Defence Notes

New Delhi, 19 May 2008  

Agni III Missile

PROPELS INDIA IN BIG LEAGUE

By Radhakrishna Rao

The smooth and flawless test firing of the long range nuclear-capable Agni-III missile capable of hitting targets at a distance of 3,500-km early this month from the Integrated Test range (ITR)on Wheeler Island on the east coast  has come as a shot in the arm for India’s credible nuclear deterrence capability. According to sources in the Defence Research and Development Organisation (DRDO), which designed, developed and tested Agni-III, this firing has cleared the decks for its production and induction.

However, Agni-III would need to be subjected to one more flight before it is declared operational. Significantly, the trade embargo imposed by the US in the wake of Pokhran II in 1998 had impeded the pace of development of these missiles. Washington exerted pressure on New Delhi to drop the project as it was a threat to the stability in South Asia region.

Clearly, Agni-III’s successful test flight has propelled India into the select group of countries such as Russia, US, France and China which have missiles similar to Agni-III in their arsenal.

Described as a “fire and forget” missile the Agni-III is capable of computing its own trajectory and is immune to all the extraneous forces once it is launched. Perhaps the biggest advantage that India could derive from Agni-III is that this missile has given the country for the first time a clear cut capability to strike deep into the Chinese territory. Defence observers say that Agni-III could easily reach cities like Shanghai and Beijing.

As it stands China’s latest submarine launched ballistic missile JL-2 and its land- based variant DF-31 have been causes of concern for India’s defence establishment. Besides, many short range Indian missiles could easily hit urban centres of Pakistan with ease.  Notwithstanding, that Pakistan’s long range Shaheen-II missile could easily hit many cities in the northern and western parts of India.

There is no gainsaying that Agni-III’s capability has gone down well with India’s of no-first-use nuclear policy which holds that ‘nuclear retaliation to a first strike will be massive and designed to inflict unacceptable damage”. The 50-tonne heavy, 1.7 metre tall 100% indigenous all-composite Agni-III is an all solid fuel driven two-stage weapon system. Being rail mobile, it can be launched from any part of India. More than 70 Indian industrial units have contributed to its development vis-à-vis technology, systems and subsystems, components and raw materials.

As it is, Agni-III has  benefited from the technological elements developed for the short range Agni-I already inducted into the Indian army  and Agni-II which after completion of user trials is ready for induction into the services .While Agni-I has a range  of 700-kms, Agni-II has a range of 2000-km. The Agni-III is expected to be ready for test flight early next decade.

Spurred on by the unqualified success of Agni-III, the DRDO is now preparing the ground to launch a project aimed at developing longer range Agni-V missile capable of hitting targets at a distance of 5,000-km. “The development process has already begun and in the next two years the design should be ready” quipped a senior official of the DRDO.

The Agni-V would derive most of its sub-systems from Agni-II. But they would need sufficient scaling. Also on the anvil is a plan to develop Agni-IV as an intermediate step between Agni-III and Agni-V. Besides, the Agni-V would need to be thoroughly evaluated for severe thermal environment and other factors while on flight.

Significantly, the long term goal of the DRDO is to achieve Multiple Independently Retargettable Vehicle (MIRV) capability .But achieving MIRV capability could pose a serious technological challenge in terms of the size and weight of the warheads. The DRDO has also a plan to develop a hypersonic missile, the technology developed for which could have civilian spin offs in the form of a low cost satellite launch vehicle and an ultra fast civilian aircraft.

Asserted another DRDO official, “We have the capability to go in for even longer range missiles but it is for the political leadership to take a decision.” As things stand now, developing the ICBMs (Inter Continental Ballistic Missiles) capable of hitting targets beyond the range of 10,000-kms is well within the country’s capability.  India’s advances in launch vehicle technology as highlighted by the success in pulling off multiple launches and the ground covered in developing heavy lift-off vehicles could smoothen the country’s plan to develop a range of ICBMs in the near future.

Yet another feather in the cap of DRDO is the progress, though modest, achieved in giving a shape to India’s nuclear capable submarine launched ballistic missile (SLBM). As envisaged, the Indian SLBM whose initial range would be around 750-km, is expected to be ready by early next decade when India’s own nuclear submarine would hit the blue oceans.

