pragati issue6 september 2007 community ed

8/14/2019 Pragati Issue6 September 2007 Community Ed

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The Indian

National Interest

ReviewNo 6 | 2007

ISSN 0973-8460

ALSO


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ContentsPERSPECTIVE

2 In defence of the deal T S Gopi Rethinaraj4 India gets a deal Ivan Oelrich

FILTER

7 Liberalise nuclear power; Oil supply vulnerability; Inthe proper format; The war at home; Costs of calling inthe army

IN DEPTH

9 Governing microfinance M R Madhavan & Kaushiki Sanyal

ROUNDUP

11 Taking on the dirigiste state Jaithirth Rao12 A few myths, fewer facts Omair Ahmad14 When the Court steps in Ninad Laud15 An incorrect hyphen Sushant K Singh

BOOKS

16 Review: Spy thriller K S Madhu Shankar17 Review: The budget that was not tabled T R Santhanakrishnan

PragatiThe Indian National Interest Review

No 6 | Sep 2007

Published by The Indian National Interest - an independentcommunity of individuals committed to increasing public awareness

and education on strategic affairs, economic policy and governance.

Advisory PanelMukul G Asher

V Anantha NageswaranSameer WagleSameer Jain

Amey V Laud

Contributing EditorsNitin Pai

Rohit PradhanSandeep Balakrishna

Chandrachoodan Gopalakrishnan

AcknowledgementsXyrus (Cover Art)

Priya Kadam

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INDIA-US NUCLEAR DEAL

In defence of the dealCynical politics must not hold up a deal that is good for India

T S GOPI RETHINARAJ

THE INTENSE domestic debate since July 2005 on variousissues concerning the India-US nuclear deal did help theIndian government in its negotiations. But political short-sightedness and misplaced concerns can prevent the coun-try from seizing the opportunity to end the nuclear apart-heid that it is a victim of. It is necessary to realise that thesingle country exemption accorded to India in the context ofan international treaty is unprecedented. Ratan Tata, thedoyen of Indian industry, indicated in a recent televisioninterview that the nuclear deal is in many ways the bestpossible thing that has happened to India in a long while,adding, the only people happy to see this not happeningare probably Pakistan and China. So why the opposition to

an initiative regarded as a major foreign policy success?Among the voices of opposition to the deal, the commu-

nist hypocrisy stands out. From being long-time opponentsof Indias nuclear weapons program, the communists arenow masquerading as bomb lovers and ultra nationalists.Indian communists have been en-thusiastic supporters of Soviet andChinese bombs as essential toolsfor defeating imperialism, buthave always viewed the Indianbomb as threat to regional peace.

The current worry of the Leftseems not really about the nucleardeal but about other issues in-volved, especially Indias growingties and strategic alliance with theUnited States. Most Indian news-papers have charged the Left asserving as platform for promotingChinas national interest.

While it is very difficult to es-tablish whether the Indian com-munists are actually taking orders

from Beijing on this issue, theirstance serves Chinas interest well.Moreover, killing the deal withinIndia will save the Chinese gov-

ernment from huge embarrassment of being a dissentingminority when the issue comes up for discussion at NuclearSuppliers Group (NSG). With almost every major player inthe NSG cartel indicating support for the initiative, the Chi-nese have been conspicuous by their official silence on theissue since July 2005. Instead they have used their con-trolled media to express their anti-India views and mindset.

So, despite the Lefts claims that their position is basedon independent assessment they have effectively convertedthemselves as agents of Chinese interests. Also, by exploit-ing Muslim discontent over U.S. policies in the Middle East,the Left is reaching out to Islamists, giving communal col-our to the nuclear deal.

While the communists position and attitude is in keep-ing with their political and ideological preferences, the shrillcampaign by the Bharatiya Janata Party (BJP) will undosome of its own foreign policy achievements. By pursuingopportunistic politics on the nuclear deal issue, the BJP is

PERSPECTIVE

PRAGATI - THE INDIAN NATIONAL INTEREST REVIEW 2


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only helping the Left's cause for whichit may pay a dear electoral price. For aparty struggling with identity, organisa-tional and leadership crises, finding acommon cause with the United Progres-sive Alliance (UPA) government on the

nuclear issue would have helped restoreits dented image. The BJPs argumentthat the deal constrains nuclear testingsounds dishonest given that the unilateral testing morato-rium and willingness to commit to fissile material cut-offwas announced when it was in power.

Others oppose the deal due to some genuine and manymisplaced concerns. Individuals formerly associated withthe nuclear establishment have expressed concern abouthow future US administrations will interpret and applytheir domestic laws including the Hyde

Act. They argue that India should haveironclad guarantees to prevent fuel supplydisruption in the event it conducts a testin future, say 20-25 years from now. How-ever, this long time horizon is irrelevant because it is very difficult to predict thegeopolitical landscapeand therefore theusefulness of guaranteesso far into thefuture. Indeed, it is Indias growing economic and politicalclout that is likely to help weather the impact of testing.

Another criticism levelled against the government is thatthe negotiations were conducted by a small coterie chosen

by the prime minister, and for most part, Parliament and thepublic were kept in the dark. While this is true, it is par forthe course: from Nehru to Vajpayee to Manmohan Singh,nuclear policy making has always been conducted in se-crecy by a small clique in the prime minister's secretariat. Atleast in the case of the current deal there has been an exten-sive public debate in Parliament and the media with thegovernment periodically responding to various doubts andconcerns.

Unlike the United States, the Indian executive has theprerogative for negotiating and signing treaties with foreign

governments without having to obtain the Parliament's ap-proval. This is the constitutional position in India. Perhapsafter seeing how the process was handled in America (withthe executive going through the Senate and House approv-als systematically) the political class has suddenly wokenup to the fact that the constitution and historical precedentgives enormous powers to the Executive without legislativeoversight, resulting in creating an impression that the In-dian Parliament was inferior to the US Congress. Fixing thisdifference will require a constitutional overhaul in India,which is a different matter altogether.

The core of the debate is nuclear testing as there are

many uncertainties surrounding the question. Deal or nodeal, there will be consequences-as in 1974 and 1998-if Indiawere to conduct tests unilaterally. Testing would be veryimprudent because the costs of economic sanctions will be

relatively higher now than in 1998.There is no strong domestic constituencyfor testing, as citizens are aware of In-dia's nuclear power status afterPokhran-II in 1998. Moreover, the Indian business community is unlikely to be

enthusiastic about testing and its conse-quences at a time when it is globalisingits interests and looking forward to the

removal of technology sanctions. Removal of dual use sanc-tions and betterment of India-US relations is not just aboutthe nuclear sector alone, but about technology access tobuilding knowledge industries and high value added prod-ucts as the country positions itself as a key player in theknowledge economy. Neither political nor economic condi-tions are conducive for renewed testing.

