India silent on endosulfan at Rotterdam Convention India is remaining silent on the listing of endosulfan under the Rotterdam Convention

at the fifth meeting of the Conference of the Parties which opened in Geneva on Monday.

The Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade requires exporting countries of listed chemicals to provide the importing countries with data on effects of the pesticide in advance so that the importing country could opt to reject or prohibit the imports.

The Convention agreed, in principle, to list endosulfan under the Convention. However, final decision had been delayed because Cuba would not agree to the listing unless decision included need for technical and financial assistance. An agreement might be worked out before the closure of the conference on Friday.

Meriel Watts, who is attending the Convention as representative of Pesticide Action Network (Asia-Pacific) said in an email message that the conference had already decided to list alachlor and aldicarb under the Convention.

India, Ukraine, Kazakhstan, Kyrgyzstan, Vietnam and Sudan objected to listing of Chrysotile asbestos besides Zimbabwe and Russia which are non-members. So, a decision had been postponed until after discussion on how to deal with chemicals for which consensus could not be reached.

Later the conference formed a contact group to discuss the issue and attempted to work out a consensus on chrysotile asbestos.

In its opening statement at the Conference, India noted the importance of achieving Convention objectives within the framework of sustainable development. It called for development of alternatives to listed chemicals, and emphasized the importance of consensusbased decision-making, according to Earth Negotiations Bulletin published by the International Institute for Sustainable Development.

China called for consensus-based decision-making and a gradual approach in listing chemicals under the Convention, it said.

Opening the conference, President Noluzuko (Zukie) Gwayi expressed optimism that participants would use the conference to improve the effectiveness of the Convention. She noted that support for the attendance of all parties was not available because of the Convention s extreme financial constraints.

Jim Willis, Joint Executive Secretary of the Basel, Stockholm, and Rotterdam conventions, highlighted the successes of the Rotterdam Convention, including listing 40 chemicals and establishing the Chemical Review Committee as a strong, science-based subsidiary body.

Keywords: endosulfan ban, Rotterdam Convention

Foreign investment: The same old problems?

The second five-year Plan, in its original form, assumed that a sum of Rs 100 crore would flow in as fresh foreign investment during the period.

How then is the inflow of foreign capital to be accelerated? It is now evident that the problem is not so much one of ensuring a higher return as of infusing the requisite amount of confidence in the minds of foreign investors and creating a generally favourable climate in the Indian economy...a recent study by the Reserve Bank showed that the return on the investments to foreign companies in India was fairly high in relation to the prevailing average rates in the country. It would also appear that they earned about the same, if not slightly higher, return on their investments in India than in their home countries.

The study showed that while a 13% return on foreign investments was not uncommon, the average return in 1955 was about 10% against 12%, in 1953.

The existence of a wealth tax on companies, the high incidence of tax on royalties which leaves a margin of only about 1.8%, complicated labour laws , the absence of a double taxation treaty and elaborate

and vexatious screening procedures represent some of the most tangible impediments to a freer flow of foreign capital.

In this context, vague suggestions of profit control and dividend limitation...can do incalculable harm. The Congress needs to recognise that venture capital, both foreign and domestic, will accept only commercial risks inherent in joint-stock enterprise but not dangers arising from political and ideological bias in domestic in the domestic economic policy.

Delivering subsidies through DCT

Three challenges - to bring about convergence among public programmes, identify and deliver cash to the "real" beneficiaries and meet general and specific goals of governments at different scales - confront the Nanadan Nilekani committee deliberating on delivering subsidies through direct cash transfers (DCT). The cash transfer programme is based on Sen's entitlement theory - that lack of access to food (goods and services), rather than failure in food supply leads to famines. An India-centric doctrine, in the sense used by Andreas Faludi , with DCT as the central core (e.g., paying Rs 500 to all the poor) surrounded by alterable conditionalities (e.g., additional Rs 300 for children regularly attending school), is useful to collapse all development programmes into an India-specific development doctrine. The core of the doctrine consists of DCT surrounded by conditionalities to take care of specific objectives, such as - (1)

reducing specific types of poverty and disadvantage; (2) dealing with different types of risk; (3) incentivising desirable types of consumption and promoting positive spending; (4) developing markets for products and services; (5) removing social, market, and administrative discrimination that prevent the poor to engage more fully in development processes; and (6) achieving goals emanating from wider public interests. The advantages of a central core consisting of DCT are welldocumented. First, apprehensions about outflow of capital from productive activities to meet domestic shocks and stresses (e.g., serious health ailments) are reduced. Second, multiplier effects on agriculture and livelihoods are likely to increase demand for local goods and services. Moreover, the flexible and fungible nature of money facilitates engagement of the poor in productive enterprises. Third, DCT is less costly to administer, less prone to corruption, and potentially cost-efficient if appropriate contextual conditionalities are established. Fourth, DCT makes the life of the poor dignified - they no longer have to stand as supplicants before development administrators. Additionally, women and the aged are empowered if the cash transfer is made in their favour. Finally, cash transfer increases choices available to the poor and accounts for variations in preferences for goods and services from poor to poor (e.g. family decides how much to spend on food and education).

Shifting the bedrock of all development programmes to DCT with conditional cash transfers as add-ons to address specific vulnerabilities of the poor is supported by empirical evidence. Some of the most intensively examined cash transfer programmes are - Oportunidades (Mexico), Social Protection Network (Nicaragua), Bolsa Escola and PETI (Brazil), Family Assignment Program (PRAF - Honduras), Chile Solidario (Chile), and Program of Advancement through Health and Education (Jamaica). The Mexican government started the Oportunidades in 1997 (then called Progresa) to replace traditional supply-side subventions with demand-side interventions through direct cash transfer to poorest families with conditionalities, such as enrolment of children in schools and participation in health check-ups. Evaluation of the Mexican programme has showed that most important reductions in poverty took place among the poorest households. Additionally, efficiency of conditionalities was assessed by Coady and Parker (2001), who compared subsidising education by bringing the poor to the educational system, through conditional cash transfer vs. bringing education to the poor through extensive expansion of the educational system. The cost-effectiveness ratio of extensive expansion of school system was nearly 7.3 times greater. Later, Coady and Harris (2004) found substantial general equilibrium welfare impacts by switching to a better targeted direct cash transfer scheme. Brazil has a bunch of cash transfer programmes. The BPC is a continuous cash benefit programme that transfers

cash, unconditionally, to the extremely poor with disabilities; the PETI transfers cash to eradicate child labour from hazardous and dangerous activities; the Bolsa Familia is the main conditional cash transfer programme targeting poor families with income less than $40; the Bolsa Escola targets children between 6 and 15 years of age; the Bolsa Alimentacao fights infant mortality; the Auxilo Gas compensated poor families after ending food subsidies in 2001; and the Cartao Alimentacaowas created to provide food security to the poor in 2003. A UNDP (2006) evaluation found favourable impacts of the BPC and Bolsa Familia on equality - the Gini inequality coefficient had fallen by 28% during 1995 and 2004. The execution challenge - selection of the poor and delivery of cash - requires some out-ofthe- box solutions, again. Simple and transparent targeting is best achieved through a referendum at the gram or area sabha level, with a yes/no option against each beneficiary to determine their eligibility. We trust the local community and if they feel that a family requires help, perhaps that is the best decision. Moreover, beneficiary verification and cash transfer is possible through the ubiquitous mobile phone. Preloaded programmes on the mobiles backed by GPS and GPRS can be used to photograph beneficiary identities; additionally, deliver money through mobile banking - some useful models are Gcash (Philippines), M-PESA follow a one-size-fits-all approach. (Kenya), and Wizzit (South Africa). In short, a development doctrine with DCT at the core and contextual conditionalities to meet varying needs of diverse communities and unique characteristics of local areas

combined with the use of mobile phone for banking and reliability check on beneficiary identities holds much promise to reduce the vulnerability of the poor, increase choices available to them, and address a common complaint made against development programmes that they

Indian military must move swiftly on defence reforms

At a seminar held in New Delhi recently to mark the 10th anniversary of the Arun Singh committee on the management of defence, Chief of Air Staff P V Naik reignited the chief of defence staff (CDS) controversy when he claimed that it was not needed.

