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TheIndian EXPRESS
www.indianexpress.com

NEW DELHI l TUESDAY l JULY 17 l 2012

The Indian EXPRESS

But UPA already knows it: on the economy, it continues to hold back on its promises
cutting the current account deficit, revive investor sentiment and encourage investment into mutual funds and insurance, to the proposed setting up of a national urban health mission. Those tweeted plans are likely to come unstuck against the same road blocks in party and government that have stalled reform so far. To take just one illustration of the unbroken standstill: at the end of this years budget session, 101 bills are pending in the two Houses. Of the total of 187 hours that the Lok Sabha worked, it spent less than 11 per cent in passing bills. This is one reason why big-ticket investment is drying up and the $1 trillion infrastructure spending target now seems increasingly remote. Instead of moving towards reform, the Indian government seems to be putting up obstacles for investors in the telecom, metals, automobile and IT sectors, and it has slammed shut the doors of the financial sector on them by making credit costly. From a position where the US, UK, Russia and France came to scout for Indian investments in 2010, to a position where Singapore issues a demarche to India on its black money report India has come a long way. Obama doesnt have to rub it in, but surely the UPA protests too much.

Obama said it

HE sheen of US-China economic relations has often been seen to dim when US presidents have leaned on China to relax exchange controls on the renminbi without acknowledging a concomitant need to keep fiscal discipline back home. As the subcontinent becomes an important economic partner for Washington and with the US president well into campaign mode a similar narrative would seem to be tinging US-India relations. Barack Obamas lecture on Indias deteriorating investment climate may be countered by asking him to turn his attention to the anti-outsourcing walls his own administration is raising for US companies as well as the delay in signing mutual social welfare rules. Both lead to a similar deceleration in investment. Having said that, however, Obama has said nothing the UPA government is not painfully familiar with. Instead of rushing to join issue with the US president, therefore, UPA seniors would do well to look again at what their own government has been promising to deliver, and failing to. Anyone who has followed the PMOs tweets in the last 20 days, for instance, is sure to find an ambitious and unfulfilled agenda: from his plans to turn around the balance of payments by

Rubbing NCP the wrong way is part of a pattern: of Congress hauteur and tone-deafness to allies
ROM the UPAs point of view, it would seem that the ostensible snubbing of Sharad Pawar by the Congress, which has reportedly caused heartburn in the NCP, was avoidable, if not injurious to health. The putdown lay in the apparent designation of Defence Minister A.K. Antony as the governments No. 2. According to the previous and official order of precedence, Pawar came third, after Pranab Mukherjee. After Mukherjees exit, therefore, it may have been in the order of things if Pawar expected to take his place. At the bottom of it, however, this is not a matter that hinges on technical quibbles over who is more senior, Pawar or Antony. It is, instead, about the Congresss political handling or rather, mishandling of one of its most steadfast allies, which also partners it in government in a very crucial state. Sharad Pawars NCP has travelled a long way from its strident beginnings in the campaign against the foreign origins of Sonia Gandhi. From the Indo-US nuclear deal in the previous UPA government to FDI in retail that appears to

UPAs Pawar cut

be ballooning into a contentious issue under UPA 2, the NCP has shored up a reputation as the UPAs least troublesome ally. Most recently, Pawar reportedly took the lead in drumming up support for Mukherjees presidential candidature from an array of parties, from Shiv Sena to TRS. In this outreach, Pawars equations with players across the political and ideological divides arguably came in handy. From the UPAs perspective, it is this ability to win friends and keep them, apart from crisis-handling skills, that strengthens his claim to fit Mukherjees role. In the present instance, the Congresss rebuff to Pawar cannot be attributed to its desire to keep the governments No. 2 position. Its attempts to rub its ally the wrong way are part of a syndrome. The party has seemed clueless in its relationship with all its allies, be it a difficult one like Mamata Banerjee, or a stable one like Pawar. The Congress continues to show hauteur and tone-deafness towards its partners that, in a coalition era, may well keep returning to haunt.

