India-China Collaboration on Railway Line in Afghanistan?

After the Xi-Modi Wuhan summit, there is a lot of buzz around the possibility that India and China might take up a joint economic project in Afghanistan.

This prospect has got many people excited. All prominent news agencies have reported this and yet there is little clarity on what exactly this project is all about. The MEA’s press release on the Wuhan summit in fact does not mention Afghanistan at all. The MEA spokesperson has been quoted in Times of India saying that the identification of this project is still in progress. The Hindu’s report vaguely mentions the possibility of a road link to Chabahar from Aynak via Hajigak.

But Praveen Swami in Business Standard has the most clear view about what this project might be. He writes:

Earlier this week, President and Prime Minister agreed to explore joint China-India work on a railway line in Afghanistan, with one spur carrying Mes Aynak’s ore to Torkham, and over the into Pakistan; the other in a great north-western arc, into Hairatan.

I created this google map to understand how this railway line might look like. Please note that this is only an illustration – I have no more details other than the above article.

Based on the May 4, 2018 report in the Business Standard [Click to expand]

Won’t such a project pass through Taliban-controlled areas? What is the security situation like in the areas that this railway line might pass through. To check that out, I overlaid the Jan 2018 BBC illustration showing areas under Taliban/government control over the route map. That looks as follows.

The speculated railway line pass through areas with Taliban presence [Click to expand]

The areas marked in brown are under full-Taliban control. Areas in grey are in full government control. The orange areas are government-controlled areas having open Taliban presence. The darker shade indicates higher risk (attacked at least twice a week). Lightest shade of orange represents areas that are attacked once in three months on an average.

As is clear from this graphic, India, China, and the Afghan governments have a tough challenge ahead of them if they are serious about this project.

Formal Employment Data Sources: New and Old

Ajit K Ghose has an article in Business Standard on why payroll estimates data does not accurately represent job creation in the Indian economy.

What I found most interesting was that he has listed all the sources of formal employment data in India in this article. It is very rare to find all employment data sources, old and new, in one place. So, I’m noting them down here:

  1. Monthly estimates of payroll account derived from the database maintained by the Employees’ Provident Fund Organisation.
  2. Surveys of employment and unemployment conducted by National Sample Survey Organisation (NSSO).
  3. The Labour Bureau conducted a survey similar to (2) for 2015-16.
  4. Starting 2017-18, NSSO has launched a periodic labour force survey to produce annual estimates of formal employment in the country.

A Broken Legislature

PRS Legislative Research has some damning stats out on the recently concluded Budget Session of the Parliament.

Key lowlights are:

  1. Least amount of time spent by both Houses on debating the Budget since 2000
  2. 100 percent of the demand for grants passed without discussion
  3. 1% of productive time spent on legislative business in Lok Sabha; 6% in Rajya Sabha
  4. Poorest performance of Question Hour in Lok Sabha since 2014

Basically, no work got done in the entire Budget Session. And we have an entire ministry for Parliamentary Affairs! In a well-functioning democracy, heads should have rolled for this incompetence.

Pashtun Protection Movement: A Radically Networked Society in Action

If you have been trawling the internet in search of reliable news and opinion about the Pashtun Tahaffuz Movement (PTM), there’s some good news. Beena Sarwar has an excellent backgrounder in Scroll.in. 

What caught my attention was the social media’s role in mobilising widespread support given that there is a blanket censure  of PTM by all major media houses in Pakistan. Sarwar describes this role as follows:

Their (PTM’s) demand for constitutional rights directly challenging Pakistan’s powerful security establishment was blatantly censored from the mainstream media. The pattern has continued with subsequent rallies.

But in this digital age, news of the Swat demonstration could not be suppressed. The social media activists or citizen journalists who trended the hashtag #PashtunLongMarch2Swat included gender studies lecturer Tooba Syed from Islamabad. Making the four-hour journey to Swat by road, she movingly documented her experiences on Twitter.