His claims notwithstanding, there are significant problems in tactical interoperability , defence planning and overall coordination that suggest otherwise. The defence reforms process, initiated over a decade ago, has largely failed to deliver.

Significantly, however, the Arun Singh committee itself was flawed in its approach. Hence, instead of contradicting the Kargil review committee, Naik would do better to focus on the need for the next generation of defence reforms.

That the services lack the capability to operate seamlessly has been proven time and again in operations. During the deployment of the Indian Peace Keeping Force in Sri Lanka, the army used to embed its radio detachments with naval ships and air force attack helicopters to enable communication links.

Among the few instances where the army requested naval gunfire support, the navy engaged targets two kilometres away! More recently, during the Kargil war in 1999, air force jets did not have the capability to communicate with troops operating on the front. In fact, the air force did not have secure, encrypted communication capability (and still does not) in some of its planes, forcing them to fly in radio silence - a characteristic of the WW II era.

Similarly, intelligence gathering and analysis has been one of our weakest links. There are reports that in the aftermath of the Mumbai terror attacks, while the air force was prepared to carry out surgical raids, it was hampered by a lack of accurate intelligence on the location of terror facilities in Pakistan.

It was to obviate some of these weaknesses, recognised during the Kargil war, that the Arun Singh committee was formed. It comprised 11 people with varying backgrounds and experience. In carrying out its mandate, the committee deliberated over testimonies from different stakeholders.

However, it did not examine the files that obviously illuminate the functioning of different organisations . Hence, its analysis was more opinion based than data driven. For instance, when it argued that "the COSC [Chiefs of Staff Committee] has not been effective in fulfilling its mandate" , it did not provide any evidence for this claim.

An examination of the files of the COSC would have been more helpful in identifying the structural problem, which probably is the difficulty in making controversial decisions in a consensus-based committee. As a result, the Arun Singh committee's recommendation was simplistic - appointment of a CDS. For historical and bureaucratic reasons, this measure was not approved.

As an illustrative example, the Arun Singh committee can be imagined as a group of car mechanics who attempted to fix the vehicle based on their opinions of what was wrong without once opening the hood. But this in itself should not be surprising, for a similar methodology was adopted by subsequent reform committees like the Kelkar committee, the Defence Expenditure Review committee and so on.

The conclusion, though, should be startling - the government of India bases its national security policies on opinions of stakeholders rather than facts. This is not to deride the efforts of the people who manned these committees - it is difficult if not impossible to get bureaucracies to share their files.

If, somehow, the government does decide to revisit defence reforms, then it should begin by re-examining the issue of integration of armed forces headquarters with the ministry of defence. While the Kargil review committee recommended such a measure, the Arun Singh committee simply devolved financial powers and recommended a change in the nomenclature of the ministry.

Many in the armed forces erroneously believe that this measure is the 'silver bullet' that will resolve all problems. In fact, there is a need to have an agency that can deliberate over proposals emanating from service headquarters and examine them purely on its merit.

However, the manning of such an agency should be expertise based, which is impossible in the generalist civil service system. It might be instructive, therefore, considering our similarities , to study how the British ministry of defence functions - more so as they are presently engaged in organisational reform.

Next, we will have to revisit the conceptual relevance of CDS. Currently, there is little enthusiasm for creating this post. Moreover, it is not even clear if the CDS will automatically enhance jointness. Instead, one of the issues that require deliberation is perhaps the need to have a joint chiefs of staff system with integrated theatre commands.

This measure was deliberated upon by the Arun Singh committee but was discarded as too futuristic. That future might be upon us now.

Finally, the government must re-examine its entire declassification policy. It is simply untenable to deny scholars access to documents post-1960 . This is also a problem of capacity as there is no office or officer designated to declassify and release documents for scholarly study. All of these measures ultimately require deliberations at the

highest levels of the cabinet. And that is what the service chiefs should lobby for.

Indian military must move swiftly on defence reforms

The dark and enormous banking shadow depriving the poor of economic opportunities in India can only be removed through shadow banking. Rain shadow is a dry area, where because of its topography, there is very little rainfall while areas around it get abundant rain.

Similarly, there are a very large number of low-income families, particularly in rural areas, who are in a banking shadow, i.e., they are not served at all or served well by the formal banking system. They are thus deprived of the opportunities of economic advancement enjoyed by the middle-income and upper-income families. The disparities caused by this banking shadow are increasing the income gap between the rich and the poor, which is likely to exacerbate social tensions.

It is estimated that nearly half of our population does not have operating bank accounts or access to bank credit. Only 10% of our six lakh villages have a bank branch. Despite extensive efforts by the government over the past several decades, the availability of financial services to the poor families has not improved.

A recent study by Skoch Development in Delhi has reported that the government's ambitious financial inclusion plan is not yielding desired results and most of the programmes, including no-frills accounts offered by commercial banks, are ineffective. Out of the 74 million no-frills accounts opened last year, the number of active accounts reported by the banks was between 3% and 20%. The poor families in rural areas continue to be financially excluded.

Microfinance institutions (MFIs), which were the most successful in promoting financial inclusion by delivering credit to 26 million poor families, are in disarray after the crises in Andhra Pradesh last year. It is true that there were problems of over-lending and aggressive collection by a few MFIs, but the new regulations are likely to shrink the MFI sector. This will thwart the credit availability to the poor all over India. The banking shadow will become darker and larger.

The government's approach to expand financial inclusion has not yielded desired results. The fundamental mistake is to try force the mainstream commercial banks to serve the poor, particularly the rural poor. Commercial banks are multiproduct, complex institutions which do not have the interest, skills and capabilities to serve the poor families. Their employees are well-educated urban professionals with average compensation of over 6 lakh per year. It is not possible for them to understand the needs of poor families earning less than 1 lakh per year, relate to them and provide service to them. Unlike MFIs, bank employees are not comfortable extending unsecured credit to the poor. The bank employees in the

rural branches are generally disinterested and some are quite corrupt.

It is clear that we need an alternative to the commercial banking system to provide financial service to nearly half of India's population living in banking shadow. Some of these alternative delivery systems, sometimes referred to as 'shadow banking' systems, are already in place and working effectively. These include non-banking financial companies (NBFCs) focused on serving low-income families and small businesses (like kirana shop owners, truck drivers, tailors, repair shops, agriculturists), MFIs, chit funds, credit cooperatives, etc. However, alternative delivery systems need to be strengthened and significantly expanded to reduce the banking shadow.

To do this, the government and the Reserve Bank of India will have to:

Accept the reality that the current banking system cannot serve lowincome families and small businesses effectively and profitably. The banking system should collaborate with the alternative delivery systems for last-mile delivery of financial services, particularly credit delivery to the poor.

The government should establish a financial inclusion organisation charged with the responsibility of developing and expanding alternative delivery systems without excessive regulatory impediments and price controls. At present, less than 1% of the total

bank credit is availed by the low-income families and small businesses. The goal should be to increase it to 5% in the next five years through alternative delivery systems.

The regulatory framework and capital requirement for low-risk NBFCs serving the poor should be lighter as compared to high-risk NBFCs promoted by business houses, foreign banks, private equity firms engaged in promoter financing, M&A financing, mezzanine financing, real estate and commodity financing.

