Editorial 1/Miser’s pact
Editorial2/Thorny crown
Neither here nor there
Letters to the Editor

 
 
EDITORIAL 1/MISER’S PACT 
 
 
 
 
This month marked the start of the Indo-Sri Lankan free trade agreement. On paper, the agreement is a minor victory for Indian trade diplomacy. However, its history is a telling story of New Delhi’s inability to comprehend that south Asian economic cooperation will never take off if it remains mired in protectionism. Under the agreement, India will eliminate tariffs on 1,351 goods and cut them by a quarter for some other products. India will also cut tariffs by half for upto eight million pieces of clothing and 15 million kilogrammes of tea — the two products Sri Lanka wanted maximum concessions on. Sri Lanka exports a measly $ 27 million worth of goods to India at present and dreams of increasing this to $ 150 million in three years. It is hard to see this happening given India’s knee jerk protectionism. It is telling that Colombo’s ministries had recommended the present agreement be rejected by Sri Lanka as too restrictive. The Sri Lankan president, Ms Chandrika Kumaratunga, overrode her government. She did so not because it was a fair deal, but because she wanted to appease India’s irritation at her use of a third party mediator to negotiate a peace with Tamil rebels.

The agreement was first announced by Mr Atal Behari Vajpayee in December 1998 and was to have been finalized within months. Instead, talks dragged on. Sri Lanka was incensed that India, bowing to the pressure of domestic plantation lobbies, blocked the import of almost everything Sri Lanka was competitive in. Many of India’s tariff concessions were on products the two countries did not produce. The absurdity of an agreement that allows free trade in products that are not traded led to the impasse. Few Sri Lankans are cheering for the agreement. India came out looking niggardly despite running a hefty trade surplus with Sri Lanka. An example of New Delhi’s blindness was its stubborn refusal to allow in Sri Lankan rubber — until it was discovered India buys thousands of tonnes of Malaysian rubber without a murmur.

There are two purposes behind a free trade agreement. One is to allow competition to ensure both countries get better products for less and thus benefit customers on both sides. In this agreement, this game has been given away to protectionist lobbies. The other reason is political. Most regional trade pacts have a large political element. This pact was part of India’s larger push to develop south Asia into a trading block that would enhance India’s influence in global trade negotiations. But India needs to recognize that its size means it must be the catalyst for south Asian economic cooperation. The United States sacrificed some domestic interests to create the North American Free Trade Agreement. New Delhi is so paranoid it once rejected a trade pact with Nepal for fear of that country’s primitive steel industry. The threat of imports is largely fictitious. Two rounds of the south Asian preferential trade talks have increased Indian imports by a microscopic 0.153 per cent. It has been calculated a full blown subcontinental free trade agreement would increase India’s imports by a mere 1.4 per cent. Such a pact with Sri Lanka would have increased Sri Lankan imports to India by two per cent. India is not a member of any major trade block in the world. Going by present behaviour, it is unlikely to ever create one or be invited to join one.

All the usual copybook expectations came true in Orissa, with a little bit of excess here and there. The commentators’ favourite “anti-incumbency factor” devastated the Congress. The Biju Janata Dal-Bharatiya Janata Party combine won, but in a way which dramatized memorably the BJP’s dependence on regional allies in different states. The BJD’s victory would enable it to drop its ally if it so wishes, and the new state ministry meticulously reflects the power equation which has emerged as a result of the assembly elections. Undoubtedly, things look bright for the BJD, and the new chief minister, Mr Naveen Patnaik, has reason to be cheerful. But the cheer would possibly be confined to the results alone. What Mr Patnaik has inherited is a truly poor, sadly underdeveloped state with an incredibly corrupt administrative system. Orissa is now second only to Bihar on all these counts. It is also a tremendously unfortunate state, with the supercyclone having actually destroyed 10 coastal districts. It is not only destitution and unemployment that the government must worry about, but also an ecological system gone completely awry.

Mr Patnaik is new in politics, having been in it for about three years. He does have the advantage of having had Biju Patnaik as his father, although the son’s brand of politics is very different. So far Mr Patnaik does not seem to have been remarkably successful on behalf of Orissa as Union minister. Now he is talking of concentrating on the basics of development — roads, water, jobs. The priorities seem quite right, only what he will be contending with is a revenue deficit of Rs 2,000 crore. Andhra Pradesh, with Mr N. Chandrababu Naidu as chief minister, has shown that a return to equilibrium and more from almost nowhere is possible. But there are some realities in Orissa which will have to be tackled if any real progress is to be made. The lower castes still have no voice and hardly any presence. And communal hostility between resurgent Hindus and Christian missionaries is strong, and can erupt in horrors like the Staines murders. Mr Patnaik has his job cut out for him.    


