Tuesday, April 26, 2016

Modi's Foreign Policy Disasters

Since coming to power the present prime minister of India Narendra Modi is making one foreign policy disaster after another one. The reason why we have to keep these disasters in mind is because they exactly contradict the public image of this hindu nationalist leader as a strong man with a chest of 56 Inch. This image was very carefully crafted by Modi's marketing people during the 2014 election run-up to win votes. They portrayed then prime minister Manmohan Singh as a weak man who speaks nothing at all or barely opens his mouth. Compared to Manmohan, Modi was portrayed as an outspoken strong personality which India was in a dire need to have at the helm. As I said during the election run-up, this image was only a marketing propaganda of the Modi campaign. Modi was and is an extraordinary popular delusion and madness of crowd phenomenon. I urged people to see Modi's actions, and not his words. The following list throws a light on his foreign policy actions contrary to what he is saying from election rally platforms.
  1. Inauguration ceremoney foreign policy move of inviting Pakistan prime minister Nawaz Shariff and subsequent Saree diplomacy: What is the end result of this foreing policy move and niceties? Nothing. The relationship between India and Pakistan is only becoming worst with every passing moment.
  2. Modi's myriad foreign trips in the name of foreign policy: What is the end result of all these costly tax payer funded trips? Nothing. For example, 
    1. Modi went to neighbouring Nepal twice on foreign policy diplomatic visits and today the relationship between India and Nepal are worst than what it was before these visits (see here). Not only this, due to this foreign policy hara-kiri by the Modi government, Nepal is now ever closer to China (not that there is something wrong with Nepal close to China, but this is just to point out the contradictory results of Modi's foreign policy).
    2. Modi went to USA thrice after becoming PM, but those visits have failed in stopping America from selling war planes to Pakistan!  
  3. In another foreign policy's, according to home minister Rajnath Singh, "innovative diplomacy" move Modi had a surprised stopover in Pakistan to meet Pakistan PM Nawaz Sharif! This is the same Narendra Modi whose party's chairman Amit Shah last year, during Bihar election run-up, was saying that if BJP will lose in Bihar, fire crackers will go-off in Pakistan! These actions of Modi just shows that he can do just about anything to fool the public to win votes and absolute power. And what is the end result of this stopover? Nothing. As I said above, the relationship between the Indian and Pakistani government is just becoming worst day by day e.g., the recent diplomatic talks have failed again.      
  4.  In another foreign policy disaster of taking sides with empires, and the one which is falling and not rising, Modi government for the first time allowed the US military to use its bases (Indian land, air and water) for war purposes (see here)! This really is a dangerous geopoltical move which can trouble India in future. American empire is slowly dying and China and Russia are rising. Most people believe that the 21st Century belongs to China. In such situation being an ally of the crooked American government can only prove to be costlier than beneficial. Modi doesn't understand that American government is using India only as a pawn in its fight against rising mighty China. The best foreing policy is always a neutral one taking side with no one and doing trade equally with everyone. By taking side of a wrong empire, Modi is only exhibiting his cluelessness about foreign policy matter.
  5. Inviting Pakistan investigation team to probe Pathankot terrorists attacks: What is the end result of this, according to the home minister Rajnath Singh,  "brilliant" (sic) move? Pakistani team after going back to Pakistan blamed India of fabricating the whole attack to tarnish its image in front of foreign governments!!!
  6. Pakistan humiliated Modi government when it, in turn, didn't allow the Indian investigation team to enter Pakistan to probe the Pathankot air base attack. Modi government was fooled by the Pakistani politicians again. 
  7. An alleged Indian intellgence agency RAW's agent being caught in Balochistan by Pakistan was a real embrassment for the Modi government. Everyone knows that both government's spies are active in both countries, but the way Modi government accepted that the caught agent was indeed retired Indian navy officer but he wasn't its spy only revelead the inexperience and naivity of the Modi government.
  8.  The Chinese government blocked Modi government's move of declaring JeM leader Masood Azhar a terrorist in UN. The only thing that the Indian government could do was to express their anger with it!!! This only shows who has the diplomatic clout in the international agencies. Modi is projected as very popular and strong PM of India in international community, but this foreign policy disaster just shows how hollow that claim is.
  9. As if the humiliation of China blocking Modi government's bid again Masood Azhar in UN was not enough, to retaliate against this Chinese government move, the Modi government issued a visa to Uyghur dissident Dolkun Isa, whom China has declared a terrorist, to participate in a conference which was organized in India. Many in India started celebrating this as a big victory of Modi against China; Many said this was Modi's "master stroke". But in a big foreign policy emberassment the Modi government later on had to cancel this visa of Dolkun after the Chinese government protested aganist it!!! So much for the master stroke.     
This small list, I think, is just a beginning. More foreign policy disasters will come in future for sure looking at the, so far, track record. The PM of India Narendra Modi is just exhibiting his inexperience and naivity in dealing with these delicate and dangerous foreign policy matters. Foreign policy is not like delivering a rousing election speech! It requires immense amount of statemanship and detailed research of myriad of geopolitical issues. It requires a deep understanding of history of various regions of the world. It requires astuteness, which Modi is lacking. Any mistake by him, like giving the Indian land for use of American military, will plunge India into a big chaos.    