N INDIA, it is called policy paralysis. In Washington DC, they crib about a political gridlock. In Europe, they lament a lack of political will. In China, the concern now is with growing political risk-aversion. Last week, a young official in Shanghai told me that Beijing had become too cautious on the economic policy front, so provinces seeking speedier economic growth must take their own initiative. We will not have much reform from above, he said to me, but we can have reform from below. By way of example, he cited how the Shanghai financial services authority had liberalised the regime for private equity investors without reference to Beijing, while the latter looked the other way. If the Shanghai authorities had sought Beijings permission they would not have got it, because the bureaucracy in Beijing has become very cautious and that has made our political leadership also cautious. So we just went ahead and changed policy. Soon other provinces started doing this and finally the central government issued an order approving what the provinces had already done! Earlier in the day, a senior official of the central government in Beijing, who spoke with the authority of a ruling Communist Party of China (CPC) member, put it differently: China had half a century of top-down leadership. Thirty years under the leadership of Mao Zedong and 20 years under the leadership of Deng Xiaoping. We now have bottom-up leadership. I said to him that in India we call it coalition politics. The new era of bottom-up politics has had politically paradoxical consequences in China. While it has made the system of governance more participatory, it has made the central government less authoritarian and, therefore, more bureaucratic and cautious. In the Mao and Deng era, a powerful national leadership could initiate bold reforms. To a large

Dengs grandchildren
Impatient with Beijing, Shanghai sets the pace for reform. It has lessons for India
SANJAYA BARU
extent, Dengs successors operated in the shadow of this dying era. Today, especially when China is in the process of a political transition and there are no powerful over-arching national leaders, the party and government bureaucracy have taken charge and seem to have slowed things down to avert mishaps. That this has had some impact on Chinas economic performance is now evident from the latest economic data coming out of China. The official view, of course, is that China cannot sustain doubledigit growth for ever, that after two decades of 10 per cent growth a slowing down is quite natural. Reporting a deceleration of has come for Shanghai to set the pace, a young think-tanker in Shanghai told me. There is nothing new about this phenomenon in Chinese policy-making. Whenever Beijing sought to put the break on reform, Shanghai would press the accelerator. In his dying days, and while in retirement, Deng Xiaoping reached out to Shanghai and to its leaders, like Zhu Rongji, to force his more conservative successors in Beijing to move forward on economic reforms and liberalisation. My young interlocutors in Shanghai now talk of the need for a new Zhu Rongji. In his exhaustive and authoritative biography of Deng, Deng Xi-

LETTER OF THE WEEK AWARD

The new era of bottom-up politics has had politically paradoxical consequences in China. While it has made the system of governance more participatory, it has made the central government less authoritarian and, therefore, more bureaucratic and cautious.
growth to around 7 per cent, Sheng Lalyun of Chinas National Bureau of Statistics told reporters last week: After 30 years of vigorous growth, Chinas economy has entered a period of transition. The potential growth will slump, but this is a universal rule. Quite so. And one must never underestimate Chinas capacity to bounce back or find new routes to sustain high growth. Indeed, a period of slower growth may be good for China as it tries to re-balance its economy and promote domestic consumption. But there is a new generation that is impatient and wants to push for higher growth. Higher growth will not come without reform. Reforms will not come from Beijing. So the time aoping and the Transformation of China, Harvard scholar Ezra Vogel recounts how, at the age of 87 and three years into retirement, Deng took a train journey from Beijing to Shanghai and Shenzhen, lighting little fires of protest against the return to power of anti-reform conservatives and Maoists in Beijing. He would tell party functionaries from small towns and villages, who came to greet him as his train journeyed south, that they should strengthen the hands of the reformists in Beijing. It was not as massive an initiative as Maos own bombard the headquarters, but it had the impact that Deng sought. Jiang Zemin, Dengs chosen successor who was guilty of trying to roll

back Dengs policies under pressure from the CPCs more conservative Maoists, flew down to reassure him that he would continue to walk the path set by Deng. In response to criticism that economic liberalisation had led to greater corruption, Deng told his comrades, You have to use a twofisted approach. With one hand, grab reform and opening. With the other, you grab every kind of criminal behaviour. You have to have a firm grip with both hands. All this finds an echo in todays India. If New Delhi cannot move fast enough on the economic policy front because of coalition compulsions, nothing stops proreform and pro-liberalisation chief ministers from moving faster in their own states. Second, taking measures that would unleash the animal spirits of private enterprise need not mean that the law would not take its own course, to use an Indian euphemism, in dealing with corruption and cronyism. Today, in no major country in the world is there the kind of strong and powerful political leadership that many idle critics of Prime Minister Manmohan Singh seek in India. Barack Obama is no Ronald Reagan or even Bill Clinton. Angela Merkel is no Konrad Adenauer or Helmut Schmidt. David Cameron is no Margaret Thatcher. Wen Jiabao and Hu Jintao put together are no Deng Xiaoping. Only a Vladimir Putin fancies himself to be a latter-day tsar, and can do so as long as oil prices remain high. The world as a whole is gripped by political risk aversion on the economic front. Even so, the space to act can always be found, as we now find Dr Singh attempting to, and those who begin walking make their own path, to quote an old Chinese saying. The writer is director for geo-economics and strategy, International Institute for Strategic Studies, and honorary senior fellow, Centre for Policy Research, Delhi
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EDITOR
Nation building
Emergency at the Idea Exchange programme (If I have rubbed people the wrong way, I have also been rubbed the wrong way, IE, July 15) has been quoted partially. True, I said that I wished the Emergency had lasted longer, but I also added that the atrocities committed and sacrifices made during the period would have steeled us into a nation. Only those people who had the stamina to suffer would have survived. I gave the example of prime minister Lal Bahadur Shastri, who said that India would have emerged as a nation from hostilities with China if we had not accepted the unilateral ceasefire. Kuldip Nayar Delhi
MY COMMENT on the

