A case for SAARC reforms

SAARC, regrettably, has yet to develop into a conflict-mediating or resolving institution on multilateral and bilateral issues. While it has succeeded in evolving as a forum, it does not have the capacity to devise instruments for consultations on bilateral and multilateral political and security problems

The organisation of eight South Asian nations, namely Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka, with observer nations, Myanmar, China, Iran, the European Union (EU) and the United States, to name a few, is known as the South Asian Association for Regional Cooperation (SAARC). It was established at the first summit in Dhaka on December 7-8, 1985. The last summit, the 17th, was held in Addu, in the Maldives, in November 2011. After a gap of three years, the 18th Summit Meeting is to be held in Nepal on November 26-27, 2014.

These eight nations of South Asia constitute 3 per cent of the world’s area, but house 21 per cent of the global population. India, significantly, constitutes 70 per cent or more of SAARC’s area and population.

Seven of them have common borders with India but not each other. All have a shared culture, ethnicity and experienced long interactive historical events including British imperialism and its consequences.

South Asian nations together also make an integrated “condominium” of common rivers, a mountain system, an ocean and a conjoint ecological system. The region’s endowment for economic production is also more or less the same.

Limitations

Since India constitutes 70 per cent or more of SAARC’s area and population, and has political conflicts with all its neighbours, India has to redefine its role, from seeking reciprocity in bilateral relations, to being prepared to go the extra mile in meeting the aspirations of all other SAARC nations.

SAARC, regrettably, has yet to develop into a conflict-mediating or conflict-resolving institution both on multilateral and bilateral issues. It has succeeded however in evolving as a forum and a framework but which does not have the capacity to devise instruments and techniques for consultations on bilateral and multilateral political and security problems.

This is because the SAARC Charter mandates that decisions, at all levels in SAARC, are only of multilateral issues, and only those issues are for inclusion in the agenda in a SAARC summit meeting on the basis of unanimity. Article X(2) of the Charter, thus excludes “bilateral and contentious issues” from the ambit of SAARC deliberations.

A shortcoming in the current situation is that unlike Europe, SAARC is not an association of nearly equally sized countries. India, as stated earlier, is about 70 per cent of the size of South Asia, and the other SAARC member-nations have a common border bilaterally only with India, and not with each other. The economic and quality of life disparities among South Asian nations are also quite wide.

Sri Lankan policy

During the period of 10 years since May 2004, the United Progressive Alliance (UPA) was pathetically hamstrung by the sectarian, former secessionist and pro-LTTE parties such as the Dravida Munnetra Kazhagam (DMK) for its survival in Parliament and majority.

Hence, India’s policy towards Sri Lanka was driven both bilaterally and in U.N. organisations by the hyperbole of the parties of the Dravidian Movement, in speech and dramatics, and which was bolstered by the threat of these parties to withdraw support to the Manmohan Singh government. These sectarian parties thus exercised a veto over the UPA government’s Sri Lanka policy.

As a consequence, China, which is not a member of SAARC, gained a strategic advantage in Sri Lanka by moving into the policy space vacated by India. Hambantota port is an example of how China filled the vacuum when India decided, based on the DMK’s threat, to decline Sri Lanka’s offer first to India to assist building the port.

SAARC thereby underwent rigor mortis and the summit failed to take place after 2011 for three years. Time is at hand now at the Kathmandu summit to rectify this.

Furthermore, with India having declined to help Sri Lanka build the Hambantota port (later built with China’s assistance), it is unproductive for SAARC’s effectiveness to unilaterally protest periodic visits by Chinese submarines to Hambantota port, which is on the shores of the international waters of the Indian Ocean.

Issues before SAARC

The destiny of South Asian nations today is to either swim together or risk sinking separately in the battle against poverty and unemployment as well as in meeting the challenges of the environment, national security, and globalisation.

