elections would also be on his mind.

But I was sure no sane person would put the entire country through discomfort, cause deaths, wipe out incomes of the poor, just to win UP. This was my hunch. My personal reason for support to demonetization was because I genuinely believed that digital transactions would finish the cash economy.

But I was wrong and how. The economic cost of demonetization was never thought through, especially on the poor. Millions lost their jobs, industries closed down, NPAs went up and banks came under undue pressure to recover SME loans. The spiral effect was probably never imagined to be so devastating.

Digital transactions are down. Corruption looks unconquered. Worst, all the so called “black money” has come back to the system. GDP is down to a historic low. And now RBI has stopped short of saying that demonetization was a dare gone horribly wrong.”

Vegurlekar’s is not an uninformed outburst. All the recent signals from the economy are sharply negative: the onset of deflation in agriculture, which confirms the sharp drop in rural buying power caused by the premature return of migrant labour to villages after demonetisation; the CMIE’s recent estimate that 1.5 million jobs were lost between December and April; the shrinkage of commercial bank credit to industry this year for the first time in 63 years; FICCI’s finding that 73% of the 300-plus respondents to its latest survey of industry would do no hiring for at least the next three months; and McKinsey’s finding that more than 35% of the 466-million labour force of India in now severely underemployed, with no secure jobs and no social security.

Add to this the fact that the investments abandoned by their promoters has risen from Rs 8,60,000 crore in March 2013 to the mind-boggling sum of Rs 11,40,000 crore in 2016, that 40 of India’s most courageous (and possibly foolhardy) entrepreneurs are entering bankruptcy court, and that almost half of the $20 billion of foreign direct investment that has come in during the last year has gone into the purchase of distressed assets by international speculators, and the picture of an unravelling economy is complete.

The harsh truth is that India’s once-envied entrepreneurial class has been all but destroyed, and India is being sold piecemeal to foreigners. It is not the only country that has faced such a tragic denouement by ill-conceived economic policies. In December 1998, a year into the Asian financial crisis, the chief of research at the Siam Commercial Bank, Thailand’s oldest bank, greeted this writer with the remark, “Welcome to the basement sale of Thailand “. We are now witnessing the basement sale of India.

Vengurlekar belongs to the part of the new middle class that was the mainstay of the BJP’s victory in 2014 – not because of its numbers, but because of the acceptability it gave to the party. But he now feels betrayed. What he has voiced is what millions of young people are also feeling.

Modi’s highly-personalised propaganda blitz had kept them quiet so far: “The government cannot be lying to us,” they probably said to themselves. “Maybe it is only me, and a few others like me, who have been unable to find jobs”. That doubt has begun to dissolve, and when it does, Modi and his government will face its inevitable corollary: rage. That was the sentiment that drove the Congress out of power in 2014. It is now rising against the BJP.

Is it too late for Modi to reverse the trend? This question begs an even more important one: does the government even know how to do so? And if it does, then what prevented it from taking the right decisions when it first came to power? Modi may claim, as Jayant Sinha has done, that his reforms will benefit India in the long run by simplifying procedures and making the income-generating classes more accountable to the government. But even if this were to prove the magic bullet the economy has been waiting for, its effects will not be felt in time to save the BJP in 2019.

What can and may well save the BJP is continued bickering within the opposition, combined with a total absence of understanding within it of what caused two decades of growth to fail so suddenly in 2012. Till it works that out, it will not be able to offer a credible plan for restarting growth. It will therefore be unable to provide hope to the people who are hurting most – the youth of India. So far not a single opposition party has shown that it has the slightest inkling of how this is to be done. Till one or more of them shows that it does, and offers a policy that the now-sceptical public can believe in, Modi may well continue to reign and the economy to sink.

https://thewire.in/182482/achhe-din-narendra-modi-economic-collapse/

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The Indian government seems to have fallen for the Big Business’ agenda of using electric cars even as climate change is accelerating.

Everyone’s suddenly going electric, so India is doing it too. In the past six months, Norway, Germany, Britain, France and China have announced their intention to end the use of fossil fuels in cars by 2040 at the latest. Germany aims to do it as early as 2025.

Although several of these governments have hedged their statements saying that they will switch to electric cars or alternate fuels, everyone knows that, with the possible exception of China, which already has a large coal-based methanol programme running, they are talking about electric cars. So to no one’s surprise, the Indian government has also hastened to fall in line.