Letters to the

Bitter gag

PRABHASH RANJAN
HE six-month deadline issued by Sistema, a Russian corporation, to the Indian government to amicably settle the investment dispute, under the India-Russia Bilateral Investment Treaty (BIT), will expire on August 28. The dispute had arisen because of the cancellation of the 2G licences by the Supreme Court. After the deadline expires, Sistema reserves the right to begin proceedings against India in an investment treaty tribunal. As the date nears, the Department of Telecommunications (DoT) is trying to put in place a team of legal experts to look into Sistemas notice. An inter-ministerial group (IMG) has already been constituted to handle the legal notice. Similar notices have been issued by other foreign corporations like Telenor and Vodafone. However, Indias flawed understanding of the real character of BITs has given rise to all kinds of myths and half-truths. The first myth is that BITs can be invoked only against the actions of the government, that is, the executive. On Sistemas notice, for example, the dominant view is that it wouldnt hold water because the licences were not cancelled by the government. This is erroneous. In addition to the executive, sovereign actions of the judiciary and the legislature can also violate international law contained in a BIT, for which India, as a country, will be liable. Lord Goldsmith, former attorney general of the United Kingdom,

India must aim to balance its right to regulate with investment protection
recently said that courts are considered part of the state under BITs. Thus, a decision of any organ of the state, including the judiciary, can be challenged under a BIT, provided the action is an exercise of sovereign function. A recent case in point is White Industry, an Australian company, successfully pursuing a claim against India on the violation of the India-Australia BIT, involving the Indian judiciary. The second myth is that BITs do not apply to issues related to taxation. The IMG constituted in response to Vodafones notice to the Indian government under the India-Netherlands BIT rebroad manner, covering all kinds of assets. The definition of investment in all Indian BITs covers investment, portfolio investment, intellectual property rights, rights to money or to any performance under contract having a financial value or business concessions conferred under law or contract. An important aspect of BITs is that they bestow on foreign investors the right to prosecute their claims against the sovereign regulatory actions of the host state (investor-state dispute settlement), independent of their home country governments. This monumental provision plays an important role in enabling BITs to countries like Nepal, and put Indian investment abroad in peril. The daunting challenge posed by BITs does not stem from the investor-state dispute settlement provision, but from the broad substantive protections covered in the treaty, which do not balance investment protection with Indias right to regulate. The way forward for India is to focus on renegotiating such provisions and narrowing their scope as per its developmental priorities. Renegotiating BITs is not as difficult a job as it is often made out to be most obligations under them are for 10 years, with the option of reviewing the BIT after this period. According to the United Nations Conference of Trade and Development, since 1998, more than 130 BITs worldwide have been renegotiated. Further, renegotiating a bilateral treaty is easier than renegotiating a multilateral treaty like the WTO, for example. India has a pretty successful track record in renegotiating Double Taxation Avoidance Agreements (DTAAs) in order to address concerns related to tax evasion and black money. If bilateral DTAAs can be re-negotiated, so can BITs. Our policy makers will do well to remember that we should not throw the baby out with the bathwater. The writer is an associate professor at the National Law University, Jodhpur
[email protected]

Renegotiating a BIT

messenger (IE, July 14) by Shekhar Gupta, a free and properly functioning media is a strong pillar of democracy. The Indian media is at a critical juncture right now. It could decide to correct itself or let the malaise deepen, making it necessary for a regulatory law to be enacted. Such gagging measures will do more harm than good. Sunil Pawar Pune
THIS refers to Shoot me, the messenger. All media freedoms may not be drawn from a Rousseauian post-Emergency social contract. Moreover, introspection and selfregulation may not be enough to correct the ills that plague the media, especially when it seems to have lost sight of its original role. Perhaps external regulators are necessary. Santosh K. Patra Ahemdabad SEVERAL issues are raised in the article Shoot me, the messenger ownership and regulation of the media, for instance, and the problem of paid news. If politicians, bureaucrats and top-ranking army officers can come under the scanner, why cant mediapersons submit themselves to scrutiny? The media should remember that it is entrusted with the task of bringing out the legitimate grievances of people. Its enormous power should not be misused. S.C. Panda Bhubaneswar