Sunday, March 27, 2016

Are Lower Interest Rates Good for India?

Recently the Modi government's finance minster Arun Jaitley announced a big reduction in the interest rates of major small saving schemes like the PPF (Public Provident Fund) and Post Office Term Deposit: The government announced new interest rates on small savings instruments on Friday, slashing the returns on Public Provident Fund savings from 8.7 per cent to 8.1 per cent and one year post office deposits from 8.4 per cent to 7.1 per cent (source). Before this big cut in the rate of interest of these small saving schemes, Mr. Jaitley also dared to impose a tax on EPF (Employee Provident Fund) withdrawal in his fresh budget. He had to rollback this tax proposal later on after a big backlash from the salaried class people of India (see here)!

After the announcement of this rate cut, there surely was another uproar in the country from the savers class. Mr. Jaitley, to do the damage control work, came out and defended these interest cuts by saying the following:
The economy needs lower interest rates to become more efficient and high deposit rates would keep it “sluggish.”
“Interest rates had risen a lot, so the cost of borrowing for the government and others was high, but now they have come down. The way the economy is moving, we cannot have a situation where lending rates are going down but deposit rates remain high,”
To make the economy more efficient rather than sluggish, the country has to move towards lower interest rates in both,” (source)
So is there any Truth in what Jaitley is saying? Is the Indian economy right now sluggish because of the higher interest rates? Is the government's policy of lowering interest rates going the make the Indian economy more "efficient"? In my latest economic analysis below I give real answers of these questions.

Tuesday, February 9, 2016

Austrian Economics in India

Recently I sat down with Mr. Jayant Bhandari - Jayant Bhandari is an investment adviser, particularly in the natural resource sector, living in Canada. He advises institutional investors. -  to discuss India, Gujarat, Narendra Modi, Liberty and Austrian Economics in India and other such relevant issues. The following is the audio podcast of our discussion.

Monday, January 25, 2016

Present Condition of the Indian Economy

Since the beginning of 2016 the stock markets around the world are collapsing. The Indian stock market has erased all the gains which it had achieved after Narendra Modi came to power; all Modi mania has now evaporated. The Indian currency rupee is again trading below 68 level against US dollar, and inflation is picking up too. in this analysis I discuss why the world and Indian markets are crashing and what lies ahead of us.

Tuesday, December 1, 2015

India and Capitalism

In this book review I am going to take a look at a very important book written by French sociologist Professor Jean Baechler, The Origins of Capitalism. What differentiates the Western civilization from the rest of the world is its capitalist spirit, which, sadly, started waning in the last part of the twentieth century. What makes the Western world materially richer and better than other parts of the world in the past two and a half centuries is its economic system of Capitalism. Jean Baechler discusses important questions like what is Capitalism? Where did it come from and when? What are its distinguishing features? Why was it essentially a western phenomenon and now a Western export?