 
 
EDITORIAL2/THORNY CROWN 
 
 
 
 
All the usual copybook expectations came true in Orissa, with a little bit of excess here and there. The commentators’ favourite “anti-incumbency factor” devastated the Congress. The Biju Janata Dal-Bharatiya Janata Party combine won, but in a way which dramatized memorably the BJP’s dependence on regional allies in different states. The BJD’s victory would enable it to drop its ally if it so wishes, and the new state ministry meticulously reflects the power equation which has emerged as a result of the assembly elections. Undoubtedly, things look bright for the BJD, and the new chief minister, Mr Naveen Patnaik, has reason to be cheerful. But the cheer would possibly be confined to the results alone. What Mr Patnaik has inherited is a truly poor, sadly underdeveloped state with an incredibly corrupt administrative system. Orissa is now second only to Bihar on all these counts. It is also a tremendously unfortunate state, with the supercyclone having actually destroyed 10 coastal districts. It is not only destitution and unemployment that the government must worry about, but also an ecological system gone completely awry.

Mr Patnaik is new in politics, having been in it for about three years. He does have the advantage of having had Biju Patnaik as his father, although the son’s brand of politics is very different. So far Mr Patnaik does not seem to have been remarkably successful on behalf of Orissa as Union minister. Now he is talking of concentrating on the basics of development — roads, water, jobs. The priorities seem quite right, only what he will be contending with is a revenue deficit of Rs 2,000 crore. Andhra Pradesh, with Mr N. Chandrababu Naidu as chief minister, has shown that a return to equilibrium and more from almost nowhere is possible. But there are some realities in Orissa which will have to be tackled if any real progress is to be made. The lower castes still have no voice and hardly any presence. And communal hostility between resurgent Hindus and Christian missionaries is strong, and can erupt in horrors like the Staines murders. Mr Patnaik has his job cut out for him.    


 
 
NEITHER HERE NOR THERE 
 
 
BY BHASKAR DUTTA
 
 
In my last article, which was published in this column a few days before the budget, I had expressed the hope that Yashwant Sinha would discard old fetishes and be refreshingly new. Much of this hope was generated by statements and assertions made in the run-up to the budget by the finance minister himself. Instead of the vague promises usually doled out by politicians, he actually talked like a hard -boiled economist, warning everyone of the need to take hard decisions. In fact, throughout the year, he seemed to be refreshingly different from most of his ministerial colleagues and the “run of the mill” politicians, refusing to succumb to populist pressures. He spoke out quite boldly in favour of the continuation of economic reforms.

Budget day 2000 has shattered all hopes — Sinha has feet of clay after all. His budget speech contained a lot of promises — to downsize the government, to strengthen the banking sector by infusing new capital, to accelerate the privatization of public sector undertakings. But, the budget is singularly uninspiring insofar as actual or concrete measures are concerned. It is a rag bag of tax and expenditure proposals, seemingly without any central strategy or long term objectives. If the finance minister did indeed have any such objectives in mind, then he has kept them very well hidden.

So much has been written about the perilously large fiscal deficit that everyone, except possibly the mandarins in the Union government’s finance ministry, know that this is the biggest danger confronting the Indian economy today. Obviously, the unanimous opinion right up to 2 pm on February 29 was that Sinha would take immediate steps to curb government expenditure.

There was also near unanimity that the finance minister had to adopt at least two measures. The first was to slash subsidies by substantial margins. An overwhelming majority of economists are convinced that the public distribution system is very badly targeted, and that the huge amount spent on subsidizing food is a colossal waste of money — the major beneficiaries are the urban rich.

Similarly, there is every reason to believe that the bulk of the fertilizer subsidy goes into the pockets of the richer farmers since they consume the lion’s share of fertilizers. Unfortunately, the finance minister has only taken a few hesitant steps towards the goal of eliminating these subsidies. He has reduced the fertilizer subsidy by increasing the price of urea. The food subsidy bill remains virtually unchanged — foodgrain prices for those above the poverty line will go up, but the allocation to the poor has been increased.

The second imperative is to reduce the government’s debt service burden. In the short run, this can only be done by reducing interest rates. The finance minister has claimed that this falls under the purview of the Reserve Bank of India. While this is formally correct, no one believes that the RBI would not yield to the government on this issue. In the long run, the government must pursue disinvestment actively and use the proceeds to retire debt. The budget actually does earmark Rs 1,000 crore (out of a total disinvestment target of Rs 10,000 crore) to retire debt. However, this figure is quite ridiculous since the government’s total outstanding debt is close to Rs 100,000 crore. Given the absence of any sensible measures to curb the fiscal deficit, there is little doubt that the end of the year will see the government in a more penurious state than it is today.

