DEFENCE NOTES

New Delhi, 2 June 2008

Firing On The LOC

PAK ARMY STILL CALLS SHOTS

By Col (Dr.) P. K. Vasudeva

(Prof International Relations, ICFAI Business School)

When the Kargil operation of the Pakistani military was launched in 1999, India and Pakistan were well on their way to ushering in a new phase of bilateral relations. At the time, the then Prime Minister Vajpayee’s Lahore “bus diplomacy” was on the point of bearing fruit and the peace process would have followed soon in the interest of both the countries.

It was at that precise juncture that Kargil occurred. As everyone knows, Kargil was a Pakistani military operation, with which Pakistani politicians had precious little to do. It was conceived and conducted by the then ambitious and power-hungry Pakistani Army Chief, General Pervez Musharraf, and as revealed later the then Pakistani Prime Minister Nawaz Sharif himself was kept in the dark about it. This fact came to light only after the enemy was evicted from Kargil’s occupied posts.

However, the damage was done. Undoubtedly, Kargil put a long spoke in the wheel of “normalisation” of India-Pakistan relations.  So whoever engineered the military operation wanted — at that moment at least — to upset the Vajpayee-Nawaz Sharif applecart. Which, in fact, it did.

The Indian military could not have engineered Kargil, because it strictly abides by the stipulations of the Constitution. Thus, it could not have struck out on its own with the object of creating problems for the country’s Prime Minister and his policy.

The same cannot be said of the Pakistani military for reasons which are well-known the world over. Therefore, it stands to good reason to suggest that the top Pakistani military leadership did not like what was happening between New Delhi and Islamabad on the diplomatic front, which led it to engineer Kargil.

It is of course another matter that not long after Kargil, Nawaz Sharif himself had to go. He fell victim to the military establishment which replaced him with General Pervez Musharraf. Unfortunately, history is repeating itself. Presently too, the new Gilani-led Government is not stable and it is doubtful if the present coalition will survive. Already fissures have come to light.

Today, as far as public perception is concerned, President Musharraf is no longer in the ‘hot seat’ as it were, the politicians having “taken over”. Within the military itself, there has been some change. There is a new Army Chief.

But have things really changed in Pakistan today, as regards the politician-military divide? Seen differently, can one argue that the assassination of Benazir Bhutto has effectively moved the Pakistani military establishment to the second position? Have the recent elections, giving the civilian Pakistani society, led by its politicians, the power once again to call the shots?

Questions which have no easy answers. As it stands, the Gilani-led coalition Government has started showing cracks once again as Nawaz Sharif is threatening to withdraw his Party’s support of it. Primarily because the PPP Chief Asif Zardari is not ready to reinstate the ‘forcibly’ retired judges. Zardari seems to have joined hand with President Musharraf which holds dangerous signals --- of the Army coming back to power.

Significantly, the recent firing on the Line of Control (LoC) clearly suggests that nothing has changed in Pakistan as far as the power structure is concerned. The military continues to wield absolute power but is currently hiding behind the fig-leaf of the poll results which have, on the face of it, shifted the balance of power to the politicians.

The LoC firing cannot help the process of normalisation of relations between the two countries, just as Kargil did not in its day. The inference is that the Pakistani military is once again at work, telling the politicians that they really amount to nothing in the power structure of Pakistan’s society.

Moreover, by keeping the military pot boiling is Islamabad’s way of impressing on New Delhi that Pakistan is a force to reckon with. Further, whenever India test fires its Agni long range missiles Pakistan retaliates by test firing its Haft missiles. Islamabad’s signal is loud and clear: We also mean business.

More important is the extent of the hold, if any, which General Musharraf has on the Armed Forces, through his loyal lieutenants who still enjoy enormous clout in the military. The simple question is: Did Musharraf have any role to play in organising the LoC firing and sending infiltrators across the LoC to cause disturbance in Jaipur blasts and elsewhere in the country? The answer is yes.

