Category: World Diary

Rahul Gandhi succumbs to divisive, caste-based electioneering in Uttar Pradesh, in the long, hard climb towards India’s top post

(20 January 2012) — Rahul Gandhi, the fifth-generation guardian of one of the longest running political dynasties in the modern world, and more importantly, the man whom many in India see as the nation’s future prime minister, has become the first Gandhi to publicly exploit India’s social arithmetic for electoral gains.

Putting into practice an idea that is contrary to his stated vision of a contemporary, progressive India, he is asking the 110 million voters in the northern Indian state of Uttar Pradesh (UP) to vote for his party’s candidates in the upcoming February-March 2012 elections on the basis of the castes and sub-castes that they represent.

That is not all. He is also appealing to the religious sentiments of UP’s largely poor and religiously-sensitive electorate by supporting a proposal to include a 4.5% sub-quota for minorities in the existing quota of reservation for Other Backward Classes (OBC). Reservation in India is a form of affirmative government action and the minorities are largely Muslims, who form 18% of UP’s population and can influence about 100 of the 403 electoral seats.

In the process, he has abandoned his oft-repeated promise of inducting only the youth and clean grassroot workers of his party the Congress, and given away tickets to those who can win seats in the forthcoming elections.

Disappointing as it may be from a moral perspective, political analysts are seeing this as the coming-of-age of Rahul Gandhi, the politician.

Mission 2012

It has been eight years since Rahul formally entered politics in 2004. The forthcoming UP elections are seen as not just a referendum on his organisational abilities, but also a barometer of his political ideology. More importantly, the UP election results will show whether the Gandhi scion is ready to lead his party in the 2014 federal elections, and the nation after that.

The state of 200 million not only forms 20% of India’s population, but also sends the most number of representatives, 80, to the Indian parliament. A handsome victory in UP, coupled with victories in a few more states — out of a total of 29 Indian states — can almost guarantee a party the pole position in national politics.

The Congress once ruled virtually uncontested in UP but bowed out in the December 1989 elections with a mere 94 seats, well below the majority mark. In the last election in 2007, Congress won just 22 seats. With the party losing ground in other states too, the need to re-establish a good base in UP has magnified, leading Rahul to formulate Mission 2012: The rebuilding of Congress in UP.

Not even the most ardent of Congress supporters are talking of forming a government in a state that has rebuffed the party for 22 years. But a sense of revival is running through the organisation due to Rahul’s aggressive campaigning and, more importantly, his shrewd caste-oriented tactic.

Verities of UP Politics

“Frankly, the only reality in Uttar Pradesh politics is whether your caste arithmetic is right or wrong. If the Congress wants to make a breakthrough and emerge as a party in reckoning both in 2012 and 2014, it has to talk this language, whether the national media likes it or not,” a Rahul aide in UP told weekly news magazine Tehelka on January 15.

And Congress is walking the talk, with 80 of its 325 candidates announced so far belonging to the OBC as well as the MBC, the so-called most backward of the OBC. Billboards at Rahul’s public meetings carry images of heroes and iconic figures of specific MBC groups. He also mentions these castes by name.

He is also making sure that he does not walk alone. In the western part of UP, Congress party has tied up with Rashtriya Lok Dal. The party is led by Ajit Singh, whose father Charan Singh led the first OBC opposition to Congress in UP in the late 1960s. This eventually reduced Congress to rubble in the state by the 1990s. Rahul is attempting to reverse this entire course. In the central and eastern parts of the state, Rahul has also forged similar caste-conscious alliances.

But Congress is not alone in the social engineering bid.

The ruling Bahujan Samaj Party (BSP) and the Samajwadi Party (SP), the likely winner of the election going by most opinion polls, are running campaigns focused on consolidating their core, caste-defined constituencies. Bharatiya Janata Party (BJP), India’s principal opposition party at the national level, is also trying to put together the perfect caste bouquet for the UP election. These imply that caste will continue to decide electoral fortunes in many parts of India for some time — and that Rahul has made the correct strategic choice.

The Stakes

In the event of less-than-spectacular success in the UP elections, Rahul will remain his party’s best bet for the prime ministerial post in 2014. But a good showing would almost certainly entrench his claim to the nation’s top post.

The question is, at what cost?