India will find it very difficult to overcome its own test-ing moratorium--at least for the next 10 years--barring ex-traordinary geopolitical or security developments. So, giventhe prospects of India conducting a test before a Chinese ora Pakistani one are rather remote in the foreseeable future,this should not be a cause for killing the deal that has otherbenefits. It is quite possible to maintain strategic deterrencewithout testingby refining the non-nuclear componentsand delivery systems till a favourable climate emerges forrenewed testing.

The circumstances would be very different if India re-sponds to a Chinese or a Pakistani nuclear test. It would bepolitically unrealistic for the United States to lower theboom on India as a response. But it is also unrealistic to ex-pect the US to accept this in advance. An American expertsummarised to this author the dilemma from U.S. point of

view thus: The difficulty here is that it is not politicallypractical, either domestically or internationally, for theUnited States to formally codify a position that it will lookthe other way [if India] responds to rather than initiates nu-clear explosives testing.

T S Gopi Rethinaraj is Assistant Professor at the Lee Kuan Yew

School of Public Policy, National University of Singapore.

PERSPECTIVE

3 No 6 | SEP 2007

It is quite possible to maintain strategic deterrencebyrefining the non-nuclear components and delivery sys-temstill a favourable climate emerges for renewedtesting


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THE ARMS CONTROL PERSPECTIVE

India gets a dealUndermining the non-proliferation regime is not worth the price

IVAN OELRICH

DETAILS OF the much anticipated deal between the UnitedStates and India for the transfer of nuclear technology andequipment was released on 3rd August. The text of the 123agreement is a sobering read and tells us much about theBush administrations thinking. In summary, there isntmuch of a deal here at all from the American perspective:India gets what it wants and the agreement is in direct con-flict with recently enacted law. It seems that there is agree-ment between the leaders but a gulf between the two legis-latures.

The agreement not only fails to seek any constraints onIndias nuclear weapons program, it goes out of its way tomake clear that what goes on in the nuclear weapons pro-gram is off the table and not to affect at all the agreementsexecution. Article 2.4 is key:

The Parties affirm that the purpose of this Agreement is toprovide for peaceful nuclear co-operation and not to affectthe unsafeguarded nuclear activities of either Party. Accord-ingly, nothing in this Agreement shall be interpreted as af-fecting the rights of the Parties to use for their own pur-

poses nuclear material, non-nuclear material, equipment,components, information or technology produced, acquiredor developed by them independent of any nuclear material,non-nuclear material, equipment, components, informationor technology transferred to them pursuant to this Agree-

ment. This Agreement shall be imple-mented in a manner so as not to hinder orotherwise interfere with any other activi-ties involving the use of nuclear material,non-nuclear material, equipment, compo-nents, information or technology and mili-tary nuclear facilities produced, acquiredor developed by them independent of thisAgreement for their own purposes.

This means that the civilian nuclear sectoris under International Atomic EnergyAgency (IAEA) jurisdiction but what In-dia does with its nuclear weapons is ex-plicitly irrelevant to US-Indian civiliannuclear co-operation. This section meansthat India could resume nuclear testing

and the United States could not use thatas a reason to stop nuclear technologyand equipment sales. Not that anybody is

expecting it, but India could even give nuclear weaponsaway and, as long as none of the material or technologycame from the civilian sector, the United States could notstop its civilian nuclear co-operation.

Theres more. Under Article 5.6(a) the United Statescommits itself specifically to assuring Indias access to nu-clear fuel and technology. In other words, not only does theUnited States explicitly declare that it will never threaten

nuclear trade in response to Indias weapons activities, forexample, a nuclear test. It will also use its full influence toensure that India is fully insulated from any such pressurefrom any quarter. The article reads as:

The United States has conveyed its commitment to the reli-able supply of fuel to India. Consistent with the July 18,2005, Joint Statement, the United States has also reaffirmedits assurance to create the necessary conditions for India tohave assured and full access to fuel for its reactors. As partof its implementation of the July 18, 2005, Joint Statementthe United States is committed to seeking agreement fromthe U.S. Congress to amend its domestic laws and to work

with friends and allies to adjust the practices of the NuclearSuppliers Group to create the necessary conditions for Indiato obtain full access to the international fuel market, includ-ing reliable, uninterrupted and continual access to fuelsupplies from firms in several nations.

PERSPECTIVE


Photo:PMO/GOI


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One thing is clear: the Bush administra-tion is more concerned about maintaininggood relations with India than it is inter-ested in maintaining good relations withthe U.S. Congress. The entire thrust of the

India-US agreement ignores key provisionsof the bill authorising nuclear trade passedin the previous, Republican-controlled, Congress. TheHenry J. Hyde United States-India Peaceful Atomic EnergyCooperation Act of 2006 places several restrictions on Indiathat were not only simply neglected but actually reversed inthe deal. For example, the sense of the Congress, set forth inthe Hyde Act, Section 102.13 reads, the United Statesshould not seek to facilitate or encourage the continuationof nuclear exports to India by any other party if such ex-ports are terminated under United States law. This is pre-

cisely the opposite of the Article 5.6(a) above. The Hyde Actdoes not mention nuclear explosions explicitly but essen-tially grandfathers Indias past nuclear explosions includingthe series in May 1998. In other words, past explosions areforgiven but future ones are forbidden, at least would stopnuclear co-operation. The administrations deal seems to bein conflict with this provision of the law.

You might think that the above clause simply doesnt

apply because it clearly applies to any non-nuclear-weapon state and clearly India is a nuclear weapon state.Perhaps clear in fact, but not in a diplomatic legal sense. Inhis testimony before the Senate, Undersecretary of StateRobert Joseph said, Our initiative with India does not rec-ognise India as a nuclear weapon state.

The deal seems to give India everything it wants with

little in return because the U.S. administration does notwant anything in return. Most who have thought aboutIndia-U.S. nuclear co-operation recognise that there is atrade-off here: Yes, there is a certain danger to the NPT andto non-proliferation efforts in general if India is able to testand build nuclear weapons outside the treaty. On the otherhand, it is important to bring India fully into the interna-tional system and to strengthen US-India ties. The Indian

government has forced this choice: theyseem to feel they are in a commanding ne-gotiating position and have set de factorecognition as a nuclear weapon state asthe price for better relations with the U.S.Undermining the non-proliferation regime

is not worth the price, especially since theprice is set by India. There are numerous

ways that the United States could co-operate more fullywith India (and already does), whether economically, politi-cally, militarily, scientifically, or culturally. The two coun-tries could have very close ties and simply agree to disagreeabout nuclear weapons. The United States and Norway dis-agree about whaling but that does not mean they cannot beclose allies. And no one expects Norway to demand thatrelations in all spheres depend on the United States enthusi-astically supporting their whaling. Other analysts come to a

different judgement, that the damage to non-proliferationcan be contained and the benefits of a strategic relationshipwith India are worth the risk. That is not where my judge-ment falls, but I respect the view.