The financial inclusion organisation should proactively monitor and be accountable for the growth and health of alternative delivery systems and its effectiveness in serving the poor.

Banks should be encouraged to lend to alternative delivery systems and treat them as an extension of the formal banking system. Innovations to reduce cost and improve products and services should be encouraged, particularly using the mobile phone technology to provide savings product to the poor. Let us experiment of allowing some of the best-managed MFIs to take deposits on a restricted basis; small accounts, only from the borrowers and cover them with deposit insurance. The chit fund sector needs removal of price control, lowering of capital requirement, upgrading of technology and rationalisation of regulatory reporting.

The credit extension by alternative delivery systems to poor families and small businesses should be treated eligible as priority sector lending.

By these measures, the government and Reserve Bank can enhance financial inclusion and reduce the number of poor families living and suffering in banking shadow. Financial inclusion can be an effective and profitable business focused on the bottom of the pyramid with rich social dividends.

'Indirect dangers affect more women than rape'

A high level of female infanticide and sex trafficking make India the fourth most dangerous country in which to be born a woman, according to a global survey released last week. Afghanistan tops the list of the five worst states followed by Democratic Republic of the Congo and Pakistan , shows the poll among 213 gender experts from five continents by TrustLaw, a legal news service.

The inclusion of India, a democracy known for its growing economic prowess, above Somalia has surprised many experts, including Monique Villa , CEO, of the Thomson Reuters Foundation, which runs TrustLaw. "Yes, it was a huge surprise that the biggest democracy in the world was Number 4," she says.

"The main reasons are human trafficking, which involves 100 million Indians, mostly women and girls according to official numbers, female foeticide and female infanticide, which are both massive." The survey found that the Central Bureau of Investigation estimated that in 2009, about 90% of trafficking took place within the country and that there were some 3 million prostitutes, of which about 40% were children. It also pointed to the then Home Secretary Madhukar Gupta's estimate in 2009 that 100 million people, mostly women and girls, were involved in trafficking in India that year.

Forced marriage and labour trafficking added to the dangers for women, the survey said, referring to a UN Population Fund report that says, "Up to 50 million girls are thought to be 'missing' over the past century due to female infanticide and foeticide", because parents prefer to have young boys rather than girls. But in India's defence, Villla says the country's appearance in the list "is probably because India is such a vibrant democracy" and is more forthcoming than other countries in describing its problems.

"Everything is in the open, the government doesn't hide the extent of the issues and newspapers are full of horrific stories like the discovery last week of nine female foetuses dumped in a drain in western India." Female foeticide, Villa says, also happens on a large scale in China , for instance, but the authorities are less open about it. "If other countries were equally open about their biggest issues, the result of our poll would probably be very different."

One must never forget, she says, India is home to fantastic women. "Indira Gandhi was Prime Minister way before any woman was in Europe." Villa says India also has very charismatic pioneers like Kiran Bedi. The poll asked the experts to rank countries by overall perceptions of danger as well as by six risks: health threats, sexual violence, non-sexual violence, cultural or religious factors, and lack of access to resources and trafficking.

The survey has been compiled by the Thomson Reuters Foundation to mark the launch of a website, TrustLaw Woman, a global hub of news and information on women's legal rights, aimed at providing free legal advice to women's groups around the world. The peculiarity with India's case was "the massive human trafficking - 100 million people involved!" says Villa.

"This is under-reported really and includes sex trafficking, girls forced into sex trade, girls taken in rural India brought to cities, and also sold as slaves, etc." The experts, she says, also noted the massive number of "missing" girls since decades, a euphemism for the killing of female foetuses. They also noted the high level of child marriage and the "horrendous number of dowry deaths".

India is not the only country where this happens, but given that it is such a big country with a big population, the numbers are staggering, says Villa. Villa says her team's role at the Thomson Reuters Foundation is to help women through information and legal support.

"We give loads of information to help women know and defend their rights. We are also building a database of all the laws regarding women's rights in every country with the American Bar Association." The foundation also gives a lawyer for free to NGOs and social entrepreneurs when they need it for their contracts, tax or HR problems . "This is a hugely successful service we launched a year ago and many Indian law firms and NGOs and social entrepreneurs are members."

Information, says Villa, is a form of aid. The poll had a huge impact around the world, she says. "I hope it will contribute to help women defend their rights everywhere." As for India, the fact is it is still dangerous to be a woman in the country and poverty is once again at the root of it, says Villa. "That's what we call the "hidden dangers" for women: lack of education, lack of access to healthcare, lack of access to economic resources, etc, etc," she says. "The indirect dangers affect more women and girls than rape ."

Power distance index and corruption

Unseemly squabbling between the civil society and the government apart, corruption is not going to be fixed any time soon. No bill, irrespective of whose draft it is, is going to fix corruption unless we first begin to address other related issues among ourselves, as a people.

Not obvious, but related to corruption are two issues: power distance index and its corollary, the 'VIP' culture that permeates all aspects of our lives.

Unless we challenge these two parameters which are innate to our cult ure, nothing much may change fundamentally. What is power distance index?

Power distance index (credited to G H Hofstede) measures the extent to which the less powerful members of the society accept or expect power to be distributed unequally. Higher the acceptance and the expectation of power inequality, higher the power-distance. Typically, though not exclusively, the developed nations have lower power distance indices.

That is why the janitor in a New York skyscraper may think nothing of hailing the CEO on the top floor corner office as 'Hey, Bill!' or the security guard may frisk even a vice president of the country on an airport's security gate. In contrast, feudalistic countries like Malaysia, Indonesia, Thailand, China, Korea, India, Pakistan, several African countries, and many of the South American countries probably represent high power distance, since these countries are either more autocratic, feudalistic or paternalistic.

The idea of power distance may be assessed from the fact that in rural India in general, anybody in any uniform is easily accepted as one with great authority. In certain districts of Bihar, AP and UP, for example, it is not unusual to see a rural cyclist dismount and stand aside on the road as a jeep passes by, since a jeep to him represents a government official and hence power. Even in our cities for that matter, anybody attired in white kh adi commands instant obedience in government offices and such.

Such is the power distance equation in our country that virtually anyone donning whites, accompanied with two grey safari clad men, can jump any queue in the land. High power distance index i s why a white Ambassador car full of terrorists with a red light on top could zoom through the Parliament's security. It is also why domestic staff is routinely referred to as servants (derived from serfs or slaves) and continue to be treated shabbily (and our

diplomats regularly get sued abroad for mistreating their staff). It is also why those in power never get accustomed to being questioned, because we accept and expect that they will not like to be questioned. That is why the cops way down in the power-distance may not dare question a top corporate or political honcho (unless the Supreme Court steps in, of course).

There is simply no case to unify them

The shortcomings in tax administration can frustrate even the best of tax policies. The two boards - CBDT & CBEC - in India are apex bodies for administration of direct and indirect taxes. Hence, their effective functioning is imperative for administration of respective laws and revenue collections.

With the passage of time and laws getting more and more complicated, the standards of supervision and control are posing increasingly new challenges. Hence, more independence and efficient work management of two streams of laws are necessary not curtailment of existing structures by merging the two boards into one. Before 1964, the two categories of laws were administered by a single board - the CBR.

The CBR Act, 1963 bifurcated the then CBR into two separate boards - CBDT and CBEC: the former for administration of direct taxes such as income tax, wealth tax, gift tax and estate duty,and the latter for administration of indirect taxes like central excise and customs given the pressing administrative and technical reasons. Nothing has happened to reverse the 1963 decision. Rather, a new elaborate legislation relating to service tax has come under the CBEC's jurisdiction.