Without social media, “the movement would not be possible”, said one of its leaders, 34-year-old lawyer Mohsin Dawar, a former student activist associated with Left politics.

The rapid rise of social media in Pakistan (17% internet penetration, growing fast) and mobile phone subscribers (over 70%) makes television coverage (73%) less crucial than before. But censorship still violates the people’s right to know, as a statement endorsed by over 100 journalists in April emphasises. [Scroll.in, 6 May 2018]

So, the PTM is a textbook example of what we call a Radically Networked Society (RNS) — a web of hyper connected individuals, possessing an identity (imagined or real), and motivated by a common immediate cause.

In PTM’s case, the Pashtun ethnicity provided the common identity, Naqeebullah Mehsud’s cold blooded murder by the Karachi Police became the immediate cause, and Twitter, WhatsApp, Signal, and Facebook enabled the movement to scale. 

The oppressive and all-powerful Pakistani State has ensured that media houses have no reportage of the protests. And yet, it has been unsuccessful in stopping the spread of information via the RNS route. This typifies the nature of information flows — information propagates rapidly in networked societies, at a pace too fast for hierarchical states to arrest.

From past instances of RNS mobilisations, we know that governments tend to use excessive force in desperation if extended internet shutdowns do not work. And Pakistan Army has a long history of using force on its non-Pakistani citizens. Unfortunately, looks like this is likely to be the next step. Watch out for the Karachi rally that the PTM has called for on May 13th.

 

The Chinese Leadership’s Prowess is Overrated

Earlier this week, we had the opportunity to meet one of India’s most experienced China hands. A diplomat by profession, he has served in China, speaks Mandarin fluently, and follows developments in China even after his retirement.

During his talk, he warned us:

Indian elites tend to see Chinese leaders as superheroes — as ten-feet tall men who can do no wrong. Such a view ignores the many grievous mistakes that the Chinese leadership has committed over the years. And bad memories stick for longer than the good ones.

According to him, the two big mistakes of the Chinese leadership are their treatment of the Uighurs and the Tibetans. I have two more to add to this list.

One, the treatment meted out to rural migrants in cities is fomenting a quiet unrest in several cities. The Economist has an article on the increasing discontent:

The younger generation are products of China’s one-child policy, which went into force nationwide in 1980 (although in the countryside, families were sometimes allowed two). They are among the first to suffer its unintended consequences. The one-child policy contributed to a drastic change in the sex ratio because female fetuses were aborted by parents who wanted their only child to be a boy. The ratio of boys to girls at birth soared in the 1980s, peaking in 2005, when there were 122 baby boys for every 100 baby girls, one of the most distorted ratios ever seen [..]

Among Chinese men generally, a common response to the shortage of women is for prospective grooms to buy an apartment and car before marriage—a sort of reverse dowry. One survey found that three-quarters of young women in big cities took this into account before accepting a man’s offer. Alas for migrant swains, they cannot afford such a bride price, especially in expensive cities such as Beijing and Guangzhou. It is usually difficult for people without a city’s hukou to buy government-subsidised housing there. Young migrants are therefore at a threefold disadvantage. There are fewer women of marriageable age. Those who come from their own background tend to marry richer rivals. And the men cannot compete in the marriage market by buying property.

The earnings of the youngest ones have deteriorated the most. Mr Tian looked at earnings by age. He found that the highest earners are those in their mid-30s (between 32 and 36). That remained constant in all his surveys. But there was a significant change among workers in their mid-20s (22 to 26). In 2008 these younger migrants were earning almost as much as the best-paid. By 2015, they were earning much less.

Mr Tian’s survey includes a question about where respondents place themselves in society on a scale from top to bottom. Between 2006 and 2015 the migrants he questioned gave, on average, ever lower assessments of their social position. Initially, the younger ones (aged between 22 and 26) were the most likely to describe themselves as being in the top half of society. By 2015 they were more inclined than older migrants to put themselves in the bottom half. Mr Tian concludes that those born in the 1990s are the most disappointed of the migrants he has studied [The Economist, 3rd May 2018].