The administration is a third camp; it does not seem tosee that there is any trade-off to be made. It has broadlysuggested that India is a useful balance to a rising China,including balancing Chinas nuclear forces with Indias

growing arsenal. To the ad-ministration, whose supportfor the NPT has been half-hearted at best, a growing

Indian nuclear arsenal is notsomething to be feared oravoided. A miniature nucleararms race with the Chinese

might give the Chinese pause, and weigh in on the Ameri-can side in the strategic balance. The Indians were demand-ing full, if only de facto, recognition as a nuclear weaponstate but they were pushing on an open door. There was notgoing to be any resistance from this administration. So whatwas there to negotiate? How could the United States de-mand some balancing concession from the Indians if what

the Indians were proposing is exactly what the UnitedStates wanted? The reaction from Congress when it returnsin September will be interesting.

Ivan Oelrich is the vice president for strategic security programs

at the Federation of American Scientists.

PERSPECTIVE

5 No 6 | SEP 2007

Not only does the United States explicitly declare that it willnever threaten nuclear trade in response to Indias weapons ac-

tivities, but that it will also use its full influence to ensure that In-dia is fully insulated from any such pressure from any quarter.


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Liberalise nuclear powerMANY OF the pundits, politicians and policymakers cur-rently worrying about the impact of the India-US nucleardeal on energy security need to ask themselves a few hardquestions. Let us for a moment, set aside the debate overhow big a role nuclear power will play in the decades tocome. Lets just focus on the nuclear power industry itself.

Whats the biggest hurdle preventing India from betterexploiting nuclear power? Its easy to blame the Departmentof Atomic Energy (DAE) and its associated corporations.Surely they could do better. Surely they could do with moretransparency. But the reality is that not only has the DAE

managed to hold its own in the face of an hostile interna-tional sanctions regime, but has suffered from the fact that ithas only one investorthe central government. And at thebest of times, public funds for atomic energy R&D and pro-duction come at high opportunity costsshouldnt the gov-ernment increase expenditure on education, vaccinationprogrammes or even thermal power plants, instead of onnuclear reactors? But in its typical dog in the manger style,the central governmentthrough the Atomic Energy Act of1962prevents private sector investment in generating nu-clear power.

Its a similar story with exploiting domestic reserves ofuranium. Surely, arent those anti-nuclear NGOs and Leftyenvironmentalists holding up initiatives to expand uraniummining? Well yes. But they are only capitalising and givingexpression to the underlying problemthe government isnot obliged to pay fair compensation to land-owners sittingon uranium ore. They lack incentives to make their landsavailable for mining, and faced with the states power tonationalise their property, are likely to find anti-nuclear po-litical agitation a useful tool to protect their interests.

Even without the India-US nuclear deal, the demands ofenergy security would have dictated that the nuclear power

industry be liberalised, along the lines of, say, telecommuni-cations. As in the case of natural gas supplies, the quest forenergy security again begins at homein creating competi-tive markets. Indeed, one of the major advantages of theseparation of civilian reactors from military ones is that theformer can be opened up to private investment. There isnow no reason at all for the government to retain a monop-oly over production of nuclear powerany more than it hasa reason to have a monopoly over the production of powerfrom bio-fuels.

- Nitin Pai, Energy security begins at home (nuclear power edi-tion) , The Acorn, 27 Aug 2007

AN ASPECT of the energy security debate was the need tokeep in mind two basic truths. The first of these is that In-

dias problems, lifestyles, geography, strengths, weaknesses,and so on are all very different from those of a country suchas the US...there is a danger of focusing on issues that may

capture government and public interest abroad but in Indiaare marginally relevant and affect only a small group ofpeople.

The second proposition was that underlying any kind ofsecurityenergy or otherwisemust be a sound economicsubstructure. Debates regarding energy strategies such asequity oil investments are meaningless without this. Manystrategic energy policy decisions (equity investments, na-val defence upgradation, undersea pipelines, and so on) arecharacterised by extremely high costs. It is debatablewhether these expenses are justified in the context of India

and whether our economy can bear government expendi-tures of this kind. Nor is it possible to obtain efficientchoices that reflect majority interests unless decisions aremade in a proper economic framework. Thus, addressingthe concerns of Indias economy and governance would goa long way towards providing security.

- Subroto Roy, quoted by Anant SudarshanIndias energysecurity: foreign, trade, and security policy contexts , EnergySecurity Insights (TERI), April 2007

THE ECONOMICS of nuclear power in India depends on

the cost of electricity generated by a nuclear power plantvis--vis cost of generation of electricity from coal firedthermal power plant.

The coal deposits in India are concentrated in the Easternregions. The setting up of a coal fired power plant in West-ern India and in the North-west, entails transporting coalover distances exceeding 1000 Km. as the distance involvedin the transportation of coal from a mine mouth exceeds1000 km, the economics of nuclear power becomes favour-able

- Yoginder K Alagh, The economics of nuclear power in India,Nu-Power, Vol 11, No. 1-3, 1997

Country Geopolitical Oil Risk Rank (1=greatest risk)

Japan 1

France 19

India 21

United States 22

China 26

Oil Supply Vulnerability (2004)

Source: Eshita Gupta, Geopolitical oil vulnerability of oil-importing countries,Energy Security Insights (TERI), April 2007

FILTER

7 No 6 | SEP 2007

Essential readings of the month


9/20

In the proper formatIN JULY 2002, a CIA case officer told [US special forces op-erative Adam Rice] that a figure believed to be MullahOmar, the one-eyed chief of the Taliban, had been tracked

by aerial drone to a location in the Shahikot Valley, a shortflight to the north. The Taliban chief and his entouragewould be vulnerable to a helicopter assault, but the Ameri-cans had to move quickly.

Rice was not optimistic about getting timely permission.Whenever he and his men moved within five kilometres ofthe safe house, he says, they had to file a request formknown as a 5-W, spelling out the who, what, when, whereand why of the mission. Permission from headquarters tookhours, and if shooting might be involved, it was often de-nied. To go beyond five kilometres required a CONOP (for

concept of operations) that was much more elaborate andrequired approval from two layers in the field, and finallythe Joint Special Operations Task Force at Baghram air basenear Kabul. To get into a fire fight, the permission of a three-star general was necessary. That process could take days,Rice recalled to NEWSWEEK. He often typed forms whilesitting on a 55-gallon drum his men had cut in half to makea toilet seat. Wed be typing in 130-degree heat while werecrapping away with bacillary dysentery and sometimes thebrass at Kandahar or Baghram would kick back and tell youthe spelling was incorrect, that you werent using the tab todelimit the form correctly.

- Evan Thomas, Into thin air: Hes still out there. The hunt forbin Laden, Newsweek, 3 Sep 2007

The war at homeWHAT IS happening to India on the terrorist front is bad,but what is worse is the way we are reacting to it.