Today, there are five crucial issues on SAARC:

First, SAARC is off and on in a limbo. Thus the first issue is this: how to grapple with SAARC’s uncertain future and how to put it back on the rails again, and not permit in the future, international political changes affecting the functioning of SAARC.

Second, SAARC has to resolve whether essential economic cooperation in an increasingly globalised world economy can be achieved despite continuing political conflicts.

The issue is whether political differences — beyond vital national interests issues — can be set aside by each member country while a more harmonious environment is created through healthy economic cooperation.

Third, is SAARC so fragile that it cannot survive if bilateral controversial political questions are raised in its deliberations without undermining its utility?

Fourth, given that India is 70 per cent of SAARC, geographically and economically, and that the other SAARC nations have borders only with India and not with each other, unlike in the EU, does India have the special responsibility to go the extra mile to make SAARC work?

Fifth, given the way World Trade Organization (WTO) disciplines are to be enforced, does SAARC need a “level playing field” regional agreement, modelled on the General Agreement on Tariffs and Trade (GATT), with cross-retaliatory powers and a Regional Trade Organization (RTO) to enforce it?

A road map for reforms

To address these five issues and overcome the current impasse in SAARC and to make it work, two preconditions have to be obtained:

(1) India has to go the extra mile to make SAARC work because India is 70 per cent of South Asia, and has common borders with seven SAARC nations.

(2) South Asian countries have to work on the common values and shared historical perceptions of the peoples of the region, consciously addressing essential political differences.

Transparency in action in bilateral dealings is key to achieving these two preconditions. No country of the region should either act the big brother or be a dog in the manger.

Hence, mindful of the uphill task of promoting South Asian regional integration, I suggest the following reforms:

(a) No SAARC nation should internationalise any bilateral issue beyond the SAARC forum.

(b) SAARC will do all it can to facilitate the creation of the South Asian Free Trade Area (SAFTA) immediately, if possible by the end of 2014. Thereafter, SAARC resolves to make Sri Lanka’s coast the gateway to the Association of Southeast Asian Nations (ASEAN) by developing the hard infrastructure and freight movement facilitation.

(c) SAARC should strive to enhance investment activity between its member states, and not merely trade. South Asian joint venture promotion schemes should also be promoted on a priority.

(d) The energy sector should be linked together through a unified South Asian electric power grid system and countries could pool their technical and financial resources in collaborative projects.

(e) In only the fields of science and technology, universities in SAARC countries should pool their faculties and teach across borders or engage in online education using the Internet.

(f) Broader popular support at the grass-root level must be vastly improved by encouraging freer legal movement of people for economic and cultural tourism reasons by minimising immigration procedures.

(g) Effective steps must be undertaken to jointly deter cross-border, illegal migration, terror attacks and block the narcotics trade and drug trafficking.

It should be remembered that the EU was made possible only due to the conclusion drawn by the people of Europe, after the experience of two terrible world wars, that a third world war would destroy Europe totally. Hence, despite a violent history of warfare, European nations sank their differences and formed the EU. Furthermore, there were a few leaders like Adenauer, de Gaulle, Schuman and de Gasperi who had a vision of a peaceful development of the continent and dared to embark towards this goal.

But as the popular saying goes, it takes two to tango. With two of the eight SAARC nations in possession of deliverable nuclear weapons, it is imperative for the peaceful existence of SAARC nations that they effectively bind together and develop harmoniously.

Cash transfers can work better than subsidies

Providing people with a modest basic income instead of subsidies would save public revenue

With oil prices falling, it was perhaps a good time to fade out fuel subsidies. All subsidies are inefficient and distortionary, and most are regressive. The same could be said of costly public works schemes as well.

By contrast, the debate on direct benefit transfers has moved into a more sensible phase, with the posturing criticism of a couple of years ago rather muted. In that context, perhaps it is time for a more dispassionate discussion.

This month my colleagues and I are publishing a book based on two pilot schemes conducted in Madhya Pradesh, in which thousands of men, women and children in nine villages received a modest basic income, paid each month, in cash, unconditionally, for 18 months.

