Thursday, December 26, 2013

"Conflict of interest"? - depends which side one is talking from.....

I still recall the terminal 1D in Delhi which was exclusively meant for Indian Airlines flights while all other private airlines, including Jet and others were made to use the cramped lounge nearby (at that time). 1D was very well kept and has an ambience of soothing peace. It was thus very surprising as to how Kingfisher Airlines got access to 1D even though it was the last entry as private airlines. The fact that the owner of Kingfisher happened to be a Member of Parliament was a mere coincidence.

 also sometimes wonder with absolute frustration why & how, even the most respected role models don’t think twice while indulging in blatantly without even acknowledging it as a conflict. Take the case of the role model, an icon and a leader, Mr. Narayan Murthy of Infosys. For long, he is seen as someone who guides millions of Indians, especially the younger generation on the path of righteousness and hope. I was surprised (the least of expressions I can use decently) when it appeared one day that he has appointed his son (of course, otherwise qualified and totally eligible to get such a job) as his executive assistant in the company (and now the Vice President!). To me, it was a big disappointment and a let down from a man I used to consider as an ideal.
The idea of conflict of interest has a kaleidoscopic quality.  I guess while most of us do know the meaning of conflict of interest, we normally choose to keep quiet or look the other way (“hame kya” or “why should we get into this” mentality).

I guess, for most of the powerful and those who are in position of power, the expression ‘conflict of interest’ is a misfit. For them, being a parent, a businessman, a party official, a husband, a trustee of a few communities are the same thing. We Indians live in world of “and” and relish being in that position. For him, there is no conflict of interest - there is only maximization of or juggling interests. One uses kinship to maximize business, one uses one’s business to manipulate others.  The idea of conflict of interest is seen as “hyena” term. It is a word used to stalk people.

Conflict of interest is part of the consensual and legal package of modernity.  For the 3.8 million Indians in the US and many more millions back home, Rajat Kumar Gupta, the three time managing director of Mckinsey’s was an icon of what every Indian in US wanted to be. Yet the saga of how he was drawn into Rajaratnam’s web of “insiders” will remain a mystery which ended up destroying him completely. But for most Indians, the conflict of interest was a minor flaw in his otherwise seamlessly successful career.


To me, it defines how there are no rules when it comes to “I, me & myself”.  What is a conflict of interest?

Conflict of interest refers to a situation in which a decision a person takes has the power of enriching him or his relatives or friends and is because of the position he holds or can influence upon. It implies a person can’t take a rational decision based on objective criterion, motivated as he is to nurture his personal interests. A conflict of interest doesn’t always mean the decision-maker is guilty of financial impropriety. But it almost always raises the question whether the decision he took had the impulse personal gains driving him. In other words, the issue of conflict of interest is pertinent as its absence helps away situations conducive to corruption. The impulse to earn money is human. But this impulse becomes illegitimate when you exercise the power vested in you to promote the larger good, to further your interests.

Media interests in the subject suggest that we are treating it as a new phenomenon. The issue has never really troubled anyone in the power corridors of Delhi. Although questions have arisen from time to time about the curious overlap between the personal and the public, the ruling elite whether political or bureaucratic, has always managed to sidestep controversy while reaping and encashing their power and influence in this game of conflict of interest.

Vested interests thrive in confusion and conflict of interest is one area best left colored in several shades of gray. And if ever it needs to be defined in black and white, everyone binds together to protect their collective interest. It baffles me how the person in position of power and as decision maker, decide in his own case or for his folks?
Perhaps therein you can see why we care two hoots for conflict of interest. Extremely hierarchical as our society is, duly reflected in its institutions, power is vested in a few. They employ the power not only to enrich themselves, but to also buy out dissenters or oust them from their fold.   A conspiracy of silence ensues. I realize the craze to get into in Boards of Banks and other Financial Institutions sometime is because the said member can use his position to get project proposals decision making influenced in a manner where he stands to gain financially or otherwise.

While the conflict of interest is most at the top, it’s all pervasive at all levels. It’s a matter of opportunity. It’s not difficult to find somebody in a position of power to get a contract awarded to a firm which is somehow linked to him/his kin.

The underlying reason for the Conflict of interest is common considered interests of the parties- the benefactor and the beneficiary and it could be due to blood relations, kinships and any other close affinity arising due to caste, class, race, creed, nationality, colour, commonality of end product and other such reasons.

Is this only with us Indians or more prevalent? It certainly is not just confined to Indians alone. Take the case of David Coleman Headley (born Daood Sayed Gilani), a Pakistani American terrorist and a spy who was the mastermind in plotting the 2008 (26/11) Mumbai attacks which killed about 365 innocent citizens. Even as US continues to be one of the strongest proponents of action against terrorism and there are sufficient proof and evidence against David, US has not heeded to India's request of extraditing him to India for trial for his involvement. And why? Apparently, because he is an important link to LeT and other terrorist groups operating in Pakistan-Afghanistan border and provides crucial information to US in this regard! 
Is there a way out? I doubt. The legal framework is weak and lacks clarity when it comes to defining conflict of interest and to prove it. And self-discipline in the country based on a conscientious judgment is almost missing. Refusal or rebuttal thus, despite clear involvement, is easy and often resorted to. 

It depends on our conscience. I have come across some (number isn’t large but they are there) officers and gentlemen who ensure that they won’t indulge in any conflict of interest and have moved out of a situation. One feels good in such situation. I wish there are more of us who can draw our lines and live with dignity and respect officially.