Merger also does not seem necessary, considering the tremendous increase in volume of work and officers and staff. Further, the taxes administered by the two boards are different in nature. So, policies for administering these have to be different. The powers under the central excise laws are elaborately exercised by rules, which need considerable time. The combined board may not be able to devote the required time unless it is a 'jumbo' board.

Also, substantial amendments in laws and the rules would be necessary to establish a reorganised board after the merger. There is seemingly no justification for doing so.

Rather than combining the two boards, the need of the hour is to strengthen the two organisations, making them independent and autonomous and enhancing their stature by conferring on chairmen of the two boards the status of the secretary to the government of India - as in the cases of railways and P&T boards - to make their functioning more effective. Doing so does not involve any financial implications, as the two chairmen are already in the grade of special secretaries.

How should India avert the coming slowdown

After the credit crisis , India (like many other developed and emerging economies) resorted to fiscal and monetary stimulus to push growth back to pre-crisis trend immediately. This was a justified

policy action at the worst point of the crisis, but we believe the policy-makers overstayed the course. The government maintained high expenditure growth (a large part of it tends to be revenue spending in nature) and the Reserve Bank of India ( RBI )) also left real policy rates in negative territory for a long period. While this easy approach did boost growth strongly, the low productivity dynamic accompanying it meant that the country faced challenges of inflation, current account deficit and tight inter-bank liquidity. The most challenging symptom for the policy-makers has been inflation. Indeed, we believe that a large part of the food inflation is because of this low productivity dynamic of government spending in the rural India and less due to structural shift in protein consumption. Structural shift cannot justify a cumulative rise of 55% in primary food inflation since January 2008. However, a policy-induced growth slowdown now appears inevitable. A combination of factors - including persistent high inflation rate, higher oil prices, sharp rise in interest rates, and a weak global capital market environment - is likely to result in slowdown in growth. We have already cut our FY 2012 (year-end March 2012) GDP growth forecast to 7.7% and have highlighted further potential downside risks to GDP growth of about 50 bps. We think the key debate now is not about whether growth will slow but rather what is the likely duration of the growth slowdown. Currently, we expect slowdown in growth in 2011 with a gradual

recovery from 1Q2012. We believe there are two set of factors that will be important for India's growth outlook: (1) outcome of developed world growth and oil prices in the coming 12 months as the external drivers and (2) policy action to boost private investments as the domestic factor. While external factors are unpredictable, the government needs to ensure it initiates policy reforms to lift private investments. We believe that for sustainable recovery in growth without facing major inflation pressures, the revival in productive dynamic - rise in private corporate capex - is the key. The overall sentiment toward business capex has been weak, as reflected in the yearly growth of engineering and construction companies' order book. While there are signs of growth beginning to slow, it is not clear to us that the policy-makers fully appreciate the severity of potential growth downside risks to act quickly to boost investments. Indeed, with the cyclical macro environment locally as well as globally being so adverse, the onus on the government to push for a major policy reform to get the private sector to kick-start a major investment cycle is bigger. In this context, we believe there are three key sets of measures that government needs to initiate over the next six months to ensure that the duration of down cycle is not extended beyond two-three quarters.

IMF Lessons and Other Tales

Through the nineties, the IMF preached the virtues of free capital flows. It has learnt since, from the East Asian crisis as well as the recent sub-prime crisis. In 2010, the IMF made something of a volte face. It discarded its long-standing hostility to capital controls. It took

the position that countries would be justified in responding to temporary surges in capital flows. The IMF is still learning. In recent months, it has come out with another staff paper and a policy framework that shows that its position is still evolving. The paper goes further than the one last year and argues that countries may be justified in responding to surges in flows that are of a permanent nature as well. The policy framework presents recommendations that arise from the paper. The IMF outlines a threestep approach to dealing with capital flows. The first step is to get macroeconomic policies right. Where the exchange rate is undervalued, it should be allowed to appreciate through increased inflows . Where forex reserves are not adequate, countries can respond to inflows by building up reserves and limiting the impact on liquidity through sterilisation. Fiscal policy should be tightened and monetary policy eased where there is scope for doing these. In other words, in dealing with capital flows, countries should first exhaust these macroeconomic options . Only then should other options be considered. The next line of defence is what the IMF calls prudential measures. These measures are of a long-term nature and may not be deployed only in response to a surge in capital flows. They could be measures aimed at increasing the capacity of an economy to absorb foreign inflows (e.g., strengthening the bond market). Or they could be measures that increase the resilience of financial institutions (e.g., higher capital adequacy norms or loan-tovalue norms). They may not have an immediate impact on capital flows but they help limit the damage to the financial sector that can be done by volatile flows. Suppose the currency is undervalued , forex reserves are inadequate and monetary policy can be eased. In the face of a

surge in capital flows, would prudential measures suffice? The answer is not obvious. You can do what you like to protect the financial sector but there is no getting away from the fact that the financial sector is exposed to the real sector. If there is rapid appreciation in currency, it could undermine the competitiveness of firms in the real sector and that is bound to impact on the financial sector. Moreover, the whole problem with capital flows is their fickleness. Capital that flows in easily can flow out just as easily. There is huge volatility in the exchange rate and this can undermine stability in the economy, including financial sector stability. If a large portion of flows bypasses the regulated financial sector, prudential measures may not suffice. Some resort to capital controls may become unavoidable. That would explain why many countries, such as Brazil and Peru in recent times, have thought it necessary to use controls to deal with capital flows. The IMF finds that 9 out of 30 countries it surveyed met the macroeconomic conditions it specifies for the use of capital control measures. Unfortunately, the jury is out on the effectiveness in the long-run of such controls. The IMF makes a distinction between capital control measures that distinguish based on residency and those do not. It indicates a preference for the latter. Then again, countries may have to choose between price-based bases (such as taxes on inflows) and administrative measures (such as outright bans on certain types of inflows). However, even well-designed capital controls may not work. Capital has a way of bypassing barriers. Moreover, there could be costs to the economy of erecting barriers. The IMF policy framework suggests that capital controls should be temporary and should be scaled back at the earliest opportunity . But this assumes

that surges in capital flows are of a relatively short duration. It does not tell us how countries are to cope with sustained surges in capital. One of the biggest challenges that we in India face is creation of jobs, and reduction of poverty and inequality. One priority is to facilitate business as an engine of growth in a way that it is sustainable and inclusive. Facilitating private sector to contribute significantly to such a model of growth would be critical - and can be done by reviewing the role played by the government. An emerging option, though challenging, is to boost manufacturing to create more jobs, especially for the rural landless and underemployed. In the Indian context, manufacturing sector could be considered as a pivot around which various other sectors revolve. By boosting the manufacturing sector, spillover effects would transfer to the whole economy. In fact, many emerging countries in recent decades have relied on a development strategy focused on promoting the manufacturing sector and the export of manufactured goods. The new manufacturing policy of the government aims at raising the share of manufacturing to 25% of GDP by 2022 from the existing 15%, so that another 100 million jobs are created directly and a much larger number of jobs in the upstream and downstream sectors.

