Sunday, February 28, 2010

Resolving Pakistan's Circular Debt, Electricity Shortages

As Pakistanis discuss major causes and crippling effects of the worst ever power crisis in the nation's history, "load shedding" and "circular debt" are two key phrases that have entered the vocabulary of average people in Pakistan during the last few years.

Load Shedding:

What do these common phrases mean? Let me start with "load shedding" first. Long and daily power outages are called "load shedding". "Load shedding" is supposedly an attempt to share a limited resource equitably among many consumers. In addition to insufficient installed capacity as the culprit, the dramatic increase in "load shedding" in the last two years is commonly also blamed on growing "circular debt" which results in significant under-utilization of power plants already in place. There is credible data to suggest that the deepening electricity crisis since 2008 has more to do with the independent power producers(IPPs) operating at less than 50% of their installed capacity because they can not pay for the fuel they need to produce more. The outgoing finance minister Mr. Shaukat Tarin acknowledged the problem of circular debt, and tried to focus on it. He even threatened to quit last year over the lack of resolution of this problem. However, he was only partially successful in paying down the government debt. He is reportedly taking a parting shot at the problem on his final day in office.

Key Players:

The key players in this "circular debt" trap are the federal and provincial governments as the biggest deadbeats, the power distributors like KESC, the power producers like Pepco and Hubco, and the fuel suppliers like government-owned Pakistan State Oil (PSO) and partially state-owned Pak-Arab Refinery Ltd (PARCO). This debt circle begins with the government as the biggest debtor and ends with a government-owned entity as the biggest creditor. So the obvious question is: If the government is both the biggest debtor and the biggest creditor, then why is it that the government leaders can not solve the problem? Is it the lack of will? or the lack of competence? Is there a personal profit motive of the top leader of the ruling PPP, who is allegedly pushing rental power plants (RPPs) contracts ahead of the speedy resolution of circular debt? Is it a combination of corruption and incompetence? The answer to these questions depends on who you ask.

Circular Debt:

While you ponder possible answers to the question of resolving circular debt, let me share with you an interesting story posted by Naresh Goyal that explains circular debt and how it can be resolved:

It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.

Suddenly, a rich tourist comes to town... He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to choose one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher. The butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel...

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town's prostitute that in these hard times, gave her "services" on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.....


Summary:

Clearly, the circular debt problem has assumed alarming proportions, threatening Pakistan's future. The IMF and the US officials in their recent meetings with Pakistan government have described the circular debt as a significant threat to the country’s economy.

After signing hundreds of millions of dollars worth of rental power plant (RPPs) projects in the face of harsh criticism, the government is finally starting to deal with rising circular debt to address power shortages. Outgoing finance minister Saukat Tarin recently told the News that “in real terms the circular debt has swelled to Rs108 billion which mainly includes non-payment of Rs42 billion by KESC, Rs21 billion by the government of Sindh and Rs15-16 billion from commercial consumers to the Pakistan Electric Power Company (Pepco)".Just prior to leaving office, Tarin has decided to raise Rs. 25 billion as a small step toward settling a debt estimated at hundreds of billions of rupees.

Unless Pakistani government deals with the economics of power generation by boldly tackling the issue of growing circular debt quickly, it will be almost impossible to get the IPPs to fully utilize existing installed capacity, much less attract new investments in the power sector.

Related Links:

Tarin's Parting Shot at Circular Debt Problem

Circular Debt: Finance 3.0

Shaukat Tarin Resigns

US Fears Aid Will Feed Graft in Pakistan

Pakistan Swallows IMF's Bitter Medicine

Shaukat Aziz's Economic Legacy

Pakistan's Energy Crisis

Karachi Tops Mumbai in Stock Performance

Pakistan's Electricity Crisis

Pepco Increases Load Shedding By 5 Hours

Friday, February 26, 2010

India to Borrow $100 Billion For $240 Billion 2010 Budget

India's 2010-2011 budget of 11.08 trillion rupees ($240 billion) represents an increase of 8.6% over 2009-2010. The government plans to borrow $100 billion to finance the deficit during the fiscal year.

Going forward, India plans to cut the deficit to 5.5 percent of gross domestic product in the year starting April 1 from 6.9 percent the previous year. The effort, which relies on tax increases and 400 billion rupees ($9 billion) of state asset sales, is aimed at shrinking a debt burden equivalent to about 82 percent of the GDP.

The defense allocation for 2010-2011 is up another 8.13 percent on top of the massive 34% increase in 2009-2010, according to media reports.

India's defense expenditure has been raised to Rs.147,344 crore (Rs.1.47 trillion/$32 billion) for 2010-11, up 8.13 percent from the revised estimates of the previous fiscal, in the budget presented by Finance Minister Pranab Mukherjee in the Lok Sabha today.

According to the Wall Street Journal, India is one of the largest buyers of foreign-made munitions, with a long shopping list which includes warships, fighter jets, tanks and other weapons. Its defense budget is $30 billion for the fiscal year ending March 31, a 70% increase from five years ago. The country is preparing its military to deal with multiple potential threats, including conflict with China and Pakistan.

"For 2010 and 2011, India could well be the most important market in the world for defense contractors looking to make foreign military sales," according to Tom Captain, the vice chairman of Deloitte LLP's aerospace and defense practice.

In addition to defense, the much-needed social sector spending has also received a significant boost in the new budget.

• The spending on social sector has been gradually increased to Rs1,37,674 crore in 2010-11, which is 37% of the total plan outlay in 2010-11.

• Another 25% of the plan allocations are devoted to the development of rural infrastructure.

• Plan allocation for school education increased by 16% from Rs26,800 crore in 2009-10 to Rs31,036 crore in 2010-11.

• In addition, States will have access to Rs3,675 crore for elementary education under the Thirteenth Finance Commission grants for 2010-11.

• An Annual Health Survey to prepare the District Health Profile of all Districts shall be conducted in 2010-11.

• Plan allocation to Ministry of Health & Family Welfare increased from Rs19,534 crore in 2009-10 to Rs22,300 crore for 2010-11.

With 4.57 trillion rupees (about $100 billion) budget shortfall, the Indian government plans record levels of borrowing next year and will count on surging economic growth to help cut its fiscal deficit, putting pressure on the Reserve Bank of India (RBI) to be more aggressive in its monetary tightening, according to Reuters. Interest rate hikes by the RBI will raise the cost of borrowing by the private sector companies, and hurt India's economic growth.

Some analysts have praised the plan to reduce the fiscal deficit to 5.5 percent of the projected GDP in the new year from 6.9 percent of actual GDP this year, with further declines in planned coming years, and a RBI deputy governor said the budget addressed concerns on fiscal discipline. But other analysts said India had missed a chance to take more aggressive fiscal measures as Asia's third-largest economy gathers speed, reinforcing perceptions that the coalition government lacks the firmness to make tough decisions.

On top of the union budget deficit of 6.9% of GDP, the gross fiscal deficit of state governments is budgeted to increase to 3.2% of GDP in 2009-10 (Budget estimates), compared with 2.6% of GDP in 2008-09 (revised estimates). Revenue account turned from a surplus of 0.2% in 2008-09 (RE) to a deficit of 0.5% of GDP in 2009-10 (BE), according to a study 'State Finances: A Study of Budgets of 2009-10,' released by the Reserve Bank of India (RBI).

The study also noted that state-wise, revenue accounts of four states West Bengal, Punjab, Kerala, and Rajasthan recorded revenue deficits during 2008-09 (RE). Jharkhand turned from a revenue deficit to a revenue surplus state. In 2009-10 (BE), 10 states are expected to turn revenue deficit from a surplus status in the previous year. Overall, the revenue account is expected to be adversely impacted in the case of 23 states during 2009-10 (BE), the study noted.