The worst reaction of a government is to underplay it,divert the discourse from core issues to the peripherals. As-

serting that all is well and nothing needs to be changed,emphasising maintenance of social harmony as the coreconcern, complimenting people for bravely suffering lossesand returning to normal lives, talking about human rightsand protection of minorities these are all laudable objec-tives. No one disputes them, but they do not address thecore issues.

In the face of a threat as serious as this, the national focusshould be on: how serious is the threat; its long and short-

term implications; our capacities to counter the threat, bothin policy formulation and policy execution; and how to ad-dress the deficienciesThe right discourse should also cen-tre on our policy options vis--vis countries and groups in-volved in terrorist incidents in India. This is not happening,and thats the tragedy.

It is not happening because a basic requirement is miss-ing: a political culture that can subordinate electoral andother political considerations to the nations supreme sover-eign interests.

It is a myth that terrorists strike anywhere, any time andagainst any target. Had that been so, they would havecaused havoc not just in India. Terrorists strike where theirintentions and capabilities meet the opportunities. The suc-cess of counter-terrorism lies in degrading their capabilities,forcing them to change their intentions and denying themopportunities to strike. We appear to be failing on all three

counts.

- Ajit Doval, Needed: war on error , The Indian Express, 30Aug 2007

The costs of calling in thearmyTHE MOST worrisome part of the entire Gujjar agitation

was the undermining of deterrence value of the army-thecountrys ultimate recourse for internal security. Army con-tingents conducted flag marches all over the impacted areasbut of no avail. Use of minimal force is most laudable anddesirable in dealing with such situations, but our decision-makers need to realise that the army is deployed for effect.The para-military forces and the army were seen to be reluc-tant in exercising even that minimum inescapable force, notof their own volition, but because of prevarication of thedecision-makers. While in this particular case, we may drawthe satisfaction that the agitation has temporarily been re-solved due to other factors, it may not be the case in future.

The agitators were led by a former army officer who hadcorrectly understood the functional limitations of the armycontingents that were deployed.

- RSN Singh, Gujjar agitation: internal security ramifications,Indian Defence Review, Jul-Sep 2007

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10/20

LEGISLATION BEFORE PARLIAMENT

Governing microfinanceThe Micro Financial Sector (Development and Regulation) Bill, 2007

M R MADHAVAN & KAUSHIKI SANYAL

PARLIAMENT IS considering a bill to regulate the microfi-nance sector. It appoints the National Bank for Agriculturaland Rural Development (Nabard) as the regulator for mi-crofinance organisations (MFOs). It requires MFOs to fileaudited returns, and make their books of account available

for inspection by Nabard. It allows them to collect savingsdeposits after registering with the regulator. Nabard itselfwill constitute and manage a microfinance developmentand equity fund. The bill seeks to establish a developmentcouncil to advise Nabard on policy issues,

The objective of the bill is to promote and regulate themicrofinance sector and to permit MFOs to collect depositsfrom eligible clients. Three key issues emerge: first, whetherMFOs are the appropriate vehicle to address credit needs ofthe poor, and therefore should policy be geared to promotethem; second, whether Nabard is the appropriate body to

regulate the sector; and third, whether there are adequatesafeguards to protect depositors funds.

Should policy be geared to promote MFOs?

Commercial banks have fixed costs per transaction.Therefore, the transaction costs as a percentage of the loanamount rises as the loan size decreases. This deters banksfrom lending small amounts. Typically, lending to small borrowers follows an indirect route. Banks lend to MFOswho then lend to various Self Help Groups (SHGs). Indi-vidual borrowers get funds through SHGs. While this routedoes improve access to funds for small borrowers, opera-

tional costs are significantly higher than for traditional loans(See Table 1). These costs are often transferred to donorsthrough subsidised borrowings or to borrowers throughhigher interest rates.

Bank NBFC MFO

Average Interest rate on lending (%) 8.3 10.6 19.1

Average Interest rate on borrowing (%) 5.3 6.3 6.6

Net Interest Spread (%) 3.0 4.3 12.5

Operation Cost as % of loans 3.9 2.5 9.6

Table 1. Comparative Cost Structure of Bank, NBFC and MFO

Note: Data used for banks is State Bank of India, 2006-07; for Non-Banking Financial Companies (NBFCs),Sundaram Finance Ltd., 2005-06; and for MFOs, Bangladesh Grameen Bank, 2005. Averages calculated byauthors.

In this context, a recent report of a technical group ap-pointed by Reserve Bank of India (RBI) to review legislationon money lending explores the possibility of money lendersserving as an additional delivery channel for the formal sec-tor.

Who should regulate the sector?

The bill has designated Nabard as the regulator for themicro financial sector. However, Nabard also provides eq-uity capital and debt funds to MFOs. Recently, Nabard in-dicated its intent of establishing its own microfinance insti-tutions. This raises the issue of conflict of interest betweenits various roles. Other deposit taking entities (banks andNBFCs) are regulated by RBI. The bill creates a conflict ofinterest situation at a time when the central government bought out RBIs shareholding in State Bank of India to

eliminate the conflict between RBIs roles as owner andregulator.

Are there enough safeguards to ensure safety of deposi-

tors funds?

Presently, the Reserve Bank of India (RBI) regulates thecollection of public deposits. Organisations authorised todo so are subject to the prudential norms set by RBI, with aview to the safety of the savings deposits. Other than banks,Non Banking Financial Companies (NBFCs) are allowed toaccept public deposits if they follow the regulations pre-scribed by RBI. Table 2 outlines the prudential norms for

deposit taking NBFCs and commercial banks. In addition,all deposits with banks are insured up to Rs 1 lakh. If a bankis unable to honour its liabilities, deposits up to Rs 1 lakhwould be paid by the Deposit Insurance and Credit Guaran-tee Corporation of India.

The bill allows MFOs to offer thrift services if they meetcertain conditions: if the net owned funds of an MFO is atleast Rs 5 lakh, and if the MFO has been in existence for atleast three years. The minimum net owned funds requiredis not related to the amount of deposits taken by the MFO.

There are two points of view on allowing MFOs to offer

thrift services. One argument is that such a provision wouldincrease the outreach of micro financial services. It wouldoffer an alternative to the poor, who otherwise have to relyon riskier and lower yielding savings instruments. Theother argument is that lowering of prudential norms for

IN DEPTH

9 No 6 | SEP 2007


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MFOs puts depositors money at greater risk. Since MFOsoffering thrift services mainly cater to the poor, allowing alower level of protection for their savings might lead to fur-ther impoverishment, especially of women who form themajority of SHGs in the country.

