Editorial 1/Fear of flight
Editorial 2/Unvanquished
Hard to catch fisc
Letters to the Editor

The government can be criticized about divesting itself of 60 per cent of Air India on only one point � it�s too little, too late. It is irrelevant whether the airline is sold to foreigners or Indians. Only those who worship mediocrity can take any pride in a national carrier whose huge losses and bad service have made it India�s shame. Unfortunately the mindless objections of Mr Sharad Yadav, Union minister for civil aviation, forced the Centre to propose a plan to sell off the airliner in a bizarre patchwork of holdings. This will ensure Air India will not receive the highest price as many international airliners will decline to bid. Air India is a terrible buy. It has a small, ancient fleet of aircraft. It is grossly overstaffed � about five times more than global industry standards � and loses money hand over fist. The government should have divested itself of all its Air India holdings. And should have done so years ago.

The idea of a national carrier has gone the way of the five year plan and the rotary telephone. The United States allowed flag carrier Pan Am, to go bankrupt. Most countries have privatized their fleets. Civil aviation is no longer a national concept at all. The entire industry is refashioning itself into six huge airline alliances. Notably, none of these alliances have asked Air India to join them. Air India and Indian Airlines should be measured against the same yardsticks all other corporations are. By such indices, this was a terminally ill firm. Its cumulative losses stood at Rs 13 billion. Its net worth was close to zero. Its market share was dwindling. And its incompetence was hurting other sectors of the economy. Its inability to exploit flight agreements with other countries made getting tickets to and from India during peak season a lottery. This caused serious bottlenecks in industries ranging from tourism to software, causing untold billions of rupees in losses to the overall economy.

The Congress, still addicted to the failed ideology of socialism, has denounced the divestment move. Where the Atal Behari Vajpayee government should be criticized is its failure to promote private Indian airlines. Indian private entrepreneurs are wholly capable of competing in the air against foreign airliners. Instead, a corruption and connection ridden civil aviation ministry has sought over the years to shield the two public sector carriers and the handful of Indian private carriers from any form of competition. One fallout was the abortion of the Tata airline scheme. The first pillar of this policy is now falling apart. Its foolishness is all too clear: Air India will now go to its grave without any private Indian airliners to take its place. Critics complain privatization seems to be the same thing as selling out to foreign interests. In this case it is because Air India fought tooth and nail to ensure no private Indian airlines could fly overseas. The ideal civil aviation scenario would have seen India�s skies filled with dozens of private Indian and foreign airliners, flying both domestically and overseas. The result would have been a vibrant and expanding Indian civil aviation industry. Instead, India�s air routes are domestically dominated by a quasi-monopoly and externally by foreign airlines. Air India�s departure will only slightly lighten this overcast sky.    

Triumph becomes Bihar�s first couple. After a brief spell of adversity, Ms Rabri Devi and Mr Laloo Prasad Yadav are, yet again, jubilant before their electorate, proving to their political adversaries the peculiar electoral chemistry that sustains itself by an almost gleeful magic. Bihar�s chief minister has now entered the state assembly by winning the Raghopur byelections by a margin of over 61,000 votes. This quite spectacularly surpasses the victory margin of her husband and chief campaigner in the same seat in the March assembly elections. Raghopur, enclosed by two rivers and fragmented by the doabs, is a constituency whose political dynamics are defined by the combination of organized crime and caste conflict. Marijuana cultivation, controlled by druglords and their armed gangs, is inextricable from the volatile relations between the Dalits, Yadavs and Muslims on the one hand and the Rajputs, Thakurs, Bhumihars and Brahmins on the other. The husband of Ms Rabri Devi�s Rajput rival, Ms Veera Devi, is wanted in several cases of murder and dacoity. This is the terrain in which the Rashtriya Janata Dal�s triumph is now being played out.

The message from the electorate � the turnout, with a significant female presence, was 65 per cent � is clear. Electoral empowerment of the backward classes and minority communities remains the chief ingredient of the RJD magic, and the nature of this sense of empowerment is what the National Democratic Alliance repeatedly, and disastrously, fails to understand. Every attempt to put down the indomitable Mr Yadav and his wife is converted into a new opportunity for reaffirming this invincibility. Their electorate � Mrs Rabri Devi also calls it a jana adalat � passes its own judgments on such irregularities as disproportionate assets and suicidal appeals to justice at the chief minister�s doorstep being met with utter indifference. Unabashed corruption, rampant criminality and pervasive underdevelopment are somehow never perceived by this electorate as opposed to what it understands to be and banks on as �social justice�. And this curious power of and over certain sections of the people is what the NDA will have to fathom if it is to learn anything from the implications of its electoral defeat in two of Bihar�s three constituencies. It will have to take seriously what Mr Yadav has called a �referendum� on its adversarial strategies.    