By playing on social divides for electoral gains, Rahul is demolishing the idea of a progressive and inspirational India that his great-grandfather Jawaharlal Nehru had hoped for, and sullying the Nehru-Gandhi identity associated with it. This is an identity that has allowed Congress to claim the higher ground over all parties through India’s modern history.

With the ageing prime minister unlikely to seek a third term, and Sonia Gandhi, the supreme leader of the ruling coalition, reportedly suffering from a debilitating illness, the nation’s leadership transition looks set to be decided by caste arithmetic in the dusty lanes of UP.

It is two steps back for Indian politics, and a crying shame for the Gandhis.

The freefall in the rupee has been arrested but don’t expect a full recovery this year

(20 January 2012) — The worst is over for the rupee after India’s central bank injected more than US$4 billion over three months in late 2011 to arrest the currency’s freefall, which was triggered by global risk aversion as investors started to pull funds out of India.

The Reserve Bank of India sold US$2.9 billion in November alone, the month that saw the rupee tumbling nearly 7%, its worst fall in 16 years, to hit a record low of 52.40 rupees to the dollar.

The November dollar sale was a massive increase from the US$845 million and US$943 million sold in September and October respectively, according to the central bank’s latest bulletin on January 12. This was also the highest quantum of sales in 32 months.

The significant intervention by the central bank is contrary to popular belief that it was following a hands-off approach. Experts close to the bank believe that the intervention had actually become necessary.

“Ideally the market forces should drive the exchange rate and there should be minimum interference (from either the the central bank or the government). However, when the exchange rate reaches a juncture where it starts causing distortions to the general economy, it should be addressed,” Madan Sabnavis, chief economist at Credit Analysis & Research Limited, India’s second-largest credit rating agency, told Asia360 News.

That juncture arrived in 2011 when the rupee, the worst-performing Asian currency, lost more than the 19% of its value against the US dollar between August and November. The loss was equivalent to the rupee’s total depreciation in the 2008-9 global financial meltdown.

On top of selling dollars, the central bank put in place measures to monitor the daily positions of banks and the purpose for which they were buying currencies. To curb speculation, it curtailed by as much as 75% the overnight limits for banks, which is the maximum amount of currency positions that can be carried over to the next trading day. The authority also banned the cancellation and rebooking of forward contracts, which allows the purchase and sale of an asset at a specified future time at an agreed price.

Within three weeks over October-November 2011, India’s foreign exchange reserves fell by US$12 billion, the steepest drop since the Lehman Brothers collapse in 2008. The massive depletion was a fifth of the $65 billion that India lost during the entire 2008-9 financial crisis.

“Rupee woes began with the eurozone crisis causing a dollar liquidity squeeze in the Indian markets both on the debt and equity capital markets. During this time, importers stayed uncovered on future dollar payables while exporters stayed fully covered on future receivables; thus setting the market in a heavily dollar oversold position. It was one-way street with excessive dollar demand and very limited supply,” Moses Harding, head of economic and market research at IndusInd Bank told Asia360 News.

The Indian economy was also beset by low growth, high inflation, tight liquidity, high interest rates, high fiscal deficit, and a big trade gap.

“It is difficult to defend currency weakness when the investment inflow into debt/equity capital account is not adequate to bridge the current account gap. In a way, India was exposed of its dependence on external liquidity to ensure exchange rate stability,” Harding said.

The mass pull-out of funds from India left the country’s foreign institutional investor inflow at almost zero in net terms for 2011, against nearly US$30 billion annually in the past.

To push foreign investment, the Indian government decided in November to raise foreign investment limits by $5 billion each for government and corporate bonds, to reach $15 billion and $20 billion respectively. The window for the raised limits ended on January 13.

Improved market sentiment this year has helped the rupee recover somewhat. A furious bout of trading in the final hours of January 13 sent the Indian currency to a five-week high of 51.29 rupees to US$1, ending the day at 51.53 to the dollar. The general improvement in global risk sentiment contributed to the dollar inflow in January, as did steps by the Indian government in December to re-invigorate the economy. The government liberalised the single-brand retail sector (a similar decision on multi-brand retail had to be put on the backburner amid political furore) and deregulated the interest rate on non-resident bank deposits.

However, many experts believe that the rupee may not make a full recovery in 2012 to return to the pre-fall levels of July 2011.