The debt-GDP ratio of state governments came down to 26.2% in 2008-09 (RE) from the peak level of 32.8%, at the end of March, 2004. However, outstanding debt is budgeted to increase marginally to 26.5% of GDP by end-March 2010. The XII Finance Commission had recommended that states achieve a debt-GDP ratio of 30.8% till the end of March 2010.

In an opinion piece on Countercurrents, India's former commerce minister has said that Mukherjee "has failed to address the core issues of reducing public debt, curb the dangerously high fiscal deficit[ even the claimed target for 2010-11 of 5.5 per cent is too high, and will represent a huge diversion of funds with public sector banks away from private sector investment], and introduce innovation into the ailing industries such as Textiles, Food Processing, Power Generation and Distribution. Hence, despite his heroic effort to put together a promising Budget, he has at best produced a damp squib for financial reforms".

Swamy is particularly concerned about India's growing public debt which is now "over 90% of GDP and on an exploding trajectory".



Although rising public debt is always a concern, I think India's saving grace is that about 90% of its public debt is owed to its own citizens who save about 30% of their income. Of the rest, a big chunk of debt is held by IFIs like the World Bank, which, are not likely to press for quick repayment. At $230 billion, India's external debt accounts for 22% of GDP as of March 2009, according to Reserve Bank of India. In terms of the international comparison of external debt of the twenty most indebted countries, India was the fifth most indebted country in 2007.

Swamy further said that the Indian "agriculture has been poorly performing since 2003 due to investment starvation and lack of adequate purchase price. Indian manufacturing sector unlike the Chinese’ is domestic demand driven. IT software giants were skillful in finding new markets and cheaper labor from tier II and III cities in India. All, no thanks to government".

Members of the opposition in Indian parliament boycotted much of the budget session, saying government plans to increase fuel prices would further add to the woes of millions of Indians hit by high prices.

Related Links:

Highlights of Indian Budget 2010-2011

Indian Budget 2010-11: Strapped And Shackled By The Past

Reserve Bank of India: India's External Debt

India Budget Raises Borrowing to New Records

South Asia Slipping in Human Development

India's Defense Budget: Guns Versus Butter

Indian Military Brass Challenges China and Pakistan

India's Defense Spending: Facts Beyond Figures

Pakistan's Defense Budget

World's Top Arms Importers

PHI Poverty Hunger Index

Wednesday, February 24, 2010

Pakistan's Finance Minister Resigns Post

Pakistan's finance minister Mr. Shaukat Tarin has resigned. Tarin is an accomplished banker and a protege of former Prime Minister Shaukat Aziz. He became Pakistan's finance minister in October 2008 when the nation's economy was on the brink of collapse. He led the negotiations with the International Monetary Fund for a 23-month, US $7.6 billion bailout package that boosted Pakistan's foreign-exchange reserves and helped avert a sovereign default.

There have been rumors that the ruling PPP politicians, particularly President Zardari and his inner circle, have ignored Tarin's key recommendations to address the acute power shortages in the country. Zardari's insistence on pushing rental power projects, rather than fix the huge circular debt problem in the energy sector first, specially frustrated the outgoing finance chief, when he reportedly threatened to quit last year.

In spite of the obstacles Tarin faced in his job, he has managed to stabilize the economy. International credit rating agencies Moody's and Standard and Poor both raised Pakistan's credit rating and outlook last year as reported by Bloomberg News.

S&P increased its rating on Pakistan’s long-term sovereign debt to B- from CCC+, six levels below investment grade and the same ranking as the Ukraine and Argentina. The outlook was maintained as stable.

“The upgrade reflects Pakistan’s improved external liquidity position, coupled with its successes in implementing corrective policy measures to rectify an unsustainable fiscal trajectory,” S&P said in a statement. “A narrowing current account deficit, helped by buoyant remittance inflows, and successive disbursals of the IMF and other multilateral loans have reduced the risk of near-term external payment difficulties for Pakistan,” S&P added in its statement last year.

Tarin recently said that Pakistan's economy may grow by at least 3.4%--faster than previously estimated--driven by a likely rebound in its manufacturing sector.

"The economy has started showing signs of recovery, but more work is needed on structural reforms," Tarin was reported as saying by the media.

The manufacturing sector, which makes up 25% of GDP, is now forecast to expand 5.5% this fiscal year ending in June, 2010, after having contracted by a similar margin last year, Tarin said. However, federal finances will be strained due to higher military expenditure and subsidies on electricity, he added.

As a result of investor confidence in Mr. Tarin's economic leadership, Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms, in a year that also saw the South Asian nation wracked by increased violence and its state institutions described by various media talking heads as being on the verge of collapse.

Media reports have recently quoted Mr. Tarin as saying the government plans to meet investors in March to raise between $500 million and $1 billion in the last quarter of the current fiscal year, ending on June 30.

Here's the latest IMF assessment of Pakistan's economy on Tarin's watch, as reported by a private news channel Geo TV:

Pakistan’s economic growth has started recovering despite security and energy challenges and the country met almost all targets under the International Monetary Fund program, the global financial institution said Tuesday.

“Pakistan’s program is progressing well,” the Fund said in a statement following “constructive discussions” with Pakistani officials focusing on Pakistan’s recent economic performance, the outlook for the rest of the fiscal year.

Adnan Mazarei, who met with the Pakistani officials in Dubai over the past week to initiate discussions on the fourth review under Pakistan’s Stand-By Arrangement (SBA), noted that Islamabad observed all quantitative performance criteria for end-December 2009, except for the budget deficit target, which was exceeded by a small margin.

Listing positive trends Pakistan registered in recent months, the Fund said the exchange rate has remained stable at Rs. 84–85 per U.S. dollar and the international reserves position has strengthened (the banking system’s gross foreign exchange reserves, including the State Bank and commercial banks, reached US$14.3 billion in mid-February, of this total the State Bank held US$10.5 billion).

The early signs of recovery in some sectors and the improved external position are encouraging, although there are risks and challenges to Pakistan’s economic program.

“Economic growth in Pakistan is starting to recover; large-scale manufacturing output has started to increase, the improvement in the global economy has helped manufacturing exports, and private sector credit growth has picked up somewhat as businesses rebuild their working capital.”

The IMF’s package for Pakistan - approved in November 2008-has been extended to $11.3 billion.

Looking ahead, the IMF statement said, a resumption of higher growth is needed to raise living standards and will require improvements in the business climate to stimulate higher investment by local and foreign investors.

The financial institution also noted that the “resolve of the Pakistani authorities to implement their stabilization and reform program is a key factor in deepening macroeconomic stabilization, despite the risks associated with internal security and uncertainty as to the pace of global economic recovery.”

Emphasizing the need for stepped up donors support for the key anti-terror partner of the international community, the Fund said early disbursement of donor financing remains crucial to support Pakistan’s stabilization and reform efforts and laying the basis for a high and sustainable growth.

The IMF mission staff will prepare a report on the fourth review under Pakistan’s SBA that is scheduled for consideration by the IMF Executive Board in late March.


Pakistan should be able to attract financing from abroad "to the extent that they can demonstrate that there has been progress on these three fronts: growth; stand-alone external liquidity; and quality and size of budgetary revenues," Aninda Mitra, a vice president at Moody's, told the Wall Street Journal.

Mitra said if Pakistan's economic growth could return to a range of around 4%-5% "sooner than later without generating macroeconomic imbalances or inflationary pressure, that will be a pretty notable outcome."

It is also important for Pakistan to be able to enjoy sufficient external liquidity without depending on further contingent support from external official sources and for it to manage long-term budgetary pressures, he said.