Perhaps one of the few positive steps announced in the budget is the increase of government expenditure for the provision of basic facilities in the rural areas — Sinha has promised vastly improved allocations for rural housing, drinking water, and elementary education. Other steps taken for the benefit of rural India include improved credit flows to agriculture.

Sinha has also decided to improve credit flows to the small scale sector by dispensing with collateral requirements for loans up to five lakh rupees. However, at least some people will feel that there are many small scale industries which should not be supported because they simply cannot compete with modern industries. So, the directive to dispense with collateral requirements may result in increasing the proportion of bad debts of public sector banks.

Most commentators had felt that there was not much scope for major innovations in this budget. In particular, major reforms in indirect taxes have already taken place during the last decade, and there has already been considerable simplification and rationalization of the tax structure. So, the only hope was that the finance minister would attempt further simplification in the structure of tax rates. He started off promisingly enough by declaring that there would be a single rate central value added tax. Unfortunately, this is not the only indirect tax being imposed on domestic producers. The central VAT is being combined with as many as three “special” excise taxes.

So, now some commodities will attract only the central VAT, others will attract the VAT along with one of the three special excise taxes. Once all these combinations are taken into account, it is not at all clear that the structure of rates turns out to be any simpler than it was earlier. As far as the overall rate of taxation is concerned, the average rate will probably go up slightly. But, the effect is not significant enough to cause concern to Indian industry.

An interesting issue about which there was some debate before the budget was how the finance minister would deal with the replacement of quantitative restrictions by tariffs. The country’s obligations to the World Trade Organization mean that we will have to phase out the use of physical restrictions on imports of a wide variety of goods, although the free flow of imports can still be blocked by suitable tariffs.

The debate was about the level of tariffs which Sinha would impose. Obviously, consumers’ interests would be best served by low rates of tariffs. Conversely, domestic industry would lodge vehement protests unless they were afforded some protection by tariff barriers. By and large, Sinha has sided with the industrialists on this issue by setting these tariffs at the peak rate. However, in his defence, it must also be added that he has actually lowered the peak rate of tariff from 40 per cent to 35 per cent. So, he has not sold out to the swadeshi school. The average level of protection to domestic industry will now come down.

Sinha certainly has fewer friends today than he had before February 29. In particular, he has managed to antagonize large sections of Indian industry judging from the behaviour of the Bombay sensitive index, which fell quite steeply after the budget. However, it must be said in Sinha’s defence that the budget has not been particularly bad for the industrial sector. Steps such as the tax imposed on exporters were surely expected and hence discounted by the market.

What must have happened is that our pampered industrialists were looking for “special” revival packages for themselves. They must have been bitterly disappointed at the fact that Sinha has more or less left them to fend for themselves. However, it is now time Indian industry learnt to stand on its feet, without any special dispensation from the government. Viewed from this perspective, the absence of sops for domestic industry is actually a blessing in disguise.

The author is an economist at the Indian Statistical Institute, New Delhi    


 
 
LETTERS TO THE EDITOR 
 
 
 
 

Need for enlightenment

Sir — Gwynne Dyer underlines the injustice in the religious practices in Turkey in “They will have to hear Kuris one day”, (Feb 1). A country that once had a woman prime minister, Tansu Ciller, strangely encouraged violence against Konca Kuris, who raised her voice against unjust practices in Islam. The seemingly irreconcilable differences within factions of the faith has had disastrous fallouts. Women are at the receiving end of warped interpretations of Islam. It is difficult to see why a body such as the Organization of Islamic Conference cannot put an end to the widely different interpretations of Islam practised in various parts of the world. While women in west Asia have no strictly defined dress code, others are compelled to stay behind the purdah. High profile leaders like Mohammad Khatami of Iran, Hoshni Mubarak of Egypt, Olesegun Obasanjo of Nigeria should come together, disseminate the strengths of the Quran and identify ways in which it has been misread. Only then can Muslim women be given their due.

Yours faithfully,
Jayanta Kumar Dutt, Calcutta

Review from the top

Sir —The editorial, “Partial review” (Feb 15), adopts a balanced approach towards the formation of the Constitution review committee. There is every reason to fear that the much publicized review will end up a mere ritual. A review of the Constitution is not something that can be arranged at the drop of a hat. Therefore a far more transparent approach was expected in the selection of the members of the review committee, fixing the time frame and formulating the terms of reference. The formation of the committee should have been based on clearly discernible principles. The prime minister should have steered clear of criticism by avoiding the inclusion of P.A. Sangma, who has immediately confirmed that the videshi issue is an important one in his personal agenda.