“Rupee fundamentals continue to stay weak. The economic dynamics has shifted from moderate growth and high inflation to low growth and moderate inflation. The resultant shift of monetary stance from anti-inflation to pro-growth will add to pressure on rupee,” Harding said.

The case against Iran for attacks on Israel’s foreign interests is far from air-tight, as inconsistencies come to light

An Israeli embassy car carrying the wife of a defence attaché was targeted in a terror attack in New Delhi on February 13. On the same day, in the Georgian capital Tbilisi, police defused an explosive device attached to a vehicle belonging to a citizen working for the Israeli embassy. And a day later, three blasts rocked Bangkok.

It was in the Thai capital that suspicions became clearer. Two Iranians were arrested for plotting to attack Israeli diplomats stationed there.

On the face of it, the three incidents seem to establish a straightforward case of a well-organised international plot by Tehran against its bitter enemy, Israel. Many suspect it was a boastful tit-for-tat campaign designed to rattle Tel Aviv for allegedly assassinating Tehran’s nuclear scientists on its own soil.

But a closer inspection of the incidents produces more questions than answers.

If the perpetrators were indeed state-backed operatives, why were they so inept? The New Delhi bomb was stuck on the opposite side to the petrol tank; the car explosives in the Tbilisi case were detected by their intended victim before they went off; and the Bangkok assailants blew up their house accidentally with the explosives meant for their mission.

“The attacks in India, Georgia and Thailand have all been highly amateurish,” Will Hartley, an analyst with the US-based private intelligence service IHS Jane’s, told Bloomberg on February 15.

The New Delhi attack car bomb no doubt resembled the method used — allegedly by Israeli intelligence agency Mossad — to kill Iranian nuclear scientists in recent months. A copycat bombing may have been Tehran’s attempt to demonstrate that it could not only match Israel in the deadly game but even expand the playground.

But throwing that theory up in the air is the fact that the attack took place in India, a nation with which Iran has had historically amicable relations. The two countries are also currently in delicate negotiations to establish a payment method for oil, in an attempt to circumvent American sanctions against Iran’s energy sector.

Also, India is one of the very few nations that has the requisite diplomatic clout to facilitate a rapprochement between Iran and the West. Tehran can ill-afford to lose a friend like that in exchange for the life of an Israeli diplomat.

These inconsistencies reduce the likelihood that it was a series of assassination plots sponsored by Tehran, at least in New Delhi. Authorities in India too seem to be in no rush to arrive at any conclusions. New Delhi police spokesman Rajan Bhagat said at a news conference a day after the attack, “We don’t yet have the evidence to point the finger at anybody. We are exploring all possibilities.”

One of those other possibilities could be the that of an international terrorist organisation acting independently.

While this is somewhat improbable in the India case, since groups like Hezbollah which are sympathetic to Iran do not have a known operational presence in the country, it is a stronger likelihood in the Bangkok incident.

Maria Ressa, author-in-residence at the International Center for Political Violence and Terrorism Research in Singapore, told Asia360 News  that “Hezbollah has been present in Southeast Asia for a long time now. The group, in the past, has hatched plans to hit the Israeli and the American interests, especially the embassies, in Singapore and Thailand. There were even many arrests related to the cause.”

In January this year, Thai police detained a Lebanese-Swedish man, Atris Hussein, for his alleged links with Hezbollah militants. Hussein led authorities to a stockroom, just outside Bangkok, filled with more than 4,000 kilograms of urea fertilizer and many gallons of liquid ammonium nitrate, which experts said were the “initial chemical materials [for producing] bombs”.

But the shoddy execution of the recent attacks, especially in Thailand, has also left many security experts questioning the involvement of a highly trained organisation like Hezbollah in the attacks, never mind a state-backed group.

Like the India authorities, Thai police declined to make any link between the February 14 explosions and the January arrest of Atris Hussein.

Hezbollah itself has denied having any role in the incidents. In an age when terror groups fall over each to claim credit for an act of terror anywhere in the world, the denial by Hezbollah is telling.

The remaining possibilities include fringe groups exploiting the lax security apparatus in the region to carry out the attacks for their own, as yet unknown, agendas.

Some believe that it is quite possible that the complete picture may never emerge and that Iran and Israel would forever keep blaming each other for the incidents.