Monday, December 23, 2013

Our misplaced & juvenile outrage - a hyped case of Devyani Khobragade

(these are my personal views based on the information available in public domain. I would love to be corrected on factual inaccuracies, if any)
(I could have taken a 'safer' middle path while analysing this issue - basically meaning not taking a stand and sounding politically correct. I have deliberately chosen to take a stand, considered extreme and unfair by some, which analysis the issue from a devil's advocate viewpoint- what if this was true!)  

George Clemenceau, an early 20th century French PM famously said "war is too important a matter to be left to the generals" (TOI dated Jan 11, 2014). Here is a case of an individual who has put relations of India and US at stake for some silly stupid mess she created in her private capacity. And brethren of her feudal service, in a clear case of conflict of interest, continue to serve their own limited personal interests rather than what's fair & appropriate and what's good for the country.
The larger issue is - should foreign policy of the country be left to service diplomats? Have they not caused serious dent in our image as a nation with mature outlook by indulging in petty juvenile tactics which media is too eager to catch on to whip up gullible frenzy on primetime?

The ongoing case of the alleged & perceived “high-handedness” by the American authorities with an Indian “Diplomat” Ms Devyani Khobragade (DK henceforth) presents an intriguing case of foreign diplomacy, role of media especially electronic media, political compulsions of parties desperate for an issue which would strike a chord with voters and how a nation’s opinion can be whipped up in a frenzy with utter disregard to facts and laws!
The version which was brought out in Indian media is that Ms Devyani Khobragade (DK), a 1999 batch officer of the prestigious Indian Foreign Service (IFS) and a diplomat, posted in New York in Indian Consulate as Deputy Counsel General was handcuffed and arrested by New York Police Department on alleged visa fraud charges and underpayment to her house keeper Sangeeta Richard (SR) while she was dropping her daughter to school on December 12, 2013. She was later released on a $250,000 bond. In her mail sent to her colleagues, DK has alleged that during the interrogation process, she was “strip and cavity searched” and was made to stand along with other criminals and that US authorities didn’t take cognizance of her diplomatic immunity into consideration.

There has been uproar in Indian media since then. People in India are incensed over the manner a Diplomat, having immunity, a woman and a mother was saree-searched and arrested. People feel it’s a national shame and a major dent in nation’s dignity. It has somehow become a matter of nation’s pride and a momentum is being built up that its time India can’t be taken as a banana republic and should retort in the same language to US. One of the central ministers has said that “I won’t return to Parliament if I do not restore the dignity of our diplomat”.  The frenzy that’s been built up during the last ten days is almost akin to a war in the name of restoring the dignity of a woman diplomat. In Indian media, US is being pressurized not only to “express regret” and “apologize unconditionally” but also” withdraw cases” charged upon DK.
Let’s examine what are the actual facts, whether there has been a violation of immunity granted to a Diplomat, whether the dignity of a woman diplomat was compromised, whether US is wrong in what it did and whether the hysterical frenzy in India has any basis? DK, in her email to higher authorities called on the Indian government to preserve the dignity of the country's diplomatic service which was "unquestionably under siege".  Indian Foreign Secretary summoned the US ambassador to India Nancy Powell and told her the "humiliation" was "absolutely unacceptable". For me, the crucial issue is whether all this happened what’s pointed out by DK in her email and in the manner as described?

Let me take up issues in question-answer form and try & unravel the mystery.

1.     What are the charges levied against DK on which NYPD acted and whether it was a sudden, unannounced and unanticipated one –sided action by them ?
As per the US immigration rules, a declaration form has to be filled in while applying for visa of the domestic help intended for the diplomat. This form contain details about the service conditions of the domestic help, hours of work, remuneration to be given (which should comply with the minimum wages in US) and so on.
DK paid lesser than what was declared to her domestic maid SR and made her to work longer hours. The fact she paid less has been acknowledged but ignored as something which is routinely done by Indian diplomats. It wasn’t sudden as the US authorities had been in touch with US consulate and did inform in writing in September about the violations.

Conclusion – There are violations under the US laws indulged in by DK!
2.       Did DK, being a “high ranking” (as media often quotes) Diplomat has an immunity granted which was dis-regarded by US authorities while initiating action against her?

What I understand that while there is an immunity granted to Diplomats working in Indian Embassies and High Commissions, the same is not available for Diplomats working in Consulates. DK was working as Dy Counsel General in NY and was not having the required immunity thus. The mere fact of being a Diplomat doesn’t automatically entitle one to have immunity. Otherwise, what else can explain the swiftness with which DK was transferred from the office of Counsel General to the office of permanent mission of India in UN in NY? She will have immunity in UN which wasn’t there otherwise in her posting as Dy Counsel General.