This book and its teachings are important for a country like India, which is still reeling in poverty in this twenty first century. If India, or any other country, wants to make economic progress then its people will have to take these teachings to their heart,  understand the forces that are responsible for material riches and try to realize these forces. Understanding why the Western world thrived and the rest of the world was left behind is the real beginning of making India rich again.

Baechler's book is divided into three parts.
  1.  In the first part Baechler begins his analysis by critically examining Marx's theory (or non-theory!) of how Capitalism came into existence. He does this to use Marx's analysis as a spring board and a point of diversion for his own analysis in later sections. I won't spend time discussing this part here.
  2. Part two is where Baechler begins his own analysis of the origins of Capitalism. This part is titled, What is Capitalism? As the title suggests, Baechler begins his analysis by clearly defining the concept of Capitalism. As he makes it clear, the systematic study of the origins of any phenomenon requires that one defines it clearly because the whole analysis follows from this definition. If one defines the phenomenon under study wrongly then he is bound the draw wrong conclusions about it. Baechler distinguishes Capitalism from all other economic systems by its incessant search for economic efficiency: By nature therefore, every economic act is rational, and aims at maximum efficiency. Economic efficiency, however, is limited (with a good deal of variation) by the interference of other values - religious, magic,ethical political and soon. Now, the most original feature of Western Capitalism, which distinguishes it radically from all other economic systems, is its real efficiency. It is the first system that may be characterized by a massive and, up to now limitless increase in production, circulation, and consumption.
  3. After clearly defining and distinguishing the Capitalist system, he goes on to discuss its essential features in the next section. 
  4. The last part of the book contains a detailed discussion of the origins of Capitalism, which contains a systematic discussion of "the Genesis of Bourgeois", "the Genesis of the Market", "the Genesis of the Entrepreneur and the Technologist", and "Genesis of the Laborer and the Consumer". 
Instead of going into the detailed discussion of the whole process of how Capitalism came into existence, I want to focus on the major results of Baechler's study of origins of Capitalism. As I said above, the teachings of this book is important for India and all other countries who are aspiring to grow rapidly i.e., raise the material standard of living of their populace.

Factors Responsible for the Rise of Capitalism
Baechler's search for the origins of Capitalism takes him in the realm of politics. He discovers that the origins of Capitalism lie in the realm of politics. The way in which the political scenario emerged in the European Middle Ages (beginning from the 11th Century onward), it gave rise to the system of Capitalism. Here is Baechler,
I consider that the key to the problem of the origins of Capitalism is found on the side of the political system. (p. 40)

These brief remarks bring me to a decisive conclusion: The degree of capitalist activity achieved in any given society is defined by the intersection of two curves. The one is determined by the area governed by the society, by the number of people in the society, and by the amount of wealth created by a given state of technology. The other is determined by the degree of autonomy the state grants to trading activities. The more that the State undertakes to arrogate the surplus to itself and to redistribute it as well, the less will any capitalist activity be able to take place. In the extreme it will disappear altogether (p. 41)
The expansion of capitalism owes its origins and raison d'etre to political anarchy. (p. 77)
The implication of this finding is clear for India. As long as the behemoth State of India (i.e., the Indian government) is meddling with the economy, which it is doing since 1947 in the post-independence era, this country is never going to see any significant capitalist activity. Economic efficiency of the economy will remain low resulting into problem of low standard of living of its mass people. The high level of meddling of the Indian government in the economy and the resulting low capitalist activity is also responsible for the problems of poverty, unemployment, inequality etc., etc. 