Financial markets appeared to take news of Mr. Tarin's departure in stride.

Pakistan's dollar-denominated bonds and the costs of insuring against a default or restructuring of its debt were steady Wednesday. Its five-year credit default swap was last quoted at 1,112 basis points, or hundredths of a percentage point, on the bid side while its bonds were hardly traded. With holders of Pakistan's bonds mostly buy-and-hold investors, and given the small size of outstanding issues, trading volume tends to be relatively low.

Wall Street Journal says Pakistan's fiscal improvement has stalled recently mainly due to unforeseen factors such as the delays in the receipt of pledged aid from friendly countries as well as the conflict in the northwestern part of the country and resulting delay in military reimbursement from the U.S.

"The government has had to issue debt to finance such shortfalls," Mr. Mitra said. "We don't think that these are permanent or deep setbacks for the fiscal situation regardless of the transition" of leadership at the finance ministry, he added.

Media reports indicate front-runners to succeed Tarin include Nasim Beg, CEO of Arif Habib Investments Ltd.; Planning Minister Makhdoom Shahab-ud-Din; and Junior Minister for Economic Affairs Hina Rabbani Khar, who presented the 2009-10 budget in parliament last year.

Although IMF is closely watching Pakistan's economic management for now, I believe it is still very important for the next finance minister to be persuasive, and display sufficient independence from the political leadership in managing the nation's economy as a professional.

Related Links:

US Fears Aid Will Feed Graft in Pakistan

Pakistan Swallows IMF's Bitter Medicine

Shaukat Aziz's Economic Legacy

Pakistan's Energy Crisis

Karachi Tops Mumbai in Stock Performance

Tuesday, February 23, 2010

Next 100 Years For India, Pakistan and the World

Amidst Pakistan's current troubles, Indian officials and mainstream media continue to display unconcealed delight in painting Pakistan as a "Failed State". And as they offer unsolicited advice to their neighbor, they ignore the ground reality that if Pakistan is a failed state, then India is as failed a state as Pakistan, if not more so.

Why is India a Failed State?

The reality of the failure of Indian state is as obvious as daylight. The Indian state's abject failures in delivering bare minimum services to its people, and its inability to solve India's basic problems are there for everyone to see.

Not unlike North Korea, India is engaged in a massive arms buildup while almost half of its children are near starvation. A nation-state like India that fails to take care of 46% its children's basic nutrition needs has to be a failed state. In fact, George Friedman of Strafor raises serious doubts about India's viability as a modern nation-state, and dismisses the talk of its emergence as one of the great powers of the 21st century. Friedman does not accept that any of the four BRIC nations (Brazil, Russia, India and China) will achieve great world power status in this century. Instead, he believes that Turkey, Poland and Japan will join the United States as the most important world powers in the next 50 years.



Here are some shocking statistics shedding light on India's failures:

One out of every three illiterate adults in the world is an Indian, according to UNESCO.

One out of very two hungry persons in the world is an Indian, according to World Food Program.

Almost one out of two Indians lives below the poverty line of $1.25 per day.

And yet, India spends $30 billion on defense, and just increased the defense budget by 32% this year.



Here are some more recent comparative indicators in South Asia:

Poverty:

Population living under $1.25 a day - India: 41.6% Pakistan: 22.6% Source: UNDP

Underweight Children Under Five (in percent) Pakistan 38% India 46% Source: UNICEF

Life expectancy at birth (years), 2007 India: 63.4 Pakistan: 66.2 Source: HDR2009

Education:

Youth (15–24 years) literacy rate, 2000 to 2007, male Pak istan: 80% India 87% Source: UNICEF

Youth (15–24 years) literacy rate, 2000 to 2007, female Pak istan 60% India 77% Source: UNICEF

Economics:

GDP per capita (US$), 2008 Pak:$1000-1022 India $1017-1100

Child Protection:

Child marriage under 15-years ; 1998–2007*, total Pak istan - 32% India - 47% Source: UNICEF

Under-5 mortality rate per 1000 live births (2007), Value Pakistan - 90 India 72 Source: UNICEF

In spite of the grim statistics above, India is ranked the fourth biggest military spender in terms of purchasing power parity.

The poverty and hunger situation in Pakistan is only a bit less serious than in India.

The myth about Pakistan being a failed state is being pushed by people who are either ignorant about Pakistan, or have an ax to grind.

Here's a video clip of British writer William Dalrymple comparing India and Pakistan:



Do any serious analysts challenge the poverty and hunger figures for India, or the strength and scope of the Maoists insurgency? Absolutely not! Even Indian officials, including Planning Commission member Syeda Hameed and Prime Minister Manmohan Singh, agree with the data on hunger, poverty and malnutrition, as well the Maoists threat assessment.

In terms of the challenges to the writ of the state, India is host to some of the fiercest conflicts in the world. Since 1989 more than 80,000 have died in insurgencies in Kashmir and the northeastern states. About 25% of the Indian territory is outside the control of Indian authority.

Manmohan Singh himself has called the Maoist insurgency the biggest internal security threat to India since independence. The Maoists, however, are confined to rural areas; their bold tactics haven't rattled Indian middle-class confidence. In fact, the Maoists in India, led by the left-wing intellectuals with many urban sympathizers, have a greater chance of success in India than the poor, rural Pakistani Taliban, or other Islamic radicals in Pakistan, whose heavy handed tactics in Swat, and suicide bombings in Pakistani cities have destroyed whatever sympathies they had among the urban middle class.

Talking about failure to deliver minimum assistance to India's people, Indian Planning Commission member Syeda Hameed acknowledged in 2008 that India is worse than Bangladesh and Pakistan when it comes to nourishment and is showing little improvement.

Speaking at a conference on "Malnutrition an emergency: what it costs the nation", she said even Prime Minister Manmohan Singh during interactions with the Planning Commission has described malnourishment as the "blackest mark".

"I should not compare. But countries like Bangladesh, Pakistan and Sri Lanka are better," she said. The conference was organized last year by the Confederation of Indian Industry and the Ministry of Development of Northeastern Region.

According to India's Family Health Survey, almost 46 percent of children under the age of three are undernourished - an improvement of just one percent in the last seven years. This is only a shade better than Sub-Saharan Africa where about 35 percent of children are malnourished.

Is Pakistan a Failed State?

Do any serious analysts challenge Pakistan's place on failed state index? Absolutely! Not just one, many analysts do!

Dalrymple, a self-declared Indophile, is not alone in rejecting the myth of Pakistan being a failed state. Others who know South Asia and other parts of the world, such as Prof Juan Cole, Peter Bergen, and others, also reject this myth.

My reasons for saying that India is a failed state are simple: More than Pakistani state, the Indian state has miserably failed in meeting the very basic needs of its people (particularly children) for food, clothing, shelter and basic sanitation. In addition, India has larger swaths of its territory in central and eastern where state authority does not exist.

India-A Failed Democracy:

India is also a failed democracy and a bad poster child for democratic form of government. It's pervasive hunger, poverty, malnutrition, illiteracy, a huge and growing rich-poor gap, and a well-established system of caste-based Apartheid, and its terrible governance make its democracy a joke. And its history of widespread persecution of its minorities makes its secular label ludicrous.

