Narendra Modi, Beyond 2012: Practical Considerations

Before I get on with this blog post, let me be very clear and transparent here by stating that I am a staunch supporter of Mr. Narendra Modi. However, this blog post is not about telling skeptics “I told you so” but to ponder on some practical considerations that will play a role in charting Mr. Modi’s future course. It wasn’t a surprise even to the most vehement opponents of Mr. Modi (notably Tehelka and The Times of India) that he would come back to occupy the post of Chief Minister for the third consecutive time in Gandhinagar. His win was a foregone conclusion that was accepted by all. Therefore, in absence of the question of whether the Bharatiya Janta Party would win, the pundits had to pick up on another question. That question being how many seats would the BJP garner in Gujarat. Some speculated whether there would be a prerequisite in terms of number of seats which would absolutely be required for him to be immediately catapulted to the centre in a “national role” for the BJP. This question was simply, in my opinion a rather desperate attempt by especially, the electronic media to fill the airwaves with some topic of discussion in view of the fact that they had no room to discuss and speculate as to who the winning party was going to be. The fact known by most Gujaratis (irrespective of who they vote for) is that Mr. Modi does indeed harbour ambitions for a national role in politics with his eyes set straight on the “throne” of becoming - the Prime Minister. It is believed that it is only a matter of time when he actually “spills the beans” and makes an explicit announcement for his move towards his prime ministerial ambitions. Assuming that “belief” to be correct let me now start pondering on some issues that are likely to crop up in Mr. Modi’s path to national leadership. While I would love to see him sitting in the PMO, there are some pretty tricky hurdles for Mr. Modi to leap over before he even becomes the official and declared face of BJP’s 2014 candidate for Prime Minister. Firstly, Mr. Modi would need to manage and consolidate his position as a prime ministerial candidate within the ranks of the BJP itself. It is widely believed that there is internal opposition to Mr. Modi’s proposed candidature coming from various regional BJP leaderships. Contrary to popular belief, the BJP ruled governments in states such as Madhya Pradesh and Chhatisgarh are doing reasonably well under their local leaderships. It would not be illogical to assume that these arms of the party would like to project someone from within their own ranks for a national role. Admittedly, the chances of that happening are quite low. However, with regional elections coming up in states like Rajasthan and Delhi in 2013 where BJP is the primary opposition to the ruling Congress, the chances of a local leader from these states coming up with national aspirations cannot be ruled out in case of a BJP victory. There is also the big question of whether Mr. Modi would make it past the current top leadership of the BJP for the top spot. Senior leaders like Sushma Swaraj, Arun Jaitley, Ravi Shankar Prasad and the like have been waiting in opposition since 2004 when the BJP lost the general elections to the Congress led UPA, to get a shot at the top spots. Would Mr. Modi make it past these top barons? Only time would tell. Secondly, if Mr. Modi does make it past these hurdles and gets consensus for the prime minister’s job, there would arise the question of his “acceptability” as a PM candidate amongst the BJP’s NDA allies. The NDA kitty consists of other regional parties who are sensitive to their own constituencies to Mr. Modi’s appeal, especially to Muslims. When it comes to Muslims, Mr. Modi is probably the most divisive figure in this country. Whether that image is deserved or not is a completely different story but it is a fact that Mr. Modi’s projection as PM would probably drain several Muslim votes from these allied parties as well as from the BJP itself who would otherwise have voted for them. That is primarily the reason Mr. Modi would be a tough pill to swallow for the allies of the NDA as a PM candidate. Nitish Kumar of Bihar has already made it clear that he wants NDA to promote a “secular” person as PM candidate, clearly a dig at Modi who is perceived by most (I think wrongly) as not secular. Although Mr. Kumar’s government in Bihar would not be possible without BJP support, it is interesting to note that an NDA government at the center without the Mr. Kumar’s JD(U) would be short lived at best. Thirdly, in event of Mr. Modi becoming the prime ministerial candidate for the NDA after surpassing the aforementioned odds, it would be interesting to see how the average Indian voter responds to Mr. Modi’s appeal as a possible PM. It is well documented that a significant of young voters (ages early 20s to mid 30s) and first time young voters (below 20) are positively responsive to Mr. Modi’s appeal as possible future PM. In recent polls and surveys done by mostly pro-Congress publications and channels like India Today and Headline Today, it was shown that Mr. Modi’s image as PM resonates among a large number of India’s young population which incidentally makes up a significantly high number of the voter base come 2014. However, his appeal amongst minorities, especially Muslims remains lackluster at best. The Muslim voter could well prove to be the “swing voter” come 2014 in case “Hindu India” strongly backs the NDA. Fourth and most important (though rarely thought of) is the point of what would be the fate of a central government under Narendra Modi as prime minister. Even if he manages to get the top job, would the BJP have the numbers to sustain a coalition that can complete a full term. Given the current political climate in the country, it is easy to figure out that Indian politics will become more and more concentrated in the states rather than the centre which will devolve into a “quasi-federal” and “semi-weak” centre. Mr. Modi runs things efficiently in Gujarat because he has a 2/3rd majority in the state assembly and can do what he very well pleases to. That would definitely not be the case in the centre even if the BJP manages to get a landslide in 2014. Dependence on smaller allies would compel the BJP to be more receptive of them and heed their demands. It would not be an as efficient show as in today’s Gujarat. It would also be a bit out of character for Mr. Modi who is used to doing things single handedly and rather swiftly. These are in my views some practical considerations that would need to be made by the BJP and Narendra Modi before the 2014 elections. Their collective aim should not be to just get to power, but to retain it for a full term. Can it be done? I have my fingers crossed! Mitul Choksi Ahmedabad, India December 21, 2012