Optimal regulation to push industry growth

To achieve this task, it is imperative to create an enabling environment for business to function more efficiently. Also, to see that regulation is a facilitating device rather than a controlling one, it needs to be optimal and even-handed. Taking

a fresh approach to government-business interaction is one of the ways forward, as a continuous and constructive dialogue helps in finding solutions even to vexed issues. In this, economic democracy is also crucial bearing in mind that crony capitalism builds up hostility against the private sector. Harmonious relationship between government and business could add equity and sustainability in the way latter performs. In India, successive governments at the central and state levels are realising the significance of promoting such interactions. The liberalisation drive and the public-private partnership model added fillip to this. In its exercise of developing the approach to the 12th Five-Year Plan on industry, Planning Commission has targeted optimal interactions among government, business and stakeholders, and laid emphasis on boosting the manufacturing sector. On the input side, services sector also needs to be boosted to provide the critical infrastructure, which is currently in deficit. In fact, many emerging economies in recent times have relied on a development strategy focused on promoting the manufacturing sector and export of manufactured goods. One area of focused deliberation in this exercise is the Business Regulatory Framework. It has four elements that need extensive and intensive work: Competition Policy, Business Regulation, Simplification of Business Procedures and Business Responsibilities. An optimal framework covering all four elements, along with a continuing dialogue among government, business and stakeholders, has the potential to serve as the overarching guiding philosophy and a bridge for developing an optimal business regulatory environment. Let us analyse each of the four pillars.

The Afghan future

With admissions of being involved in talks with the Taliban coming from both the Afghanistan and United States governments, and with the latter now having announced a phased withdrawal of its troops, two important questions arise. Will Pakistan continue to face international pressure to abandon its policy of using terror groups for strategic objectives? And what shape or form will the Taliban take if it is represented in the future regime in Kabul? New Delhi is one of the major stakeholders on both counts, and it must try to ensure that its interests and investments in Afghanistan are not sidelined during the process of political resolution. That would require India to continue with its assistance projects, even as it deepens ties with the Afghan army , and strengthens relations with Pashtun political groups. It is a tragedy that ethnic and tribal divisions have prevented the formation of a larger Afghan national legacy, and power in that country is likely to remain a matter of juggling those deep divisions. But one aspect New Delhi must underline is that Pakistan's policy of conflating Pashtun interests with those of the Taliban has been part of the problem. And India must do what it can by way of helping governance and development in Pashtun areas, even as strong ties with the Northern Alliance are maintained. That said, New Delhi should also try to engage Pakistan on the notion that Afghanistan doesn't necessarily have to be a terrain of mutual hostility. A stable Afghanistan, though it may sound utopian at present, can be the gateway to Central Asia for both countries.

The core problem continues to be the sanctuary the Taliban find in Pakistan's border and tribal areas. As long as such havens remain, it will be impossible to achieve enduring peace and stability in Afghanistan and the wider region. On that count, despite the US' public stand, New Delhi should remember that US and Indian interests in Afghanistan converge only up to a point. So, while arguing for continuing international aid and presence in Afghanistan, India must also chart its own course. And one key component of that would be convincing Pashtun groups that India isn't inimical to their interests.

The new land acquisition law must seek to reduce market distortions and segmentation
Land is contentious. With urbanisation and demand for nonagricultural use, coupled with lack of employment and skills for those in small-holder and subsistence-level agriculture, this is understandable. In western Europe, especially in Britain, and more especially in England, land markets were freed up before the Industrial Revolution and access to education and skills became more broad-based. We haven't introduced reforms that enable people to move out of agriculture, or diversify within agriculture. Nor are there marketable skills. Much of the controversy over land is actually a skills problem. That doesn't mean status quo of smallholder and subsistence-level agriculture is desirable. Had that rural Arcadia existed, poverty levels would have been significantly lower. Given low agricultural productivity levels, nor does diversion of land to non-agricultural use mean India will starve.

What's this argument about fertile and irrigated agricultural land not being available for non-agricultural use? Some land is valuable, others are not. Had we done a better job of irrigation, much more of agricultural land would have become valuable. Whether it is for agriculture or whether it is for non-agricultural use, everyone will want what is more valuable and not what is less valuable. There is a famous Oscar Wilde quote, to the effect that a cynic is one who knows the price of everything and value of nothing. This is from Lady Windermere's Fan and is Lord Darlington speaking, replying to Cecil Graham's question. Usually, we don't remember Cecil Graham's response. "And a sentimentalist, my dear Darlington, is a man who sees an absurd value in everything, and doesn't know the market price of any single thing." How do we know value of any object? From prices in the market, and forces of demand and supply, assuming we allow markets to operate. We had two Bills floating around, an amendment to Land Acquisition Act (LAA) of 1894 and a Rehabilitation and Resettlement (R&R) Bill (RRB). Both lapsed and have to be placed before Parliament again. From NAC's ( National Advisory Council )) website, we learn there are differing views within NAC on what revamped LAA should contain. However, NAC agrees that the two Bills should not be separated and should be consolidated. Media reports sugge ST such a consolidated Bill will now be prepared by rural development ministry. There are cogent reasons for unification. However, is there a conceptual difference between "compensation" under LAA and R&R? Common sense suggests there ought to be. Why is the word "acquisition" used in LAA? Its use suggests land is forcibly being

acquired; there is coercion. It should not apply at all to voluntary transfer between two willing parties, provided there is no unfairness in the contract. Private markets function and if there is a problem with the functioning of private markets, the State steps in and acquires land, for public or private use. Hence, there is compensation. As a legal principle, I can only compensate someone who has some kind of right. Contrast this with R&R. The R&R Bill not only talks about those who have rights (tenure-holder, tenant, lessee, owner), but also those who don't possess rights but whose livelihoods are disrupted. This is a legitimate social concern and we should have R&R clauses. But that cannot and should not be mixed up with compensation. When we say there are problems with land acquisition, are those problems with acquisition process or with R&R? Perhaps both. However, if we do not have conceptual clarity, we will be sentimentalists. In several sectors in India, we do not know market price for anything, because markets aren't allowed to function. Land is a good example. A general principle is preventing the functioning of markets is bad idea. Segmenting markets is a bad idea. Creating distortions in markets is a bad idea. Take the 70/30 rule, floating around in LAA and endorsed by NAC. State will acquire land if 70% of land has been acquired through free market principles. The rural/urban distinction is artificial. While de jure LAA does apply to urban land too, de facto it has come to mean rural land. When there is acquisition, it is rural land that is being acquired. However, there is discretion in conversion to non-

agricultural use, which is how the political system makes its money. Thus, converted land has a higher value than non-converted land. High stamp duties, and evasion because the source of income is illegal or because taxes are avoided, reduce price at which sales are registered. For ST land, there are restrictions on its alienation. This leads to higher demand for general land and lower demand for ST land. Apart from resulting in higher prices for general land, this can be circumvented, either by questioning ownership, or by disguising the sale. We don't have clean titles, cadastral surveys are old. There is no title insurance. Why do companies ask the State to step in? Not only because there may be an unwilling person sitting in the middle who is unwilling to sell, at any price, because titles are unclear. There is no point passing LAA (amendment) and R&R, unless we do something about the Titling Bill too. Tenancy is illegal in some places, driving it underground. Apart from other problems, this makes it impossible for tenants to establish rights. Land acquisition isn't simultaneous. It is sequential, even now. Land acquired earlier tends to have lower prices, creating issues about sanctity of contract. The 70/30 rule increases this sequential segmentation more. It further distorts and reduces operation of private markets. As sentimentalists, we cannot make recommendations that run counter to economic rationality. We need to reduce distortions and segmentation, not increase them.