Here's an American researcher and professor emeritus of University Washington explaining anti-Muslim riots in his 2003 book "Production of Hindu-Muslim Violence in Contemporary India":

Events labeled “Hindu-Muslim riots” have been recurring features in India for three-quarters of a century or more. In northern and western India, especially, there are numerous cities and towns in which riots have become endemic. In such places, riots have, in effect, become a grisly form of dramatic production in which there are three phases: preparation/ rehearsal, activation/enactment, and explanation/interpretation.1 In these sites of endemic riot production, preparation and rehearsal are continuous activities. Activation or enactment of a large-scale riot takes place under particular circumstances, most notably in a context of intense political mobilization or electoral competition in which riots are precipitated as a device to consolidate the support of ethnic, religious, or other culturally marked groups by emphasizing the need for solidarity in face of the rival communal group. The third phase follows after the violence in a broader struggle to control the explanation or interpretation of the causes of the violence. In this phase, many other elements in society become involved, including journalists, politicians, social scientists, and public opinion generally.

At first, multiple narratives vie for primacy in controlling the explanation of violence. On the one hand, the predominant social forces attempt to insert an explanatory narrative into the prevailing discourse of order, while others seek to establish a new consensual hegemony that upsets existing power relations, that is, those which accept the violence as spontaneous, religious, mass-based, unpredictable, and impossible to prevent or control fully. This third phase is also marked by a process of blame displacement in which social scientists themselves become implicated, a process that fails to isolate effectively those most responsible for the production of violence, and instead diffuses blame widely, blurring responsibility, and thereby contributing to the perpetuation of violent productions in future, as well as the order that sustains them.


Busting Myths of India as Peaceful, Stable and Prosperous":

Here's Indian writer Pankaj Mishra busting the myth of "Peaceful, Stable and Prosperous India":

Apparently, no inconvenient truths are allowed to mar what Foreign Affairs, the foreign policy journal of America's elite, has declared a "roaring capitalist success story". Add Bollywood's singing and dancing stars, beauty queens and Booker prize-winning writers to the Tatas, the Mittals and the IT tycoons, and the picture of Indian confidence, vigour and felicity is complete.

The passive consumer of this image, already puzzled by recurring reports of explosions in Indian cities, may be startled to learn from the National Counterterrorism Center (NCTC) in Washington that the death toll from terrorist attacks in India between January 2004 and March 2007 was 3,674, second only to that in Iraq. (In the same period, 1,000 died as a result of such attacks in Pakistan, the "most dangerous place on earth" according to the Economist, Newsweek and other vendors of geopolitical insight.)


I agree with India's Dalit leader, constitution architect and first law minister Dr. Bhimrao Ambedkar's statement that "Democracy in India is only a top dressing on an Indian soil, which is essentially undemocratic."

As someone described it recently, the Indian republic is like Henry Wadsworth Longfellow’s Slave’s Dream. It was created by a people that were subjugated by colonialism and its republican ideals were shaped by a human rights pioneer who rose from the lowest strata of the country’s enduring caste system, a form of slavery in some ways more degrading than apartheid. But after 62 years of independence, over 250 million Indian Dalits are victims of caste-based discrimination and segregation in India. They live miserable lives, shunned by much of society because of their ranks as untouchables or Dalits at the bottom of a rigid caste system in Hindu India. Dalits are discriminated against, denied access to land, forced to work in slave-like conditions, and routinely abused, even killed, at the hands of the police and of higher-caste groups that enjoy the state's protection, according to Human Rights Watch.

India's Secularism Is a Myth:

Regarding secularism, here's how Kapil Komireddy demolishes the myth of Indian secularism in a piece he wrote for the Guardian newspaper:

For decades Indian intellectuals have claimed that religion, particularly Hinduism, is perfectly compatible with secularism. Indian secularism, they said repeatedly, is not a total rejection of religion by the state but rather an equal appreciation of every faith. Even though no faith is in principle privileged by the state, this approach made it possible for religion to find expression in the public sphere, and, since Hindus in India outnumber adherents of every other faith, Hinduism dominated it. Almost every government building in India has a prominently positioned picture of a Hindu deity. Hindu rituals accompany the inauguration of all public works, without exception.

The novelist Shashi Tharoor tried to burnish this certifiably sectarian phenomenon with a facile analogy: Indian Muslims, he wrote, accept Hindu rituals at state ceremonies in the same spirit as teetotallers accept champagne in western celebrations. This self-affirming explanation is characteristic of someone who belongs to the majority community. Muslims I interviewed took a different view, but understandably, they were unwilling to protest for the fear of being labelled as "angry Muslims" in a country famous for its tolerant Hindus.

The failure of secularism in India – or, more accurately, the failure of the Indian model of secularism – may be just one aspect of the gamut of failures, but it has the potential to bring down the country. Secularism in India rests entirely upon the goodwill of the Hindu majority. Can this kind of secularism really survive a Narendra Modi as prime minister? As Hindus are increasingly infected by the kind of hatred that Varun Gandhi's speech displayed, maybe it is time for Indian secularists to embrace a new, more radical kind of secularism that is not afraid to recognize and reject the principal source of this strife: religion itself.


The Next 100 Years:

Contrary to conventional wisdom, George Friedman, Chairman of Stratfor, and author of "The Next 100 Years", sees the United States, Turkey, Poland and Japan as the great powers of the 21st century.

Friedman raises serious doubts about India and China staying united as modern nation-states, much less emerge as great powers of the 21st century. He says India and China are regionally fragmented and it's very difficult to govern the vast nations from from Delhi or Beijing. He does not foresee Brazil or Russia emerge as great powers of the 21st century either, essentially dismissing all four members of the the much-hyped BRIC countries.

Talking about the emergence of South Korea and Israel as modern industrialized states, Friedman singles out the value of the transfer by the US of F-16s as a catalyst for recipient countries' development of skills and technical know-how. He makes no mention of Pakistan's development of the F16 maintenance and training infrastructure at Kamra PAC for its F16s in this context.

Friedman says the Islamic World will recover from the current chaos imposed by the United States in its conflict with al Qaeda. He also argues that Turkey, not Pakistan, Indonesia, Iran, or Egypt, will emerge as a great world power, and the leader of the Muslim world.

Here's how Friedman describes the four great powers of the twenty-first century:

Japan, Turkey, and Poland will each be facing a United States even more confident than it was after the second fall of the Soviet Union. That will be an explosive situation. As we will see during the course of this book, the relationships among these four countries will greatly affect the twenty-first century, leading, ultimately, to the next global war. This war will be fought differently from any in history—with weapons that are today in the realm of science fiction. But as I will try to outline, this mid-twenty-first century conflict will grow out of the dynamic forces born in the early part of the new century.

"BRIC" is an acronym coined by Goldman Sachs to bracket four disparate nations of Brazil, Russia, India and China together just because of their large populations. Similar logic is used in GS's "Next 11" group of emerging nations which include Pakistan and Turkey.

I think population alone can not be used as a determinant for the future, although nations with higher than replacement fertility rate (TFR of 2.1 or greater) will have some advantage in the 21st century. Conversely, the nations with aging populations and sub-replacement fertility rates, such as Japan, Poland and Russia, will be disadvantaged.

I also think that the predictive abilities of most analysts, including Friedman, are limited by the present. Future is often seen as a highly exaggerated version of the present.

As Friedman himself says, Germany was predicted to be the greatest power of the 20th century. All that changed after two world wars, when America emerged as the most important world power, and the Soviet Union its biggest competitor. The same could happen in this century. We could see new players by 2050, such as Turkey and Poland, emerge in addition to US and Japan, rather than the much hyped BRICs. Only time will tell how the new world order emerges in the 21st century.

As to the nukes, I don't think we ought to be constrained in our thinking by the current status of nuclear weapons technology. New weapons and technologies can emerge to potentially make the possession of the current generation of atomic weaponry irrelevant. Space-based weaponry, and remote cyber warfare could determine the winners of future conflicts.