The Trouble Brewing in East Asia

The Indian Prime Minister Manmohan Singh recently visited the Cambodian capital Phnom Penh to attend the meeting of the ASEAN (Association of South East Asain Nations) of which it is an observer along with other observer including China.

The gathering of the “ASEAN+” as I like to call it assumed much more importance than the other jargon filled yawn inducing meetings of this rather successful East Asian trade group. The primary reasons being the current disputes various ASEAN members are having with China over maritime borders claims and the China’s disputes over some islands with Japan.  The aggrieved with which China has maritime border disputes include Vietnam and the Philippines. Vietnam shares a tense history with China in the past over similar disputes whereas the Philippines is clearly wary of the rising Asian juggernaut whose economic and military power have rapidly risen over the past decade and a half. The Philippines and Vietnam also share close relations with China’s geopolitical adversary, the US, which makes this issue even more prickly.

The US perceives China as a soon to be (if not already) rival power that will soon compete against US interests in regions that have been traditional US or western strongholds especially in East Asia and Africa. The ability to dominate East Asian waters assumes critical importance to a world power primarily due to the fact that a substantial amount of world trade passes through these waters. Therefore the ability to dominate such waters would assume critical importance in case of war where a simple blockade would cut off the enemy from essential supplies.

There have been reports in the media recently over the fact there might be significant amounts of recoverable fossil fuel in the South China Sea making it an attractive location for oil companies for offshore drilling. Whether the fossil fuel really exists is a moot point. The ability to dominate the world’s busiest trade routes would provide a much better dividend than a few million barrels of oil could provide any day.

The ongoing dispute over a chain of nearly uninhabited islands in the South China Sea between South Korea, China and Japan are clear indicators of these facts. South Korea and Japan are key American allies with heavy American military presence in both countries. China sees disputes between itself and these two American allies as an American attempt to continue its dominance in East Asia via its proxies.

China, aware of its emerging stature in the world throughout the last decade and half and also its inevitable geopolitical confrontation with America has been doing its bit to prepare itself for all this. The increased focus of China’s armed forces to develop a powerful navy is an obvious byproduct of this process. It has been preparing a large fleet of nuclear powered submarines, frigates, destroyers since the early 2000s. It recently acquired an old Ukranian aircraft carrier which it now has retrofitted and added to its ever increasing naval fleet. China is one of the few countries in the world that possesses the “nuclear triad” viz. the ability to deliver a nuclear attack via land, sea or air.

All these “developments” point to a very troubling and tense geopolitical atmosphere in East Asia and beyond. Globalization has made war the most dreaded and least preferred method of solving a problem. But even if these countries do not go to war, a tense relationship could have significant impacts, not only on themselves but also on all ASEAN members and their non ASEAN neighbours with which they share commercial ties.

