Contention & Missed Opportunity

Contention & Missed Opportunity


Jon Fine, presently a Columnist with BusinessWeek, wrote, earlier this month, on the art of contention, defined, but not quite described, as a “heated disagreement”, by the Oxford Concise English dictionary. Fine wrote: “The opportunities you eye and ignore, can one day end up eyeing you…from a much different perspective.”

Putting it more plainly, the smouldering young Marlon Brando, as Terry Malloy in the 1954 classic On The Waterfront, reprised brilliantly in India as Parinda, (1989), summed up the poignancy of missed opportunity: “I could have had class. I could have been a contender.”

In other, more economic, words; if India ignores the free-market growth option, that is staring her in the face, in favour of a futile and out-of-date monetarism; then she is destined to lose control of her vital economic parameters. We must realise, and learn to accept, that our localised financial policy manipulations will be swept away by global macro whirlwinds beyond our control.

Monetarism, as in cash-reserve-ratio (CRR), tweaking, to reduce money supply or “liquidity”, and raising of inter-bank and borrower-lender interest rates, to suppress “demand”, and hence growth, is out-of-date; now that the walls of national economies are breached and porous to each other. Money flows from any “cheap money” environment around the world, with low, or lower, interest rates, to a “high interest” haven in a manner akin to the law of magnets. So our quaint, old-fashioned monetarism ends up attracting suitors without intending to. After all, just how much “liquidity” can the Reserve Bank of India (RBI), suck out of the economy at the local banking end while attracting ever more and more at the foreign exchange end?

The RBI’s other yesterday-brand trick, of using some of these burgeoning foreign exchange reserves,(over USD 300 billion and counting), to artificially weaken the rupee, is not only wasteful but backfiring in the face of a sharply rising import bill, particularly for petroleum at an all-time high.

It is true that China does use part of its USD trillion plus reserves to keep the Yuan down; but this is because it is a largely export dependent economy. Conversely, it makes no sense for India to subsidise some 12% of export economy, using up dollar reserves to no gain, at the expense of the rest of our economy which is firmly “domestic” in nature.

Also, toy as we may, with the notion of a Sovereign Fund of the type that petro-dollar rich economies have created, or indeed China has; to also strategically deploy our dollar reserves abroad; we need to be mindful of a few items of urgent business to take care of first, before realising this particular ambition!

Impossible as a dream as it may seem, particularly in terms of present government think; it is better by far to increase income; build infrastructure; create jobs and spending money in millions of hands. Rural India, that 60% of the populace that every government cynically invokes whenever it suits, needs infrastructure, not handouts. It is infinitely better to boldly reach out to double-digit gross domestic product growth (GDP). Much better than trying to control expenses and demand to force a drop in antiquated wholesale price indexes.

It seems impossible to dream like this, because, true to our malingering ways, we “liberalised” only when forced to do so, in 1991, under IMF and World Bank dictation, rescued thereby from the brink of national bankruptcy. And once again, by a fortuitous circumstance, happily, well beyond empty dreaming; we may be forced to take a different view on the management of our economy by the growth forced by infrastructure development. And even the most bristle-moustached Stalinist can’t have anything ideological against “development to benefit the people”.

It is a sneaky little Trojan Horse still, but thank God for it. Consider, that our economy, as it stands, develops wobbles every time it nears the 9% mark of GDP growth, because any acceleration beyond this gets choked off by inadequate infrastructure to support it. The Socialists and Red elements in the government, or outside it, are unable to come up with a good enough argument against better roads, ports, power, bridges, railway and aviation infrastructure etc. etc. And hence the Union Cabinet has passed billions of dollars worth of infrastructure projects and many of these are already under implementation.

We may have taken the last bus to infrastructure development, but at least we have managed to board it! We will spend over USD 500 billion over the next few years, in formats including a Public Private Partnership (PPP); the Build-Operate-Transfer (BOT) mechanism; and the one with the greatest potential--that of “market finance” involving diverse groups of investors. These will include Initial Public Offers (IPO’s), and other return visits to tap public finance, via stock exchanges, both here and abroad.