NBFCs takingPublic Deposits

Banks

Net Owned Funds Rs 2 crore Rs 300 crore

Capital AdequacyRatio

Minimum of 12% Minimum of 9%

Non Performing AssetsNeed to make provisions againstnon performing assets

Need to make provisionsagainst non performingassets

Credit Rating Minimum investment grade orother specified credit rating

None

Period of Public De-posit

Between 1 year and 5 years Current and demanddeposits and minimum 7days for time deposits

Interest Rate on

Deposits

Interest rate ceiling specified (now

12.5% per annum)

No restrictions

Transfer to ReserveFund

20% of profits None

Investment in Ap-proved Securities

Minimum 10% of liquid asset inapproved securities and 5% inunencumbered term deposits withany scheduled commercial bank

Minimum 25% of liabilitiesin approved securities

Limit of Deposits 4 times net owned funds for leasecompanies and 1.5 times netowned fund for loan and invest-ment companies

None

Table 2: Key Prudential Norms for NBFCs taking Public Depositsand Banks

An advisory committee appointed by the RBI recom-mended that in view of the need to protect the interests ofdepositors, MFOs may continue to extend micro-credit serv-ices to their clients but should not be permitted to acceptpublic deposits unless they comply with its extant regula-tory framework. The bill is currently being examined by the

Parliamentary Standing Committee on Finance. While itmay find that promoting microfinance will address the chal-lenge of extending financial services to the poor, it would dowell to scrutinise the proposed governance structure. In par-ticular, the issue of conflict of interest between the MFOsand their regulator needs to be examined. Also, the impor-tance of protecting the savings of the poor cannot be over-stated.

M R Madhavan and Kaushiki Sanyal work with PRS Legislative

Research, New Delhi, an organisation that seeks to strengthen the

legislative process by making it better informed, more transparent

and participatory.

IN DEPTH


More online

Contributors websites and blogs

Ivan Oelrich www.fas.org/blog/ssp/PRS Legislative Research www.prsindia.orgJaithirth Rao tinyurl.com/2tg6tsNinad Laud lex.nationalinterest.inK S Madhu Shankar catapult.nationalinterest.inT R Santhanakrishnan toprack.blogspot.com


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ECONOMIC FREEDOM

Taking on the dirigistestateSaving the poor from rent-seeking vultures

JAITHIRTH RAO

THOSE OF us who favour a deft, non-intrusive state areoften accused of being camp-followers of the neo-liberal(whatever that means) plutocrats who are indifferent to thepoor. The reality is of course just the opposite. The self-appointed leftist supporters of an ever-widening state arethe real enemies of the poor while pretending to be theirsaviours.

Consider some simple facts. Air India, LIC, ITDC and thepublic-sector banks are all entities that can easily access pri-vate capital markets. Every time the government makes aninvestment in these companies, the rupee of investment

made is a rupee stolen from Indias poor. It is a rupee thatcan and should be spent improving the working conditionsof our underpaid police force, enhancing the capacity ourover-worked judiciary, and building up our public sanita-tion and public health infrastructure. A government thatcannot undertake effectively the tasks of controlling riots orchikungunya has no business running airlines, hotels andbanks.

But why then are these so-called friends of the poor in-sisting on hanging on to public sector white elephants. Asthe little bird told its friend its self-interest, old boy, pure

and simple! If you control airlines, then you have access tothe honey pots of kickbacks paid by Boeing andAirbus (worthy companies,which will deny that theyviolate their national laws by paying kickbacks, wor-thy companies who youmay choose to believe if you so wish). If you control hotels,you can get free hospitality for the leaders and the com-missars (who accept such hospitality only because theirpoor voters would be unhappy otherwise). If you control

banks, your buddies can be appointed as directors, othercronies can get loans on easy terms and so on. (Conspicu-ously your buddies and cronies are not poorhow elsecould they have entered your charmed inner circle?). If you

control insurance companies, you can protect incumbenttrade union czars who love featherbedding at the cost ofinsurance consumers and who provide funding for yourcandidates at election time.

Raghuram Rajan, the International Monetary Fundschief economist, has written an interesting book SavingCapitalism from Capitalists where he argues that one ofthe greatest risks to market capitalism is the prospect of acosy relationship that can easily developin the absence ofeternal vigilancebetween political powers-that-be and theentrenched rich. This can act as a barrier to the free entry of

new entrepreneursthey with no inherited wealthwhichis the basis for innovation and economic growth in any soci-ety. There is a similar symmetric situation apropos of thedefenders of statism with respect to their dealings with thepoor. It is therefore necessary to create the atmosphere for aloud, incessant dialogue about the need to save the poorfrom their paternalistic rogue well-wishers.

No citizen of India who has had the opportunity, naymisfortune, of visiting the office of a sub-registrar (forgetabout the office of an exalted registrar) or who has tried tounderstand why wholly preventable diseases like cholera or

dengue should attack his or her children, can believe thatthe state can be any-thing but a tyrant insti-tution. And yet, therhetoric that this perni-cious, even rapaciousinstitution can conferprosperity on us and

that too by running commercial entities manages to retaincentrality in our public discourse. How can we get the mes-sage across that only a limited state, one focused on its pri-mary duties, can be a benevolent one? How can we estab-

lish that the privileged commissars and their cronies are theenemies of the poor and by no means their benefactors?This is the central challenge of Indian politics and public lifeto-day.

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11 No 6 | SEP 2007

A government that cannot undertake effectivelythe tasks of controlling riots or chikungunya hasno business running airlines, hotels and banks.


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George Stigler, a Nobel prize-winning economist, haspointed out that small groups of vested interests (ministers,bureaucrats, trade union leaders) can be very successful indefending their financial gains (as they are concentratedamong a few people who are willing to organise them-selves) against large numbers of citizens (as they are dis-

persed and do not see any significant loss, as the losses tooare spread out among large numbers).

One way out is to co-opt significant gainers and losers ina common struggle. A campaign calling for all police sta-tions to have decent, clean toilets and for all judges to begiven user-friendly laptops, might at one stroke get on thesame side two powerful groups who the government cannotignore. The campaign could publicise the fact that a 10 percent divestment of LIC could easily fund this exercise. Itmight even be possible to get those sub-registrars signedupby proposing that the least they need in order to work

productively are functioning ceiling fans, that a 2 per centdivestment in public-sector banks will make possible.The next stage is to argue that we can have underground

drainage and sewage in all municipalities if we stop usingpublic funds to buy Boeings and Airbuses. This direct corre-

lation between unnecessary state interventions and publiclydesirable ones needs to be hammered in day in and day out.

On the surface, it seems easier to promise free electricity(while continuing to hire ones buddies in already over-manned State Electricity Boards) or to engineer religiousriots or to appeal to caste loyalties at election time than to

publicise the connections that need making. Difficulty, how-ever, should not mean surrender. Freedom-loving,prosperity-loving set of citizens of our benighted land musteagerly, loudly and unashamedly make this their plank. Weowe it to ourselves as citizens and to our poorer country-men and countrywomen that there is a revival of a politicalplatform on this basis. We must embark on this jour-neyhowever long and difficultof saving our poorfrom the rent-seeking vultures of a dirigiste state.