A tense relationship would mean the hurting of interests of one member country in another as witnessed by the anti Japanese demonstrations in China over the last few months and similar (if not more subdued) anti Chinese demonstrations in Japan. Sales of Japanese companies like Honda which are otherwise extremely popular in China have nose dived after the island disputes started. Even Japanese factories have been attacked in China, sometimes even with tacit state encouragement.

This was just an example. A string of multilaterally tense relationships in the region do not fare well for the people of these countries considering the fact that a large number of the ASEAN economies are highly interdependent as a result of globalization with supply chains spread across different countries to leverage the benefits accruing from a low tariff environment which in turn leverages cheap labour available in some member countries like Philippines and Vietnam.

Similarly, non ASEAN states which trade heavily with ASEAN states could suffer. Internal conflicts of the ASEAN could in turn affect trade with other countries like India, Russia and even China who trade substantially with member countries. Export dependent economies like Taiwan, could suffer even more than others.

I shudder to think how the world markets would react (with obvious and tremendous negativity) to even a sniff of conflict in the region. The first casualty of a conflict would be global trade as trade routes in the region would suffer having a cascading effect on almost all major world economies. A global financial panic would probably ensue, eroding trillions of dollars of value for a substantial number of  investors in all major stock markets. Commodity prices would increase as fear of war would bring on hoarding of essential commodities by nations anxious of further price rises. This would not bode well for the world at large which is barely getting out of the global financial crisis of 2007-08.

If the US, due to any reason would decide to enter such a conflict, we would surely see a much bigger and global war. That is something which is not at all in world interests.

But the solution to this is very simple (and complex at the same time!). Be Reasonable.

It would be of paramount importance for ASEAN leaders to maintain cool heads. Guns do not need to be involved in solving disputes. There are scant problems that cannot be solved with diplomacy and goodwill. The issues of the South China Sea, its oil and the islands can be solved by serious negotiations by all sides concerned. Neutral members from ASEAN or even outside interlocutors from countries like India, Russia or the EU might broker an agreement to the satisfaction of all sides. As for geopolitical posturing by rival powers, it is frankly inevitable. But there are subtler ways in which to project power than pointing guns at others. America and China can learn something from Japan and India in this case. Japan and India are probably the biggest exporters of “soft power” in the world. Its about time, America and China learned the craft of making that export. Or else, they threaten the world down the path of global conflict or internal decay on the lines of the Soviet Union.

As for India’s role, there are few countries in the world that have the (rather extreme) cool heads of Indian leaders when it comes to any kind of disputes. This cool heads can be leveraged to mediate between disputing sides. Our neutrality on most global issues is mostly frowned upon but comes as an asset when trying to stop a conflict between others. India might be a lot of things but it is certainly not biased on global issues and does not punch above it weight in the global arena. Its time to use such a tense multilateral situation to solidify the former impression and rectify the latter. It would be in our nation’s long term interests and by extension to that of the world as well.

Mitul Choksi
Ahmedabad, India
November 24, 2012

The Need for an Independent Media Regulator

Politics, they say in India, is the worst of all evils. Yet, it is considered to be a necessary evil. Indian democracy though seeming almost always in disarray is one of the biggest reasons for our nation’s physical, intellectual and economic strength. Even the harshest critics of our political system would agree with that. 

What I said about politics above would also be applicable to the Indian media. It is a key pillar of our democracy which is enshrined by the basic right of freedom of speech and freedom of expression. It is a vital organ of a vibrant democracy. But, it too appears to be completely in shambles riddled with more or less the same problems that our government is facing. Infighting, propagation of baseless claims against almost anyone, extreme polarization, bullying in the form of blackmail by what some label as the “media mafia” and “paid” (read corrupt and mostly incorrect) news for select political or business entities. These are some of the myriad sets of problems plaguing the media today. 

What can be done to alleviate these problems? A simple answer to this question in my opinion would be to have a independent media regulator in this country. Now, we do have existing regulators for the media but these regulators are practically arms of Information & Broadcasting (I&B) ministry and therefore are clearly not independent in any sense of the word.