Related Links:

Dalit Victims of Apartheid in India

FAQs on India's Massive Arms Buildup

The Next 100 Years by George Friedman

Haq's Musings

Production of Hindu-Muslim Violence in Contemporary India

Case For Resuming India-Pakistan Talks

India 's Sane Voice Warns Against Smugness

Hindutva Terror to Spark India-Pakistan War?

Failed state? Try Pakistan's M2

Is Pakistan Too Big to Fail?

India and Pakistan Compared in 2010

Why is Democracy Failing in Pakistan?

Middle Class Clout Rising in Pakistan

Panka j Mishra Busts the Myth of Peaceful, Stable and Prosperous India

US Afghan Exit: Trigger For India-Pakistan Talks?

China's Growing Role in Kashmir

Monday, February 22, 2010

Pakistan's Crises Sowing Seeds of Class Struggle

During my visit to Pakistan last year, I saw first hand and wrote a post on this blog about how the upper and middle class urban Pakistanis are coping with growing crises of education, electricity, gas, water, and security. For example, I talked about a friend who is doing well selling small power generators and uninterruptible power supplies (UPS) for homes in Karachi. I also saw significant proliferation of private security companies, private schools, private water delivery businesses, and private clubs. Instead of helping improve the situation for all of their fellow citizens, it was clear that the Pakistani elite are retreating into their own bubbles to isolate themselves from the terrible effects of deteriorating governance in their land. This growing class divide is enhancing opportunities for Taliban and other insurgents to exploits class rifts in Pakistan.

Now I am sharing with you an interesting take on the situation in the following guest post by a Lahore-based freelance writer Mr. Zaair Hussain:

A Pakistani comedian once remarked that the country’s elite were cloistering into ever-smaller bubbles. Like all good humor, the comment provoked reflection long after laughter had faded.

To recognize our bubble is to recognize how we view those outside; from within those curved lenses, all without is distorted and alien. Even the best-meaning of us will crush the laborer in with the farmer, the beggar with the shopkeeper, the postman with the servant. We affix upon “the masses” a homogeneous mask, stripping them of their humanity. So ingrained is this habit, writing around that phrase was a painstaking task.

We dismiss them and they, for their part, resent us. They see us born into bubbles that rise effortlessly, for that is the nature of bubbles, and begrudge our sneering misconception that we rise because of some inner greatness. If you, sir or madam, were on the ground looking skywards, would you not pray with wicked delight for a sharp, terrible pop?

How has this schism become so advanced that the well-heeled have become aliens in their own land, by their own hand?

There are many culprits, but few so guilty as language.

The language of power and the language of the people are profoundly divided, just as when greater India was the jewel in the colonial crown. Pakistan has no monopoly on class divides and inequality. But in, say, England, the reduced and the royal alike hear the same speeches, can read the same poets, can engage in the same ideas. Closer to home, Iran and Bangladesh can boast the same.

Our schools, conversely, have failed us in language. No one poor in English, or poor in Urdu, has been greatly improved. The indigenous literature that was once the fierce pride of mailmen and mayors alike has evaporated to a curiosity, a hobby of the eccentric. We have lost Ghalib, and we never truly had Shakespeare. The falcon cannot hear the falconer.

I do not cast aspersion upon English; its versatility is unmatched, its literature rich. But we have unwisely decided to medicate our colonial hangover with a perverse mixture of an inferiority and superiority complex. Both are unfounded.

We have come to imagine that someone not educated in ‘proper’ English medium schools (like Dr Abdus Salam) is a prima facie simpleton.

The prime symptom is our obsession with the ‘correct’ accent. Woe unto those whose inflections are imperfect; their qualities will be lost to this pettiest of failings. When people launch into vicious mockery at a self-made actress’s pronunciation of “photographer” or “eyes”, they are spearheading a grotesque defense against what they see as a crack in their bubble.

The plummeting standards of local universities have deepened the divide; elite parents have pulled their progeny from Pakistani higher education institutions with all the deliberate subtlety of an 18th century dentist. Where once we were likely to remember the less privileged as our talented classmates, they are now absent from our worldview, labourers outside the glass divide, shadows without substance. In the halls of ideas, we have bid our adieus.

The state must shoulder a goodly share of the blame for our alienation. When we were snatched into darkness, we bought our own light. When we were left parched, we opened our wallets to private water that sprung up like costly oases in the desert. Left in fear, we hired and armed our own security. If the roads crack and fail, we will buy All-Terrain Vehicles. If legal justice fails us, we too will turn to the jirgas that spring up in every void left by the law like mushrooms in the dark places of the world. Things fall apart. And what then? A thousand, a hundred thousand self-important and insignificant micro-states will burst from the corpse of the old, and our alienation will be complete and irrevocable.

In our fear and frustration, we have created a false Eden and set before it an angel with a golden sword. Our homes, our offices, restaurants and retreats, clubs and celebrations. We protect these with a frenzied passion, and the password is always money. Great energy is expended jostling inwards, deeper into the bubble, until the world proper disappears from our senses altogether. We shuttle ourselves to and fro in smaller bubbles, our windows rolled all the way up. We live in a man-made chrysalis (chrysos = from gold) in which butterflies are formed, but never emerge. The center cannot hold. This, the third and final line I purloin from Yeats’ masterpiece ‘The Second Coming’ applies here save for this: we barely have a center to speak of, merely two peripheries in accelerating retreat, connected only by a rickety bridge creaking ominously in the wind. Soon that frail structure shall sigh its last and the two groups, needing each other desperately, will be left exchanging suspicious glances across a pitiless void.

But we are not yet beyond hope. The spiritual muscle that unites us in camaraderie has grown weak, but is not yet vestigial. When the ground opened beneath our feet in 2005 and hell itself seemed poised to break what it had not already swallowed, the men and women of Pakistan came forth in an effort that must have moved the most cynical of hearts. With their sinews and wallets, however great or small, they came to the aid of their countrymen.

Is it the reason we so cherish our cricket victories? When we cheer as one nation, we are for a fleeting moment linked to the mass of humanity that we otherwise reject, ignore or exclude.

It is not charity I advocate. Our compassion is ours to give or withhold. What everyone is entitled to is kinship, our acknowledgment that we and they are cut from the same mysterious cloth. Without kinship, wealthy and impoverished alike are beggared.

At the least, let us lobby for our sports, our arts, our culture (whether traditional pottery or desi rock). All persons, whatever else they lack, have souls that can swell and fall in unison. That which grew weary in isolation can revive itself in commonality, in knowing the full, true scope of experience that lies just beyond reach.

Let us refuse to accept that our best schools are incapable of teaching us our own language; they have taught us so much, so well. They must teach us how to speak so we can be heard, write so we can be read.

Let us tear away some morsels to fund our universities. We deserve it. Not we, the elite, but we, the people. We deserve to engage intellectually with the best our country has to offer. Let us feud and bicker our college years away, attacking ideas rather than accents, and come away enriched.

Let us sit on the patio of caf├ęs and watch the world go by. Walk when we can and be jostled and irritated and marvel at the textures of life we too often handle with gloves that are velvet on the inside and iron on the outside. Demand and embrace parks and libraries and other public places until we become, once more, members of the public.

Only when our bubbles seem less like palaces and more like prisons shall we escape them.