Meanwhile, the DRDO is hopeful of testing its EXO Interceptor which forms a part of its BMD (Ballistic Missile Defence) system in July. This would be followed by another test involving both the EXO and ENDO interceptors in tandem in Sept-October. As it is, the Indian BMD system has gone through two successful test flights in Nov 2006 and Dec 2007.  In sum, as India’s missile programme progresses from strength to strength, an old adage needs to be recalled:  If you are strong in your defence, your adversary will think twice before any misadventure. ---INFA

(Copyright, India News and Feature Alliance)

ECONOMIC HIGHLIGHTS   

New Delhi, 21 May 2008

Inflation Still Untamed

RETHINK POLICY PEGGING RUPEE TO DOLLAR

By Dr. Vinod Mehta

Former Dir (Research) ICSSR

 The rate of inflation after having dipped to below 4 per cent surpassed the 5 per cent level in March and now for the week ending 3 May it moved to 7.83 per cent, touching a 44-month high.  The measures taken so far to control inflation have not yielded any results.

The Reserve Bank of India has raised the credit reserve ratio twice while the Finance Minister has reduced the import duties as well as imposed/increased the export duties on a few essential commodities. It is also persuading the steel and cement manufacturers not to increase their prices.  In spite of positive sounds that inflation will be controlled nothing is happening.

And now the Prime Minister has stated that it will come down by September this year. But fears are being expressed in certain quarters that the rate of inflation may become double digit in a few months.  The reason is that earlier the inflation was mainly due to a mismatch in the domestic demand and supply and now an international dimension has been added to it. Namely, the rising oil prices, shrinking supply of essential commodities internationally and the weakening of the US dollar are showing their impact.

In fact, inflation has suddenly spurted in many countries of the world and in some developing countries like Afghanistan, Bangladesh, Pakistan, Indonesia, Philippines, Tajikistan etc. Besides, the increase in the prices of essential commodities have been very high. With food and fuel prices soaring, inflation topped 8 per cent in the Philippines and 9 per cent in Indonesia. Even Japan, which suffered nearly a decade of deflation, last month reported that inflation hit a decade-high. Oil rich countries of West Asia too like Egypt and Jordan are unable to explain the unprecedented increase in the prices of essential commodities to their citizens.

Apart from India other BRIC (Brazil-Russia-India-China) countries are also facing the menace of inflation.  Compared to Russia, India and China the rate of inflation in Brazil is less at 4.8 per cent but it is increasing.  However, the rate of inflation in Russia is above 7 per cent and in China about 8.5 per cent, way above India. China's recent bout of inflation has been triggered mainly by soaring food prices. The overall food prices have increased by 22.1 per cent in April from a year earlier, “while pork, the favorite meat for the vast majority of Chinese, became 68.3 per cent more expensive over the same period.”

Inflation is, thus, a worldwide phenomenon today but for India the increase in prices have come at a time when there has been some slowdown in the growth of the domestic manufacturing sector and the fear of worldwide recession especially in the US which may affect our exports and indirectly affect the growth of the economy in general.

This is indeed, a very difficult situation for the Government in power especially when the elections are due both in the States as well as at the Centre.  If the choice is between growth and inflation, it makes sense to choose growth and ignore inflation, which can be tackled through short term measures like imports in weeks or months.

But if we lose the growth momentum it will take years to get back that momentum.  It has taken almost 50 years to raise the growth rate by nearly three times from almost three per cent (the so called Hindu rate of growth) to nine per cent today. But with the inflation rising above 7 per cent there is a likelyhood  that some growth will be sacrificed to tame inflation since untamed inflation is a politically hot potato.

It is common knowledge that inflation strains family budgets with more or less fixed incomes and erodes their real incomes. While higher growth impacts the whole economy bringing in more revenues to the Government and leads to creation of more productive assets and more jobs.  An ideal situation is one where the growth rate is higher and the rate of inflation is modest.  In real life we seldom get such ideal situations.  The Government’s of the day have no option but to manage the situations with the options available to them at that particular point of time.

But as every one knows there is no magic wand to control or bring down the rate of inflation overnight as the people would like it to be.  There is always a time lag. Steps taken now will have the desired effect a month, two months or even three to four months later.  And in certain situations it may take a few years as in the case of agro-based essential commodities.

The main reason for the increase in the price level is the mismatch between the demand and supply of essential commodities. This mismatch has not occurred overnight but has been gradually developing for the past few years.  For instance, the acreage under food crops has been shrinking, productivity of agricultural crops is stagnant and there is still no freer movement of agricultural products within the country.