The effects were evaluated by a series of surveys, comparing what happened to the recipients with what was happening to thousands of non-recipients in 13 other villages. The amount of money provided was modest, about a third of subsistence. But what we wanted to find out was whether, as scornful sceptics had claimed, people would waste the money or by contrast be able to use it rationally to improve their lives.

We made sure to issue no guidance as to how to spend the money. The only insistence was that recipients should open bank or cooperative accounts within three months of starting to receive the monthly payment. This showed that financial intermediation can be achieved effectively when there are incentives to do so. No less than 96 per cent of all recipients had opened accounts by the end of three months.

“Surveys conducted among people in Madhya Pradesh's villages, who received a modest basic income as cash transfers, showed that beneficiaries were quite capable of making rational decisions that improved their lives”

As for the claim that villagers would waste the money, the evidence gathered through three rounds of detailed surveys showed that people were quite capable of making rational decisions that improved their lives and their communities.

Some critics claim India could not afford to provide all its citizens with a basic income. That conveniently overlooks the fact that a vast amount is spent on schemes that never reach the intended beneficiaries. Every informed policymaker and social scientist knows that.

Providing people with a modest basic income instead of subsidies would actually save public revenue. We know that most of the money spent on the Public Distribution System is wasted, leaving villagers to rely on stale wheat or rice. The system also acts as a deterrent to local food production. Of course, if the state throws vast amounts at even a chronically inefficient scheme, some of it will get through. But it is dumb.

Be that as it may. What the pilots have shown is something we had not fully anticipated. Unlike subsidies or public works, the basic income transfers have the potential to be transformative. If the government is setting up a Policy Commission in which one of the four pillars is to focus on Direct Benefit Transfers, it should start by considering this point.

Effects of basic income

The point is that the basic income has three types of effect. First, it improves personal and community welfare. The evidence from the pilots showed improvements in child nutrition, schooling attendance and performance, health and healthcare, sanitation and housing. It also has desirable equity outcomes, since it benefitted women more than men, the disabled more than others, the least secure and lowest income groups more than others.

However, what should please my fellow economists is that it also stimulates growth. While discussing economic growth, there is a tendency to concentrate on corporations and big industrial sectors, and to see villages as zones of stagnation. However, in the villages receiving the basic incomes, economic activity increased, new small-scale businesses sprung up, work and labour increased — contrary to critics who claim that giving people cash would induce idleness — and more equipment and livestock were bought.

Although child wage labour declined, the overall increase in work and labour was shown by way of a shift from casual wage labour to more secondary activities. Other studies have tended to concentrate on people’s main activity. Had we done that, we would not have picked up the phenomenon that, in a rational risk-reducing way, households tended to diversify into more secondary activities.

The key point here, however, is that the cash transfers should not be depicted simply as welfare expenditure. That is bad economics and poor accounting.

Yet it is the third dimension that really makes the policy transformative. One way of putting it is to say that the emancipatory value of the basic income is greater than the monetary value. Money itself is a scarce commodity in Indian villages, and, as with any scarce commodity, this drives up the price. Moneylenders and landlords can easily put villagers into debt bondage and charge exorbitant rates of interest that families cannot hope to pay off.

What we found is that many recipients used the cash to make savings, putting themselves in a better position to avoid highly costly short-term borrowing in emergencies. In effect, the liquidity lowered their cost of living and reduced the monopoly power of the moneylenders. Indeed, in a survey of impressions after the pilot had ended, several respondents told us that the only people who were unhappy about the experiment had been the moneylenders. How tragic.

The emancipatory effect helped make the welfare and growth effects more sustainable. So, the scheme had a combination of positive effects, not just one.

Now, government should be encouraged to make haste slowly. Launch several pilots in a few low-income areas in which the design could vary. There are good reasons for believing that making cash transfers universal within communities would save money in administrative and other costs, and induces more positive economic and social outcomes than selective or targeted schemes. Among other reasons is that they induce collective action for community benefits.