APROPOS Shoot me, the

Libya is essential for stability in the Maghreb and beyond. The likely liberal victory inspires hope
ties and Islamist radicals, even the conservative east and tribal south appear to have supported the NFA, preferring its pragmatic and moderate leader, believed to be most capable of running a government. Although some hold against Jibril his earlier service to the Gaddafi regime, his leadership of the National Transitional Council through the civil war, till his resignation last October, has served him well in an overarchingly centrist polity. From human rights and economic growth to handling the militias and assuaging the federalist east, the new administration will have its hands full. A stable Libya is essential for stability in the Maghreb and beyond. Mali, where the Timbuktu shrines have been desecrated by Islamist rebels, is the first victim of Libyas protracted civil war, with arms and fighters pouring in since Gaddafis fall. Given its long and bloody path to change, Libyas apparent liberal turn through the ballot should inspire hope.

Tripoli times

A decision of any organ of the state can be challenged under a Bilateral Investment Treaty, provided the action is an exercise of sovereign function.
portedly feels that taxation matters are outside the ambit of BITs. The fact is they are a part of the host states sovereign regulatory functions and hence fall within the ambit of BITs, unless explicitly excluded. There are many instances where foreign corporations have raised matters related to taxation under BITs. For example, an American company, Occidental Exploration, successfully pursued a case against Ecuador involving a taxation related issue under the US-Ecuador BIT. The third myth is that only foreign direct investment (FDI) falls under the ambit of BITs. Yet they define investment in an extremely provide real protection to foreign investment. Apparently, some in the Indian government are of the view that the challenge posed by BITs should be dealt with by deleting the investor-state dispute settlement clause. However, not having this clause in a BIT will noticeably reduce the efficaciousness of these treaties in protecting foreign investment. It will add to the existing policy and regulatory upheaval, further dampening the spirit of foreign investors to invest in India. Moreover, deleting the investor-state dispute settlement provisions in BITs will negatively affect many Indian companies who have invested majorly in Africa, Latin America and other

N A sinister indication of the challenge that confronts Mahmoud Jibrils 60-party National Forces Alliance (NFA), the head of Libyas Olympic committee has been abducted in Tripoli. The incident casts its shadow over this months successful elections, early results of which suggest a victory for the liberal NFA. Since the fall of Muammar Gaddafi last October, Libyas interim administration has struggled to control armed militias. Disarming and returning them to the mainstream will be a top priority for the new government, as part of its efforts to unite Libyas tribes and regions, even as it contends with and co-opts the religious parties such as the NFAs main rival, the Justice and Construction Party, affiliated to the Muslim Brotherhood which appear to have lost the polls, unlike their counterparts in postArab Spring Egypt and Tunisia. Suspicious of radical Islamist ideology, and thus of religious par-

Gujarat routs

WORDLY WISE
Victor Hugo

When dictatorship is a fact, revolution becomes a right.

S SCIENTISTS have devised a new way of storing and delivering mercially useful little cocoon that must withstand rain and dramatic temvulnerable antibiotics and vaccines, with a little help from the perature changes and protect vulnerable organisms. They identified silk moth. Infectious diseases kill millions of children components of the silk that were strong, moisture-resistant, bioevery year, and continue to do so in the developing world more compatible and stable at high temperatures, and began experithan two decades after the World Health Organisation, Unicef menting with new ways of conserving MMR vaccines and peniand charities such as Rotary International launched a campaign cillin in gels, matrices and tiny pockets of silk. The latest news is to eliminate polio and immunise every child against the six PRINTLINE that, after six months at 37C and even 45C, the experimental biggest killers... silk-wrapped vaccines were still potent... Pure science pays Two researchers from Massachusetts report in the Proceedings of the Na- dividends unpredictably, but dividends all the same. tional Academy of Sciences that they took a closer look at the curious properties of the proteins made by the Bombyx mori, which spins a comFrom a leader in The Guardian, London

Cocoons made by the silk moth may be used to store antibiotics in hot climates

A different yarn

with the travails of the Congress in Gujarat than veteran politician Shankarsinh Vaghela (Standing still, IE, July 14). He has switched from the BJP to the Congress and, by his own admission, considered leaving the Congress as well. The Congress cuts a sorry figure in Gujarats electoral battles as the party leadership has no strategy to take on the BJPs Narendra Modi. Neither is the Congress prepared to throw its weight behind any of the regional parties. Perhaps it fears those regional leaders will become too powerful. The Congress should stop pussyfooting around a viable campaign strategy if it wants to reverse its political decline in Gujarat. Hema Langeri

FEW are better acquainted