Zaair Hussain is a Lahore-based freelance writer. He can be reached at zaairhussain@gmail.com

Related Links:

Eleven Days in Karachi

Jinnah's Pakistan Booms Amidst Doom and Gloom

Incompetence Worse Than Corruption

Creative Financing of Pakistan's Energy Projects

Pakistan's Energy Crisis

Light Candles, Do Not Curse Darkness

Taliban Exploiting Class Rifts in Pakistan

Water Scarcity in Pakistan

Salman Ahmed Rocks Silicon Valley

Life Goes On in Pakistan

Pakistan's Higher Education Reform

Saturday, February 13, 2010

Jinnah Democracy Institute For Good Governance in Pakistan

Why has democracy not taken root in Pakistan? Why have the nation's democratic institutions failed to sustain themselves? How can Pakistan build and strengthen democratic institutions that provide good governance to solve its problems? Is it entirely the fault of Pakistan's ambitious military generals who have ruled the nation for about half of its 60 year history? Or does it have anything to do with the poor performance of the politicians who have had the opportunity to govern for thirty years, and failed to solve most of its major problems, particularly those related to human development and industrialization?

There are many answers to the questions above. But the explanation that appeals to me most is the one offered by British writer William Dalrymple. He wrote for the Guardian as follows on Pakistan's 60th independence day:

"There is a fundamental flaw in Pakistan's political system. Democracy has never thrived here, at least in part because landowning remains almost the only social base from which politicians can emerge. In general, the educated middle class - which in India seized control in 1947, emasculating the power of its landowners - is in Pakistan still largely excluded from the political process. As a result, in many of the more backward parts of Pakistan the local feudal zamindar can expect his people to vote for his chosen candidate. Such loyalty can be enforced. Many of the biggest zamindars have private prisons and most have private armies."



While I do see the middle class clout increasing in Pakistan after a decade of economic growth and increasing urbanization during Musharraf years, I don't believe that middle class rise in politics alone can help build and sustain good democratic governance. Incessantly talking about building democratic institutions is not enough. What is needed is the building of competence through good governance education for members of democratic institutions such as the executive, the legislature and the judiciary.

Pakistan does have the British legacy of functional institutions such the nation's military and the bureaucracy which have been able to sustain the state. The members of the civil and military services have the basic educational facilities, such as a number of staff colleges and academies, for training them to do their jobs. As a result, the military and civil service officers are reasonably competent in carrying out their assigned responsibilities.

However, no such training exists for the politicians who get elected to the highest positions of leadership in the executive and legislative branches. Under the constitution, they are charged with appointing judges and making and executing laws and policies to solve the nation's problems. Yet, most of them lack the basic competence to understand and appreciate their responsibilities. The parliamentarians are usually uninformed about most of the key issues of governance brought for discussion on the floor. As a result, the level of parliamentary debate is very poor, and important budget priorities and policies are agreed, and laws are passed without fully taking into account all of the issues involved.

There is no effective system of drafting legislation, holding hearings with stakeholders and experts, making budget appropriations, and subsequent oversight by specialized parliamentary committees. People who chair such committees don't have much of a clue as to where to begin, what questions to ask, and how to hold the executive and the bureaucracy accountable. As a result, once the laws and policies are approved, and budgets passed, there is not much oversight or accountability.

There was a proposal in 1998 to set up Jinnah Democracy Institute, named after Pakistan's founding father Quaid-e-Azam Mohammad Ali Jinnah, who spoke eloquently about democracy when he told military officers, “Never forget that you are the servants of the state. You do not make policy. It is we, the people’s representatives, who decide how the country is to be run. Your job is to only obey the decisions of your civilian masters.”The idea for democracy institute was inspired by the John F. Kennedy School of Government at Harvard University in the United States, and its main purpose was to offer at least one semester of required training to Pakistan's elected representatives. Unfortunately, the proposal has not gone anywhere.

If the current crop of elected politicians are really serious about strengthening democracy, it is important for them to pursue a broad good governance agenda in Pakistan with education and training of politicians as the center piece. It is important for them to revive the idea of a school of government in Islamabad to increase the chances for democracy to survive and thrive in Pakistan. Unless the politicians find a way to improve governance to solve people's problems, the nation will be condemned to repeat the past history of democracy's failure in Pakistan.

As a Pakistani-American wishing to see a healthy and friendly US-Pakistan relationship of one democracy with another, I believe this is an opportunity for the United States to use its aid and influence with leadership in Islamabad to build competence and institutional capacity for good democratic governance in Pakistan. Helping Pakistan set up Jinnah Institute of Democracy, along the lines of Kennedy School of Government, could become a significant step forward in promoting good governance and sustaining democracy in Pakistan. This may or may not work, but it is certainly worth a try.

Here's a video clip of British Writer William Dalrymple talking about Pakistan:




Related Links:

Incompetence Worse Than Graft in Pakistan

Quaid-e-Azam Mohammad Ali Jinnah's Vision

Good Governance Reform Agenda in Pakistan

Pakistan – build institutions, civil society, to avert state failure

Feudal Power Dominates Pakistani Elections

Middle Class Clout Rising in Pakistan

Pakistan Most Urbanized in South Asia

Pakistan's Human Development

Friday, February 12, 2010

Pakistani-American Buys Rams For $500 Million

What is NFL? It is America's National Football League, the biggest sports franchise business in the world. It's much bigger the Indian Premier League (IPL) cricket franchise which is much better known to South Asians. The IPL has particularly been in the news lately for its controversial exclusion of Pakistani cricket players. Bollywood star Shahrukh Khan, who criticized Pakistanis' exclusion from IPL, has come under attack by right-wing Hindu extremists who are rampaging through the streets in India, burning theaters screening Khan's latest movie.

Today's media reports indicate that a Pakistani-American Shahid Khan of Illinois is in $450-$750 million deal to buy the NFL team St. Louis Rams. The final price will depend on whether Khan gets 60% or 100% of the stake in the NFL franchise. Khan, 55, is the president of Flex-N-Gate Corp., an auto-parts manufacturer in Urbana, Illinois with $2 billion in annual revenue. He has lived in the Champaign-Urbana area for more than 40 years and is married with two adult children. Khan is a graduate of the School of Mechanical and Industrial Engineering at the University of Illinois.

Flex-N-Gate employs over 9,500 people at 48 manufacturing and 9 product development and engineering facilities throughout Canada, the United States, Mexico, Argentina, and Spain. Khan, 55, and his wife, Ann Khan, live in Champaign. He has given millions of dollars to his alma mater, including funding a 2007 major expansion of the university’s tennis facilities — now called the Shahid and Ann Khan Outdoor Tennis Complex.

To put this deal in perspective for South Asian readers, "Mumbai Indians", the most expensive of the eight IPL franchises, was bought by Indian billionaire Mukesh Ambani for $112 million.

This season, each of the 32 NFL team owners were limited to $127m in salaries for their entire squad of players. That means some footballers are handsomely paid - Drew Brees, the star quarterback of the recent Superbowl winner the New Orleans Saints, has a six years $60m contract. By contrast, the most expensive IPL players fetch less than a million dollar bids, which are still the highest in the world for cricket players.

Indian cricket has taken a page from the big sports franchises in the West. Forbes magazine reports that the Board of Control for Cricket in India (BCCI), a nonprofit body controlling the game in the country, has racked up $1 billion to date from selling commercial rights to Indian cricket for the next five years. (One source: Nike paid $45 million to flash its logo on players' apparel and to sell garments to cricket fans.) "It's all about extracting the most value," said Lalit Modi, BCCI's new marketing chief, who hopes to eventually make $1.5 billion from Indian cricket, ten times what BCCI made in the last go-around.

In both IPL and NFL, the biggest source of revenue is the sale of television rights, followed by brand name merchandise sales, ticket sales and endorsement deals.

Shahid Khan is obviously an outstanding success story for Pakistani-Americans. Nationwide, Pakistani-Americans appear to be prospering. The US census calculated that mean household income in the United States in 2002 was $57,852 annually, while that for Asian households, which includes Pakistanis, was $70,047.