Today, economic power has been captured by a small minority. But it has acquired this power only by accumulating the productive power of others. Their capital is simply the accumulated labour of a millions

of working people, in a monetized form. It is this productive power that is the real capital, and it is this power that latently resides in every worker ... Samabayaniti/The Co-operative Principles, 1928. In a compelling set of essays written between 1915 and 1940, Rabindranath Tagore articulated a social vision where exploitation would give way to a just, humane, collectively owned economy. At the core of his thought was the cooperative principle. This is an idea worth revisiting on the International Day of Cooperatives, which this year falls on July 2, and even more so during the lead-up to 2012, which is the United Nations International Year of Cooperatives. Why cooperatives again? Have they not been tried and have failed? Well, so have big banks and large corporations. Yet they continue undiminished. The reason they do so with such impunity is that alternatives are hard to come by. With the financial crisis on the one hand, and the (predictable) collapse of the system of microcredit on the other, the need to identify alternative forms of ownership is greater than ever before. In India, the experience with the century-old cooperative movement has been mixed. There are some stunning successes: Amul, for one. There are others, too, where cooperatives have proved transformational for the marginalised. The problems are also wellknown: abuse, politicisation, excessive dependence on the state, and so on. But these are mere symptoms. The real disease lies elsewhere. There is little understanding, much less acceptance, of the cooperative principle and its potential. It is yet to enter the core of our social vision, leave alone public policy. Those spaces are dominated, ever more aggressively, by the competitive principle, the sceptre of efficiency' and private gain. This is why India can emerge as one of the top wealth-generators even as 93 per cent of its

working citizens toil in the informal sector. That 93 per cent contributes almost half of India's fast-growing GDP. But it has no say over the way that growth is generated or any voice to claim a fairer distribution of the wealth it produces. The same goes for the majority that survives on the agrarian economy. Written some eight decades ago, Tagore's thoughts stemmed from these concerns: the growing concentration of economic power and the destruction of rural India. He wrote: Today our villages are halfdead. If we imagine we can just/ continue to live, that would be a mistake. The dying can pull/ the living only towards death. (from The Neglected Villages, 1934). He was deeply sceptical about the solutions proposed by the elite such as charity or moral enlightenment of the wealthy. These were like putting out a raging fire by blowing at it, he wrote. Instead, he sought an ethical model of production. What would that entail? Tagore's vision went far beyond notions like social responsibility' that are in vogue today. To him, ethical production required that resources (such as land and capital) are collectively owned by producers themselves. This would ensure that the produce is also collectively owned, and that all producers have a say in determining their share of value in the product of their work. The typical small farmer, indebted and impoverished, was much in need of such a structure. Imagine if all of our small farmers farmed their land collectively, stored their produce in a common facility and sold them through a common mechanism... Only then can we prevent profiteering; only then can the farmer recoup the legitimate value of her labour, wrote Tagore.

Without such mechanisms, the farmer would never be able to effectively exercise the right to his land, even if he held the title. Structural conditions would make him powerless. Under these circumstances, giving the small farmer the legal right to land was no more than giving him the right to commit suicide.' Indeed, in the cooperative principle, Tagore saw the possibility of challenging power, of altering power relations. Ordinary people, whose work constituted what was the real capital,' could only do so if they collectively owned that capital.' Many economists may well reject this as the misplaced idealism of an ill-informed poet. But it will resonate readily with the struggles for producer-ownership in the world today, such as Via Campesina. As the clout of agri-business grows, food inflation rises, and informal work becomes the norm, challenging dominant structures of ownership. And power is the central challenge of these movements. In India, no amount of tinkering can make growth inclusive,' unless people have a say in how that growth is driven. Take the case of cotton textiles, a boom sector that has seen much growth. But has it really benefited those who have produced that growth? The cotton growers, for instance the largest single group within the 200,000 farmers who have taken their own lives in the past decade? Or the millions of women who work the long shifts in export factories? Even worse, the drive for profits constantly pits the growers and workers against one another. When, at the peak of the cotton crisis, cotton farmers received price support from the government, export sector workers were threatened with job losses because cotton had become too expensive.' (Ironically, the worst off among the cotton growers did not even benefit from price support.) As long as prices are globally determined, we are told, not much can be done to save those at the bottom. Yet, the past few months have seen global

prices hit a big high and the government sharply restricted cotton exports to favour the textile lobby. This crippled the growers. This brings us right back to the question of ownership. When global prices fluctuate, who decides how the gains and losses are to be shared? Certainly not the majority of workers and small farmers. But more important, global prices do not operate by magic. They reflect the same concentration of ownership and economic power. Indeed, several movements today urge consumers to use their purchasing power to counter such power. But consumer movements cannot succeed unless the productive economy is differently organised, differently owned. Can that happen? Yes, if several conditions are in place. First, the competitive principle must be properly applied. Every institution, from schools to universities to hospitals, is increasingly being judged according to that principle, and forced to forgo its social priorities. At the same time, banks and corporations remain blatantly noncompetitive, operating like cabals with little discipline or accountability. Second, among the main points of criticism of cooperatives in India has been their need for state resources. But our corporations have been also been heavily subsidised by state resources. While they flourish, cooperatives flounder. Why? Corporations enjoy state support with no interference; cooperatives do not. State support has come with levels of bureaucratic control that are incompatible with a truly autonomous, member-driven movement. Third, cooperatives cannot survive in isolated sectors. Systematic linkages between sectors and across countries are necessary if we are to harness the full political, social, economic power of the cooperative principle.

Here is a story from Peru. From its mountains comes a special brand of coffee called Cafe Femenino, produced by cooperatives of very poor indigenous women. It grew out of the women's struggle to claim their share of the value they produce. As growers of organic Fair Trade coffee they earn a premium over and above the market price. Before Cafe Femenino, the women had no access to this premium, no say in its use. Now they use it to educate their daughters who would otherwise not go to school; more than that they raise awareness against the tremendous gender violence in their communities. There is more. In Canada, Cafe Femenino is distributed also by a workers' cooperative, creating as a result an entire coffee chain of cooperatives. Finally, as a mark of recognition of the global character of gender violence, Cafe Femenino is distributed free to shelters for abused women in Canada. The Femenino experiment has spread to six countries in Latin America and grows by the day. In India too, various experiments with women's collective enterprises have long been under way, but do not receive the attention they deserve. As Tagore had foreseen it, the cooperative principle enables the most marginalised people to mobilise their most abundant resource: their productive power and their solidarity. Development projects' or paternalistic policy models for empowering the poor' cannot achieve this. The choice is not between textbook theories. The lessons of everyday life have been stark, more so since 2008. The choice is between two different worlds: one driven by hyper-profit and mass distress, the other holding out the promise of shared prosperity and well-being.

(Ananya Mukherjee is Professor and Chair of Political Science/Development Studies at York University, Toronto. Her latest book, Human Development and Social Power: Perspectives from South Asia, was published by Routledge (London and New York, 2008.))

Home Opinion Editorial Act firmly, clean up Indian sport Jul 04, 2011 Indian sport is in the midst of its worst doping scandal. With as many as six athletes who were involved in last year s Delhi Commonwealth Games caught in recent testing, it is becoming clear that the malady is far more widespread than ever imagined. For a nation striving for sporting excellence through decades, the recent triumphs at the Asian and Commonwealth Games were heartening. But the reason for such improvement in track and field performance is now becoming apparent. Indian sport would be pandering to a delusion if it allows its athletes to dabble in questionable practices like sustained use of performance enhancing drugs. Earlier, weightlifters of both sexes were the ones viewed with most suspicion. It is clear now that sportsmen in different strength, speed and endurance disciplines on the track and field are indulging in the same unfair practices. The athletes who tested positive are trying to shift the blame to their coaches, particularly those who still swear by principles followed in the former Soviet bloc, where till not so long ago athletic excellence was a state-sponsored fraud indulged in to further delusional nationalistic ambitions.