Alan Greenspan, the governor of the United States federal reserve board, now occupies an elite position among central bankers in the world. Many people even claim his actions and statements have a greater impact on the US economy than those of the US president. Greenspan has come to occupy this preeminent position because the Federal Reserve Bank maintains a big distance between itself and the US government. It is truly an autonomous institution, and plays a dominant role insofar as US monetary policy is concerned.

The Reserve Bank of India still has a long way to go before it can attain the kind of autonomy which its US counterpart enjoys. However, over the years, it has also increased its distance from the government of India. It is no longer a mere appendage of the Centre, and there are occasions when the RBI has actually been critical of some of the policies followed by New Delhi. There are many people who feel the RBI should be more forthright in such criticism, but that is a different story. It is this relatively greater independence which has increased the importance attached to policy statements issued by the RBI.

Of course, the annual statement on the monetary and credit policy issued by the RBI governor is the most important policy pronouncement of the RBI. It summarizes the views of the RBI about how the Indian economy has performed in the recent past, carries a defence of the major monetary and credit initiatives of the RBI, and also gives a peep into the mindset of the governor and more generally of the top brass of the bank. The latter is important because it enables observers to make informed guesses about what kind of policy changes might be announced by the central bank in the near future.

The annual statement for 2000-2001 was announced last month. As usual, it made for interesting reading. Its summary of the recent developments in the economy is of particular importance because it also conveys a polite warning to the government � mend your ways for the consequences can be quite dangerous.

The annual statement started with a review of the key macroeconomic performance indicators. Although the gross domestic product growth rate for 1999-2000 has been slightly lower than that of the previous year � 5.9 per cent against 6.8 per cent � there are a couple of reasons why the lower growth rate is also satisfactory.

First, the higher growth rate in 1998-99 was due largely to the contribution from agriculture and allied activities. In contrast, growth has been quite balanced this year, and there has been a substantial acceleration in the growth of industrial output. The importance of this cannot be overestimated since long term economic growth cannot be sustained on the slender shoulders of the agricultural sector alone.

Second, this respectable growth rate has been achieved without any appreciable increase in the general price level. In fact, the overall environment of price stability was maintained throughout the year, and the monthly inflation was typically below five per cent.

The profligacy of the Centre implies that the RBI has to undertake the onerous task of conducting a rather large market borrowing requirement of the government. The low rate of inflation combined with the respectable growth in output has certainly made this task easier during the course of the last year.

Despite the large government demand for funds, there was no upward pressure on interest rates. In fact, secondary market yields on government securities were actually lower than those prevailing a year ago. This was partly due to the conscious efforts of the RBI to spread out the maturity structure of government debts so as to avoid undue redemption pressures as far as possible.

However, it is important to realize the RBI was also operating under fortuitous circumstances for much of the year. With the economy still in the initial phases of recovery, several industries were still to come out of hibernation. Private entrepreneurs were chary of undertaking large expansion plans, and hence the private demand for credit was correspondingly low.

Hopefully, the economy is now in an expansionary mood. This means the demand for credit from the private sector will increase in the near future. That also implies the private sector will have to compete with the government for the available supply of credit. Since the government shows no signs of curbing its fiscal deficit, a scenario of rising interest rates and �crowding out� of private sector investment cannot be ruled out.

This is where the mettle of the RBI will be tested out. Can the RBI force the government to control the level of the fiscal deficit? Obviously, the lower the fiscal deficit, the lower will be the amount of market borrowings of the government. However, there is really very little the RBI can do about this issue � it can just about ring the warning bells. To its credit, it has already done so in the annual statement.

This is the context in which many people feel the need for a fiscal responsibility law. The act has been proposed by those who feel no Indian government can voluntarily reduce the size of the fiscal deficit � hence a need to reduce the degrees of freedom of the government through appropriate legislation.