The second mistake is the way China has treated its neighbours. Its arrogant conduct has turned away even potential partners over the last few decades. Nitin Pai had written how alienating a young India has been one of the biggest mistakes of the Chinese leadership.

It is widely accepted that China was the victor of the brief border war of October 1962. While Beijing did achieve its political and military objectives – of teaching the Indian government of Jawaharlal Nehru a lesson – that was a strategic self-defeat for China. Why? Because it turned a country of young people (in 1962, half of India’s population was less than 19) into believing that China is the enemy.

Unfortunately, in the past few weeks, official statements from the Chinese government and commentary appearing in official media are taking us close to another 1962 – even if no shots are fired over the Doklam region. Contrary to what Beijing might think, threats of war and reminders of 1962 strengthen India’s national resolve to stay firm. The more strident the rhetoric from Beijing , the stronger is the public opinion in India to confront China.

Half of India’s population is under 26. Almost 70 per cent of the Indians surveyed in the above-mentioned poll were already “quite concerned” about China’s growing military power and its territorial disputes with India. Whatever the stakes on the remote Himalayan slopes, they are likely to carry an imprint of China as an adversary and an enemy well into the rest of their lives. Is it really in China’s interests to alienate half a billion people across its borders for the next several decades? Will it be easier or more difficult to achieve President Xi Jinping’s “China Dream” under these conditions? How does it help China if India is pushed into a tighter embrace of the United States? [SCMP, 25th July 2017]

These four mistakes need to be kept in mind when we discuss China’s out-of-ordinary development feats. Far too often, we tend to see China through a “rational actor model” lens, to borrow Graham Allison’s landmark classification.The reality is far more complex. The four mistakes show that Chinese leaders have not always made consistent, value-maximising choices. Perhaps it is our lack of knowledge about China that makes us ascribe rationality to every decision of the Chinese leadership. 

Trade Policy as a Tool for Coercion

The ongoing trade war between the US and China has highlighted, once again, how trade policy can be deployed as a tool of coercion. Whether it will be effective is not something that I know enough about. But what interests me is this: what are the conditions under which bilateral trade policy can be used as a tool for coercion?

The zeroth condition is that there must be a substantial trade relationship between the to-be-coercive state and the to-be-coerced state. Failing this condition, trade can at best be used as a tool for inducement but not coercion. For example, India cannot use trade as a tool for coercion with Pakistan because there is barely any trading relationship between the two states.

The next condition is that the coercive state must be an overwhelmingly large market compared to the coerced state. Product bans and raising tariffs can be potent tools only if the losses incurred to the coerced state are significant. It is precisely because of this condition that helped imperial China intimidate many of its small neighbours. The message to all its tributary states was clear and consistent across centuries: we have everything in abundance here. It is you who needs access to our market. So, pay tributes and kowtow to the Emperor or you shall never have trading rights.

Robert Blackwill & Jennifer Harris have earlier described how Russia has repeatedly used trade as a tool for coercion against its smaller neighbours.

In the recent past, Georgian wines, Ukrainian chocolates, Tajik nuts, Lithuanian and even American dairy products, and McDonald’s have all fallen afoul of sudden injunctions… While dealing a significant blow to the Ukrainian economy, Moscow’s geoeconomic moves served, first, to remind Ukraine— and others in the region— of the consequences of decreasing ties to Russia in favour of the European Union; second, to reinforce Russia’s role as an economic regional hegemon; and third, to prevent the continued expansion of the North Atlantic Treaty Organisation to Russia’s borders. Facing Russian threats on countless levels, Ukraine halted its plans to sign deals with the EU at the November 2013 Eastern Partnership summit in Vilnius. [War by Other Means, Blackwill & Harris]

The third condition is that the coercive state should have a bilateral trade deficit with the coerced state. This is counterintuitive — most people regard trade deficit as a liability rather than an asset. But it is this deficit which lends a dimension of intimidation to trade policy. This is precisely the reason why the US could use this tool in the first place against China. There are a range of goods on which the US runs a bilateral deficit with China.