Jaithirth Rao is a commentator on economic, political and cultural

issues in contemporary India.

INDIAN MUSLIMS

A few myths, fewer factsIf data informed the polemic over Muslims and the criminal justice sys-tem...

OMAIR AHMAD

WHEN ZAKIR Hussain was sentenced to death by hangingfor his part in setting off the 1993 Bombay blasts, heshouted, If a Hindu does something, a commission is setup. But if a Muslim does something, he is hanged. Thiswas in reference to the destruction of the Babri Masjid andthe riots that had followed in December 1992 and January1993.

The Srikrishna Commission, constituted to determine thecauses of the riots in which approximately 900 people, pre-dominantly Muslim, were killed, had stated that, Onecommon link between the riots of December 1992 and Janu-ary 1993 and bomb blasts of 12th March 1993 appears to be

that the former appear to have been a causative factor forthe latter. There does appear to be a cause and effect rela-tionship between the two riots and the serial bomb blasts.The recommendations of the commission have never been

brought into force. This has led to a number of peoplespeculating whether justice is done to Muslims in India,whether they are being punished disproportionately, andthat, as a famous television journalist wrote, soon India'sjails will be choc-a-block with Muslims.

Let us look at the facts. The prison statistics from the Na-tional Crimes Record Bureau indicate that 19.1% of convictsand 22.5% of under-trials are Muslims. This is higher thanthe percentage of Muslims living in India, at 13.4% orthereabouts. While it is tempting to conclude that this isproof of bias, a rigourous analysis leads to a more nuancedview because of the geographic distribution of the prison

population and Muslims. Over half of Indias Muslim popu-lation lives in the four states of Uttar Pradesh, Bihar, WestBengal and Assam. These states account for 21% of con-victed prisoners and 42% of under-trials in Indian jails. In

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14/20

effect Indian Muslims largely live in geographic areas wheremore people are sent to jail, either as convicts or as under-trials.

A far more fascinating observation is that the percentageof Muslims who are under-trials is slightly smaller than thatof those convicted. In other words proportionately moreMuslims are presumed innocent than

Hindus (whose under-trial to convictratio is: 69.6% to 70.7% and even Chris-tians (whose under-trial to convict ratiois 3.8% to 4.2%).Could the question ofbias be turned on its head, and said thathigh a proportionality of Muslims means more crime? Thedata do not support such a conclusion. The two states wheresuch high population of people are in jail, Uttar Pradeshand Bihar, have a Muslim population of 18.5% and 16.5%respectively and contribute 6.7% and 5.4% of All-Indiacrimes. West Bengal and Assam, in which the percentage of

Muslims is at 25.2% and 30.9%, contribute only 3.6% and2.3% of all-India crimes.

Madhya Pradesh, Maharashtra, Andhra Pradesh andTamil Nadu all produce more than 8.5% of Indias crimesindividually, making them the most crime-prone states inthe country. In all of these high crime states Muslims makeup, at the most, 10.6% of the population, less than the na-tional average. The one state where Muslims constitute amajority of the population, at 67% in Jammu & Kashmir,which has been wracked by militancy and violence, con-tributes to only 1.1% of Indian crime, about the same as itspopulation compared to all-India figures.

Despite these statistics itwould be idle to say thatIndian Muslims do not,from time to time, faceproblems, as do most peo-ple that constitute a mar-

ginalised group in society.The recent Sachar Commit-tee report by the Govern-ment of India cites very lowlevels of socio-economicindicators for Indian Mus-lims.As a child I lived in the Oil& Natural Gas Commissioncompound in Ahmedabad,Gujarat. It is a city that has

faced many riots and wewere the only Muslims inthe compound. Duringtimes of tension when myfather was working offshore

on the oil-rig our manser-vant would assure my mother, Theyll have to get throughme first, behni.

A decade or so later, my great-uncle, Major-General AfsirKarim, was asked to deploy troops in the same city to helpthe civilian administration keep the peace. In 2000, when he

was with the National Security Advisory Board, he wasquestioned by a woman during a televised talk show aboutminorities. He interrupted her to say, Maam, I am a citizenof India, and so are you. What minorities are you talkingabout?

His response to a failure of the state is strikingly differ-

ent from that of the recently convicted Zakir Hussain.Whereas one tried to make sure that such failure did notrecur, the other became a pawn used to kill innocents in asupposed act of vengeance. Between the words of a manwho has put his life on the line many times in the defence ofinnocent civilians and those of somebody convicted of mur-dering them, there can only be one choice.

Omair Ahmad works on issues of Security, Law & Strategic Af-

fairs for PRS Legislative Research, an autonomous institute that

provides research support for Indian Parliamentarians.

ROUNDUP

13 No 6 | SEP 2007

Photo:AkshayMahajan

Indian Muslims largely live in geographic areas wheremore people are sent to jail, either as convicts or asunder-trials.


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THE JUDICIARY & GOVERNANCE

When the Court steps inSaving the Constitution sometimes requires stepping on toes

NINAD LAUD

THE REFUSAL of the higher judiciary to be a lame spec-tator to the manner in which high constitutional offices havefailed or have been made to fail has caused it to attract criti-cism of judicial over-reach and violation of the separation of

powers. Lets examine a few recent cases.The constitution mandates the governor of a state to be a

facilitator of federalism and a protector of the constitutionin the states. But without doubt, the governor has, over theyears, been rendered into a mere political facilitator of theparty in power at the Centre. The last three years have pro-vided a replay of the abuse witnessed over the last six dec-ades, in what Mr. Soli Sorabjee, a former solicitor-general ofIndia, describes as the unholy trinity of Jharkhand, Goa andBihar.

In the Jharkhand case (2005), though the National Demo-

cratic Alliance (NDA) had a visible majority, the governor, aUnited Progressive Alliance (UPA) appointee decided toinvite the leader of the UPA combine and gave him time toprove his majority. The Supreme Court intervened to pre-vent what it termed a fraud on the constitution, advancedthe date of the floor test and halted the governor fromnominating a member who could tilt the scales.

In the Bihar case (2006), the governorsighting the NDAinching closer to government formationsent a report tothe Centre claiming to be pained by the immoral horsetrading that was taking place. The assembly was swiftlydissolved in the middle of the night after waking up Presi-

dent Kalam in Moscow. Though belatedly, the court held themove to be unconstitutional.

The office of governor was brought into further disgracelast year, when the court in Epuru Sudhakar Raos case(2006) brought the governors power of pardon into judicialreview. This was after the governor of Andhra Pradesh de-cided to grant remission of sentence to a criminal convictedfor causing death of another since he was, among otherthings, a worker of the Congress Party. More recently, thecourt in June entertained a public interest litigation chal-lenging the refusal by the Uttar Pradesh governor to sanc-

tion the prosecution of Ms Mayawati in the Taj Corridorcase (2007).