Clearly, the Indian Armed Forces cannot lower its guard on its side of the LoC. It has to remain vigilant not only to ward off any untoward situation but also protect its positions on the LoC because the Pakistani military is capable of pulling of surprises as it did a la Kargil in 1999.

The Samba incident and subsequent firing is a live example of the type of adventurism the Pakistani Army is competent of launching. History is replete with such skirmishes before Islamabad launches actual operations.

The news of Musharraf leaving the country due to political pressure is a welcome sign but one has to wait and watch and keep our fingers crossed. ---- INFA

(Copyright India News & Feature Alliance)

Economic Highlights

New Delhi, 5 June 2008

Prioritise Rail & Waterways

WANTED AN AGRICULTURE POLICY

By Dr. Vinod Mehta

(Former Director, Research, ICSSR)

In 2000 a draft agricultural policy was announced, but nothing has been heard thereafter.  We had a number of industrial policies since 1956 but no agricultural policy worth a name. Scandalously, in a country where 70% of the population is dependent on agriculture, there is no national agricultural policy. Worse, successive Governments have neglected this sector for a long time. It is, therefore, not surprising that the weakest link in our economic reforms is the lack of any meaningful agricultural policy. 

The so-called “agricultural policy” that is now being pursued is biased towards ensuring sufficiency in food production and the public distribution system. Recall, it was born when India had to import food under the American PL 480 scheme to feed its population, which was politically humiliating. The foodgrain policy that emerged put many restrictions on the movement of foodgrain from one region to another region within the country, the prices came to be fixed by the State and severe restrictions were imposed on the export-import of agricultural products. 

With the introduction of high yielding varieties of wheat and other crops the country has been able to achieve a reasonable degree of self-sufficiency in foodgrain production.  For many years India has not made any distress purchase of foodgrains from any country to feed its population.  This is an important national achievement.

However, with the signing of the WTO we have to see beyond feeding the population.  Keeping intact the ideal of self-sufficiency in grain production, agriculture must look for lucrative markets within and outside the country. It needn’t be dependent upon the State for remunerative prices but look towards free market for right prices. Plainly, the agricultural sector needs to be accorded the status of industry so that it can also reap the benefits of economic reforms. 

As a first step, after meeting the requirements of the public distribution system, foodgrain should be allowed to move freely within the country and all restrictions on its movement should be lifted. This will not only work as a stabilizing factor for foodgrain prices within the country but also ensure foodgrain availability in food-deficit areas.  True, food will be relatively expensive these areas but it will stave off situations as happened on several occasions in Kalahandi, Orissa

This will also save the State from artificially propping up the prices to ensure remunerative prices to the farmers.  Since the farmers have been functioning in a regime where the movement of grain within the country has been regulated by the Government it should be deregulated in a phased manner so as to cause minimum upheaval in the grain market. 

But, the removal of restrictions on the movement of grain within the country also calls for development of the transport infrastructure to handle the movement of grains and other agricultural products. Presently, the Railways are handling the bulk transport of grain as movement of grain to remote areas via road transport is a very expensive proposition. Road transportation is viable only for movement of grain to nearby areas. However, this mode of transport cannot be accorded high priority given the size of the country.

Leaving only two modes of transport: railways and waterways. The railways are already moving bulk of the grain but the waterways are not yet fully developed to handle grain movement after all restrictions have been removed. Thus, as a first step the railways should be geared to handle massive grain movement. Second, we must have a waterways or river transport policy so that grain could be moved in bulk by boats wherever possible. 

Also, if India has to market its agricultural products internationally we need to immediately develop ports to handle bulk import-export. Presently, our ports are poorly equipped to handle any bulk transportation. The first priority before lifting the ban on free movement is to ensure that its ports are in a position to handle bulk movement.  Once we have agreed to allow our agriculture to play in the international market then we shall not only be exporting high value agricultural products to foreign countries to earn foreign exchange but also importing relatively cheaper stuff to meet the domestic requirements.