In May this year, NITI Aayog, India’s revamped Planning Commission, electrified the Indian elite by announcing that India would aim at replacing its entire passenger vehicle fleet with electric cars by 2040. “India can save 64% of anticipated passenger road-based mobility-related energy demand and 37% of carbon emissions in 2030 by pursuing a shared, electric, and connected mobility future,” it announced. “This would result in a reduction of 156 Mtoe (million tonnes of oil equivalent) in diesel and petrol consumption for that year.” In the same month, Piyush Goyal, the-then minister of power, said that not a single petrol or diesel passenger vehicle should be sold in India from that year onwards.

On September 7, Amitabh Kant, chief executive of NITI Aayog, told the annual meeting of the Society of Indian Automobile Manufacturers (SIAM), an industry lobby, that India would have 30.81 million electric cars on the road by 2030. None of those present could tell how he had been able to arrive at the second place decimal, to within 10,000 cars of what would happen 13 years hence.

The very next day, the newly appointed minister for transport somewhat incautiously told the assembled automakers that they would be “bulldozed” into switching to electric and alternate fuel vehicles if they did not do so voluntarily.

Automobile manufacturers are predictably incensed – and the Modi government’s electric car dream is only the latest development in a long-series of general industry policy flip-flops.

Not well thought out

Was it well thought out? Did any analysis of costs and returns precede this sudden announcement? A look at the draft energy policy for 2040, which was released in June, shows that there was none. For the plan, which estimates that India’s total energy consumption will treble by 2040, predicts that in an “ambitious energy-saving scenario,” the share of fossil fuels will only come down from 81% in 2012 to 78% in 2040. Transport will account for 25% of this.

Only 16% of the oil and 5% of the gas that the “business as usual” scenario would have required will have been saved, mainly through increases in fuel efficiency. Quite obviously, at the time when the policy was being finalised, electric cars had not yet entered the government’s dreams.

What none of the governments that have made this commitment have thought about is its feasibility. The first question any transport minister should have raised was, “Is it feasible?”. One small question would have shown that it is not. The batteries that supply power to electric cars use nickel, cobalt, aluminium, graphite and lithium. All these are rare earths, whose availability in the earth’s crust is far smaller than that of coal and oil.

This poses two problems. First, will there be enough to power the more than two billion cars that will be on the road in 2040, not to mention the billions upon billions of electric bicycles and scooters? Second, will enough new reserves of these be found to offset the amount being mined every year? If the discovery of new reserves falls short of the annual increase in consumption, it will immediately trigger speculation on their future prices in commodity markets, which will push their prices into the stratosphere.

How sensitive these prices are can be judged from the fact that the fall in price of lithium reversed itself sharply at the end of 2015, when the major automakers committed themselves to making electric cars. By mid-2017, they had risen by 50% over the 2015 price.

Wishful thinking

The propagandists for the electric car argue that since lithium accounts for no more than 2% by weight of the most advanced of today’s car batteries, production will be able to keep up with demand and iron out short term price fluctuations. But this is wishful thinking.

The lithium-ion battery that powers the latest Tesla weighs 540 kg and contains close to ten kg of lithium. If the world’s governments wish to wean the world off fossil fuels, they will have to wean two billion conventional passenger cars off fossil fuels. This will require close to 20 million tonnes of lithium. If the number of passenger cars grows by 2% a year and batteries last an average of eight years (the current warranty period on the Tesla), the annual demand for lithium will be in the neighbourhood of 580,000 tonnes.

Even that will reduce the consumption of fossil fuels by somewhere around half, for it does not take into account the consumption of the road haulage industry or the billions of two-wheelers that also consume gasoline today. Against this the entire global production of lithium was 160,000 tonnes in 2015. Since it is rising at 8.8%, it is expected to reach 239,000 tonnes by 2021, according to Macquarie Research. At that rate, it will cross a million tonnes a year before 2040. Can the increase be sustained? The short answer: No. The total amount of lithium in the earth’s crust is an estimated 13.1 million tonnes, according to the US Geological Survey.

Led by the nose

Why then are governments tumbling over each other to announce plans to stop the production of cars that run on petrol or diesel within the next two decades? The answer is that they are being led by the nose by the global automobile industry. As of now, Volvo, Toyota, BMW, Daimler-Benz, General Motors, Chrysler-Fiat, Renault, Honda, Kia, Mitsubishi, Nissan, Volkswagen and Tata have announced plans to make electric cars. They have done this because they know even if their governments do not, there simply isn’t enough rare earths and metals in the earth’s crust to permit a complete shift out of petrol and diesel. So their massive investments in the auto industry will remain safe while they exploit the consumers’ growing fear of climate change to make a fast buck.