My contention is that the presence of all three conditions is necessary for the use of trade policy as a tool for coercion. Seen from this lens, the US trade war against China satisfies conditions one and three but does not meet condition two. Hence, its effect on China is likely to be limited.

In general, trade policy’s effectiveness as a coercive tool additionally depends on what is being demanded from the coerced state. It also depends on the ability of the coercing state to incur the losses resulting from retaliatory actions by the coerced state. 

PS: Read Anupam’s piece that warns about the economic losses emerging out of protectionist policies.

GST Council Registers a Success

GST Council deferred the decision on levying a cess on sugar on May 4th. A union cess is problematic because the revenue earned by levying it does not form a part of the ‘divisible pool’ of resources, meaning that no part of it goes to state governments.

The trick by the union government is not new. A 2016 EPW article had made a note of this trend:

It is observed that over the years there has been a proliferation of cess and surcharges in union tax revenues. As these levies are not shareable with the states, this has resulted in effective reduction in the divisible pool of resources available for transfers to states. The share of cess and surcharge in the gross tax revenues of the union government has been rising over the years. It increased from 9.43% in 2011–12 to 16.7% in 2015–16 (RE).

 

Quite naturally, state finance ministers opposed the introduction of the 5 percent cess on sugar that was being pushed by the union government. However, this proposal was put on hold after a meeting of the GST Council. The fact that the state governments had a say over the union government’s levy of a cess and were able to block it indicates that the GST Council is on the right track. In a limited sense, it is emerging as a powerful institution for intergovernmental bargaining. This is a good sign for making cooperative federalism a reality.

 

The Lure of the Government Job

The Hindustan Times carried a piece on April 22nd which said that the Indian Railways is set to carry out the world’s largest recruitment drive, one that will fill ninety thousand vacancies from a pool of 2.5 crore applicants.

What struck me most was this seemingly innocuous quote by one of the applicants:

I am anxious for a job and a regular income.

This rather simple statement fits into a hypothesis we have developed over the last few weeks: employment can affect income in two orthogonal dimensions – through income stimulation and through income stabilisation. Income stimulation happens purely because the budget line of an unemployed individual shifts to the right once she becomes an employee. By income smoothening or stabilisation, we mean that the employee is reasonably certain that she will receive her employment wage over the next few payment cycles. For example, a job like the now famous Pakoda seller demonstrates an income stimulation effect but lacks income stability. A software engineers’s job at a large firm by contrast does better on both income stabilisation and income stimulation.

Now, the simple observation by the railway job aspirant shows that the lure of a government job is that for less well-paid jobs, a government service leads to income stabilisation as well as income stimulation which is not the case with a private job for the same skill level. At least that is how the perception is. And this is essentially the lure of a government job. What this means is that for any meaningful rise in employment in India, private sector jobs will have to compete with government jobs on both these dimensions.

All Indians are outsiders

Yesterday, I went through the chapter on India in David Reich’s wave-making book Who We Are and How We Got Here: Ancient DNA and the new science of the human past. I’m listing a few thoughts here.

Until now, archeology and anthropology were the key disciplines that helped us decode our past. But now, DNA studies have matured and are adding new, explosive insights. And these studies have a lot to say about ancestry of Indians.

First, Indian bigots of all garden varieties will find the conclusion of the chapter on India deeply disturbing. What it essentially says is that nearly all Indians have significant ‘outsider’ ancestry. None of us are exclusively indigenous.

.. We found that West Eurasian-related mixture in India ranges from as low as 20 percent to as high as 80 percent.. No group is unaffected by mixing, neither the highest nor the lowest caste, including the non-Hindu tribal populations living outside the caste system.