Since over USD 100 billion worth of infrastructure spending is in the works already, the government, the impending election watching element in it, that is, can’t stop growth in favour of a moribund, low inflation regime, akin to the Nehruvian and Indira Gandhi years; even if it wants to. Further, it is increasingly doubtful if even short term inflation control by monetarist measures is possible beyond a few weeks.

Besides, the murmurs about how unrepresentative the Wholesale Price Index (WPI), really is, are clearly audible to all those who want to hear. But the UPA Government seems to think forcing a dip in the WPI will make everything well, even though the inflation rates on the high street and in the mandi tell us a very different story. Let us remember that the last round of interest rate and CRR hikes caused a very temporary dip in the WPI index before inflation came back with a vengeance. So why are we trying a recently failed strategy yet again?

If I were an Aborigine, I’d lie on my back, the better to go into “Dreamtime”. I’d imagine the RBI Governor, the Laughing-Buddha-like YV Reddy, was something of a Lee Kuan Yew modernist; instead of a genial, clean-shaven Stalinist, with hawkish but mistaken ideas of “action”. But I’d be smiling anyway, dreaming past government folly to contemplate the inadvertent good it does. I’d dream of better roads, and ports, and trains, and planes, knowing Dr. Reddy can’t stop this dream even if he tried.

(1050 words)

By Gautam Mukherjee
Friday, 18th April 2008

Published in print/web on 19th April 2008 as "How not to fight inflation".Leader Edit on Edit Page.The Pioneer. www.dailypioneer.com

Comrade Wolf Knows Whom To Eat

BOOK REVIEW


Blood of the Earth- The Battle For The World’s Vanishing Oil Resources
Author: Dilip Hiro. Pages 427. Flexiback. Rs. 450/-

Published by Penguin Books India 2008.
Originally published in the USA by Nation Books, an imprint of the Avalon Publishing Group, 2007.


Comrade Wolf Knows Whom To Eat


Distinguished London-based journalist, author and TV commentator, Dilip Hiro, has written an engaging and thought-provoking account on the world’s petroleum geopolitics. Of course, Mr. Hiro wrote Blood of the Earth, implying the finite nature of the resource, when prices were at a seeming impossibly high of USD 78 per barrel. But perhaps Hiro, despite his admirable desk research and travels to the various oil-related “hot-spots”, could not have imagined the 80% spike in crude prices over the last year, some 16.8% of it since the start of 2008 alone.

Crude prices have indeed climbed to USD 114 per barrel already, with some commentators expecting USD 120, even USD 125, shortly. That, it is necessary to view the runaway oil prices in the context of a golden run in commodities and metals of various kinds, after a prolonged, if cyclic, period in the doldrums; exacerbated by a particular weakness in the value of the US dollar in its role as the global currency for all oil trades, is, in effect, another story.

Hiro likens the global quest of oil-deficit nations to secure access to ever larger tranches of oil and gas resources, to an imperative of 21st century survival, growth and dominance. He dwells on the muscularity of attitude of the leading oil producing nations; the knowing “indispensability” of Iran, the “strategic value” of Saudi Arabia, the usefulness of Iraq as a “swing” state to influence oil prices, the “aggression” of Venezuela. He quotes Vladimir Putin, buoyant atop Russia’s oil revenues, speaking of “Comrade Wolf”, without naming names, but America does consume 25% of the world’s hydrocarbon resources and has the highest per capita carbon footprint. American appetite is backed by its overwhelming military superiority. Hiro tells us the US Navy is larger and better armed than that of the next 17 countries combined!

Hiro also points out that spikes in present and future demand for hydrocarbons feature China and India among the new culprits as the fastest growing economies with their present demand dwarfed by the potential demand in years to come. China already consumes 15% more oil and gas year-on-year, and India likewise sucks up 6% more every year.