Recent cases also accused the Court of encroachment onParliaments powers. In the Coelho case (2007) the SupremeCourt held that laws and amendments violating the basic

structure of the constitution can be challenged. This judge-ment was delivered in a reference on the point of law in-volved. The actual case concerned a certain Tamil Nadu actproviding for 69% reservations being placed in the contro-

versial Ninth Schedule.In Rajaram Pals case, the court held that it could go into

the question of whether the Parliament had a certain privi-lege and could correct its misuse. Again on the issue of res-ervations, the court checked the march of government to-wards its political masterstroke of providing reservationsfor Other Backward Classes (OBCs) in higher educationbased on their vote bank calculations rather than contempo-rary data on their condition. While the government left nostone unturned to get rid of the order, the media indulged intalk of judicial overreach yet again.

Earlier this year, the Supreme Court stepped in to pre-vent what could be termed a fraud on federalism when ittook suo motu notice of the inaction of police from neigh-bouring states during the Gujjar agitation in Rajasthan. Thepolice inaction could only be attributed to the politics in-volved. This move was, again, accompanied by cries of judi-cial overreach.

Indeed, there is a coherent theme in all of the judgementsof the court that have created a stir, which can be best ex-plained on the basis of a well-recognised principle in Ro-man jurisprudence, namely subtilitas , or adherence to thestrict letter of the law, in order to make it the means of an

unscrupulous advantage. Perhaps spelling out this thememight have minimised the criticism that some of thesejudgements drew.

Should the courts stick to the strict letter of the law andallow rampant subtilitas which our polity is almost habitu-ated with or should it step in and perform its duty as theguardian of the constitution though it might be technicallytrampling on the lines of separation? The latter is undoubt-edly less dangerous than the formerfor the common citi-zen has a saviour in the judiciary.

Ninad Laud is a resident commentator at The Indian NationalInterest.

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GEOPOLITICS AND ENERGY

An incorrect hyphenIndias approach towards energy-rich countries is different from that ofChina

SUSHANT K SINGH

SEVERAL REPORTS in the recent pasthave introduced a relationship between

Indias energy security policies and itsmilitary deals. Such reports perniciouslyreinforce stereotypical bracketing of In-dia with China.

Indias interest in Tajikistan has beenthe lynchpin of arguments that estab-lish an energy motive for Indian mili-tary deals in Central Asia. Unlike manyother former Soviet republics in the re-gion, it does not have oil or natural gasreserves. It is its geographic locationthat makes it attractive to India. Indiasmilitary bases in Tajikistan are part of itsefforts to have a larger strategic role inCentral Asia and allow its armed forces to have depth andrange in the region. Some analysts have even linked Indiasinterests there as part of Indias strategic encirclement ofPakistan.

Prior to refurbishing the Ayni airbase, India set up itsfirst military outpost in Tajikistan at Farkhor, abutting theTajik-Afghan border to provide economic and relief assis-tance to Afghanistan. The quietly functional Farkhor baseis an extension of the field hospital India established in the

late 1990s to help the Northern Alliance in its fight againstthe Taliban regime in Afghanistan.

The portrayal of Indias involvement at Ayni to cater toIndias growing energy needs by securing oil contracts inCentral Asia is a red herring. The reasons for it are not diffi-cult to discern. All the major players in the regionRussia,US, China and of course Pakistanare unhappy and oppos-ing Indias strategic ambitions in the region. Reports of In-dian military presence at Ayni, which have varied from MiGfighter aircraft to helicopters to a pilot training school, havebeen denied by both India and Tajikistan.

Consider another exampleMyanmar. It has long beenon the radar of the Indian establishment, both for strategicreasons to counter China and for its gas reserves. Even so,Chinese influence in the region is very strong and despiteIndias efforts, not much headway has been made with the

military junta in Myanmar.As the economy burgeons, India is well aware of its en-

hanced energy security needs; like many other nations, it islooking at diversifying its energy sources, from the MiddleEast to Africa to Russia to Central Asia. The attempts to es-tablish a causative link, when even a correlative relationdoesnt exist, between Indias defence deals and energy se-curity, is to conform to a favoured western stereotype ofbracketing India with China.

China has signed defence deals, with associated use of

energy resources, with many African nations and thus it ispresumed that India must be also treading a similar path.But Indias foreign policy successes have been built aroundits unique strengths that have always been different fromthe Chinese. A thrust of Indias public diplomacy must be tode-hyphenate itself from China in all such portrayals, high-light its numerous contradistinctions vis--vis China andultimately present a truer picture to the world.

Sushant K Singh is a resident commentator at The Indian Na-tional Interest.

ROUNDUP

15 No 6 | SEP 2007

Farkhor

Ayni

TAJIKISTAN

Map: Adapted from CIA World Factbook

PAKISTAN OCCUPIED KASHMIR


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BOOK REVIEW

Spy thrillerK S MADHU SHANKAR

SINCE HIS retirement, B Ra-man has been a prolific writeron intelligence and nationalsecurity issueshis columnsand articles have illuminated

the public discourse over theseissues for over a decade. So thepublication of his memoirs wasalways something to look for-ward to. His book, The Kaoboysof the R&AW records the yearshe spent in the Intelligence Bureau (IB) and then in the Re-search & Analysis Wing (R&AW) between 1967 and 1994.Coming from an insider of the secretive organisationfounded by Rameshwar Nath Kao in 1968, it does not dis-appoint.

It provides an insight into several facets of the R&AW asan organisation and more generally, intelligence as a profes-sion. This includes accounts of professional intrigues, rival-ries, challenges, hazards, and the successes and failures ofR&AW spanning four decades. It is a valuable historicalaccount as it covers several tumultuous events in post-Independence India. The scope of these events range fromthe emergence of insurgencies in the North-East in the1950s, to the liberation of Bangladesh in 1971, to Khalistaniterrorism in the 1980s, the intervention in Sri Lanka and ofthe rise of Pakistan-sponsored terrorism in the Kashmir Val-ley and elsewhere in India.

According to Mr Raman, one of the earliest successes ofthe R&AW was its role in the 1971 war with Pakistan thatled to the birth of Bangladesh. He laments, though, the factthat Bangladesh has descended into a cesspool of religious

fundamentalism and terrorism.Mr Raman traces the origins of Khalistani terrorism to

the apathy of successive Indian governmentsstarting withNehrus hands off policyover the plight of Sikh mi-

grants abroad. When re-peated appeals from theSikh diaspora resulted in noresponse from Indian em-bassies, they formed organi-

sations such as the SikhHome Rule Movement andthe United Sikh Appeal.Eventually, and not leastdue to active aid fromAmerican CIA the Pakistani

ISI in the 70s and 80s this gave birth to the Khalistan move-ment.