Hard numbers on how many people of Pakistani descent live in the United States do not exist, but a book published by Harvard University Press on charitable donations among Pakistani-Americans, “Portrait of a Giving Community by Professor Adil Najam,” puts the number around 500,000, with some 35 percent or more of them in the New York metropolitan area. Chicago has fewer than 100,000, while other significant clusters exist in California, Texas and Washington, D.C.

New York Times estimate of 109,000 Pakistani-born American workers' occupations include salesmen, managers or administrators, drivers, doctors and accountants as the top five categories.

Pakistani-Americans political participation remains woefully inadequate. But there are some signs that it is starting to happen at various levels starting from from local communities to state legislatures.


Related Links:

Pakistani-American Elected Mayor

Edible Arrangements--Pakistani-American's Success Story

Pakistani-Americans in Silicon Valley

IPL Mixes Sports, Business and Entertainment

HDF Fundraiser in Silicon Valley For Pakistan

Pakistani Diaspora in America

Asian-Americans: Contemporary Trends and Issues

New York City's Pakistani Population

Pakistani-Americans in NYC

NED Alumni Convention Draws 400

NEDians Convention 2007 in Silicon Valley

Muslim Demographics in America

Pakistanis in America

Pakistani-Americans Wikipedia Entry

Illegal Immigration From India to America Hits 125%

Pakistanis Find US Easier Fit than Britain

Portrait of a Giving Community

India's Washington Lobby

Occupations of Pakistani-Americans--New York Times

American Football Faces Financial Reform

Indian Premier League

Pakistani Engineer is New NFL Owner

Tuesday, February 9, 2010

India, Pakistan Capitals Vulnerable in Major Earthquakes

The recent 7.0 earthquake that caused over 200,000 deaths in Haiti has revived discussion of potential loss of life from seismic activity in many cities in the developing world, including the South Asian capitals of Islamabad, Kathmandu and New Delhi, all located close to the South Asian fault lines.



GeoHazards International, a Palo Alto, Calif. nonprofit research organization aiming to reduce suffering due to natural disasters, predicts that a 6.0 earthquake on the Richter scale would cause tens of thousands of deaths in major cities in the developing world. Here is GeoHazards' list of top 10 major cities and their expected minimum death tolls in the developing world which are most vulnerable to major earthquakes of 6.0 (or higher) intensity:

1. Kathmandu, Nepal 69,000
2. Istanbul, Turkey 55,000
3. Delhi, India 38,000
4. Quito, Ecuador 15,000
5. Manila, Philippines 13,000
6. Islamabad/Rawalpindi, Pakistan 12,500
7. San Salvador, El Salvador 11,500
7. Mexico City, Mexico 11,500
7. Izmir, Turkey 11,500
10. Jakarta, Indonesia 11,000

San Francisco in 1989 and Haiti this year were hit by earthquakes of equal intensity of 7.0 on Richter scale; yet SF suffered only 63 deaths while the Haiti tremor has claimed over 200,000 lives.

A lower intensity 6.0 earthquake would also cause potential deaths and damage in cities like Los Angeles and Tokyo, but the much higher death toll and greater degree of destruction anticipated in developing nations has more to do with corruption, economics and engineering than geology.



The magnitude 7.6 quake that struck Kashmir and the North West Frontier regions of Pakistan in October 2005 killed over 70,000 people, many in remote parts of the country, not as dense as urban centers like Islamabad and Rawalpindi. The mountainous terrain made it specially difficult to provide disaster relief and contributed to greater casualties.

In Kashmir's 7.6 earthquake, as also in the tremor of slightly higher intensity in 2008 in China that claimed about 70,000 lives each, most of the casualties occurred in collapsed government buildings like thousands of public schools, claiming a disproportionate number of children's lives. The earthquakes in China and Pakistan exacted an outsize toll on schoolchildren, as a large number of crowded schools pancaked into rubble, while better built private buildings next to the public school buildings stood almost undamaged. In sharp contrast to the China and Pakistan, California authorities have closely monitored the construction of schools since a 1933 earthquake in Long Beach killed more than 100 people, many struck by falling debris as they ran out of shaking buildings.

Unfortunately, the construction industry is considered to be the most corrupt of all industries by Transparency International, and the developing nations whose cities show up on the most vulnerable list also figure prominently among the most corrupt nations in surveys conducted by the same organization. Even in places where new building codes exist to minimize potential quake deaths and damage, proper enforcement is absent because of widespread corruption.

As to the cost of building to withstand seismic activity, Dr. Brian Tucker of Geo Hazards believes that schools, hospitals and crucial buildings like the U.N. mission that collapsed in Haiti can be reinforced to withstand quakes by adding just 4% more to the cost of construction--something he urges foreign donors to keep in mind while giving aid. "It's not God that's doing this," Tucker recently told Forbes magazine. "It's men who are not building correctly."

Speaking at a World Affairs Council meeting in San Francisco, Tucker recently talked about his work with The Academy of Sciences in Pakistan to set up remote training of people involved in building construction. Tucker also mentioned Geo Hazards' work with communities in Nepal to retrofit schools to withstand earthquakes. They went door to door to explain to parents what can be done, provided partial funding and training to masons, and the masons then helped reinforce schools and offer services to community members to retrofit or build many earthquake-resistant homes in Kathmandu. Part of the masons' training involved showing them how the slow, wet curing of concrete makes a big difference in its ability to withstand forces created during earthquakes. Proper slow curing of concrete is necessary but not sufficient. Concrete is a material that is very strong in compression, but relatively weak in tension. To compensate for this imbalance in concrete's behavior, rebar (reinforcing carbon steel bar) is cast into it to carry the tensile loads. In collapsed school structures in China and Pakistan, thin, bendable wire was the only evidence of rebar, the material that holds concrete structures together. Generally speaking, the less steel in a concrete building, the less strength it has to withstand movement.

Since the devastation caused by the 2004 Indian Ocean tsunami that claimed 230,000 lives, the UN has led "Build Back Better" campaign around the world. As part of this effort, the task of rebuilding after disasters has been viewed as an opportunity to bring improved social services, clean water, and sturdier schools to the affected areas. Former US president Bill Clinton is advocating that the lessons learned from this campaign be utilized in Haiti.

As Haiti rebuilds, and organizations like Geo Hazards share their learning from their ongoing work in various earthquake prone nations, it is important for South Asians to pay attention to better prepare for future earthquakes.

Related Links:

Is Haiti Disaster Entirely Natural?

Rampant Corruption in Construction Industry

Bhutto Convicted in Switzerland

Build Back Better

Corruption in Pakistan

Infrastructure Corruption in India

Infrastructure Corruption in Pakistan

Transparency International Survey 2007

Is Siemens Guilty?

Fluor's Anti-Corruption Initiative

Zardari Corruption Probe

Construction, Corruption and Developing Countries

Saturday, February 6, 2010

FAQs on 34% Jump in Indian Military Budget

Last year, India decided on a massive 34% increase year-over-year in its defense spending. Here are some frequently asked questions and answers about this dramatic move that puts India among the world's biggest spenders on defense.

Q1: How much does India really spend on defense?

A1: On paper, India spends $32.7 billion, about 3% of its GDP on defense, after an increase of 34% for 2010.

In reality, India spends closer to 3.5% of its GDP on defense.

Here's what Col.(Retd) Pavan Nair of the Indian Army has to say about it in a recent guest post on Haq's Musings:

India's own specified limit of 3% has been observed only by excluding several items like the cost of the MoD and the expenditure on military pensions which by itself amounts to 15% of the total defense outlay. Several other items like the Jammu and Kashmir Light Infantry (JAKLI, a regular regiment of the army consisting of thirteen battalions) and the Coast Guard are also excluded. A substantial part of the cost of the nuclear arsenal and allied systems is excluded. All para-military forces including the ones directly involved in border management are excluded. The Parliamentary Committee on Defense spends most of its time on personnel matters and resolving issues of protocol between the service chiefs and the defense secretary. The Committee looks at DE but beyond stating that DE should be pegged at 3% of GDP, it has nothing substantial to contribute. Clearly, parliamentary oversight and control seems to be missing. For several years, DE in aggregate has crossed 3% of GDP.