It is also important to consider the potential role of intermediary non-government bodies. They can play a strong role in encouraging beneficial outcomes and help overcome the tendency for vulnerable people to remain vulnerable.

Above all, however, policymakers should learn to trust people whom they claim to serve. A growing danger in social policy is that it will veer towards social engineering, through sophistry and tighter conditionalities. Freedom matters, and so does the challenge of transformation.

Pluto-bound spacecraft ends hibernation to start mission

After nine years and a journey of 4.8 billion km, NASA's New Horizons robotic probe awoke from hibernation on Saturday to begin an unprecedented mission to study the icy dwarf planet Pluto and sibling worlds in its Kuiper Belt home.

A pre-set alarm clock roused New Horizons from its electronic slumber at 3 p.m. EST (2000 GMT), though ground control teams didn't receive confirmation until just after 9:30 p.m. (0230 GMT on Sunday).

New Horizons is now so far away that radio signals travelling at the speed of light take four hours and 25 minutes to reach Earth.

The scientific observation of Pluto, its entourage of moons and other bodies in the solar system's frozen backyard begins January 15, program managers said. The closest approach is expected on July 14.

Pluto lies in the Kuiper Belt, a region of icy mini-planets orbiting the sun beyond Neptune that are believed to be leftover remains from the formation of the solar system some 4.6 billion years ago. It is the last unexplored region of the solar system.

"It's hard to underestimate the evolution that's taking place in our view of the architecture and content of our solar system as a result of the discovery ... of the Kuiper Belt," lead researcher Alan Stern said.

Since its discovery in 1930, Pluto has been a mystery. Scientists struggled to explain why a planet with a radius of just 740 miles (1,190 km) - about half the width of the United States - could come to exist beyond the giant worlds of Jupiter, Saturn, Uranus and Neptune.

"We wondered why Pluto was a misfit," Dr. Stern said.

In 1992, astronomers discovered that Pluto, located about 40 times farther away from the sun than Earth, was not alone in the far reaches of the solar system, prompting the International Astronomical Union to reconsider its definition of "planet."

In 2006, with New Horizons already on its way, Pluto was stripped of its title as the ninth planet in the solar system and became a dwarf planet, of which more than 1,000 have since been discovered in the Kuiper Belt.

With New Horizons approaching Pluto's doorstep, scientists are eager for their first close-up look at this unexplored domain.

India to showcase its commitment to renewable energy in Lima

India is planning to create a buzz around its renewable energy programme during the climate talks in Lima after the arrival of Minister of State for Environment Prakash Javadekar for the high level segment which begins on Tuesday.

In a booklet specially prepared for the occasion, it has set out its achievements for the world to see. During the past three decades, a significant thrust has been given to the development, trial and induction of a variety of renewable energy technologies for use in different sectors, the government said.

India today has one of the most active renewable energy programmes in the world and renewable energy applications have brought about significant changes in the Indian energy scenario. Apart from electricity generation, the application of these technologies has benefited millions of rural folk by meeting their lighting, cooking, productive energy needs in a decentralized and environmentally benign way, the booklet said.

India’s total renewable power installed capacity as on October 31, 2014, has reached 33 gigawatt (GW). Wind energy accounts for 70 per cent of the installed capacity at 22.1 GW followed by biomass power-4.2 per cent, small hydro power-3.9 GW and solar power 2.8 GW.

Renewable power is generating around 65 billion units per year corresponding to about 6.5 per cent in the total electricity mix.

There are 1.1 million households using solar energy and over 10,000 remote and inaccessible hamlets have been provided with basic electricity services through distributed renewable power systems.