Electric cars are therefore a blind alley up which the giant oligopolies that dominate the market economy are taking the world. It is not the first one, for wind and solar photovoltaic power are also in no position to replace even a small part of the electricity that the world consumes. Had there genuinely been no alternative to oil-based petrol and diesel, the mad dash to electric cars would have been excusable. But the technology for converting carbon monoxide and hydrogen, obtained from biomass, into any olefin or transport fuel via the Fischer-Tropsch synthesis has been known for a hundred years and was first used to convert urban solid waste into methanol commercially in the US in 1922.

Today, it can do this with any kind of biomass in the world. Thus the determination of big businesses to lead the world up the blind alley of electric cars at a time when climate change is very obviously accelerating is utterly inexcusable. For the Indian government to fall for it is just plain dumb.

https://thewire.in/184417/indias-electric-car-vision-may-leading-blind-alley/

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Three almost simultaneous developments, each of which would normally have dented the government’s image in only minor ways, show how Modi’s image is beginning to lose its shine.

Why has Prime Minister Narendra Modi gone in for such a sweeping cabinet reshuffle now? The short answer is a growing anxiety within the Sangh parivar, voiced recently in the context of agriculture by the RSS, that the BJP’s honeymoon with the electorate, the longest that any government has ever enjoyed, may be coming to an end.

For three years, Modi’s political star has been ascending. India’s new middle class has been singing his praises, NRIs have put up altars dedicated to him in their homes abroad, even leaders in the opposition have begun to wonder whether their interests will not be better served if they join the bandwagon, rather than risk being run over by it. Bihar chief minister Nitish Kumar, once the tallest among his opponents, has already chosen the safer course.

Modi has achieved his larger-than-life stature by making a succession of promises to the people and a media blitz that has no precedent in Indian politics. Whenever you look and wherever you go, televisions screens flash his image every few minutes, announcing a new programme or welfare scheme, or admonishing Indians to take part in schemes already announced. The central government’s advertisement budget for “welfare schemes” this year is a mammoth Rs 1,153 crores, Rs 200 crore more than last year. And there is hardly a single advertisement that does not centre around Modi.

This TV blitz is supplemented by a saturation of cyberspace with praise and propaganda for Modi and the BJP, and denigration of all those who find fault with his policies. The combined onslaught has stupefied the ordinary Indian and discouraged the opposition to the point where every effort by it to build a common platform against the BJP has foundered on the unspoken belief that the effort is pointless because Modi is bound to win the 2019 elections.

Modi’s Achilles’ heel

But larger-than-life images also have larger-than-life Achilles’ heels. Three almost-simultaneous developments, each of which would normally have dented the government’s image in only minor ways, show how Modi’s image is beginning to lose its shine. The first is the unconditional Indian withdrawal from the Doklam plateau; the second is the news that 99% of the bank notes demonetised on November 8 have been exchanged for new notes; the third is the decline in GDP growth to a three-year low of 5.7% in the April-June quarter of 2017-18.

Coming on top of two train accidents in four days that have killed more than 20 and injured close to 200 passengers, and the death of 67 children in a single hospital in Gorakhpur, home of Adityanath, reportedly for want of something as basic as oxygen, these setbacks have stripped the Sangh parivar’s “New India” of much of its gloss. The frenzy of denials and rebuttals that has followed each of the three events reveals the government’s awareness of the softening of the ground beneath its feet.

Stripped to its essence, India’s vacation of the Doklam plateau is an unconditional acceptance of China’s precondition for the avoidance of conflict and the resumption of normal diplomatic relations. Modi’s propagandists could easily have portrayed this as a display of good sense and moderation by both sides. But they have described it as a ‘big win’ for India and a diplomatic setback for China.

Since our TV channels have lapped it up without a word of skepticism, Beijing has been forced to disclose that, contrary to the impression it is creating, China has made no real reciprocal concession to India. Hua Chunying, the Chinese Foreign Office spokesperson made this crystal clear by stating, “Chinese border troops continue to be stationed (in) and patrol (the area)”. About the road she said that China “will take into consideration all factors, including weather, to make relevant construction plans according to situations on ground (emphasis added).”