It is common knowledge that our ports both on the eastern and western side are a bottleneck. Leave aside agriculture, they are not equipped even to handle the bulk movement of industrial goods. More than a decade ago, India had to import two lakh tonnes of wheat from Australia to beef up its grain stocks but none of the ports were equipped to handle this size of import. Therefore, development of ports must be accorded high priority along with the development of railways and river transport. 

The international agricultural market is very different from the domestic market.  Most of the trade in agricultural commodities is conducted by very powerful multi-national corporations which have the financial clout to influence the day-to-day price movements of agricultural commodities that enter the international market. Sadly, we do not have any equivalent trading houses either in the private or the public sector. There is a need to create such large trading houses for trade in agricultural commodities.

It is also essential for the agricultural sector to know its strength and weaknesses and concentrate only on its strength in the international market.  Perhaps it needs to supplement its efforts with better packing to make its goods acceptable and attractive in the international market.  However, in the domestic sector too a lot more need to be done to adequately meet the demand for various agricultural commodities and at the same time produce enough surpluses for export purposes. 

This leads us to the problem of developing high-yielding varieties of various agricultural commodities so that adequate surpluses are produced to meet the international demand.  Unfortunately, agricultural universities which were supposed to help develop new strains of grain and other agricultural products to help increase the per hectare output have not lived up to their expectations.  Except for some success with the Green Revolution in the 60’s no remarkable breakthrough has been achieved in developing high yielding varieties of agricultural products. Since climatic factors differ from region to region it is necessary to develop strains of high yielding varieties of agricultural commodities for each of the regions of the country. 

In other words, we need to have a large number of different varieties of high yielding seeds for each of the region of the country.  This is a difficult task but we have to make a beginning and improve the quality of seeds and other agricultural inputs. Better use of all available opportunities in the current staid agricultural market should be made to help the nation play a pivotal role in the domestic and international agricultural market.

It is high time that the country comes out with an appropriate agricultural policy, which is fine-tuned to the emerging international economic order before the budgetary exercise for the next financial year is completed. --- INFA

(Copyright, India News & Feature Alliance)

Economic Highlights

New Delhi, 28 May 2008

FREE PRICING OF PETROLEUM PRODUCTS

By Dr. Vinod Mehta

Former Director, Research, ICSSR

The price of crude oil has crossed US $125 a barrel in the international market as against US $100 a barrel a few weeks ago. But, the Government is fighting shy of revising the retail prices of petroleum products in line with the rise. How long will this go on? How long will the public sector oil companies be made to suffer?  One of the private sector companies, which had opened retail petrol pumps has been forced to close down. Unlike the public sector, private firms don’t get subsidy.

Recal, a few years ago a policy decision was taken to free the pricing of petroleum products.  But so far no Government in power has had the courage to implement it.  The opposition parties or even parties within the coalition are coming in the way of allowing the market to determine the price of petrol and petroleum products.

Normally, when the price of crude in the international market rises, the domestic prices of petroleum products too should increase and vice versa.  But our polity will not allow the Government to raise prices, thus forcing the public sector oil companies to incur losses. Similarly, when the international price of crude falls the Government does not reduce the price of petroleum products on grounds that the oil PSUs had incurred losses during price hike. Doesn’t it look like the pricing of petroleum products has become of a football game between the Government and political parties.

However, the problem of petroleum products’ pricing has remained a major issue for the past many years. When in 1996, the rupee depreciated by 11 per cent, the barrel of crude started costing more. The then United Front government which raised the prices of petroleum products received a hostile reaction from the public; Congress, BJP and CPI also criticized the price hike. Today, nobody bothers to ask the question as to who will pay for the increased international price of crude, if the domestic price is not to be increased. Every government will need to face this question if the price of oil is not left to the market forces.

In the prevailing atmosphere it may not be politically feasible to completely free the pricing of petroleum products, but we must move now to free the pricing of petroleum products and also move to cut the consumption of oil in the immediate future.

For long, the government-controlled Oil Coordination Committee has been fixing prices for petrol, diesel, jet fuel, kerosene and liquefied petroleum gas (LPG). But there has been a feeling for long that prices of petroleum products be freed and brought in line with more or less the international prices. Presently, petrol and diesel are overpriced, because of taxes, while kerosene and cooking gas under-priced.