Conclusion – DK didn’t have diplomatic immunity at the time of arrest as required which would have prevented her arrest. She had a limited immunity which wasn’t applicable in the case under consideration!

ps - Newspapers on December 26, have pointed out that DK was also accredited as an "advisor to the permanent mission of India to the UN" by the UN from Aug 26, 2013 which was valid till December 31 and by virtue of this, she had full diplomatic immunity at the time of arrest. Her arrest thus was "contrary to her status on that date" sources said. I wish all this is true though the question remains as to why this fact hasn't been brought out till now!
3.       Was DK “hand-cuffed” while she was on her way to drop her daughter to school early morning? Was she strip-searched? Was she made to undergo “cavity search” and “DNA swab”? Was she treated in an in-human condition?
The Indian media, based perhaps on DK’s email to her colleagues, has been highlighting the high handed behavior of NYPD authorities – more specifically, how she was hand-cuffed (without any notice when she was on her way to drop her daughter at the school early morning), how she was strip searched and how she was made to undergo cavity search and exposed to DNA swabbing.
If true, any Indian or for that matter anybody would feel incensed on such a harsh and cruel treatment being meted out to a woman, a mother (especially in front of her daughter in the school when she was dropping her)! One would also feel angry why she was strip searched and made to undergo cavity searched? After all, she is not a criminal or a fugitive. Why should she be arrested?  DK in her email said she stressed to arresting authorities that she had diplomatic immunity but was still subjected to repeated searches.

"I must admit that I broke down many times as the indignities of repeated handcuffing, stripping and cavity searches, swabbing, in a hold-up with common criminals and drug addicts were all being imposed upon me despite my incessant assertions of immunity,"
The crucial question is – whether she was handcuffed?  Whether she was made to undergo cavity search? & DNA swabbing? 

The US attorney Mr Preet Bharara says that DK was never handcuffed during the entire process.  She wasn’t made to undergo cavity search process. She was strip searched by a US lady Marshall which is the practice for any legal process under the circumstances.  “From what we have been able to confirm, a strip search did take place. However, no cavity search took place,” Nikki Credic, spokesperson for the US MarshalService confirmed. Devyani has claimed she was subjected to a strip search as well as a cavity search. Credic said, “There is a difference between the two. She (DK) may not know the difference. But whatever happened was all as per rules.”.

About Devyani’s claim of being placed in the same cell as drug addicts, Credic replied she was “placed in a cell with other female defendants awaiting court proceedings”. The USMS, Southern District of New York, handled Khobragade’s intake and detention in accordance with USMS Policy Directives and Protocols.”

Now, DK says she was handcuffed and cavity searched while the US authorities say she wasn’t. Who do we trust? We have a dilemma.

It’s sheer coincidence that around the same time, the judicial commission in India enquiring into the “Adarsh” Housing Society allocation scam have come out with their report (on December 20, 2013). Interestingly, both DK and her father, a conferred IAS officer now retired, had a flat each in the said Society and DK in her affidavit to Government has not mentioned details about Rs 20 lakhs differential while buying the flat (the allocation itself is contentious because of the dubious role of her father in granting extra FSI to the building while he was still in service). Such a suppression of information is prima facie malafide.

There are reports in media that DK undertook another declaration from SR, hiding some key provisions esp. those relating to minimum wages, her rights as a domestic servant and overtime etc.

Why am I mentioning these extraneous factors? Well, to make out a case that between the two, I would put my money on US attorney Mr. Bharara.  On a question of who’s telling the truth and presenting a correct picture. It’s very easy, under such circumstances, for DK to whip up public sympathy and emotions by presenting a picture as she has. I will not be surprised if the US authorities have a video of the entire proceedings, right from her arrest till her release!

Conclusion – DK (the woman, the mother, the diplomat) was never handcuffed, never cavity searched and was accorded all necessary courtesies, much more than what’s available to others under the circumstances!

4.       Is this an issue just about Devyani?
         Is Devyani India and is India Devyani?
         What about the maid?
Media in India has only portrayed DK as the victim in this case. There is frustration and disappointment that the media (and the officials) has portrayed this story in the way that they have. The crime (the visa fraud, underpayment, fudging documents and exploitation of the maid as alleged by the victim and her lawyers) in the case is being “overshadowed” and the focus should be on the “crimes that were committed rather than on the criminal defendant”.    

Ruchir Gupta, in “the Hindu” has pointed out that India unfortunately had two standards in this case: one for what a middle-class woman needs and feels and another for what a working-class woman needs and feels. India has two citizens in this case, not one — Devyani Khobragade and Sangeeta Richard. India needs to stand by both. Both are looking for protection from unfair treatment. However, one is being blamed for speaking up while the other has been turned into a heroine, whose honour is tied up with India’s honour. Ms. Richard not only had to work for Ms. Khobragade in New York for less than the legal minimum wage but was also forced to sign documents saying she was earning more. When she objected and left her employment, her family in Delhi was threatened and cases were filed against her in a Delhi court for flouting her visa conditions.  While India has rightfully objected to the treatment of its diplomat, it needs to address the fact that she broke the law of the host country she was posted to.
The diplomat not only did not pay legal wages, she also falsified documents and then tried to intimidate the victim’s family by filing a case in the Delhi High Court. If Ms. Richard “stole” money and a phone as the Indian embassy press release says, then a police case ought to have been filed in New York and not Delhi, a city where Ms. Khobragade has connections and influence.  The victim and her family were hiding in fear of retaliation by Ms. Khobragade’s family and the government till they left Delhi for New York (am not surprised seeing the “very aggressive” Mr Khobragade, the father of DK on NDTV debate aired on December 22, 2013)

5.       Is there a class divide in favour of the rich, influential and media savvy?
Shekhar Gupta, in his editorial “Our Indian Feudal Class” in IE dated December 21, 2013, has pointed out that the issue involves three tricky issues – class, caste and caste. Class because in a row between master and servant, class will always triumph. Caste because DK is a dalit and so the insult is compounded and caste again because in the caste hierarchy of bureaucracy, the highest caste of all is the IFS.