Baechler, after defining Capitalism as Capitalism is the state the economy must attain when nothing arises to hinder its law, the law of efficiency, goes on to chalk out his model of a Capitalist society. Here are the essential parts of the Capitalist society. 
  1. The producers have as their sole objective the search for maximum profits, not at all in order to enjoy the goods of this world, but simply for profit itself.
  2. The intellectual activity of the society be entirely devoted to the creation of scientific and technical procedures that permit the lowering of costs. 
  3. The laborers reduce their leisure and rest time to the minimum compatible with survival; their adaptation to variations in the economic apparatus is to be perfect and immediate (which means a perfect aptitude for changing their residence, employment, and qualifications); and 
  4. The absorption of production by the social organism suffers no impediments. 
Now these conditions are hard to realize 100% in reality. Why? because every society up to now has raised some or the other kinds of obstacles which have hindered the essential processes of a capitalist system outlined above. Here is Baechler again:
up to now, every society has placed obstacles in the way of the pursuit of economic efficiency. This has been done either in a general fashion, by retarding economic activity as much as possible, or only by repressing such and such aspect of the model (the entrepreneur, technology, labor, inelascity of demand, limitation of the market etc.). However, all societies have not established the same obstacles, which gives a precise scale for classifying societies in terms of their economic activities. One society has gone the greatest way in getting rid of all obstacles, western society. (p. 59) (emphasize mine).
The Indian society hardly meets these conditions in the modern time, especially after the so-called independence in 1947. The powerful Indian state, being run from Delhi by politicians and bureaucrat, has never allowed the producers to follow their profit motive by making their industries more efficient. In fact, the producers were not allowed to function at all during the central planning era when the public sector got the "commanding heights" i.e., the state itself was trying to run the economy. When it failed in doing so, it, instead of dismantling all regulations and controls, it only slightly loosened its grip on the economy while continued to regulate and micromanage the economy to this date. The Indian producers, instead of following their profit motive in the market by serving their consumers in the best possible way, are busy buying out political support for their businesses to remove their competition! They are spending all their energies in political maneuverings instead of serving their consumers in an honest way. They are compelled to do so by the state management of the economy.

The intellectual activity is also stifled in this country since ages. The public schooling system has created unemployed armies of graduates who are good for doing nothing. Public schooling, instead of changing the social, political, and economic order, is only reimposing the same social, political and economic order on the next generation. The state is meddling has created so many impediments for the intellectuals in this country that most intellectuals leave this country the moment they get the chance to do so. The phenomenon of brain-drain (sic) is a clear example of this issue. The political, social and cultural environment of this country is a big hindrance for the talented people, and this is the reason why they are not in a position to divert their activities in entrepreneurial and technological activities.  

And the laborers of this country also hardly meet the conditions of a capitalist system outlined above. The labor market of this country is extremely rigid because of various state controls and regulations.

The internal market is also highly restricted because of myriad of state controls and regulations.

No wonder Capitalism never emerged in the Indian subcontinent! And as long as the Indian state is meddling in all aspects of the Indian economy and society, it won't ever emerge in future also.

Baechler, in the end, sums up his thesis:
  1. The specific feature that belongs only to the capitalist system is the privileged position accorded to search for economic efficiency.
  2. The first condition for the maximization of economic efficiency is the liberation of civil society with respect to the state.
  3. This condition is fulfilled when a single cultural area is divided in several sovereign political units.
  4. So that all these potential factors lead to all their consequences, it is also necessary that the value-systems be modified to the detriment of religious, military and political values, and that demand be liberated. 
  5. Only the West has experienced an evolution where all these conditions were met.
As I already mentioned above, these conditions are not at all met in the post-independence India. The civil society is still in the firm grip of the state control. The value system is also heavily against capitalist mentality. Religion is still the driving force of the majority of the society. Young people, instead of becoming entrepreneurs, still dream of a government job and joining the political system. Politicians, and not entrepreneurs, are still hold the high status symbol. Military people are seen as heroes, and not the entrepreneurs. And, the Indian subcontinent is not divided into small sovereign political units, like it use to be in antiquity. Diverse population is forcefully merged into a one big Indian state after the independence by some politicians. As long as this behemoth state is alive, situation for the commoners will never improve.