What the media requires is something more on the lines of what the Reserve Bank of India (RBI) is for the banking sector. The RBI is a statutory body established by an act of parliament which is totally independent from the government and free to make its own decisions in relation to its primary objective of regulating the banks and inflation targeting. Yes, I know some would say that even the RBI is not totally independent and is in times in cahoots with the government. But the RBI is the best example of what a media regulator should be based on in terms of operational and strategic independence. 

The regulator also needs to be kept as far as possible from government meddling. If not, it might as well be an arm of the I&B ministry! An advisory board made up of members of civil society like university deans, professors and even retired media personnel to name a few could be nominated to the board in order to ensure that a balanced weight is employed in the selection of various topics as news. This would help stop the sensationalization of certain news directed towards or against some person or entity. This would also help ensure that certain information that is never openly accessed or accepted as being news (whereas it really is news) is brought forward in front of the nation and the world.

An independent media regulator would have checks and balances in place to make sure that “paid news” is only restricted to advertisements and not to to shadow advertisements in the forms of “expose’s”, “stings” and “special features” on some unsuspecting individual, organization, country or party. This is the bane of media today (especially TV) which has led to a strong polarization in the country towards and against certain media outlets which are keen to portray only one side of the story and conveniently neglect the rest of it. Attacks on media personnel on social networks like Twitter and sometimes even on the streets are getting all too common these days and this trend of paid media is one of the primary reasons.

Another aspect that might be curbed via the establishment of an independent media regulator would be the blackmail techniques employed by almost all media houses (print and electronic) to extort money from people from all walks of life in order to publish or not publish certain information that might be detrimental to their social or economic interests. This kind of immoral behaviour has led to the mass media being compared to criminals, prostitutes or worse in fiction and in the independent media.

Just like the Lokpal was meant to be a weapon against corruption and a tool to regulate the activities of politicians, the media regulator would be a check on the mass media of not stepping beyond certain boundaries and remaining and working as desired in the framework of our constitution. 

Special care needs to be taken though of making sure that the regulator does not become a “Big Brother” of sorts and deprive the media of the independence that is regularly requires. The biggest danger of having a media regulator is making sure that it does not get infiltrated or even influenced by politicians or their proxies. If that would happen, then the entire media landscape would change and harp back to the horrible conditions that we find ourselves in today with various media outlets practically being in the pockets of big business and politicians. 

All in all, the regulator’s job would be like a tight balancing act with its duty to balance the media’s coverage and at the same time ensure its independence and unbiased attitude.

Let’s hope that such a day actually comes.

Mitul Choksi
Ahmedabad, India
29-Oct-2012

A Bank of BRICS?

Since the inception of the term “BRIC” nations was invented by a Goldman Sachs employee back in 2003, there has been a lot of hoopla about the rise of the emerging BRIC nations viz. Brazil, Russia, India and China. A new member to this club – South Africa, was added a few years ago to make the club sound even stronger as “BRICS”, the S standing for South Africa.

These nations stand out as different from the other emerging nations primarily because of their rapidly rising populations (except Russia which actually faces a decline), high growth rates as compared to the developed nations and most importantly their newly found economic dynamism. There is no doubt that these five emerging nations have done pretty well for themselves in the first decade of the 21^st century and still continue to do so, albeit at a comparatively slower pace. They also share a more or less similar timing at which they started on this rapid rise. Russia adopted market based capitalism after the fall of its predecessor state – The Soviet Union in 1991, China really picked up its already liberalized market to a pace of progress previously unheard of after the Tiananmen Square massacre of 1989, India let go of its self-imposed shackles after the Balance of Payments crisis of 1991, Brazil re-structured itself after the currency crisis of the early 90s and South Africa was finally accepted back into the international fold after the end of apartheid in 1994.

Despite so many common factors and similar historical incidents shared by these nations and the escalation of their impression as an “emerging” power bloc on the world stage to counter the historical dominance of the western powers the BRICS countries still remain a loose and ragtag sort of coalition of nations brought together by global media hype rather than common interests. This weakness was evident when these countries were unable to come to a consensus on nominating a candidate for the presidency of the World Bank, a position on which America’s hegemony reigns supreme.