In short, nothing has been done to increase the supply of essential commodities. And the supplies cannot be increased overnight to control inflation.  The Government will have to take certain decisions now so that the prices of essential commodities remain relatively stable over a longer period of time.

This calls for large investments in the agricultural sector and rural infrastructure.  This also calls for raising the agricultural productivity by providing farmers with improved seeds and other inputs, timely credit, chain of cold storages, market information and so on.  A large number of volumes have been written on this aspect in the past 50 years but the need is to implement them.  Can one ask if there is any blue print for this?

Another reason for inflation in India is that the rupee is pegged to the US dollar and the dollar’s weakening worsens it.  To quote from a US financial paper : “The weakening U.S. dollar is another source. Not only is it pushing up prices of American imports, it is transmitting inflation to the dozens of economies that link their currencies to the U.S. dollar, from Saudi Arabia to Hong Kong to Mongolia. Because of their currency pegs, these economies are forced to track Fed rate cuts even if they aren't facing recession.

“Isn't that strange that in every country pegged to our dollar, when the Fed floods the system with liquidity,  every country tied to us gets more inflation, but we do not? Almost ironic isn't it, but I trust the Government reports --- and if they say no inflation --- then no inflation it is!

 “In China we are now seeing nearly 9 per cent inflation. In India, white collar wage inflation is sometimes in the 20%+ range. Most of South America has Central Banks raising rates to try to fight inflation, as is Australia. It appears America, Canada, and Antarctica are immune to the scourge - no inflation zones!”

It is high time that we rethink our policy of pegging the rupee to the US dollar.  There have been suggestions that we should link the rupee to a basket of currencies say, the Euro, Japanese Yen and US dollar.  But for that we will have to make changes in the RBI rules.  May be the RBI can enlighten us on this? --- INFA

(Copyright India News & Feature Alliance)

Economic Highlights

New Delhi, 15 May 2008    

Uncompetitive Economy

WHO PAYS FOR EFFICIENCY & CORRUPTION?

By Dr. Vinod Mehta

(Former Director, Research, ICSSR)

As the economists say, nothing comes free in this world.  One has to pay for it.  But when a consumer pays for something he or she gets in return something tangible like bread or butter or intangible like the services of a lawyer or a doctor.  This is the positive aspect.  

There is also a negative aspect to costs in the sense that a consumer gets nothing tangible or intangible in return but increased cost.  This negative aspect of cost is reflected in higher prices, higher taxes etc., which in turn are nothing but costs of inefficiency and corruption at various levels inside and outside the government, within the organizations as also within the system itself. 

So far, no systematic study has been done to quantify the costs the individual or for that matter the country as a whole pays for the inefficiency and corruption.  However, one can bet that if any such study were to be done based on an appropriate methodology, the costs of inefficiency and corruption would run into thousands of crores of rupees every year. 

Let us take steel for instance.  India is rich in iron ore and many countries especially Japan buys large quantities of iron ore from India to turn it into steel and then make products like car, tractors etc. out of them.  It pays the freight charges for importing Indian iron ore as also pays relatively much higher wages to its steel workers, but still Japan is able to sell steel at a relatively competitive price than India.  Why is it so? 

In fact, public sector steel units are over-manned--  where one worker can do the job there are three or four employed.  The Indian labour laws are such that it becomes very difficult to lay off an inefficient worker or to re-deploy him elsewhere.  Those who are familiar with the recruitment practices of workers and employees for public sector undertakings (PSUs) would know that most of its workers and employees are recruited not on the basis of their skills or qualifications but on recommendations of politicians. 

Similarly, the top positions are also filled not on the basis of the qualification and the expertise of the person concerned, but on some other considerations like the political propinquity of the concerned person or bureaucratic lobby etc. 

The result is higher administered prices and higher taxes.  In a competitive environment most of these PSUs would have been closed down by now or taken over by healthier units. Since this is not possible in the existing circumstances, therefore, to keep the steel mills running or for that matter any PSU running, the government raises the prices to cover up a part of its losses, increases taxes to cover another part of the costs and raises the countervailing duty on imported steel to protect the steel industry. 

These relatively higher prices of steel and higher taxes are in fact, the costs of inefficiency, which the Indian consumer as well the Indian nation as a whole is forced to pay. (The government at the moment is asking the steel manufacturers to keep the prices down to help it tackle current level of inflation. It does not affect the larger argument that the steel prices are still administered to a very large extent).