Her reference to the weather is the only hint China will not restart the road building this year. And by ‘all factors’ she may have implied that the resumption of construction could depend upon the state of Sino-Indian relations eight months from now. The Indian public is not well versed in deciphering diplomatic language. But the perception that Doklam was at best a losing draw is bound to sink in over time.

In a similar vein, had the Modi government been less nervous, it could have claimed that the return of 99% of the demonetised currency notes is an indication of the success and not failure of demonetisation. For it shows that large numbers of tax evaders have preferred to deposit their money in banks and pay the penalty, rather than lose their money altogether. The true measure of success, it could have asserted, is not the currency that did not return but the sudden increase of money in peoples’ bank accounts that has taken place since then.

As finance minister Arun Jaitley pointed out last week, this has been substantial. But the problem with putting this forward now is that it would be not the first, but the eleventh justification for demonetisation that the government would be presenting. It would therefore strengthen the suspicion that when Modi announced demonetisation personally last November, he did not really know what he was doing and that his advisers have been cobbling justifications together ever since.

An economy in crisis

The news that the GDP only grew by 5.7% in the first quarter, against 7.9% in the same quarter of the previous year, could not therefore have come at a worse time. The government has ascribed this to the sharp drop in manufacturing growth from 10.7% last year to a measly 1.2% in the first quarter of this year. But the real explanation is that the growth last year, and in fact the whole of the economic revival that the government claims is now beginning, is a statistical illusion created by the measurement of manufacturing growth by value added and not physical output.

Value added is physical output minus the value of consumed inputs other than labour. So it can change without any change in actual production or employment. This is what boosted estimates of growth in manufacturing in 2016-17. As the RBI’s annual report this year has pointed out, in April-June 2016, there was a windfall gain in value added because of a sharp fall in input costs. This year, by contrast, there has been a slight rise in these costs. Since sale prices of manufactured products have remained fairly steady, the whole of this change has been reflected in the fall of value added in manufacturing, and therefore the GDP.

Proof of this can be had by comparing the estimate of changes in value added and physical output during this period. In April to June 2016, manufacturing output grew by only 6.7%, against the 10.7% rise in value added. In sharp contrast, this year physical production rose by 1.8% in the same quarter, but value added rose only by 1.2%. This was because there had been a marginal rise in input costs of 0.6%.

The BJP, however, cannot use this argument because, in stark contrast to the GDP data, the index of industrial production shows growth in manufacturing actually declining from 4.8% in 2012-13, the last full year of UPA rule, to 2.8% in 2015-16 and 3.8% in 2016-17. Doing so would therefore put a very large question mark over the government’s claim to have revived economic growth in the previous three years.

Precise comparisons over a longer period of time are not possible because the Central Statistical Office changed the base for calculating the index of industrial production in 2011-12 and did not link the new estimates with the old, but at the very least, manufacturing growth has fallen  from an average of 8.6% a year between 2003-4 and 2011-12 to 3.5% between 2013-14 and 2016-17.

Coming on top of this, the drop in manufacturing growth to 1.8% in the first quarter of the current year is alarming, for it not only confirms what the government’s critics have been saying, that the hardships caused by demonetisation were not just temporary, as Modi kept reassuring the people, but likely to persist for a long time.

This has since been confirmed by a host of supplementary data, such as the onset of deflation in agriculture, which signals a sharp drop in buying power in the rural areas; the CMIE’s estimate that 1.5 million jobs were lost between December and April; the fact that for the first time in over 60 years commercial bank credit has actually contracted this year, when it rose by more than 20% a year in the Atal Bihari Vajpayee and UPA-I years; that 73% of the 300 plus respondents in FICCI’s latest survey of industry indicated that they had no intention of creating any jobs for at least the next three months, and McKinsey’s finding that more than 35% of the entire 466-million labour force of India in now underemployed, with no secure jobs and no social security.

The conclusion is inescapable: Modi has utterly failed to live up to his commitment to bring back the “ache din ( good days)” and his bubble is about to burst. Only a dramatic change in policies can prevent this, and for that he may have run out of time.

https://thewire.in/174001/narendra-modi-bjp-sangh/

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A statesman is one who admits when he has made a mistake and has the grace to correct it before it does any more harm. The prime minister, unfortunately, has shown no signs of having either of these virtues.