At a recent BRICS summit in New Delhi, the BRICS leaders made a call for a new BRICS bank which would aid development in these countries as well as other poor nations of Asia, Africa and Latin America. This announcement rekindled media speculation about the BRICS emerging into a power bloc to counter the west.

In my opinion, this is more wishful thinking than anything else. Let us go a bit deeper into the actuality of this situation and forget the media hype for some time.

First, let us consider the basic definition of a power bloc. A power bloc is basically an association of nations that project their combined political, economic (and in some cases even military) power as a single unifying force in order to achieve a common advantage. By this metric US-NATO and the former Warsaw Pact nations of the Eastern Bloc can be considered to be power blocs. Another property shared by most power blocs is that most nations in these blocs are neighbors or in the same region. Bloc members have intertwined economic interests, similar cultures and very little (if any) internal animosity amongst themselves. Moreover, a power bloc generally has only one (or rarely – two) major power leading the rest. The US-NATO relationship has the USA has the major power and the Warsaw Pact was led by the erstwhile Soviet Union. All these features are clearly absent in the BRICS at this point of time.

I agree that the manifold increases in bilateral trade amongst the BRICS have brought about an unprecedented integration of these economies compared to say 20 years ago. But, the level of integration in terms of economic interests is still not mature enough. Each of these countries has extremely distinct cultures and “ways of life”. Each nation is in geographically diverse regions in the world (even though India and China and China and Russia share common borders they are in distinct geostrategic regions of the world).

With the difference in geostrategic regions come differences in geostrategic and long term interests. For example, Brazil would not be too keen or interested in the solution to the India-Pakistan Kashmir dispute, nor would Russia be too interested in increasing racial harmony between blacks and whites in South Africa.

Another impediment to closer integration would be internal disputes between bloc members. Classic cases within BRICS include the Siachen and Arunachal Pradesh border issues between India and China and the mini Cold War going on between Russia and China about the “Great Game” in Central Asia which has historically been Russia’s backyard but now is slowly becoming China’s. Inevitably, such conflicts of national interests supersede the supranational interests of a BRICS body if it would ever come into existence. China would definitely not be happy (or agree) with India’s application for a loan to build infrastructure in Arunachal Pradesh which China considers its sovereign territory. Issues over Tibet would assume similar proportions on the supranational scene.

At the other end, if these countries do become somewhat idealistic, rise to the challenge and think long term the BRICS Bank could actually become a tremendous step towards development throughout the world and actually have a shot at challenging western dominated global institutions like the World Bank and IMF. The development of such a body would also shoot countries like India and Brazil which (rightly) deserve a permanent berth at the UN Security Council to their goal in the right direction. A BRICS bank would also increase by leaps and bounds the social, political (and even military) integration of these nations on an unprecedented scale. A BRICS bank would also facilitate to shift the dependence of developing nations worldwide from the US Dollars to something like a basket of BRICS currencies.

For all this to happen, disparities in economic conditions have to be reduced to a point where such a structure is actually feasible. Brazil, Russia and South Africa are middle income nations in terms of per capita GDP whereas China and India are middle income countries at best. Brazil and Russia are net commodity exporters whereas India and China import the same commodities in large quantities. Synergies between such situations can also be engineered, but for that to happen a lot of political courage is required on part of all these countries. Sadly, political courage is lacking everywhere these days.

To summarize, conventional wisdom is against the formation of a BRICS bloc or a BRICS bank, but if it indeed does materialize, then we can look forward to a golden era of integration between these countries which ultimately benefits its citizens the most. For nearly 40 percent of the world’s population, that would not be a bad deal.

Mitul Choksi

23-April-2012

An Amateur Economist's Solution to the Euro crisis

It now seems to be every other week that we see a coordinated crash in various stock, currency and commodity markets around the world with various indices ranging from the Nikkei, Dow Jones, Hang Sang and FTSE to the quaint Baltic Dry Index (a shipping index) blinking in red while only occasionally treading towards the greener side. People of all sorts from different trades ranging from stock market "analysts" to self proclaimed investment gurus, pundits and even politicians routinely parade the screens of news and business channels, screaming for their views to be heard on the latest cause of the recent crash.