This class divide has influenced our reactions to both women. Our anger against Ms. Richard is based on our own sense of entitlement over the poor and the working class. We feel betrayed when they ask for anything that we have not conferred on them out of the “largeness” of our hearts (instead of being thankful that she got a chance to work in the US of A, how dare she questions her less wages and long working hours? How can US authorities airlift her family from India? Oh, it means that all of them are now going to be permanently in US!!).  We have two standards for what a middle-class woman needs and feels and what a working-class woman needs and feels. While we are quick to point out that the salaries of our foreign diplomats need to be raised so that they can afford to pay their domestic help according to U.S. standards, we omit to note that we have no minimum wages in India for our own domestic help. Routinely, domestic helps in India are exploited in terms of no. of working hours, pay, living conditions and leave. Live-in help in middle-class India usually work round the clock.
Perhaps that is why Ms. Khobragade did not feel she was doing anything wrong in breaking the U.S. law. Her outlook was conditioned and normalized by the working conditions of domestic help in India. Patriotism is not just about standing by the rich and powerful but about standing by Gandhi’s “last” (the poorest and weakest) individual or Ambedkar’s Dalit (oppressed) person.  It is in a way such a paradoxical situation that the ‘dalit’ (oppressed person – SR in this case) is being oppressed by a ‘Dalit’ !

6.       Role of the ambitious (totally negative connotation as per Indian media) Mr. Preet Bhara, US attorney and his ‘anti India’ stand  (How dare somebody born in India work against Indians even when they are at the wrong end of law!)
A lot of mud has been thrown in Indian media on Mr Preet Bharara over his alleged anti-Indian stand in this case and him being "anti-Indian" in general. Infact, a case is being made out as if, in order to prove his loyalty (in his ambitious climb to lay his claims for higher positions), he has been going after Indians deliberately! Take the case of Rajat Gupta! In fact, Mr Bharara is often called as Sherriff of the Wall Street.  

“This office’s sole motivation in this case, as in all cases, is to uphold the rule of law, protect victims, and hold accountable anyone who breaks the law — no matter what their societal status and no matter how powerful, rich or connected they are,” he  has said.  (anything wrong ?)

Bharara said Khobragade evaded US laws designed to protect the domestic employees of diplomats and consular officers from exploitation. He has rebutted reports of the diplomat not being given proper treatment and has denied that she was arrested in front of her children and handcuffed.  He said there has been “misinformation and factual inaccuracy” in the reporting on the Khobragade case which is “creating an inflammatory atmosphere”. 

Accusing Khobragade of fraud, Bharara said: “Not only did she try to evade the law, but as further alleged, she caused the victim and her spouse to attest to false documents and be a part of her scheme to lie to US government officials... So it is alleged not merely that she sought to evade the law, but that she affirmatively created false documents and went ahead with lying to the US government about what she was doing”. Further,  One wonders whether any government would not take action regarding false documents being submitted to it in order to bring immigrants into the country. One wonders even more pointedly whether any government would not take action regarding that alleged conduct where the purpose of the scheme was to unfairly treat a domestic worker in ways that violate the law. And one wonders why there is so much outrage about the alleged treatment of the Indian national accused of perpetrating these acts, but precious little outrage about the alleged treatment of the Indian victim and her spouse?”.
 He added that as the alleged conduct of Khobragade makes clear, “there can be no plausible claim that this case was somehow unexpected or an injustice.”

He said while the law is clearly set forth on the State Department website, there have been other public cases in the United States involving other countries, and some involving India, where the mistreatment of domestic workers by diplomats or consular officers was charged criminally.
This being so, why are we Indians feeling so agitated with him? The Indian media has made him some sort of “DESH-DROHI” , a traitor ! And why? Just because he is of Indian origin? The fact that he is a US attorney doesn’t cut any ice with us?  Does that mean he should ignore the illegalities indulged in by “Indians or Indian origin people in US”? As US attorney, is it not his duty to ensure that law of the land is upheld?  He must be getting number of cases and if few pertain to Indians, should we doubt his credentials? If at all, I would credit him for doing his job perfectly. Some people in media have raised questions about his clarification and the authority under which it was issued. To me, he is simply trying to dispel the factual inaccuracies in the case and thereby making as effort to thaw the enraged feelings arisen due to misinformation. What’s wrong with it?

7.       Have we (as Indians) over-reacted?
Indian diplomacy, in Shekhar Gupta’s words, has a well-deserved reputation for conservative understatedness. One would rarely see an Indian diplomat grandstanding or headline-hunting.  What can in that case explain such a radical shift in the style and manner of such a classy, sophisticated and patient foreign bureaucracy? Words like “barbaric, despicable, inhuman, perfidy, betrayal, withdraw-all-charges-and-apologize” do not generally belong to foreign diplomatic vocabulary and generally the domain of TV anchors intent on ‘breaking news’!

"India is siding with a woman who was in the wrong who lied, paid her help poorly and now is brazen enough to claim that she should not be treated like a criminal," said a column in The Washington Post titled 'Why India is upset about Devyani Khobragade, and why it's wrong'. The New York Times criticized the Indian government for its stand on Khobragade - "India's overwrought reaction to the arrest of one of its diplomats in the US is unworthy of a democratic movement,". It further says that  "Officials in New Delhi have inflamed anti-American outrage instead of calling for justice, especially for the domestic worker who is at the heart of the case."
The editorial titled 'India's Misplaced Outrage' claimed even more disturbing was the fact that Indian officials would take extreme steps to retaliate for the arrest, such as removing security barriers at the US Embassy in New Delhi.  "Despite the way many Indians seem to view the case, it is not a challenge to India's honour. It is a charge against one diplomat accused of submitting false documents to evade the law. Ms. Khobragade's lawyer said she would plead not guilty and challenge the arrest on the grounds of diplomatic immunity, which prosecutors say does not apply in this case," the daily said.