Pakistan spends about $4.3 billion annually, less than 3% of its GDP, and there has been no real increase year-over-year in 2010. There was a 10.15 per cent nominal increase from Rs 311.303 billion revised defense budget for 2009-2010. In real terms, however, it represents a decrease because inflation in Pakistan exceeds nominal increase in defense. Pakistan’s defense allocation does not include foreign assistance, which is expected add about a billion dollars to defense spending for operations against Taliban insurgents. The aggregate $5.5 billion of military spending by Pakistan accounts for about 3% of its $ 175 billion GDP.

“The war on terror has already cost us over $35 billion since 2001-02. We now face the prospects of incurring huge expenditure on account of counter-insurgency,” according to Pakistan's deputy finance minister Hina Rabbani Khar.

Q2: Doesn't India need to spend more on defense to fight the terrorists in the region?

A2: The military brass in India used the Mumbai attacks in late 2008 to argue for and win a 34% increase in defense budget. But terrorism is just an excuse by Indian military to get large funds and buy expensive cold war era weapons which are useless against the asymmetrical threat from the terrorists any way. It lines the pockets of the arms dealers (and a few corrupt generals and officials) without increasing India's security against potential terror attacks.

The 34% increase can not be explained by Indian military pay hikes either, given India's huge weapons' shopping list and its status as one of the biggest importers of military hardware in the world. The real aim is to intimidate India's neighbors, and assert India's hegemony. But it won't work as long as India has serious challenges of poverty, illiteracy, hunger, social inequity and multiple insurgencies at home by its most impoverished citizens.

Q3: Won't India just grow out of poverty, hunger, illiteracy through rapid economic expansion of its economy?

A3: Over a decade of rapid economic growth in India has done little to help its poor, hungry and illiterate population.

India has miserably failed to use a period of high economic growth to lift tens of millions of people out of poverty, falling far short of China’s record in protecting its population from the ravages of chronic hunger, United Nations officials said recently. In 2008, British Development Minister Alexander contrasted the rapid growth in China with India's economic success - highlighting government figures that showed the number of poor people had dropped in the one-party communist state by 70% since 1990 but had risen in the world's biggest democracy by 5%.

In the context of unprecedented economic growth (9-10 percent annually) and lack of national food security, over 60 percent of Indian children are wasted, stunted, underweight or a combination of the above. As a result, India ranks number 62 along with Bangladesh at 67 in the PHI (Poverty Hunger Index)ranking out of a total of 81 countries. Both nations are included among the low performing countries in progress towards MDG1 (Millennium Development Goals) with countries such as Nepal (number 58), Ethiopia (number 60), or Zimbabwe (number 74).

Ranked at 45 on PHI index, Pakistan is well ahead of India at number 62, and it is included in the medium performing countries. PHI is a new composite indicator – the Poverty and Hunger Index (PHI) – developed to measure countries’ performance towards achieving MDG1 on halving poverty and hunger by 2015. The PHI combines all five official MDG1 indicators, including a) the proportion of population living on less than US$ 1/day, b) poverty gap ratio, c) share of the poorest quintile in national income or consumption, d) prevalence of underweight in children under five years of age, and d) the proportion of population undernourished.

Q4: Why can't India do both: Increase defense spending and reduce poverty, illiteracy, hunger and disease?

A4: Defense spending should not be a sacred cow. Huge increases shouldn't get approved with little or no debate, and there should be much greater oversight of how it's spent.

It needs to be discussed and debated rationally in the parliament and the media.

What I find is that there is more debate and discussion in Pakistan on defense spending than there is in India, in spite of the fact Pakistan is fighting a war against determined insurgents in the North West.

In spite of its many other urgent issues like access to food, education and health care, it's a shame that a huge 34% boost in defense budget got approved in India without much serious discussion. A similar dramatic increase in Pakistan would have elicited howls of protest and loud demands to curtail it.



Q5: Why should there be any discussion or debate in India on defense budgets when there is consensus among all political parties that military spending should increase?

A5: That may be a good explanation of lack of debate, but the size of the increase at 34% year over year should be too big to slide through parliament without much scrutiny. And it's strange that there is no such consensus on similar spending increases on food, health care, education and poverty alleviation where India lags behind many of its neighbors.

In 2008, Indian Planning Commission member Syeda Hameed acknowledged that India is worse than Bangladesh and Pakistan when it comes to nourishment and is showing little improvement.

Speaking at a conference on "Malnutrition an emergency: what it costs the nation", she said even Prime Minister Manmohan Singh during interactions with the Planning Commission has described malnourishment as the "blackest mark".

"I should not compare. But countries like Bangladesh, Pakistan and Sri Lanka are better," she said. The conference was organized last year by the Confederation of Indian Industry and the Ministry of Development of Northeastern Region.

According to India's Family Health Survey, almost 46 percent of children under the age of three are undernourished - an improvement of just one percent in the last seven years. This is only a shade better than Sub-Saharan Africa where about 35 percent of children are malnourished.

Unlike Indian military which got 34% increase this year, there is no one talking about a similar spending increase for human development in a nation that is slipping to lower ranks in human development. In fact, the latest Human Development Report for 2009 shows that all major South Asian nations have slipped further down relative to other regions of the world. Pakistan's HDI ranking dropped 3 places from 138 last year to 141 this year, and India slipped six places from 128 in 2008 to 134 this year.

The total per-capita expenditure on health (central as well as state expenditure) is about a third of the per-capita expenditure on defense in India. This low level of funding is the prime reason for poor health parameters which in turn keeps a large proportion of the population in perpetual debt and poverty. The UN millennium development goals pertaining to mortality rates and poverty are not likely to be achieved mainly on account of poor spending and delivery in the health sector. The allocation for federal spending on health in the current year is Rs 22,641 crores or merely 0.4% of GDP.

Q6: Why Is the Indian defense spending any of this blogger's business?

A6: India's military spending directly affects the entire south Asian region. It increases the threat perception in the neighborhood, particularly when the Indian military brass engages in threatening rhetoric in the midst of its huge arms buildup. It distorts the spending priorities of Pakistan, a smaller neighbor which was invaded and divided by India in 1971.

Recently, Lt-General A S Lamba of Indian Army has been quoted by the Indian media as boasting about a "massive thrust into Rawalpindi to quiet Pakistanis within 48 hours of the start of assault." Indian Army chief General Deepak Kapoor has said India is ready for a “the successful firming-up of the cold start strategy (to be able to go to war promptly) in the multiple fronts against multiple different militias at the same time.” General Kapoor has talked about taking on China and Pakistan at the same time.

India has over 6000 tanks, and it is inconceivable that these tanks will roll over the Himalayas to invade China. These tanks are meant to invade Pakistan in the plains of Punjab and the deserts of Sind. Indian Army has 33 infantry divisions. Twenty-four are on Pakistan borders. It has three armored divisions, all three are positioned near Pakistan borders. There are three mechanized divisions in India, all three are on Pakistan borders.

Related Links:

South Asia Slipping in Human Development

India's Defense Budget: Guns Versus Butter

Indian Military Brass Challenges China and Pakistan

India's Defense Spending: Facts Beyond Figures

Pakistan's Defense Budget

World's Top Arms Importers

PHI Poverty Hunger Index