It turns out, there is a pattern to these market crashes and screaming analysts on TV. They've mostly been about the looming crisis in the 17 member Euro zone. Besides baffling me at times, it also makes me a bit upset on seeing this same pattern keeping on repeating due to reasons as quaint as the Greeks asking for political leeway for making the latest round of cuts to get their next bailout fund of a few billion Euros to the fear of what might happen if the Spanish worker's union call a strike to protest against a small change in their country's horrible labour laws. While analysts and pundits have an opinion on what might happen if the strike lasted too long or what if the Greeks opted for a referendum on some trivial issue, it seems no one has an answer to address the main problem - whether the Euro zone will survive as it is today or eventually break up into some washed up, has been currency union of a few northern European rich countries.

Most analysts, the media and even most governments shudder to even think much less discuss the possibility for an exit of Greece (or by extension Portugal, Ireland and Spain) from the euro zone. The reason for this fear is the perceived chaos resulting from such an exit.

In the event of an exit of even one country from the euro zone I agree, there would be chaos. But the thing to ponder about is whether the chaos and breakup will bring result into a stronger euro zone in the future or herald in a European "financial nuclear winter" that will throw the continent into a decade long depression and the rest of the world into a more severe version of the Great Recession.

Lets be clear on one thing before I get to the core of this post. The trillions of euros worth of financial engineering being tried by the European Central Bank (ECB) to recapitalize European banks and the creation of a European "Super Fund" of roughly Euro 500 Billion to act as a financial firewall in case of a severe financial storm is hardly enough to defend European finance ,if indeed a member country like Greece decided to (or forcibly had to) exit the euro.

As a self proclaimed amateur economist, I have come up with my own little scenario of what it would be like if Greece did indeed exit the euro zone.

• A surprise announcement is made by the Greek government over a weekend about its decision to exit the euro starting the coming Monday.
• A new rate of exchange is declared of the new Greek drachma against the euro. The new exchange rate is devalued immediately against the euro and other major currencies.
• All bank deposits are renominated from euros to the new drachma
• Tight capital controls are introduced to stop the outflow of money outside the country
• The Greeks use existing euro notes rubber stamped as a temporary hard cash equivalent to the new drachma until the new drachma notes are brought into circulation. The rubber stamped euro notes are swiftly phased out
• Strict border checks are imposed to restrict the outflow of unstamped euro notes outside the country
• Banks and financial institutions are given time to update their software in order to phase in to the new drachma

While this plan sounds simplistic enough, it would take a tremendous amount of political courage to implement it. It would also face a lot of challenges once its implementation is started.

• The implementation of this plan will almost immediately lead to severe financial chaos, rise in crime and bankruptcies.
• Legal nightmares will obviously follow
• Entities involved in cross border transactions will face a great deal of uncertainty (read: losses) as the values of their assets and liabilities would severely fluctuate.
• The introduction of a new currency would raise doubts of not only Greece's ability to borrow from the international markets but also severely affect the borrowing capacity of strained euro zone economies like Portugal, Italy, Spain and Ireland.
• A loss of confidence in the euro due to the Greek exit would start a scramble for other relatively "safe" currencies like the US Dollar, Swiss Franc and the Japanese Yen as holders of the euro dump it in favour of these currencies. As most global trade is invoiced in US Dollars, the fluctuation in the dollar's exchange rate could cause severe exchange losses to global exporters and importers sending an already weak global economy into a tailspin.
• The most dangerous outcome of this entire ordeal would be the rise of a new question - Is the euro viable?

That question comes with a whole Pandora's box of its own challenges which are not under the scope of this post. If another country like highly troubled Portugal or Ireland left the euro, then it would certainly be curtains for the euro "as we know it" and the start of a global depression. Whether the euro would survive as a rich country (mainly northern European countries including France, Germany, Netherlands, Belgium Luxembourg, Austria, Finland and eastern European countries including Slovakia and Slovenia) currency union

Its amusing and scary at the same time to think that a country like Greece with 2% of the euro zone's GDP can hold the financial stability of the planet at ransom! It is also a lesson for future economists and planners who fathom of creating a common currency anywhere else in the world. Nevertheless, the danger Greece poses is absolute and true. Lets hope that the analysts, media and governments come to realize that and shake their legs.

Mitul Choksi

April 8, 2012