New Delhi: Prime Minister Narendra Modi addressing the nation from the ramparts of the historic Red Fort on the occasion of the 71st Independence Day, in New Delhi on Tuesday. PTI Photo / PIB (PTI8_15_2017_000059B) *** Local Caption ***

There was a discernible note of self congratulation in Prime Minister Narendra Modi’s Independence Day speech this year. As usual, it was replete with claims – “In our country everyone is equal”, “Those who have looted the nation and looted the poor are not able to sleep peacefully today” – and exhortations – “Bharat jodo“, “Let us create a new India” – that are entirely devoid of content. But these are not the sources of his satisfaction. That arises from his confidence that he has ensured a continuation of the BJP in power for the foreseeable future. He has done this by ensuring that the opposition is unable to unite to face the BJP in 2019; and by relentlessly undermining the constitutional safeguards upon which India’s secular democracy has rested, should it become necessary to retain power through constitutional sleight of hand.

The path India is being taken on

In the last three years, Modi and Amit Shah have removed virtually every institutional hurdle to the creation of the ‘new nation’ he talked about. The BJP now has a president and vice-president of its choice, thus ensuring that any conceivable future head of state will follow Modi’s instructions.

After its successes in Uttar Pradesh, Uttaranchal and Assam, the party will soon have the majority in the Rajya Sabha that it needs to enact transformative legislation.

By overturning the seniority-cum-merit system of promotion in the army, Modi has sent the message out loud and clear to the army that henceforth, it does not serve the constitution but the prime minister. The spate of statements from all and sundry in the armed forces that have begun to equate dissenting with the BJP with treason shows that the army has got the message.

The obstacle of the Supreme Court remains. But Chief Justice J.S. Khehar, who had overturned the judicial accountability Bill and saved the collegium system for the appointment of Supreme Court and high court judges, will retire in a few months and it is a safe bet that Modi will renew his struggle to destroy the higher courts’ capacity for judicial review after he is gone.

Modi’s ideal state

Only the electoral system, the beating heart of our democracy, will remain standing in the way. Despite all their bluster, Modi and Shah are acutely aware of the fragility of the BJP’s hold on power. In 1967, the Congress had required 40.7% of the vote to win 282 seats. In 2014, the BJP did it with under 31% of the vote. They will never, therefore, feel truly secure till they have captured that additional 10%.

Since that extra vote is not yet in sight, they have been following a two-pronged strategy to regain power in 2019. The first is to woo away the crucial 10% of the electorate by creating paranoia among caste Hindus in order to create a ‘Hindu’ identity as distinct from caste. The second is to ensure, by hook or by crook, that the opposition remains fragmented. To do this, the Modi-Shah duo launched a no-holds-barred campaign to destroy state-level parties like the Aam Aadmi Party in Delhi, the Janata Dal (United) in Bihar and the Trinamool Congress in Bengal, that enjoy a measure of constitutional autonomy and therefore the capacity to form an alliance capable of defeating the BJP in 2019.

But what is the goal that Modi believes is now in sight? Behind the camouflage of his grandiose and so far unfulfilled promises lies a single unswerving aim. That is to build a Hindu rashtra. There are hints of this in his speech, but three years into the BJP’s reign one does not need these pointers to understand the kind of India that Modi, and the RSS, intend to build.

This state will confront, not accommodate, its neighbours; this state will not tolerate cultural heterogeneity, but seek to replace it with a single homogenised culture that Modi mistakenly believes to be Hindutva. Muslims, and other minorities, will be tolerated in this entity so long as they know their place. Religious pluralism will be tolerated (but not accepted), as former vice president Hamid Ansari pointed out in Bengaluru, but cultural pluralism will not. For the minorities, the path to success will be through cultural assimilation. In sum, Modi is intent upon changing the very idea of nationhood upon which India’s political identity has been based not just for the past 70, but the past 2,000 years.

Is such a profound change even possible? If not, where will its pursuit lead us? Three years on from his swearing in, the answer can no longer be ignored. In every single sphere of governance, Modi is leading India into deadly peril. If he continues down this road, India’s failure as a state is guaranteed.

 

New Delhi: Prime Minister Narendra Modi inspect a guard of honour before
addressing the nation from the ramparts of Red Fort during the 71st
Independence Day function, in New Delhi on Tuesday.
PTI Photo by Shirish Shete (PTI8_15_2017_000139B)

Zero tolerance in Kashmir

Let us look at where he has taken India in the past three years. In Kashmir, he has let loose a regime of absolute terror based on the idea of zero tolerance for political dissent. Today there are no militants in Kashmir, only terrorists who are being hunted down and killed without even being given a chance to surrender. Modi says the Kashmiris are itching to be freed from them. That of course is why hundreds of thousands of youth poured out into the streets and were able to close down the whole of Kashmir for five months last year.