But whoever was responsible for the current chain of violence, the perception that Iran is behind the mayhem has “undoubtedly exacerbated the already mounting tensions surrounding Iran’s nuclear program, and international efforts to curtail it,” said Will Hartley, head of the Terrorism & Insurgency Center at IHS Jane’s in London.

Israel is insisting that India help sponsor a resolution against Iran in the United Nations Security Council condemning the attack on its diplomats in New Delhi, as well as the incidents in Tblisi and Bangkok.

But it is way too early at the moment to connect the dots; and establish the spread of the Iran-Israel conflict to lands far away from their borders.

Global nuclear summit largely fails to make the world a safer place

Hopelessly hijacked by North Korea’s rocket launch plans, the recent Nuclear Security Summit in Seoul failed to move beyond a symbolic solidarity against nuclear proliferation.

The biggest nuclear meeting in the world, the March 26-27 summit saw prominent heads of states representing around 80% of the world’s population and 90% of the global economy. But the high-profile attendance produced no binding requirements, focused on matters not on its agenda, and failed to address issues urgently in need of attention, analysts said.

The summit’s goal is to combat nuclear terrorism and strengthen the security of fissile material — material used in reactors and explosives to generate a chain reaction of nuclear fission. But it fell so far short of its goal that some critics warn that the 2014 summit in the Netherlands could well be the last.

Delegates politely applauded progress such as Italy’s pledge to dispose of its fissile material. But by the second day, the agenda had veered off course when Japanese Prime Minister Yoshihiko Noda urged the international community to demand that North Korea abandon the planned April launch of a satellite that many believe is a cover for a missile test.

Many nations supported Japan’s call, but the fact remains that North Korea’s weapons programme was off the table during the summit itself.

Noda’s decision to ignore diplomatic and summit protocol reflected Japan’s frustration with the failure of the six-party talks between the two Koreas, the US, Russia, China and Japan to denuclearise the Korean peninsula, said Professor Srikanth Kondapalli at New Delhi’s Jawaharlal Nehru University, in an interview with Asia360 News.

North Korea walked out of the talks three years ago after the United Nations Security Council condemned its launch of a long-range rocket. Within weeks of abandoning the talks, North Korea had conducted a nuclear test.

This type of behaviour certainly makes Pyongyang a nuclear threat, along with Iran. However, neither of these nations was invited to the summit.

The one thing the summit got right was choosing Seoul as a venue, analysts said, given the risks of nuclear proliferation in North Asia.

“Asia is the most likely region in the world to witness cascading nuclearisation in the near future,” said Robert E Kelly, an assistant professor in the political science and diplomacy department of Pusan National University in Busan.

“If North Korea does halt its nuclear programme, it would become difficult for South Korea and Japan to avoid going nuclear themselves in future. Nuclear weapons matter more in Asia than any other part of the world,” he told Asia360 News.

Pakistan, another nuclear trouble spot, was ignored by the summit.

“When the first summit in Washington was conceived, it was of everyone’s knowledge, though not stated publicly, that the idea was to keep Pakistan’s nuclear stock away from terrorist groups like Al-Qaeda,” Rajiv Nayan, senior research associate at the Institute for Defence Studies and Analyses in New Delhi, told Asia360 News.

But, he added: “Pakistan is not even being discussed at a nuclear security summit, despite the revelation about the relationship between the Pakistani establishment and terrorists like the late Osama bin Laden.”

Nayan concluded that the US and other North Atlantic Treaty Organisation (NATO) nations had attempted to shield Pakistan from criticism due to its importance to their “war against terror”.

In addition to failing to confront rogue nuclear states, the summit secured only slight progress on problems outlined in its charter.

While the US and Russia have made recent progress in cutting nuclear stockpiles, India, China, Japan and South Korea remain at odds over how best to reduce their own inventories.

China has expressed a strong will to reduce its nuclear warheads. It is believed to possess at least 200 warheads although Beijing maintains it only has a “handful” of nuclear weapons.

As Jawaharlal Nehru University’s Kondapalli points out: “When countries are debating the starting point itself, how much hope can there be of reaching the destination any time soon?”    AR

There have been some setbacks but the Indian government will continue to push for economic reform

(3 February 2012) — India is a nation of shopkeepers. Retailing accounts for 15% of its gross domestic product, employs 40 million people, and at US$450 billion, is one of the top five retail markets in the world. No wonder global retail giants want to get a foot in the door.