In March 2004, the then Finance Minister had announced freeing the oil sector from price controls but that has remained on paper only. Because of the continuously rising prices of crude in the international market the Government has not been able to muster enough courage to free the prices of petroleum products. Perhaps, at the moment it is right as the price of crude is very high and freeing price controls would not only invite protests from consumers but also fan the fire of inflation.

However, the Government must take a policy decision on freeing the petroleum products from price controls and then free them at an appropriate moment – the moment the prices of crude have stabilized at a reasonable level and are likely to stay at that level for a few months. If the government feels that kerosene and cooking gas need to be subsidized then it should come out with a separate proposal on how it is going to do it. Since we are dependent on crude imports for 70 per cent of our requirements we cannot provide the needed subsidies on an enormous scale. Free the prices of petroleum products and let them find their own level. Since the oil business is in the public sector there would be no danger of companies indulging in profiteering.

After freeing the petroleum products from price controls we should move towards curbing consumption and finding reliable cheaper sources of getting crude and gas. Getting oil exploration rights outside India by public sector Indian oil companies is one such step. The attempts by the government to get Iranian and Central Asia gas by way of pipeline through Pakistan/undersea pipeline or gas from Myanmar and Bangladesh are steps in the direction but nothing concrete has happened till date.

Apart from freeing the petroleum products from price controls and augmenting the supply of petroleum products, it is necessary to curb the consumption of petroleum products, especially petrol and diesel. Since we are heavily dependent upon import of oil to meet our energy needs, it may be advisable to switch over to other sources of energy wherever possible. We have coal and river water in abundance, which can be used to produce electricity. The city public transport system may switch over to that mode which uses electricity--  metro-rail, trolley bus, tram run on electricity which are also safe and clean. As the use of this public transport system increases, the consumption of petrol and diesel will go down. Similarly, the transportation of large number of goods to long distances should be through railways and not through trucks. This will help reduce the consumption of diesel. The Government and the public bodies must come together to make efforts to reduce the consumption of oil.

The time, however, has come to free the pricing of petroleum products.  Let it rise when the international price of crude is rising. Let it fall when the international price starts falling.  It will have a salutary effect on the economy as a whole.--INFA   

(Copyright, India News and Feature Alliance)

Open Forum

New Delhi,  30 May 2008

Farmers Acute Debt Burden

TIGHTEN NOOSE ON MONEY-LENDERS

By Dhurjati Mukherjee

The increasing debt of farmers and also of small artisans has been a cause of concern all over the country, reaffirming the fact that the high growth rate has not reached the lower segments of society in the rural and backward regions. Estimates suggest over 18,000-20,000 farmers have committed suicide since the UPA Government took charge. Moreover, there are reports of death haunting farmers in Maharashtra’s Vidharba region, Karnataka, Andhra Pradesh and Punjab.

A survey by the Invest India Economic Foundation and IIM Dataworks last year revealed that the total debt of farmer households in the past two years is estimated at about 31 per cent. Also, most of the debts in the rural sector are due to monies generally taken from money-lenders as pointed out by another estimate. Of every Rs.1000 debt taken by farmer households, Rs 257-260 is sourced from money-lenders.

As is well known, money-lenders charge very high rates of interest which range from 20 per cent to 36 per cent or even more. The penetration of money-lenders is significant even in States like Andhra Pradesh, Tamil Nadu and Punjab which have adequate banks to disperse loans. As per available figures, loans from moneylenders in these States are 53.4 per cent, 39.7 per cent and 36.3 per cent respectively.

According to renowned economist and West Bengal Finance Minister Asim Dasgupta, the need of agricultural credit was to the tune of Rs 10,000 crores of which a mere Rs 800 to 900 crores came from institutional sources. Thus, the bulk of credit came from the rich peasantry to whom high rates of interest were the major source of extraction of surplus value. But the Left Front Government could do very little in developing alternative institutional sources of credit through cooperatives in the State. 