What mainstream and separatist leaders have made clear, repeatedly, is that while they want ‘azadi’ from India, they do not want to become a part of Pakistan. Nor do they want to sever their links with India. All they want is not to be ruled by Delhi, especially on matters concerning their politics, culture and religion. Today, mainstream and separatist leaders are frantic in their pleas for the resumption of a political dialogue with Delhi because the absence of dialogue and Modi’s sole reliance on the gun is driving the youth steadily towards Pakistan, and more recently al-Qaeda and ISIS. Modi has only to live up to the promises he made a year ago to opposition leaders from Kashmir, to discuss any solution within the Indian constitutional framework, for Kashmir to start calming down. But he is dead set against this because a willingness to negotiate with a local government or movement goes agains the very grain of the hard nation state that Modi wants to turn India into and makes him, personally, look weak.

A dangerous foreign policy

Not only is Modi’s hardline policy pushing Kashmir into the arms of Pakistan and jihadi Islam, but it has given the Pakistan army the excuse it had been looking for since 2007 to steadily weaken Pakistan’s democratic establishment and concentrate power in its own hands. This has reversed the trend that India’s helpful and accommodating attitude to civilian governments there, since its foreign exchange crisis in 2012, had created. Indian firing across the LoC has killed 39 persons and injured 133 in 2016, and killed 24 and injured 170 so far this year.

Close to 500 poor and utterly innocent families have therefore suffered grievous losses in Pakistan-occupied Kashmir and possibly a similar number in Jammu and Kashmir, over something that Modi and the Pakistani generals know perfectly will yield them not a stitch of territory or military advantage.

A more immediate peril into which Modi has gratuitously pushed India is the mounting confrontation with China on the Doklam plateau in Bhutan, adjoining Tibet’s Chumbi Valley. Only those willing to gamble recklessly on India’s future have not recognised that the Chinese official position paper released on August 2 is in effect an ultimatum to India to leave the Doklam plateau, or be forcibly ejected from it. It concludes by stating baldly that “No country should ever underestimate the resolve of the Chinese government and people to defend China’s territorial sovereignty. China will take all necessary measures to safeguard its legitimate and lawful rights and interests. The incident took place on the Chinese side of the delimited boundary. India should immediately and unconditionally withdraw its trespassing border troops back to the Indian side of the boundary. This is a prerequisite and basis for resolving the incident” (emphasis mine).

The Chinese ambassador in Delhi underlined this the next day by stating that the presence of even one Indian soldier in Doklam will be considered an act of aggression. But another fortnight has passed and Modi has refused to budge.

Instead, as the South China Morning Post has reported, India is reinforcing its military presence at the India-Bhutan-Tibet tri-junction, and analysts are warning China of the possibility of  a blockade of the Malacca straits by the Indian Navy if China wages war in the Himalayas. Thus, after deriding Jawaharlal Nehru day in and day out for irresponsibly pushing India into the 1962 war, Modi is doing exactly the same thing – pursuing a reckless policy with China and gambling everything upon its not daring to strike back.

I have written extensively in my columns, as have many others, on the Sangh parivar’s relentless assault on Indian Muslims, on secular and Left intellectuals, and on the BJP’s political opponents, using and abusing every instrument of law the government could lay its hands upon, so I will not dwell on it any further.

Nor, for the same reason, will I dwell on the catastrophic decline of the Indian economy in the last four years and the many stratagems the Modi government has used to hide it. Suffice it to say that after taking into account those who have lost their jobs, the net employment growth in these years has been close to zero.

But Modi is as unable to step back from his gigantic blunders with Pakistan, with China, with Nepal and in the handling of the economy, as he was in admitting his bungling of the demonetisation. An essential requirement in a statesman is the self-confidence to admit when he has made a mistake and the grace to correct it before it does any more harm. India’s greatest peril arises from the fact that Modi has not shown any signs of having either of these virtues.

Prem Shankar Jha is a senior journalist and the author of several books including Crouching Dragon, Hidden Tiger: Can China and India Dominate the West?

https://thewire.in/168526/narendra-modi-india-bjp-shah/

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