In a chain reaction, with the price of steel being high, the cost of construction becomes high for the consumer, the cost of motor vehicle is high and we are unable to sell our steel goods abroad. So as a nation we also lose on exports. 

This is true of many of our industries. In the airlines business, we employ about five to 10 persons on a job, which is normally handled by just one person abroad.  In the hotel industry too, we employ more people than what are actually required.  This is also true of government employment.   

It needs to be noted that this was the state of affairs in the erstwhile USSR and for this reason its industry was totally inefficient and uncompetitive in the world market. Even today, 18 years after the breakdown of the USSR and the introduction of the market economy, the Russian industry is still uncompetitive. It is true that over- manning provides employment to more people, but in the long run it turns those surplus people into parasites. The over-manning of business and industry only signifies a stagnant economy--an economy which is not growing. 

A growing economy would generate more employment, which would be more productive.  This is what is lacking in this country. While no new jobs are being created, more and more people are being employed on same jobs.  All our attempts in the past, to raise the level of investment either through the domestic or foreign investment route have not succeeded.

Likewise, there is a cost to be paid for corruption, which is again reflected in higher prices and higher taxation. Over the years, corruption has entered our body politic to the extent that it has become somewhat a second nature with a majority of our people.  We seldom pause to think that this personal gain can have bad effects on the economy.

Take the case of electricity.  It has become normal practice to steal electricity in connivance with the electricity board officials; an employee gets monetary benefit, while the electric distribution unit does not recover the cost of its operations.  In many cases the bills remain unpaid for months together. Once the State Electricity Board runs into losses the situation is retrieved only by either raising the electricity charges or other taxes and this cycle carries on for years together.  Electricity charges have been raised umpteen times, but units never come out of losses! 

In fact, corruption is visible in almost every deal.  If somebody wants his tender to be accepted he has to pay a bribe.  The loan cannot be raised from a bank without greasing the palm of the concerned officer. You cannot get your child admitted in a particular school or a course without paying some kind of consideration, money euphemistically called ‘donation’ or ‘capitation fee’.  The inconvenient files can be made to disappear from offices by paying a bribe.  The engineers will not pass the bills of the contractors unless they pay them a bribe. It is so much so that the contractors now keep the necessary margin for a bribe while submitting their tenders. 

All those who have paid bribes and all the organizations which have lost money due to bribes automatically will resort to other means to recover their monies.  Those who have paid bribes would recover them by taking bribes or by doing other illegal acts like concealing their income etc. Organizations will jack up the prices of their products while the government would raise the administered prices as well as taxes.

The country must get out of this vicious circle of inefficiency and corruption at the earliest.  It is for the people to understand this vicious circle and come out openly against this inefficiency and corruption. As the citizens should ask political leaders what they have done in these past five decades to root out corruption and improve the efficiency in the country!--INFA    

 (Copyright, India News and Feature Alliance)

Open Forum

New Delhi, 16 May 2008

Increasing Food Demand

MALNUTRITION & & FAMINE SCARE

By Dhurjati Mukherjee

The global food situation has been reported to be quite alarming and with record high grain prices there is a possibility of increasing malnutrition, perhaps famine, in some parts of Africa and South Asia. The Food & Agriculture Organization (FAO) has declared that 850 million persons would go hungry in the world and things are expected to get worse this year and also possibly in 2009. Yet an estimated 1.6 billion adults, about a quarter of the world’s 6.7 billion people are overweight, some of them obese.

According to the United Nations Population Division, the world’s population is growing by about 78 million people per annum with projections of an additional 2.5 billion by 2050. The increase in population and the change in consumption coupled with growing use of corn and other foods for bio-fuel are expected to trigger a food shortage. Unless food shortage is tackled effectively and quickly, the world would face increased social unrest, food riots, political instability and more failed States, observed Lester Brown, president, Earth Policy Institute, Washington.

Already food riots have been reported in over a dozen countries in Africa and Asia, specially in Egypt, Haiti, Cameroon, Bangladesh and Indonesia following sharp rise in food prices caused by various factors which included record oil costs, severe droughts, diversion of corn for ethanol use and rapidly growing demand in the Third World countries, including China and India. The World Bank president, Robert B. Zoellick, has warned that around 30 nations are at risk of social unrest from the crisis as the world faced the biggest challenge from its 45-year history.