This has not been the first case of this nature. There have been two similar incidents in the past in US and a more ghastly one which happened to an Indian diplomat in Birmingham, UK. The issue which remains unresolved in my mind is why should a responsible democracy like us inflame the situation without even establishing the veracity of facts? It certainly doesn’t speak of a mature diplomacy.
Let’s examine why? I have two immediate reasons coming to my mind:

i)                 The Lok Sabha parliamentary elections are round the corner and political parties are desperately looking for a reason which can unite the voters on a common cause the party is espousing for. Fuelling hyper-patriotism at this juncture will strike an emotional chord with voters !

ii)               The IFS fraternity, realizing that it could happen to any of them, have got united and taken it up as an issue requiring immediate action by the Government of India. There has been a demand by the IFS fraternity to include India- based domestic assistants (IDBA) under the IFS service rules which would facilitate taking such domestic help ‘legally’ without subverting the system. Much has been said about Khobragade's salary not good enough to pay Richard the minimum wage of $7.25 an hour ($8 from next year). But no one is entitled to a domestic worker. And why should an Indian tax payer pay for such luxury?

8.       Role of DK’s father?
I must admit that the comic touch in the entire episode has been Mr Uttam Khobragade, father of DK! One can’t miss his ‘conspiracy theory’ (By whom? Against whom?) and verbal avalanche on the injustice being meted out to his traumatized daughter (plush posting in NY, now to UN permanent mission) by the US and why India should keep fighting for the dignity of his daughter! (what about poor maid Saar?...does she exists?
The most hilarious part has been his threat to go on hunger strike till justice is done to his daughter! Mr Khobragade for those of us not aware, he is a retired IAS officer (conferred) from Maharastra, has got two flats in the controversial Adarsh Society (meant for the families of Kargil war victims) and prominently occurs in the report pertaining to the scam. There are at least 12 properties (land and flats) officially declared by DK most of which are inherited from her father. The queries by some of the print media (HT for one) regarding the source of income have gone unanswered. Newspapers also assert that he has political ambitions and has often used his clout (!) in favor of her daughter whether it’s regarding her postings or the preferential treatment accorded to her. More on him here if one is interested.

It’s totally unfathomable to me as to why he is jumping around like a cat on a hot pan, shuffling from one channel to another and trying to hog the newly found glory. I also wonder why he never looks at the camera straight (looking into the eyes as they say!). Perhaps he wishes all that’s done so far (Adarsh etc) will be forgotten in this excitement. Only time will tell. But to listen to his tirades on primetime (you must watch him on NDTV for his sheer threatening arrogance and incomprehensible logic) is a sorry state of our stand if that’s how it is.
9.       So, have these “strong protests” and “Indian patriotism” made any difference?

Not to the best of my knowledge. All this talk of “withdraw the cases and apologize” hasn’t cut any ice with US authorities so far. The US has ruled out acceding to either of the two Indian demands -withdrawal of charges against DK and an apology for alleged mistreatment, after her arrest in New York last week. "We take these allegations very seriously. We're not in any way walking back from those allegations or the charges. Again, this is really a law enforcement issue," the US State Department spokesperson, Marie Harf said. "We certainly take these types of allegations very seriously though. It's not a decision for us whether to prosecute or not," Harf said. She called "highly inaccurate" India's allegations that the United States did not respond to the series of letters and communications that were made by it.

They are yet to receive any request from Indian Government with regard to transfer of Khobragade to India's Permanent Mission to the UN, she said. India had said that this move would give her the necessary diplomatic immunity. Harf, however, said this immunity would not be retroactive. "Generally speaking, if there's a change in immunity, because of a different diplomatic status, that immunity would start on the date it's conferred, after the process," she added. DK, was granted immunity based on her posting in UN mission on Monday (December 23) and she was also granted exemption from appearing in the court in the on going case.

 So, we have gained nothing, absolutely nothing with all this domestic fretting and fuming !
My conclusion

Some harsh conclusions as to why this episode has become a center-stage.

1.       An image of a saree clad, bechari types, young mother going to drop her daughter to school being arrested and handcuffed (as reported) angered and evoked extremely sharp reactions from Indians against those who did (US) – people didn’t bother to verify the facts.

2.       The fact she was arrested even though she had diplomatic immunity showed US acting in a high handed manner – facts that she had limited or no immunity or that US did based on violations of its laws went to deaf ears.

3.       Post-election results in 4 states, political parties, desperate to have a national issue which could whip up nation’s frenzy, this issue was exaggerated to a ridiculously high levels – it has compromised our image as a mature democracy having diplomatic finesse.

4.       I am daring to say that the issue caught nation’s attention when pictures of DK was repeatedly displayed on all channels, in print media like a power point presentation, presenting her as somebody glamorous and yet caring in her role as a mother. I wonder whether there would have been same frenzy if it happened to be a male diplomat or a senior woman diplomat who would have been dignified though not a ready glamour picture pushed on your face. This is a typical male psyche which comes out clearly.

5.       Devyani Khobragade has played with the emotions of millions of people in India if she has exaggerated about the “mis-treatment”. The image of a nation, the largest democracy in the world (of course we are also responsible- we emotional fools) has been compromised.