There are plenty of loose ends in the Constitution and many areas where it can be made more unambiguous and effective. But even the most meticulous constitution cannot change the fate of the citizens of India overnight. The biggest hurdle to change is the corruption in the governing machinery.

Yours faithfully,
Ranjit Kumar Guha Roy, Durgapur

Sir — The recent uproar raised by the Congress against the inclusion of some members in the Constitution review panel has reduced the party to a laughing stock. By saying that a review might change the “basic character and principle” of the Constitution, the Congress is only crying wolf. The people still remember that the Constitution was changed more than 70 times during the various Congress regimes. In fact, one can hardly think of a more “basic” change than the one in 1976, during Indira Gandhi’s regime, whereby India became a “sovereign, socialist, secular, democratic republic” instead of a “sovereign, secular, democratic republic”. The Congress had better realize that nothing is irreversible on earth except death.

Yours faithfully,
Haridas Chakrabartti, Calcutta

Sir — The political compulsions of the Congress and the Communist Party of India (Marxist) have led them to oppose tooth and nail the move to review the Constitution. It is worthwhile to mention that the Congress had flouted all norms of democracy during Emergency by amending the Constitution and the CPI(M) had observed that the Constitution could never help the poor, so the very document should be dropped. However, its opposition to the recent attempts to review the Constitution are not unjustified since the review panel is dominated by people close to the sangh parivar.

The panel will surely review Article 356 which empowers the Union government to impose president’s rule in the states. In the past, the leftists always spoke against this article because they felt they were victims of it in Kerala and West Bengal. But they demanded president’s rule in the four Bharatiya Janata Party ruled states in the wake of the Babri Masjid demolition. Again, though the Akali Dal faced the hard end of the stick in Punjab, it, in its turn, demanded the imposition of Article 356 in Bihar. From all this, it is quite clear that political parties will continue to exploit the provisions of Article 356 to fulfil their own political goals.

Yours faithfully,
Ramesh Kumar Chaurasia, Calcutta

Beastly lives

Sir — The news item, “Dog death paves path for pet burial ground” (Feb 15), was heartening for all animal lovers. Siddharta and Shobita Chakraborty should be thanked for making way for a burial ground for pets after taking up the matter with the municipal commissioner, Asim Barman. Even Barman should be thanked for taking the immediate decision to set up a burial ground. If the Calcutta Municipal Corporation takes the task seriously and executes this project, hundreds of families will be able to give a decent burial to their deceased pets.

We were faced with a similar experience when our Spitz, Snowy, who was like a son to us, passed away. We only wanted to give him rest with dignity, but the authorities denied that to us, on account of the lack of a burial ground in the city. Finally, we had to settle for Karuna Kunj in South 24 Parganas, run by the voluntary organization, Compassionate Crusaders. It is essential for Calcutta to have a similar place as well.

Yours faithfully,
Dipankar Dutta and others, Calcutta

Sir — India has, of late, rushed into immense foreign debt. The government has always neglected the value of indigenous sources of income in the country. Animals, forests, water and land are the four pillars of the nation’s prosperity. Only conservation of animals is not enough. People should deem it essential to nourish them properly as well. As a matter of policy, export of meat should be banned completely as well as clandestine slaughter of animals. Traditional grazing lands, that is, gochars, should be made cleaner, and healthy for animals. In the absence of proper and healthy living, it is impossible to protect domestic animals, even if the country depends on them as a source of sustenance.

Yours faithfully,
Hitesh H. Mehta, Mumbai

Childish folly

Sir — Sunanda K. Datta-Ray has correctly pointed out the serious flaws in methods of parenting today, the fruits of which are unruly children (“Sons against the system”, Feb 5). The lax attitude of parents towards discipline has unfortunately led to chaos and complete disrespect for authority among the young generation. From early childhood, discipline plays an important role in moulding the lives of children. Following of inner disciplines like transcendental meditation by parents and children alike can help to develop good work habits and an improved sense of self-esteem. Someone in the family must take a share in disciplining the child and this would eventually train him to behave in a restrained manner. Discipline does not mean the rule of the rod but self-control.

Parents must have the patience and wisdom to deal with recalcitrant children. They will then have a sense of civic pride and make India proud of her citizens.

Yours faithfully,
Suman Podder, Calcutta

Sir — Twenty students of Loreto House were stationed at Sealdah station on January 18 to catch free-trippers. It is incredibly foolish to involve these teenage girls in this risky business since there is no accounting for the identity of the thousands of people who throng the platforms in Sealdah. With increased terrorist activity, stations have become extremely dangerous places. The principal and the parents should have given the issue serious thought before sending their wards on this mission.

Yours faithfully,
Govinda Bakshi, Budge Budge

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