On foreign policy, Mr Raman reflects on various blun-ders that Nehru made. In the 1950s the Chinese were ac-tively training insurgents in the North-East even as Nehru

was championing Communist Chinas cause. The Indianembassy in Rangoon ignored the Chinese aerial survey ofthe Indo-Burmese border, an lapse that proved costly as ithelped the Peoples Liberation Army (PLA) plan an attackon the Indian position in the North Eastern Frontier Agency(present day Arunachal Pradesh) from the Burmese sideduring the 1962 war.

The biggest barb though, is reserved for the US StateDepartment. Mr Raman cites several examples of its stridentanti-India and pro-Pakistan tilt. He shows how the US hasconsistently whitewashed and ignored overwhelming evi-dence of Pakistans involvement in terrorist activities.

The book has two complete chapters dedicated to ana-lysing the circumstances that led to the assassinationsof Indira and Rajiv Gandhi. Mr Raman blames it on theindiscipline, rampant corruption and politicisation thathad corroded the Prime Ministers personal securityarrangements. For instance, some security personnelwere even involved in smuggling of white goods fromcountries they had visited: Indira Gandhi herself was

unable to stop this.The book brilliantly captures the craft of intelligence in

the real world sans cool gadgets, super cars, and other

thrills that are associated with the profession in popularimagination. Dealing with indiscreet wives and unwittingpoliticians apart, it is portrayed as a tough job that involvescultivating information sources carefully over time, collect-ing information, and then arriving at accurate conclusions

BOOKS


Review

The Kaoboys of R&AW: Down Mem-

ory Lane

by B RamanLancer, 304 pages, 2007

Raman blames the assassinations on the indis-cipline, rampant corruption and politicisationthat had corroded the Prime Ministers per-sonal security arrangements


18/20

before it is too late. In short, a thankless profession wheresuccesses are unknown but failures often turn into scandals.

Mr Ramans analysis of the R&AWs strengths andweaknesses is straightforward. Its is strong in technology,investigation and crisis management, but weak in the areasof collecting, analysing, and assessing intelligence, crisis

prevention, recruitment policies, careerism and not least, itsobsession with secrecy. In this, the book is in piece with aslew of recent titles relating the shortcomings of British andAmerican intelligence agencies.

Overall, the book sheds greater light on the hitherto-secretive world of Indian intelligence. However, it requiresthe reader to be reasonably well-versed with post-independence Indian history in order to fully appreciate Mr

Ramans work. This is especially true when he jumps backand forth between events that occurred simultaneously, orhad mutual impact.

Interestingly for a memoir, the book doesnt provide toomany details about the authors personal life. It would havebeen informative to learn more about the person behind the

spy. As Mr Raman himself states at the beginning of the book: he is a person known better by his work than by adisplay of emotions.

K S Madhu Shankar is a resident commentator on The IndianNational Interest.

BOOK REVIEW

The budget that was nottabledT R SANTHANAKRISHNAN

HE INHERITED an insolventeconomy and had to pledge 20tonnes of gold with the Bankof England to get $400 millionin foreign exchange to tideover the balance of paymentscrisis. He did not flinch inmaking hard decisions in spiteof the political fallout and

public outcry that it could en-tail. He tells us that he sworeto himself that he would not let that happen again. After thecrisis had been averted, he went on to prepare what Dr Ar- jun Sengupta, a well-regarded economist, called a trulyrevolutionary budget. Before he could table it, the govern-ment fell. Otherwise, it would have been Yashwant Sinha,and not Dr Manmohan Singh, who would have become theposter boy of economic reforms.

Mr Sinha is one of the unsung heroes in the history ofIndias economic reforms. After 24 years in civil service, MrSinha switched to politics in 1984. He had two short initial

spells as finance minister, and in both instances his govern-ments were brought down by moral low points of the Con-gress Party. In the first instance, the Chandra Shekar gov-ernment was brought down by the Congress ostensibly be-

cause two sleuths were spyingon Rajiv Gandhi. In the sec-ond instance, Giridhar Go-mango, a Congress MP whohad taken office as chief min-ister of a stateand thereforewas morally obliged to resignfrom the Union Parlia-mentvoted to bring down

the first Vajpayee governmentby a wafer thin margin of onevote.

Mr Sinha came back as finance minister when MrVajpayee formed his second government after winning the1999 elections, and went on to become the fourth man topresent five budgets. These did not, unfortunately, have thesame revolutionary edge.

This book is certainly not a confession. There is noth-ing in the book that was previously unknown and nothingso sensational as to give the reader a different perspective.

It is still a good read because it is a reasonably honest

account of a leader who thought more about strategic winsthan immediate popularity. The alleged statement of theBJPs Jana Krishnamurthy when he listened to Mr Sinhaseconomic agenda sums up the authors philosophy: It is

BOOKS

17 No 6 | SEP 2007

Review

Confessions of a Swadeshi Reformer:My Years as Finance Minister

by Yashwant SinhaPenguin India, 261pages,, 2007


19/20

good to implement your agenda; but we need to stay inpower to implement your agenda. Your agenda may notallow us to remain in power for long. This is the essentialdilemma of a statesman who has to keep getting elected.

There are three disclosures that would disturb the reader.First, Mr Sinha claims that the budgets prepared by several

of his predecessors were known ahead of turn to an indus-trial group.

Second, someone close to Prime Minister Vajpayeesoffice called Mr Sinha to direct him to reduce the tax on aproduct (that would have been useful to an industrialgroup). Mr Sinha checked with the prime minister to findno such directions were given and hence did not complywith the suggestion. The person who conveyed the allegeddirective, however, is not identified by name. That is under-standable coming from a politician whose political career isfar from over. But the book is not yet a confession. It

would become one when Mr Sinha is ready to name theperson and get him/her out of politics.Third, Mr Sinha reveals that J Jayalalitha, then chief min-

ister of Tamil Nadu, slipped him a note listing all theincome-tax disputes and cases his ministry had against her

after a lunch they had at her home. Mr Sinha claims he didnot act on the note. If his claims are true, that should countas a low point in Ms Jayalalithas political career.

Mr Sinha is one of your reviewers favourite politiciansin India. He had the moral timbre to resign at the whiff of asuggestion of involvement in a hawala case that was orches-

trated by the wily P V Narasimha Rao. He did not contestelections until he was cleared by courts. He did not do apiggyback ride on a party. He won elections in Bihar eachtime before playing a role in the government. He was a truereformer with a vision that went beyond the next elections.Above all, he did not strive to bring his children into poli-ticsa clear sign that politics is not of economic advantageto this politician.

T R Santhanakrishnan (TRS) is an entrepreneur. He was a fi-

nance professional abroad and returned to India ten years ago.

BOOKS


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Pragati - The Indian National Interest

Review comes to you from an independentcommunity of individuals committed to increasingpublic awareness and education on strategic af-fairs, economic policy and governance.

The themes we care about dearly: economic free-dom, realism in international relations, an opensociety, a culture of tolerance and an emphasis ongood governance.

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pragati issue6 september 2007 community ed

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