The recent attacks on the finance minister�s decision to increase administered prices illustrate some of the difficulties. It seems irresponsible populism has brought us to a situation where even if the government wants to practice fiscal prudence, it has very little chances of doing so. Any attempts to cut subsidies on items of mass consumption will be labelled �anti-poor�. Even the attempts to reduce the scale of the public distribution system, which practically everyone acknowledges as being very poorly targeted, will be bitterly criticized. So, any government or political party with limited vision is better off in the short run by not disturbing the sleeping dogs.

But would a fiscal responsibility law really help? Suppose an act such as this were to be passed. It is extremely improbable such an act would specify sector wise limits on government expenditure since that would impinge on the freedom of the elected government of the day. All that such an act would do is specify an overall limit on the amount of government deficit. How the government is to bring the deficit within permissible limits would still be left to individual governments.

This implies that, at the end of the day, the government would still be forced to choose between the hard option of cutting subsidies by raising administered prices and user fees or by reducing the scale of deficit generating operations. The point is that it would still be open to the same sort of criticism that it faces today. Of course, the need to conform to the act means that inaction would no longer be an option.

But what the government could still do is take the soft option of cutting back expenditure on development or on the social sectors. The sad fact of the matter is that there are very few vocal lobbies pushing for an increase in these genuinely welfare enhancing activities of the government, and there is a real danger that a fiscal responsibility act would actually have a negative impact by reducing the scale of such activities.

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


Wanton laughter

Sir � Much of what Nilanjana S. Roy says about the female �indulgence� is true (�Laughter the best medicine�, May 28). What she should have concentrated on, however, is the strange contradiction female joviality lends itself to. Why is it that loud laughter is considered both a threat and an allurement by the other sex? Or is it interpreted as a threat by the male of the species because it is so alluring? Women�s mirth is discomfiting not so much because its �causes� are uncontrollable � if the American comedian, Tim Allen, is to be believed � as because of its seemingly �uncontrollable� effects. It might liberate women, but it also sets off a strange chemistry. Like the women themselves, kamini according to Hindu lore, their laughter is also regarded as a sure way to lead men to perdition. It is because of this sexual connotation that only women of a certain age and appearance are allowed to �enjoy� themselves. If only all women could turn into witches.

Yours faithfully,
J. Sen, Calcutta

Island of contention

Sir �Even after extending the ban on the Liberation Tigers of Tamil Eelam for two years, India has expressed willingness to mediate between the LTTE and the Sri Lankan government, if both desire it. Such doublespeak will only deprive India of credibility in the international arena. India had better keep its hands off the issue. A ceasefire can be worked out by either Norway or the United Nations which will prevent the slaughter of Sri Lankan soldiers in Jaffna and save the civilian population there from further strife.

The question whether India should intervene militarily in Sri Lanka arose once before in 1983 when there were genocidal attacks on Tamils. Indira Gandhi decided not to send the army since the Tamils would be caught in the crossfire. But the Indian government began training Sri Lankan Tamil youth to defend themselves from the Sri Lankan army. Indira Gandhi did not trust J. Jayawardene, then president, and considered the Sri Lankan government chauvinistic in its linguistic policy and extremist in its religious one. In 1983 she took me to the United Nations (I was the minister for power of Tamil Nadu then) to expose the Sri Lankan government and tell world leaders of the plight of Sri Lankan Tamils.

Rajiv Gandhi, unlike his mother, trusted Jayawardane. He sacked experienced advisors on Sri Lanka like G. Parthasarathy and P.C. Alexander and brought in Romesh Bhandari, then external affairs secretary. His 1987 Indo-Sri Lankan accord was inherently defective. The accord should have been between the Sinhalese and Tamils, not India and Sri Lanka. India can at best be a guarantor to ensure implementation of an accord. Also the accord put the onus of disarming the LTTE on India.

The accord was presented to M.G. Ramachandran, then Tamil Nadu chief minister, as a fait accompli. He was asked to bring round the LTTE to the arrangement. The LTTE, naturally, was unwilling to vouch for an agreement between India and Sri Lanka. On behalf of MGR, I tried to convince the LTTE. I told them that there were aspects in this to be looked into. For the first time, the Sri Lanka government had recognized the northern and eastern provinces of Sri Lanka as a Tamil homeland. Also, India would act as a guarantor to ensure that Sri Lanka did not go back on its word. Finally, an interim government for the Tamils was incorporated, which gave legitimacy to the LTTE.