There’s large amount of Iranian-related ancestry in all of us, regardless of whether you are from the north or from the south.

Second, this mixing of ancestry happened in the last 4000 years. Which means, the people who lived on this land 4000 years back were completely different from the people who live here today. 

Subsequently, the caste system and resulting endogamy meant that Indians were never truly a single large population like the Han Chinese. Instead, India is composed of a large number of small populations.

People tend to think of India, with its more than 1.3 billion people, as having a tremendously large population, and indeed many Indians as well as foreigners see it that way. But genetically, this is an incorrect way to view the situation. The Han Chinese are truly a large population. They have been mixing freely for thousands of years. In contrast, there are few if any Indian groups that are demographically very large, and the degree of genetic differentiation among Indian jaati groups living side by side in the same village is typically two to three times higher than the genetic differentiation between northern and southern Europeans.

This sustained endogamy over thousands of years makes Indians more susceptible to rare disease-causing mutations. Just one more reason for why endogamy propagated through caste sucks.

So next time someone tells you to ‘go back where you came from’, hold their hand and ask them to join you for a trip to West Eurasia.

And if you’re interested, we have a podcast episode on this chapter on Puliyabaazi.

 

Of Saints and Humans

I know I’m late by many decades but I finally read Orwell’s Reflections on Gandhi today. I’m jotting down a few key lines from this essay.

But I could see even then that the British officials who spoke of him with a mixture of amusement and disapproval also genuinely liked and admired him, after a fashion. Nobody ever suggested that he was corrupt, or ambitious in any vulgar way, or that anything he did was actuated by fear or malice. In judging a man like Gandhi one seems instinctively to apply high standards, so that some of his virtues have passed almost unnoticed.

Here, Orwell says that the mark of a saint is the standards used to judge him/her.

The essence of being human is that one does not seek perfection, that one is sometimes willing to commit sins for the sake of loyalty, that one does not push asceticism to the point where it makes friendly intercourse impossible, and that one is prepared in the end to be defeated and broken up by life, which is the inevitable price of fastening one’s love upon other human individuals. No doubt alcohol, tobacco, and so forth, are things that a saint must avoid, but sainthood is also a thing that human beings must avoid. There is an obvious retort to this, but one should be wary about making it. In this yogi-ridden age, it is too readily assumed that “non-attachment” is not only better than a full acceptance of earthly life, but that the ordinary man only rejects it because it is too difficult: in other words, that the average human being is a failed saint. It is doubtful whether this is true. Many people genuinely do not wish to be saints, and it is probable that some who achieve or aspire to sainthood have never felt much temptation to be human beings. If one could follow it to its psychological roots, one would, I believe, find that the main motive for “non-attachment” is a desire to escape from the pain of living, and above all from love, which, sexual or non-sexual, is hard work. But it is not necessary here to argue whether the other-worldly or the humanistic ideal is “higher”. The point is that they are incompatible. One must choose between God and Man, and all “radicals” and “progressives”, from the mildest Liberal to the most extreme Anarchist, have in effect chosen Man.

Here, Orwell brilliantly argues that it is a fallacy to see a human as a failed saint. May be a saint is a failed human too. Or that both of these streams are fundamentally incompatible.

Another brilliant section is on the limit of Gandhian morality in the conduct of international relations. It highlights that in an amoral world, morality can be a handicap, much less a weapon.