The reasons for indebtedness are not very difficult to assume as there has been an all-round crisis in the agricultural sector. These include: uncertainty over monsoon rainfall; low returns from crop cultivation; increasing cost of inputs and low returns; unremunerative prices for the produce because of dominance of middle men and increasing expenditure on medical services and other basic necessities.  

The increasing incidence of suicide by farmers in several States has highlighted the problem of indebtedness as the central issue. The Centre formed an expert group on agricultural indebtedness under the Chairmanship of the Director of the Indira Gandhi Institute of Development Research Radhakrishnan, to examine the problem and suggest measures to provide relief to farmers.

The expert group suggested increasing agricultural productivity, enhancing investments in agricultural infrastructure, research and extension and putting in place an effective system of rural mitigation, both in production and marketing. But the most important suggestion was that all States should enact a legislation that would require money-lenders to register with the authorities and fix the maximum rate of interest they could charge.

The model legislation proposed included: simple and hassle-free procedure for compulsory registration and a periodical renewal of moneylenders; a simplified dispute resolution mechanism to ensure better enforcement; the option of the rule of damdupat – which exists in five States --- restricting the maximum amount of interest chargeable by the moneylender and periodical fixing of the maximum rate of interest which should be notified by the State Government.    

To tide these problems, the Union Finance Minister Chidambaram announced loan waivers of Rs 50,000 crores for over 3.5 crore small and marginal farmers with holdings of not more than two hectares each and another Rs 10,000 crores has been set aside for bigger farmers who will get 25 per cent off on their loans if they pay the remaining 75 per cent. Pressure is now being put to increase the 2 hectares limit to cover more small farmers.

The Government has assured banks that they would be compensated in three years time and is likely to come up with a combination of bonds and other market instruments. Though the benefits will go to those who have accessed loans from the Government and cooperative institutions, nearly two-thirds of the farmers who remain at the mercy of money-lenders have been left out. For reasons best known to him, the Finance Minister has ignored the Radhakrishnan Committee report proposal of creating the Moneylenders Debt Redemption Fund.

There has been criticism on two scores. One, about the large segment of indebted farmers who have borrowed from money-lenders and have been left out. Two, whether the one-time waiver would help farmers in the long run. Clearly, the high interest charged by the money-lenders needs to be looked into and the maximum interest chargeable should be framed and those violating this dealt stringent punishment.

Meanwhile, the Parliamentary Committees on Finance and Agriculture have divergent views on who should be the beneficiaries of the farm loan waiver. The Finance Committee Chairman Ananth Kumar has argued against segregation of farmers and the waiver scheme should be available to all uniformly. However, the Agriculture Committee Chairman Ram Gopal Verma wants the limit of two hectares revised keeping in mind the difference in productivity of irrigated and non irrigated land. He also feels that farmers who had repaid their loans be given incentives such as interest subvention so that the scheme does not send any wrong signal to debtors.

Apart from undertaking plans of agricultural rejuvenation, it is also necessary that loans have to be made available to the 114 million small farmers at low rates of interest. Banks and cooperatives have to come forward to help the rural sector instead of acting as an instrument of transferring rural savings to metropolitan centres. Estimates suggest that over Rs 100,000 crores is being siphoned from rural branches to urban and metropolitan centres. There has to be some scheme whereby bank loans could be easily made available, preferably without any guarantee to small and distressed farmers or weavers. 

There is also an imperative need to regulate the interest rates charged by money-lenders, whether individually, in the garb of an NGO or self-help group. There has to be effective monitoring at the block and sub-divisional levels both by the administration and by the panchayats so that money-lenders cannot exploit poor farmers and artisans.

Significantly, the present policies which encourage expropriation of land, extinguish people’s livelihoods and confer benefits on big business may not lead to real development. It is thus imperative that the concerns of the farming community be addressed and a proper strategy worked out for alleviating the problems of small farmers. --- INFA

(Copyright India News & Feature Alliance)