Unfortunately, the Sri Lankan government betrayed India by arresting LTTE cadres, who committed suicide in Sri Lankan army custody. Naturally, the LTTE was unwilling to go by the accord. Instead of pacifying the LTTE, Rajiv Gandhi ordered the Indian peacekeeping force to disarm them. This fateful decision was taken at a meeting in New Delhi in which I participated. I was told to leave the meeting because I strongly protested the decision. Later, I met G. Partha-sarathy and told him what happened. He told me that Rajiv Gandhi was immature, nothing could be saved. His prophecy came true. The 24 hours within which the Indian government intended to disarm the LTTE became two years, and led to the assassination of Rajiv Gandhi.

India is walking into a trap again. Though the present government has said it will not intervene militarily, it has promised humanitarian aid. When Sri Lanka drove the LTTE from Jaffna, it didn�t seek help from India. Even today, it claims the Tamil issue is an internal problem. If the LTTE wants to regain Jaffna, why should the Sri Lankan government raise a hue and cry and internationalize the issue? Why should India answer a call from Sri Lanka? Any response will boost the morale of the Sinhalese. The very fact that the Indian air chief chose this time to visit Sri Lanka and stay there for a week caused misgivings among Tamils worldwide. The Indian government�s claim that the trip was planned long ago is unconvincing. Could it not have been postponed to an appropriate time?

Yours faithfully,
Panrutti S. Ramachandran, via e-mail

Sir � Mani Shankar Aiyar tries to cover up the IPKF fiasco, cooked up by an empty-headed prime minister, a defunct foreign ministry and a flamboyant army chief (�Sri Lanka: the issues at stake�, May 9). Who is Aiyar kidding with his talk of how the IPKF was sent to Sri Lanka to �keep peace, not to fight with or against anybody�? Is he suggesting that both the Sri Lankan army and the LTTE should have laid down their arms on seeing the IPKF?

It is interesting how the LTTE sees the the matter. Initially the LTTE had been confused because while one Indian prime minister had used the Indian army to train its cadre, another had sent the army to fight them. The LTTE humoured the IPKF for a while but when it realized India�s two-timing ways, it struck with unparalleled ferocity. It defies reason why India chose to tackle terrorism in a foreign land when it cannot do so on its own soil.

The first scapegoat of Operation Pawan was the commander of the IPKF�s 54th infantry division who failed to convince the LTTE to behave itself. But the biggest fall guy of the entire unsavoury episode was Rajiv Gandhi. Not only did he fall into the trap laid by J. Jayawardene, but he also tried a double shuffle by holding talks with the LTTE, all the while encouraging the IPKF to fight it. This resulted in his incurring V. Prabhakaran�s wrath and caused his assassination. This was one of the most shameful incidents in the history of independent India.

Yours faithfully,
J.K. Dutt, Calcutta

Sir � Jaffna is the old capital of the Sri Lankan Tamil kingdom in the north. In the 16th century, it fell to the Portuguese. Then the Dutch and the British united the three independent kingdoms of Sri Lanka. The Sinhalese in Sri Lanka, despite being Buddhist, assume ethnic superiority over the Tamils. Ethnic conflict will continue unless the United Nations intervenes.

Yours faithfully,
Biplab Pal, Kharagpur

Sir � Surendra Mohan (�An island war at India�s doorstep�, May 16) rightly says that the fear a Tamil Eelam will fuel separatist movements for Dravidstan and the merger of West Bengal with Bangladesh is pernicious. Such movements will die out in India given its unity in many-faceted diversity. There are no permanent foes or friends in politics and hence, the situation in Sri Lanka calls for a u-turn in policy. India should call for a partition of Sri Lanka along a ceasefire line which both the LTTE and the Sri Lankan army will respect, much like what Bill Clinton suggested for Kashmir. The LTTE obviously will not be able to resist an Indian onslaught. But there is no reason to disregard its call for an independent homeland for Tamils, given that the Sri Lankan government has repeatedly betrayed its promises of autonomy. Nothing short of a separate homeland will satisfy them now. No wonder, most parties in Tamil Nadu support the Tigers� demand.

Yours faithfully,
Omprakash Mehta, Calcutta

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