The 12th five year plan has projected 33 per cent installed capacity of power in 2030 from renewable energy sources. India has ambitious plans to scale up renewable energy to 165 MW, of this solar energy will be 100 GW by 2019-20. It has proposed 25 solar parks in India and 100,000 solar pumps for irrigation and drinking water. It has also provided for incentives in investment and a ten -year tax holiday. It is world number five in solar water heating systems, number two in biogas plants and number one in bagasse co-generation.

India's Communication Satellite GSAT-16 Launched Successfully

India`s communication satellite, GSAT-16, was successfully launched at 0210 hrs IST today (December 7, 2014) by the Ariane-5 launch vehicle VA221 of Arianespace from Kourou, French Guiana. Ariane-5 precisely placed GSAT-16 into the intended Geosynchronous Transfer Orbit (GTO), after a flight of 32 minutes and 20.4 Seconds duration. ISRO`s Master Control Facility (MCF) at Hassan in Karnataka started acquiring the signal from the satellite at 0241 hrs IST and the commanding of the satellite was initiated. Initial checks have indicated normal of the satellite. The present orbit of the satellite will be raised to Geostationary Orbit of about 36,000 km altitude through three orbit raising manoeuvres by the firing of GSAT-16`s Liquid Apogee Motor (LAM) Engine. Preparations are underway for the first firing, planned in the early hours of December 8, 2014. The satellite will be placed in the Geostationary Orbit by December 12, 2014 and subsequently the satellite`s communication transponders will be switched on for in-orbit testing.

Indian Navy the First to Respond in Maldivian Crisis

The island nation of Maldives is facing a national contingency that occurred due to fire on 04 Dec 14 in its desalination plant. This plant produces drinking water for Male. Responding to Maldives’ urgent request for assistance, INS Sukanya, on patrol off Kochi, was diverted pronto to arrive Male PM 05 Dec 14. The ship carried 35 tonne of fresh water and has the capability to produce 20 tonnes of water every day. The ship has already transferred approximately 65 tons of fresh water till this evening. Additionally INS Deepak, a large fleet tanker with 900 tonnes of water was also sailed from Mumbai and has reached Male this evening (07 Dec 14). Indian Navy warships have the capability to produce drinking water using their desalination plants (INS Deepak is capable of producing 100 Tons water every day).. The IN ships will continue to produce and supply potable water to Male even whilst at anchor. The responsiveness, unique capabilities, flexibility and versatility of warships in meeting various contingencies has yet again been demonstrated. The Indian Navy has always been amongst the first responders to crises in Maldives. The first instance was in 1988 after mercenaries attempted a coup against the elected government. INS Godavari and INS Betwa responded to Maldives’ request and rescued abducted people from the fleeing mercenaries. This earned the lasting goodwill of the Maldivian Government and its people. IN was also the first to respond after Maldives was struck by a Tsunami in Dec 2004. IN Ships Mysore, Aditya and Udaygiri, along with their integral helicopters undertook prolonged and extensive operations to provide immediate succour to many islands in Maldives. In these efforts the Indian Navy established a Maritime Coordination Centre at Male for coordinating relief activities and assisted in distribution of relief supplies, restoration of power and provision of safe drinking-water. Medical aid was provided in the form of mobile medical camps and serious cases were evacuated by ship’s helicopters to Male. In addition to responding to crises, the Indian Navy is actively cooperating with Maldives in meeting their maritime security requirements. These endeavours span provision of warships, training, assistance in surveillance of their maritime domain, medical cover, Search and Rescue operations, as well as exchange of white shipping information. The Indian Navy has been to the forefront in supporting Maldives whether in disaster relief, responding to various contingencies or in meeting their maritime security needs. This sustained engagement has positionedIndia and the Indian Navy as ‘the first port of call’ and a ‘dependable partner’ to our close maritime neighbour Maldives.