By 2012, world population is expected to touch seven billion, most of the additions being in South Asia and Africa. Asia will add 500 million, reaching 1.6 billion. Africa’s population, now 960 million, will grow by one billion. A rough calculation by Brown and his Institute has found that just to feed the additional each year would require 640 square miles of good new farmland. That’s an area approximately the size of Los Angeles county or 18 million football fields. 

At a recent meeting of experts, called by the British Prime Minister to discuss the food crisis, the chief of World Food Programme, Josette Sheeran, said a “silent tsunami” threatened to plunge 100 million people on every continent into hunger. “This is the new face of hunger – the millions of people who are not in the urgent hunger category but now are”, he observed.

Meanwhile, the White House released $ 200 million in wheat stores for developing countries recently, and further steps are being planned to help ease the burden of the rising food prices on the world’s impoverished people. Options include building more overseas storage facilities and roads to reduce food wastage and taking necessary measures to accord top priority in evolving an action plan at the G-8 summit of industrialized nations in July.

As for India, it has been found that the Rs 5,000-crore National Food Security Mission (NFSM), launched to ensure food security for all by 2012, may be inadequate for meeting the foodgrains’ demand in the country. While the total production has been estimated to touch 230 million tonnes by then, experts feel that it will fall short of the demand by 4.15 million tones. The demand estimates do not take into account the changing consumption pattern in the country, specially in a section of the rural areas and the urban areas.

The FAO has estimated that one-fifth of the Indian population is undernourished because of poverty. While general consumption has been on the rise, on the one hand, and a changing pattern discernible, on the other, there would be increasing pressure on foodgrains. One cannot deny that the effects of the National Rural Employment Guarantee Programme (NREGP) and Bharat Nirman will steadily have an impact on the rural areas and, as the poor and the economically weaker sections use over 70-80 per cent of their income on food, the demand projections may need to be further revised.

The NFSM has been designed only to produce more rice, wheat and pulses.  “It does not focus on coarse grains but we’re now thinking of looking at the demand for such grains as well”, Union Agriculture Ministry sources informed. This is much needed at this point as demand for coarse grains would increase greatly in the coming five years while, in urban areas, the demand would be oriented towards meat, eggs and pulses.

The problem of food crisis is exacerbated by the fact that in China, India and some other countries, the diet of the growing middle-class now includes more meat, poultry and eggs. To grow farm animals and poultry require much more agricultural feed stocks per unit of output compared to the crops being consumed by humans. Amongst vegetarians and a section of the rural population, the per capita consumption of pulses and edible oils is growing as well, pushing up prices of all these commodities.

In addition, the production of foodgrains has also been affected by climate change such as unseasonal heavy rains, floods. Moreover, diversion of more land top growing crops for production of bio-fuels for energy security has pushed up food prices and depleted food stocks. In India, water availability is a problem specially to boost up productivity, while dryland farming has not yet become widespread. Irrigation and water facilities are inadequate in most parts to produce three crops per year.  

Moreover, in some countries of the Third World, including India there is an increasing trend to industrialize by using agricultural land to boost up the pace of growth. If this continues, it is likely to have disastrous consequence in the not-too-distant future and food security may get jeopardized. Though the Union government has recently come out against this trend, it does not look to be serious.          

While there is still time for India, we need to focus attention on the agricultural sector and ensure increased production of foodgrains, pulses and other basic necessities. The average crop yield in the country --3.12 tonnes per hectare is far less than the Asian average--4.17 tonnes per hectare. Punjab and Haryana have been facing soil health problems in respect of salinity and nutrient imbalance and irrigation potential appears to be steadily exhausted. However, there is need to fully tap the potential in the eastern and north-eastern region, stretching from eastern Uttar Pradesh to Assam for improving productivity, specially of rice.

The land-to-lab approach has to become a reality and the agricultural universities have to be actively involved in this task. Other measures such as  rain water harvesting, use of genetically modified seeds, wherever necessary, protection against weeds and pests, better storage facilities and improving weather forecasting (specially of rains) to protect crops are very much necessary in the short term.   

India must give special attention to the fact that while it gives preference to the export promotion, it should not weaken its ‘food security’ condition and  usurp the livelihood of poor villagers. As Mangal Rai, Director General, Indian Council for Agricultural Research (ICAR) rightly pointed out: “Since land area is limited and agricultural land is the most precious, one must be very careful. One will have to take into cognizance the long-term effects of food security of the country. Food security is an integral part of national security”.  ---INFA

 (Copyright, India News and Feature Alliance)