But the country is also keen to protect its millions of small retailers. Politicians and the public are divided on whether letting major foreign retailers into the market would destroy jobs or boost the wider economy. The government, led by economic reformer Prime Minister Manmohan Singh, believes that retail liberalisation is a necessity. Opposition parties disagree — perhaps playing to local fears of jobs losses. Single-brand retailers like Ikea were, until recently, required to set aside 49% of their equity for local investors. For now, the big multi-brand retailers, such as Walmart and Carrefour, are entirely barred.

Just last week, the government announced its decision to formally clear the decks for full equity ownership — up from the earlier 51% investment cap — in the single-brand retailing sector. This would set the stage for global single-brand retail firms to proceed with investments in the country.

“Globally, single-brand retail follows a business model of 100% ownership and global majors have been reluctant to establish their presence in a restrictive policy environment,” the department of industrial policy and promotion said when announcing the move. But foreign firms still have to meet 30% of their sourcing needs through local suppliers.

For Ikea, this requirement is an obstacle to the company’s expansion into India and needs reviewing, company chief executive, Mikael Ohlsson told the Financial Times.

Single-brand retail accounts for 25-30% of the US$26 billion organised-retail market in India and will grow to about US$20-25 billion in five years, according to Technopak Advisors, a retail consultancy firm.

Other reforms

In the past year, India has liberalised foreign investment regulations in many of its key sectors. The foreign ownership limit in public-sector refineries, for example, has been raised to 49% from 26%. The government also decided to allow commodity exchanges up to 26% in foreign direct investment (FDI) and 23% in foreign indirect investments, provided no single entity holds more than 5% of the stake.

Sectors like credit information companies, industrial parks, and construction and development projects have also been opened up to more foreign investment. Keeping India’s civilian nuclear ambitions in mind, India has also allowed 100% FDI in the mining of titanium, a mineral abundant in the country.

Also, in another major announcement, the government of India on January 17 announced that foreign airlines will soon be allowed to acquire a stake of up to 49% in domestic carriers — leading to the likes of AirAsia expressing an interest in launching an Indian subsidiary.

And on January 26, the government removed a mandatory clause that investments once announced, cannot be cancelled for three years. Foreign firms will be encouraged to look more closely at investing in India if they know their investments will not be tied up for a minimum period of time.

The slew of reforms would give the impression of a reform-obsessed government on overdrive. But the truth is more restrained. The recent decision to allow 100% FDI in single-brand retail is part of a wider government effort to push its economic liberalisation programme, which began in 1991.

Riding on measures by the government and the central bank, overall FDI into India  in 2011 was US$26 billion compared with US$19 billion in 2010.  And according to a recent Ernst & Young report, FDI in India is set to soar, even as investors struggle to come to terms with a lack of transparency, poor infrastructure and policy paralysis. The report also noted that overseas investment in Asia’s third-largest economy rose for the first time in three years in 2011, as global investors put their faith in rising salaries, an expanding middle class, and a large and cheap labour force.

An opportunity?
Despite the progress, liberalisation of the multi-brand retail sector remains a thorny issue because of the size of the market and the potentially wide-ranging social impact. Any decision on multi-brand retail would affect much of India, from the man on the street to the conglomerates. Foreign multi-brand retail giants would be able to sell to most of Indian’s 1.2 billion people.

Small-shop owners, who account for more than 90% of India’s US$450 billion retail sector, oppose the entry of foreign players. They fear that they would be put out of business.

Supporters of liberalisation, such as the former US ambassador to India Timothy Roemer, believe that opening the sector to foreign investors would create millions of jobs for local Indians. Infrastructure would improve, food prices would drop and there would be more opportunities for associated small and medium enterprises as well.

During a meeting with global retail heads at the World Economic Forum in Davos, Indian Commerce Minister Anand Sharma told delegates that the desired 51% foreign ownership of multi-brand outlets “could not be implemented because of the compulsions of coalition politics and also partisan opposition. It is just a pause. The decision has only been put on a temporary halt”.

This is the first time US and German retail executives have met Indian ministers after the government was forced to suspend its plans last December. The government has reportedly restarted the consultation process with political and economic stakeholders, in a fresh attempt at opening up multi-brand retail to foreign investment.

With sagging consumer demand in the developed economies, India is fast becoming one of the most attractive untapped markets for the global retail giants.