6.       We, as a nation, have compromised on our maturity by showing misplaced aggression which was almost bordering on juvenility. It was a clear case of misplaced outrage and national patriotism.

7.    If we are so enrageable and patriotic, we should have taken up the case of extradition of David Coleman Headley (born Daood Sayed Gilani ) from US for his clear involvement in Mumbai attacks in 2008. We have, as usual, opted for an easy way out!
We need to act with patience and restore our dignified diplomacy in the world arena. It’s also time our diplomats act with the dignity and responsibility – after all, they represent us as a nation.

Latest status update
DK was indicted in NY court on January 9, 2014 on two counts of visa fraud and misrepresentation of facts. DK has been expelled from the US and she promptly flew back to India on January 11. She has been barred entry into the US and her name would be placed in visa and immigration lookout system to prevent routine issue of visa. US State Department spokesperson Jen Psaki has saif that her departure from US doesn't change the charges against her. A warrant may be issued for her arrest. It means that DK is treated as a "person non grata" and would be permitted to visit US only to subject herself to the jurisdiction of court.  

Saturday, December 21, 2013

The Indian Economy - the way ahead

Indian Institute of Ahmedabad Alumni Hyderabad chapter had invited me to be a part of the three
member panel to discuss on “The state of the economy – the way ahead” with Mr K V Kamath, Chairman ICICI Bank ltd as the chief guest on the occasion of “3rd Ravi Mathai memorial lecture” on December 14th, 2013 in Hyderabad. I didn’t want to miss the opportunity of interacting with friends in IIMA Alumni Hyderabad chapter of which I have been an active part till 2007-08.

I am reproducing here, with slight modifications, the talk I delivered on this occasion.

Let me start by trying to draw economic inferences by analyzing the voting pattern in the recently held state elections in 4 states.  Firstly, it was a vote by an angry voter whose voice was loud and clear. Let’s see state-wise what worked and what didn’t

Delhi – People voted for transparency in governance, against high prices and perceived corruption. People wanted change and are willing to try out a new party.

Rajasthan- The freebies in the shape of free distribution of medicines couldn’t turn the strong anti-incumbency tide. Whether the scheme really didn’t cut ice with people, whether it didn’t reach to all those intended or it wasn’t a priority, it did establish that freebies don’t always fetch votes and it augurs well for the economy if it’s true.

Madhya Pradesh and Chattisgarh – Infrastructure works and good infrastructure gets votes. Good governance matters.

While these are inferences at a very preliminary level, I do wish to highlight how the state of economy gets easily reflected in the voting pattern.

Now let’s discuss today’s topic – “the state of the economy – the way forward” in the Indian context.

India’s GDP growth moderated in FY 2012 and further in FY 2013, registering an increase of 6.2% and 5.0%, respectively. This moderation has been carried over to the current fiscal with the half-yearly growth (Apr-Sep) being 4.6%. Quarterly data indicates that GDP growth in Quarter 1 (Q1) of 2013-14 at 4.4% (year-on-year), was the lowest level over the previous 16 quarters (which was during Q4 of 2008-09, the peak of the global financial crisis).

India’s growth story, especially since the start of the 21stcentury has been remarkable, with an average growth rate of more than 8 percent during the period FY2003 to FY2011, much above the growth rate of other emerging and developing economies and this factor should not be lost upon in the wake of recent crises. What are the reasons for slump in growth?

One of the key reasons of the recent flat performance in India’s GDP has been the deceleration in manufacturing. Manufacturing growth has lagged GDP growth, often time by a substantial margin, over each of the last 10 quarters. Consequently, the share of manufacturing in GDP has witnessed a decline. Manufacturing was the only segment other than agriculture, forestry and fishing to have witnessed a significant decline in its contribution to the country’s GDP during this period. The Industrial activity, as a result,  has been subdued over the recent past, on account of weak manufacturing output growth.

During the 2001-2011 period, trade deficit in manufacturing shot up from US$7.6 billion to US$ 160.9 billion (CAGR of 36%).  On analyzing India’s merchandise exports during the 10 year period 2002-2013, it is observed that close to 50 per cent of the exports constitute agriculture & allied products, petroleum products, and gems & jewelry products. Most of these products in which India has a substantial exports does not involve high end technology orientation. During the 2002-12 period, the import of manufactured goods by India has grown faster than exports of manufactured goods.

Policy logjams

what’s worrisome is that the annual growth rate of credit to infrastructure sector has dropped sharply from 2010-11 onwards as compared to the last decade which can primarily be attributed to 2 factors- (i) several policy logjams such as those relating to environment clearances, land acquisition, fuel supply and (ii) there was a growing squeeze on fresh sanctions by banks leading to a decline in investments.

I would like to talk about the specific example of the power sector. At present, owing to inadequate coal supply from Coal India Limited (CIL), about 12,000 MW of existing power capacity (excluding State sector) is not operative. Further, about 50,000 MW of capacity which is near completion or under implementation will face coal shortages on completion. About 12,000 MW of power projects which are under implementation by private sector are linked to captive coal blocks, the captive mines allocated to such projects have been inordinately delayed impacting the project viability. About 20,000 MW of gas based power capacity has been seriously impacted by non-availability of gas. It is estimated that total investments of about Rs 400,000 crores are impacted on account of current affected capacity of 78,500 MW (which is not producing at the desired PLF due to fuel issues). Generation loss on account of this is estimated at about Rs 42,000 crore (120 billion units @ Rs 3.50 per unit) which works out to about 0.45% of Gross Domestic Product (GDP). In case remedial measures for addressing the coal and gas deficit are not urgently initiated, the affected capacity will increase substantially as projects currently under implementation get completed.