An industry built on black money

The Noida neighbourhood where I stay has finally made it to prime-time television. People from Delhi and Gurgaon want to be shown around. Friends and family from distant cities want to know if everything they have been watching on television and reading in the newspapers is true. You see, this is where Yadav Singh, the former chief engineer of Noida, Greater Noida and Yamuna Expressway, stays. (As chief engineer, he had the authority to approve public projects of up to Rs 1 crore.) All colony guards know the way to hiskothi. Many of them are ready to leak gossip about him - without baksheesh. That's because of the fabulous riches the income-tax authorities are reported to have recovered from him in recent searches: expensive cars, Rs 15 crore stashed away in an SUV parked outside his house, diamonds worth Rs 100 crore, two kilogrammes of gold jewellery and papers that suggest he owns several properties.

At the moment these are just allegations, and the charges of political patronage and caste vendetta have really muddied the waters, but it could well be yet another instance of black money finding its way into real estate. A few days before the Singh affair blew up, Cobrapost had disclosed the findings of a sting operation codenamed "Black Ninja": 35 real estatedevelopers from all over the country were ready to accept black money from buyers and convert it into white. It found their CEOs and mid-level executives alike ready to accept 10 to 90% of the payment in cash. Some were willing even to accept money abroad through hawala. We all have known that payment in cash is the norm in the secondary market; the Cobrapost investigation shows the practice is no less prevalent in the primary market.

It is not difficult to find out why builders accept cash. While obtaining the various clearances for their projects, they need to grease many a palm - all in cash. Speed money, a Gurgaon builder had told me, can add 10-20% to the land cost. And since land accounts for 30-50% of the project cost, it escalates overall cost by three to 10%. The builder recovers this cash from customers. So if black money has to be curtailed in real estate, the processes need to be made transparent and discretionary powers need to end. But so much money is involved here that I doubt if any political leader will ever dare to clean up the Augean stables.

According to Liases Foras, a real estate consultancy, about 30% of all property transactions in the year to June 2012, were in black. As real estate is about a tenth of the Indian economy, the extent of back money floating around in the sector is huge - many times more than what is said to be stashed away abroad. Pankaj Kapoor, the managing director of Liases Foras, says cash transactions are the highest in the National Capital Region. The cash component, according to him, is the lowest in affordable housing, high in the luxury segment and maximum in land.

 

 

Black money in the secondary market is almost impossible to track. In cities, there is a circle rate that is used as a ready reckoner by the authorities. If there is a big gap between the market price and the circle rate, it acts as an incentive for the seller to under-declare the payment: he accepts a large chunk of the payment in cash in order to save on income tax. So it makes sense to fix the circle rate as close to the market price as possible. But there is a flip side to it: a high circle rate reduces the scope for price correction when the market enters a downturn - like now. In Rajarhat in Kolkata, for instance, the market price has fallen below the circle rate, and that has ensured that no transactions will happen because in such a scenario, the difference is treated as residual income in the hands of the buyer and is liable for taxation.

To curb black money in the primary market, the government has made it mandatory for all buyers to quote their permanent account number in all transactions. But buyers have got round it by using multiple such numbers. In an interview to Mint last month, Finance Minister Arun Jaitley said that the government is looking at linking all real estate transactions with Aadhaar, the unique identity number. Such a move could indeed bring some sanity into the real estate market.

Mistaking black money in real estate as genuine demand from home buyers, many developers overbuilt in the last few years. As a result, most real estate markets are sitting on massive inventories. According to data provided by Liases Foras, Delhi and its suburbs were sitting on inventory of 83 months at the end of September 2014. In Mumbai as well as Chennai, the inventory would take 50 months to clear. In Bengaluru, it would take 41 months; and in Hyderabad, 38 months. The prevalence of black money has ensured that real estate prices stay totally out of whack in the country. According to one study, it will take an Indian with the average per capita income 580 years to buy a top-end property in Mumbai, compared to 65 years in Hong Kong, 62 years in Paris and 47 years in New York.

As real estate is about a tenth of the Indian economy, the extent of black money floating around in the sector is huge - many times more than what is said to be stashed away abroad