As iconic sprint star P.T. Usha had recently pointed out, the very credibility of Indian athletics is at stake. Her intuitive suspicion of sudden improvements in performance, most noticeably seen in the CWG victory of the 4x400 metre national relay squad, proved justified. But her line of argument that the government should step in to clean up India s athletics is specious. As it is, the government and its investigating agencies are busy enough trying to nail the sports administrators involved in various scams relating to the Delhi Commonwealth Games. Ideally there should only be a minimal watchdog role for governments in sports administration; what it should concentrate on is to invest in improving the sporting infrastructure around the country. Our sports federations are autonomous: it is for them to guide young sports people and ensure that they stay on the correct path. Much as cricket plays an educative role in warning young players at the grassroots level of the ills of getting involved in betting and match-fixing, so too should the Indian Olympic Association, its affiliates and other sports bodies educate athletes on the dangers of looking for shortcuts to sporting glory. By announcing hefty financial incentives for medal winners at the highest levels of international sports, the government is actually placing temptation in the path of young sports people. While it is hard to fault it for good intentions, it might consider whether to make the medal winners wait at least two years, say, before actually handing over the promised incentives. This would ensure that money is never forked out to athletes, some of whom might later be caught through newer and more streamlined testing methods, which are improving by the day, and thus ensure that the federations and the nation itself is not embarrassed. It is a moot point whether the athlete on drugs alone is to blame, as in some cases support staff members are just as culpable of introducing bad practices. But just as

all the glory is the sportsman s alone when winning, so too must the blame be placed squarely at his feet in the event of his being caught doping. Modern sports people who live in an era of rigorous dope testing are often subject to harrowing procedures that try to ensure that they steer clear of all kinds of drugs, including recreational drugs, as they are anathema to the utopian view of sport handed down in the years since the founding of the modern Olympics in the 19th century. It s time India s sports people realised that doping (and thus cheating) have no place in the world they inhabit. Reading FDI trends C. P. Chandrasekhar

A constant refrain in recent times is that India is losing out in the battle to attract foreign direct investment into the country. Even the Financial Times has more than once argued that India is experiencing a deceleration in FDI inflows as a result of a combination of factors varying from procedural bottlenecks in areas like mining, policy

blockages or sheer fatigue with corruption (See issues dated June 1 and June 17 2011). To stall and reverse this decline, such observers argue, it is necessary to relax foreign investment policies further (as in multi-brand retail), raise ceiling on foreign participation, and be less stringent when it comes to implementing environmental and land acquisition norms. Some policy makers agree with them. India needs foreign funds to sustain high investment, but the flow of such funds is being constricted by stalled reform and arbitrary regulation, is the refrain. The evidence to back this view is weak, to say the least. If we consider annual flows of foreign investment, what we find is that FDI flows registered a dramatic increase in 2007-08, from $23 billion to $35 billion, hovered around $38 billion during 2008-10 and then fell to a lower but still respectable $27 billion in 2010-11. The problem has not been the level of FDI flows but a degree of volatility. During these years, what are identified as portfolio flows have been even more volatile, fluctuating between a net inflow of $32 billion during the last two years (2009-11) and a negative $14 billion in the crisis year 2008-09. Even if we examine quarterly figures, we find that FDI flows that rose from $6.9 billion in the second quarter of 2009 to a peak of $8.2 billion in the third quarter of that year, have since stayed in the 5-6 billion range for all but one quarter, namely January-March 2011. In fact, if we consider the 16 quarters ending Jan-March 2011, there have been only two in which FDI inflows stood at between $6-7 billion and four when it exceeded 7 billion. Thus, what the numbers point to is a degree of volatility around a $5-6 billion per quarter range, that cautions against reading too much into figures from any single quarter. In fact, no sooner had the Financial Times declared that foreign direct investment into India had tumbled 32 per cent to

just $3.4 billion during January to March 2011 that it emerged that net FDI flows in the month of April alone amounted to $3.1 billion. In sum, there is little evidence pointing to any major reversal in the trend of foreign direct investment flows into India in recent quarters or years. What is true is that while the combined figure for net foreign direct and portfolio investment flows into India has remained large through the recent period excepting for 2008-09, foreign direct investment has like portfolio investment begun to display a degree of volatility, even if not to the same degree. This leads to confusion since conventionally portfolio investment flows were seen as components of hot money flows that were volatile, whereas direct investment flows were seen as being more stable and less footloose. There are two factors that could explain this tendency towards FDI volatility. The first is that the distinction between direct and portfolio investment may be blurring. This should not come as a surprise since though conceptually direct investment is treated as capital invested by entities with a more lasting, long-term interest in the host economy, the statistical (OECD) definition of a direct investment is any investment in equity by a single foreign shareholder that equals or exceed 10 per cent of the equity in a firm. Thus there could be a large number of investors with no lasting interest who get classified as direct investors because they buy into more than 10 per cent of equity, when they are essentially looking for returns in the short to medium term in the form of capital gains. With hedge funds and private equity firms looking to buy equity shares in the Indian financial space, the nature of the bets and the size of the investment would be substantially different. If for example, equity is being bought in a firm with the expectation that its value would appreciate since it is a likely target for a take over bid, the equity share held to attract bids from acquirers is bound to be higher. In India, the

problem is compounded further because of the inclusion of foreign currency convertible preference shares and bonds in the definition of equity , even though there are or are more like debt instruments (Refer Smitha Francis, Economic and Political Weekly, may 29, 2010). The other factor that could account for net FDI volatility is the recent tendency, encouraged by easy access to foreign exchange and relaxed rules regarding foreign investments outside India, for Indian firms to expand operations abroad through acquisition. The pace of foreign acquisition by Indian firms has increased considerably, with increases not just in the number but also the size of acquisitions. This would imply that a given gross inflow of foreign direct investment would amount to a significantly smaller net inflow of FDI. Since there are likely to be significant inter-temporal variations in the level of acquisitions, given the incipient nature of the tendency, this could aggravate the volatility of net FDI flows. The implications are clear. We need to exercise caution in jumping to conclusions about changes in FDI flow trends based on short period data. We need to be even more careful when calling for changes in policy based on such short-term movements. Unless of course the evidence is merely a ruse to advance recommendations that would have been made anyway.

India new Zealand favour fta

DELHI: India on Tuesday resolved to diversify its ties with New Zealand in non-traditional areas such as defence. At a meeting between Prime Minister Manmohan Singh and his New Zealand counterpart John Key, both sides also expressed themselves in favour of a free trade agreement (FTA) and signed protocols in film

production, higher education and research to strengthen people-topeople interaction. Asean observers New Zealand, along with India and Australia, belongs to the second rung of observers in the 10-nation Association of Southeast Asian Nations (Asean). They are striving to get on a par with the first group of Observers China, South Korea and Japan in terms of intensity of contact with the Asean. Of these 15 nations (10 Asean members and five regional Observers), observers feel India needs to focus on the Philippines and New Zealand in developing greater trade and security linkages. With respect to the former, Mr. Key hoped FTA negotiations would be completed by next year. India already has a FTA in goods with the Asean and Comprehensive Economic Partnership Agreements with Japan and South Korea. With a former Chief of the Naval Staff as India's High Commissioner to New Zealand, the two Prime Ministers agreed to strengthen bilateral defence cooperation. Mr. Key announced that his country would appoint a Defence Adviser to India to facilitate defence linkages better. India has defence agreements, among others, with Japan, South Korea, Vietnam and Malaysia. It has conducted joint exercises with most countries in the region. Both sides noted need to ensure the safety and security of sea lanes and agreed that regional and global cooperation should continue to ensure maritime security.

The Prime Ministers also announced a jointly funded education cooperation initiative to promote partnerships in higher education and research, and skills and vocational education.