International Trade & Current Account Deficit

Recent trends in global exports would highlight the increasing importance of India as a trading nation.  However, the country’s export growth has not kept pace with its growth in imports, resulting in expanding trade deficit. Trade deficit trebled from US$ 64 billion in 2006-07 to US$ 192 billion in 2012-13. The trade deficit as a percent of exports, which was 51% in 2006-07, increased to 64% in the year 2012-13.

While this scenario is partly because of imports of coal, oil and gold, the challenge is to make these items contribute smaller proportion of the country’s overall trade. High oil imports would remain considering that the current level of per capita oil consumption (at 3 bbl/day per 1000 persons) is among the lowest – given the annual increase in India’s population of 10 million, even to maintain this current level remains a challenge.

India’s share in global services exports has risen from 1% in 2000, to 3.2% in 2012, Nonetheless, growth in India’s services trade has not been as dynamic as deficits in merchandise trade during the 2006-07 to 2012-13 period and could only partially compensate the growing deficit. During 2008-09, the surplus in services trade catered nearly 46% of trade deficit. This has come down to 34% in 2012-13.

The slow down sentiments across the world, and within the domestic economy have catered to decline in capital inflows (both FDI and FII). While FIIs found India less attractive due to slowing down of economy, FDI inflows were hampered due to mixed policy signals. As the capital account could not generate surplus fully to compensate the CAD, there has been decrease in forex reserves both in 2011-12 and 2012-13. Sizeable portfolio capital outflows and large external financing requirements triggered downward pressures on the Rupee from late May. This phenomenon was not India-specific and most emerging markets with large current account deficit such as India, Indonesia, South Africa, Brazil witnessing the steepest fall in their currencies.  Though the currency depreciation makes our exports competitive, it highly impacts our import bill also, especially oil imports which accounts for one-third of our total imports. Also, non-oil imports, especially, precious and semi-precious stones and metals (gold and silver), chemicals and capital goods add to the cost of manufacturing and thereby nullify the benefits gained in the export front. Import costs of oil and gas too shoots up, but since it is invariably not passed on to domestic consumers, the level of subsidies and with it the size of the fiscal deficit is likely to shoot up

Rupee's depreciation has a direct link with escalating non-Plan expenditure, two biggest components of which are interest payments and subsidies. External debt servicing cost in terms of the rupee, due to the latter's depreciation, shoots up, putting a strain on the exchequer. According to estimates, 10% currency depreciation brings down growth by at least 1%, which means further GDP contraction is imminent if corrective measures are not taken to boost the economy.

Immediate policy initiatives

The government and RBI stepped-up policy actions and some calming in investor sentiment provided support in the last few months. The measures include: liberalization of FDI in various sectors, enhanced FII limits in government and corporate bonds and relaxed ECB norms for NBFCs. RBI also announced two concessional swap facilities, under which banks can swap dollars raised through foreign currency non-resident (FCNR) deposits, and overseas borrowings, with the RBI. To contain the outflows, both in current account and capital account, a set of measures were taken. Financing for gold imports was curtailed, and gold import tariffs hiked. In mid-August, the amount domestic private sector firms can invest overseas was cut from 400% to 100% of their net worth (later rolled back to 400%).

Though there are incipient signs of recovery, coupled with good monsoon, signs of rupees stability and decreasing CAD. While the CAD has come down from a peak of 4.8% to 1.5%, it is expected to be around 3% for the year as above. Fiscal deficit has also narrowed and the Government is keen it should not go beyond 4.8% during the year.

Medium terms and long term measures

First and foremost - we need a stable central government post 2014 elections - a government capable of taking decisions even if hard ones and has a vision for the next decade. A weak coalition government would be recipe for economics disaster as the governance is likely to be marred by indecision and weak populist decisions which may not augur well in the long run .

However, most of these are short term measures and what’s required are series of medium terms and long term measures to ensure a robust and consistently high level of growth. Let’s look at the areas requiring focus:

Is there a need to relook welfare programmes?

India has made remarkable progress in reducing the absolute poverty and those below poverty line during the last two decades. The average per capita income has gone up and so have been the savings. In order to ensure more equitable growth process, Government has launched a number of welfare programmes. Mahatma Gandhi National Rural Employment Guarantee Assistance Programme (MGNREGA) provides a minimum of 100 days of assured employment to any individual seeking it. Likewise, Government provides food subsidy, ranging from 56% to 90% on foodgrains under the Targeted Public Distribution System (TPDS) to about 120 million families. Subsidy on diesel and Petrol has been in existence for some time now and so are fertilizer subsidies which incidentally are extended to fertilizer companies at source and not to the ultimate farmers.

The moot question is – whether subsidies extended under these schemes are reaching the intended beneficiaries and whether they are leading to any positive impact on the economy.  For instance,  MGNREGA is indeed a laudable scheme in terms of its intentions to create employment but the unintended consequences of shortage of labour, hiking up the cost of production especially in agriculture and lack of conversion of this employment into productive assets in a cause of worry.  