It is difficult to see how Gandhi’s methods could be applied in a country where opponents of the regime disappear in the middle of the night and are never heard of again. Without a free press and the right of assembly, it is impossible not merely to appeal to outside opinion, but to bring a mass movement into being, or even to make your intentions known to your adversary [..] But let it be granted that non-violent resistance can be effective against one’s own government, or against an occupying power: even so, how does one put it into practise internationally? Gandhi’s various conflicting statements on the late war seem to show that he felt the difficulty of this. Applied to foreign politics, pacifism either stops being pacifist or becomes appeasement. Moreover the assumption, which served Gandhi so well in dealing with individuals, that all human beings are more or less approachable and will respond to a generous gesture, needs to be seriously questioned. It is not necessarily true, for example, when you are dealing with lunatics. Then the question becomes: Who is sane? Was Hitler sane? And is it not possible for one whole culture to be insane by the standards of another? And, so far as one can gauge the feelings of whole nations, is there any apparent connection between a generous deed and a friendly response? Is gratitude a factor in international politics?

 

Is the US immigration policy an opportunity for India?

Earlier in the day, we discussed the impact of a tighter US immigration policy regime on India. At the margin, will it lead skilled Indians to return to India? Nitin Pai in The Print gives a conditional yes as an answer.

Even if pay scales were equivalent (say in terms of purchasing power parity), few NRIs would trade the comfort, security and quality of life in a developed country and come back and face the challenges of daily life in India. Despite sentimental links, patriotic feelings and family connections, most NRIs prefer to live abroad. It won’t change because of government schemes, no matter how attractive they are on paper.

This idea can be conceptualised as two forces acting in the opposite direction. One force is a “India” premium — the extra salary that would compensate for the returnee’s lower quality of life in India. A force in the opposite direction is the “motherland” discount — the discount arising out of patriotic and familial considerations, leading people to stay back or return to India. It is the interplay between these two forces that will decide the direction of skilled labour flows.

As of today, the “India” premium is way larger than the “motherland” discount. Closing this gap is necessary to convert US immigration policy into an opportunity for India.

No sermons, no carrots, only sticks

The Reserve Bank of India on April 6th prohibited banks from:

dealing in Virtual Currencies or from providing services for facilitating any person or entity in dealing with or settling Virtual Currencies.

This is not strictly a ban on people from mining bitcoins or possessing them. Perhaps, it’s not even possible for RBI to enforce that ban given the decentralised nature of cryptocurrencies. Nevertheless, prohibiting banks from dealing with any cryptocurrency is symptomatic of how quickly governments resort to blunt policy instruments in India.

Carrots, Sticks, and Sermons has a wonderful classification of policy instruments. It argues that any government primarily has three policy instruments available to it: information (moral suasion, transfer of knowledge, communication of reasoned argument, advice, and persuasion etc), economic instruments (grants, subsidies, charges, fees etc), and regulation (absolute bans, prohibition with exemptions, obligation to notify etc).

Now, which of these three policy instruments should governments choose? The book has this to say:

All other things being equal, in most cultures at least, the use of coercive power is more alienating to those subject to it than is the use of economic power, and the use of economic power is more alienating than the use of information and exhortation. Or, to put it the other way around, exhortation and information tend to generate more commitment than economic instruments, and economic instruments more than regulatory instruments.

The book says that even politically, it is rewarding if these three instruments are applied in a sequence:

politicians have a strong tendency to respond to policy issues (any issue) by moving successively from the least coercive governing instrument to the most coercive. The idea is that over time a policy problem is tackled in three different ways: first by the provision of information such as uttering a broad statement of intent, subsequently by the application of selective incentives, and lastly by the establishment of regulations accompanied by the threat of sanction. The underlying notion is that in solving social problems the authorities employ instruments of increasing strength in successive stages.

But is this order followed in India?

It would take a thorough study to investigate this. But if the regularity of prohibitions is taken as an indicator, it appears that even if this order is adhered to, the predilection in Indian policymakers is to pick the coercive option fairly quickly. And this says a lot about India. It can be taken as a proxy for how liberal political philosophy is stillborn in India. A liberal society would default to a minimal constraint principle – cause as less trouble to the populace as possible. Policy instruments are ends in themselves as they determine the style of policymaking in a polity. So, a high number of bans and prohibitions indicates that at the margin, greater government control is the default in India. Seen through this lens, the RBI note does not surprise.