A landmark verdict
Laws cannot remain silent when the cannons roar, the Supreme Court of India declared earlier this week, upturning Cicero's dictum to pronounce a historic judgment on the violent darkness that has enveloped the heart of India in Chhattisgarh. While the State and Union governments have predictably announced their intention to seek a review, the court's decision to disarm and disband the forces of mostly young, barely literate, and poorly trained Special Police Officers (SPOs) deployed by the state in the fight against Maoist insurgents is a blow for constitutional order. Modern constitutionalism, the court noted, posits that no wielder of power should be allowed to claim the right to perpetrate ... violence against anyone, much less its own citizens, unchecked by law and notions of innate human dignity of every individual. The burden of the judgment is simple: the country does face a threat from the Maoist insurgency but any attempt by the state to use lawless violence as a counter will only perpetuate and intensify the cycle of violence, as the death toll revealed by the Government of Chhattisgarh itself indicates. By default as well as design, the SPOs whether organised under the name of Salwa Judum' or Koya Commandos' have become the chief instrument of this lawless and failed counterinsurgency strategy. Innocent tribals have been the primary victims, either as targets of the SPOs or as poorly trained foot soldiers in a bloody war the government is not even prepared to properly finance.

In demanding an end to the SPO system, the Supreme Court has acted as much out of concern for the hapless tribal population of Dantewada as for the tribal youth who were press-ganged by their individual circumstances into becoming cannon fodder for the state. Chhattisgarh as well as the Union of India were guilty of violating the fundamental rights of citizens at large and the SPOs themselves. The court has also made the link between Chhattisgarh's illegal counter-insurgency strategy and the wider neoliberal approach being followed by the government at the Central and State levels. This approach is spawning disaffection among the poor and giving a boost to insurgency. The Salwa Judum is the illegitimate product of a system that sees nothing wrong in giving tax breaks to the rich and guns to the poor to fight each other, the court said. But the Constitution is most certainly not a pact for national suicide', it concluded in ordering an end to this state of affairs. These are profound words. Both the Union of India and Chhattisgarh must immediately implement this splendid expression of judicial wisdom, not waste time in seeking a review.

Salwa judum

The carefully constructed decision to disband the untrained force of young Special Police Officers in Chhattisgarh holds important lessons for the exercise of executive power. The Supreme Court's decision in Nandini Sundar and Ors. v. State of Chhattisgarh is no ordinary one and, unsurprisingly, it has invited mixed feelings. The Court declared the State of Chhattisgarh's

appointment and arming of Special Police Officers (SPOs) to be unconstitutional, and many have taken pride in its defence of civil liberties. Simultaneously, though, there is some discomfort over the decision's grand rhetorical narrative and its seemingly ideological framing. The Court travelled considerable distance to attack the State's amoral' economic policies and the culture of unrestrained selfishness and greed spawned by modern neo-liberal economic ideology. Animated though these views are, mixed feelings over the decision are largely unwarranted and it is important to explain why. The Court's rhetoric in Nandini Sundar makes for lively conversations but it shouldn't obscure the significance of the order or the importance of the issues at stake. The central concern in the case was the State of Chhattisgarh's creation and arming of a civilian vigilante group the Salwa Judum' in the battle against insurgencies by Maoist/naxalite groups. Thousands of tribal youth were being appointed by the State as SPOs, and allegedly being called to battle. For the State, this presented one of the only ways in which the Maoist threat could be met, and SPOs were defended as being merely guides and sources of intelligence; they were apparently provided firearms only for their self-defence. The petitioners, on the other hand, argued that the true story was darker, the entire policy lacked legal sanction, and that it had led to gross violations of human rights in the Dantewada district and other parts of Chhattisgarh. The SPOs were being casually trained and armed, and were engaged in unrestrained acts of violence; all being carried out under a stealthily created legal framework. One of the major legal troubles here was excessive delegation from the legislature to the executive. The SPOs were appointed under the Chhattisgarh Police Act, 2007. But the Chhattisgarh Police Act said

little, leaving far too much in the hands of the executive. No details or limitations were provided on the number of SPOs who could be appointed, their qualifications, their training, or their duties. The blatant vagueness of the law stood, as the Court observed, in sharp contrast to the Indian Police Act, 1861, which also provides for SPOs. Despite being a colonial law, beset with its own problems, the Indian Police Act nonetheless contains certain safeguards. It requires, for instance, the appointment of SPOs to receive approval from a magistrate. Contrary to the State's assertions, the Court found that SPOs were playing a major combat role in counter-insurgency operations, and that their brief was not limited to non-combative assignments. The Court's findings paint a disturbing picture. Youngsters, with poor training, were being recruited by the State to engage in dangerous and deadly operations. They lacked both the legal and professional education necessary for their tasks. In about two dozen, hour-long periods of instruction, they were trained in all relevant criminal laws such as the Indian Penal Code, the Code of Criminal Procedure, and the Indian Evidence Act. Another 12 hours were devoted to the Constitution and human rights. In fact, their education was so modest that the Court rejected the State's argument that the SPOs were being armed for self-defence on, inter alia, the ground that they did not even possess the necessary judgment to determine instances of self-defence. In arguing its case, the State government put forth a desperate and churlish set of arguments. It sought to reduce its culpability by asserting that the youngsters appointed had voluntarily sought to engage in counter-insurgency operations, almost as if to suggest that it is consent which was at issue here. It further asserted that by providing such youngsters employment, the State was giving them

livelihood and the promise of a better future. The Court was rightly aghast at such a suggestion, observing that it cannot comprehend how involving ill-equipped, barely literate youngsters in counterinsurgency activities, wherein their lives are placed in danger, could be conceived under the rubric of livelihood. We often witness the Court making such majestic statements but in Nandini Sundar it walked the talk. These strong words were backed by strong remedies. The SPOs were expected to perform all the duties of police officers but were paid only an honorarium. This, and the arbitrary and vague nature of their appointment and functioning, was held to violate the equal protection guarantee in Article 14 of the Constitution. Article 21, the right to life clause, was also hit, as the State displayed insensitivity towards the lives of SPOs, placing them in danger without giving them the necessary education and support they needed. There was some clever craftsmanship here, but perhaps also a deeper point, with the Court regarding the SPOs as victims rather than perpetrators. The appointment of SPOs was thus struck down, and the State of Chhattisgarh was asked to immediately cease and desist from using [them] in any manner or form. The Union was also barred from funding the project; all arms were to be recalled; the SPOs were to be given appropriate security; and, most important, the State of Chhattisgarh was asked to ensure that no private group engaged in counter-insurgency activities. Finally, the Court ordered the Central Bureau of Investigation to investigate alleged acts of violence. On each of these issues, the Court's view was crystal clear and powerfully articulated. The ratio of the interim order, i.e. the operative part of a legal decision which binds further state action and future cases, is carefully constructed, and holds important implications for the exercise of executive power. There are other

legal aspects of the decision that merit reflection. Article 355 of the Constitution, an often forgotten provision, mandates that the Union ensure that every State government acts in accordance with the Constitution. The Court correctly criticised the Union's hands-off policy on SPOs, which involved funding the project but no follow through on how precisely these forces were functioning. Sadly, though, these legal niceties have been nicely ignored in much of the public debate the judgment has triggered. Many commentators appear far too fascinated with the rhetorical flourish with which the decision begins, rather than the true legal character of the order. Admittedly, the widely publicised, ideologically-ridden narrative is bewildering and was unnecessary; it had no bearing on the dispute being debated. But it is also precisely for this reason that we ought not to belabour it. The affinities of individual judges can help us develop some sort of institutional sociology of the Supreme Court. Such a sociological study would be illuminating, but we mustn't confuse it with the legal impact of the case, and fail to appreciate the varying significance of these issues. The anti-neoliberal lecture in the case binds no one, not even the judges themselves. The ideological position espoused in the preamble may have generated a fierce debate, yet the character of the battle against insurgency operations is more important than it. The ratio of the judgment in Nandini Sundar will outlive its rhetoric. Many have criticised the judges as being a little too judgmental. As we unpack the details of the decision, we ought not to be guilty of the same charge