Let’s look at the subsidy provision in the Budget 2013-14:

Fertilizer subsidy – Rs 65,971 crs
Food subsidy – Rs 90,000 crs
Petroleum subsidy – Rs 65,000 crs
MGNERGA – Rs 33,000 crs

Add to these major outlays, the subsidy burden on account of other schemes such as National social assistance program, Rashtriya Swasthya Bima Yojana etc and the total outlay on account of such subsidies per annum works out to about Rs 300,000 crs p.a and the capital formation in the country is deprived of this much amount. Ironically, the annual disinvestment target is in the range of Rs 30-35000 crores which is about 10% of these recurring schemes year after year. I personally feel a time has come to take stock of these schemes and decide what’s good for the nation in the long run and not just about short term gains.

Quality of infrastructure

There’s an urgent need to clear various bottlenecks which are coming in the way of faster and sustained infrastructure development. The Cabinet Committee on Investment (CCI) constituted under the chairmanship of Prime Minister monitors the progress of stalled projects. As on 11th December 2013, there were a total of 394 stalled projects under review by the CCI (each with an investment of Rs 250 crs or more) with a total investment of Rs 17.68 lakh crores in sectors like Power, Steel, Road, Shipping, Coal, mining and petroleum. It has, in the last six months, paved way for 122 projects with an investment of Rs 4.01 lakh crores. Inter-ministerial coordination has to improve. Ways have to be found to pave way for these stalled projects so that cost over-runs could be contained and all the funds already invested could be put into use.

Increasing manufacturing activity

As already pointed above, losing out on manufacturing implies not only lower employment opportunities but also increasing imports as most of the manufacturing demands are of inelastic nature. There is an urgent need to increase manufacturing by providing all that what it takes to get the competitive advantage. MSME sector needs to be encouraged and industrial clusters are a step in the right direction. Government of India has come out with a Credit Guarantee scheme for MSME sector which will ensure smooth flow of credit from banks to the sector.

An obvious blame is often passed on the manufacturing sector and its lack of competitiveness as the reason for slowdown in growth. However one needs to see the co-relation between money faceting & GDP growth. The investment rate of 38% in 2009-10 with an ICOR of 4:1 implied a growth rate of 9.5% during the year. However, the investment rate which has since fallen and is around 30-32% in 2012-13 should have implied a growth rate of 7.5% but the actual rate is around 5% implying that slow-down in growth rate is much stronger than slowdown in industrial growth.

Vocational training & Skill development– Along with the increase in the manufacturing activity, there is an urgent need to encourage vocational skills and training in a sustained and planned manner. There is thinking that one needs more skill personal in vocational trades rather than low or poorly employable engineers. The cabinet has recently approved a Credit Guarantee Scheme for education & skill development. Once operational, this will ensure sufficient credit for all students seeking skill development.

Better business regulations – Can we have a "SARAL" kind of model for business clearance which would be a single point clearance rather than going to 42-50 levels of clearances. The need to ensure proper transparency in approvals will not only cut down time and costs but will also help minimize corruption.

Better and deeper financial system – Finance is not just about making profit availability of credit, need to encourage savings which is a function of returns, ability to borrow at affordable rates are some issues which are required to be looked into. Financial system should not require constraint subsidization.

 RBI in order to create an enabling environment is concentrating on the following five development pillars:

(i)              Monetary policy framework – RBI in order to set up a clear agenda for monetary policy just one the lines of what Sukhamoy Chakroborty report did in 1980s has appointed a Committee under the chairmanship of Mr. Urjit Patel and report is expected by this month end.

(ii)            Expanding banking infrastructure – RBI has relaxed norms in order to create better infrastructure facilities among the bank including norms for branch opening and so on.

(iii)            Broader and deepen financial markets – As per CRISIL’s latest estimates, a total of Rs 26.3 lakh crores of investment is needed which would comprise of Rs 8.1 lakh crs in equity & Rs 18.3 lakhs crs in Debts.  Power, Roads, Railways and Urban infra would account for 85% of this overall investment. While Rupee debts from Banks will be Rs 8.7 lakhs crs and ECB of Rs 2.6 lakh crs, Debt from Bond market are expected at Rs 7 lakh crs ie 40%.

(iv)          Access to finance especially to MSME and other needy sectors in the informal, unorganized, rural and small scale sectors. The use of technology needs to be encouraged. Financial Inclusion and new inclusion methods including mobile banking, mobile valets, and the Business Correspondents are some of the steps initiated to create a frugal and trustworthy Indian model of Financial Inclusions. A Committee has been constituted under the chair of Dr. Nachiket Mor which would submit its report shortly on Financial Inclusion.

(v)                Create systems to deal with corporate and financial stress the total GNPA (gross non performing assets) at the end of Sept 2013 for all Public Sector Banks was Rs 2.03 lakh crs or 4.82 % of the total credit. Out of these, a total of 9330 accounts (each with an outstanding of Rs 1 cr or more), in terms of ABC analysis had Rs 1.09 lakh crs in them and need to be concentrated upon.

The emphasis would be on early detection of the stress and “deal with it early” rather than ignoring and hoping to tide over at the same time. There is a need to act strongly against willful and un-cooperative defaulters.

 What’s required is an all out efforts to achieve and maintain an annual GDP growth rate of 8% per annum consistently for the coming decade. This would mean an increase in the per capita income from the present $ 500 per annum to about $ 8000-10000 by 2025 making India as middle income country.

It is, as RBI Governor says, a sober recognition of a healthier, better and educated India in coming years since ‘catching up’ is always easy than keeping up with Jones.