However, writes Hiro, global oil production will peak by 2017, and then go into a terminal decline. He discounts the probability of substantial new discoveries and says the world’s petroleum reserves will not be able to meet rising demand. And this may be the basic Malthusian-style flaw in Dilip Hiro’s argument. Because, to discount the possibility of substantial new hydrocarbon finds absolutely, and construct an alarmist thesis in its place, may be highly premature. For illustrative purposes, consider the latest news of April 15th 2008 about the probable third largest discovery of oil ever, off Brazil’s Atlantic coast. Of course, it could flatter to deceive, like earlier finds that Hiro mentions, in the Caspian region of Azerbaijan and Kazakhstan. But, present news nevertheless announces that the Carioca field, in the Santos Basin off the coast of Sao Paulo, could have reserves of 33 billion barrels. This, if proven, would rank it most respectably at No.3, behind the No.1 Ghawar fields of Saudi Arabia and Kuwait’s bountiful Burgan fields at No.2 -- and change the geopolitical picture on hydrocarbons, yet again.

Going into the particulars of energy demand --Dilip Hiro says about half of the world’s hydrocarbons go to fuel its transportation needs, and this is where the greatest dependency on petroleum, via its marriage to the internal combustion engine, lies. So to bring about any substantial change, the world will have to climb the technology ladder to other energy sources and other types of engines. Possibilities include Hydrogen Cells, enhanced electric and hybrid technology, and so forth. He also advocates revisiting coal, but converting it to a more efficient, almost non-polluting, gassified or liquefied state for usage.

And as if to echo Hiro’s vision, Reliance Industries announced, as recently as the 16th April 2008, that it seeks to set up an 80,000 barrels per day coal-to-liquid plant using 30 million tonnes of coal annually from three blocks in the Talcher Coal Fields, each with reserves of between 500 and 600 million tonnes.

The other half of present and future global hydrocarbon demand comes from a requirement for electricity and cooking medium, mainly LNG, as the world’s largest populations in India and China begin to grow their economies and prosper. This, even as the energy demand from the West, though high, remains more or less constant.

Hiro calls for a pooling of all energy generating resources going forward. But he does not think nuclear power is a singular panacea, not least because the world, according to Hiro, will run out of Uranium too, as early as 2050. Strangely, Hiro makes no mention of Thorium. Nor does Hiro think non-polluting energy alternates like solar, wind, or water power can make any appreciable difference to burgeoning energy demand.

And lastly, Hiro’s book, quite rightly, attaches the depletion, and over-exploitation, of finite hydrocarbon reserves, to the growing problem of global warming and unsustainable carbon footprints. Comrade Wolf may have to watch his diet.

(850 words)
Gautam Mukherjee
16th April 2008

Also published in the BOOKS page of The Sunday Pioneer on 27th April 2008. "Comrade Wolf Knows Whom to Eat". www.dailypioneer.com

If Bump comes to Thump!

Bump!

Things that go bump in the night
Should not really give one a fright
It’s the hole in each ear
That let’s in the fear,
That, and the absence of light!
Spike Milligan


If Bump comes to Thump!

There’s Tibet, the now septuagenarian Dalai Lama and his band of 180,000 restive refugees, and there’s China; and let it be admitted-- we are scared of China. We are afraid of China’s Han temperament, its military might and economic dynamism, and the fear psychosis that has haunted us since they beat us up, without much ado, in 1962.

But for China, having spent USD 40 billion on an Olympic Games makeover, being put over an inconvenient Tibetan barrel feels like its being held to unfair ransom, and brings out the steel in its Maoist soul, along with its army, the secret police, the censor board, and the light persuasion of electric-shocking cattle prods.

But even without the current Olympic overhang, China casts a sinister shadow. She does not accept the existing colonial borders, in either the North East or the North West of India. And let us remember that she made quick work of snatching Akshai Chin from under the chimerical Chatra Chayya of Hindi-Cheeni-Bhai-Bhai and Nehru’s naive nose. That is how China gained land access to Tibet in the first place and we only woke up to a Chinese built road in 1957.

The Red Dragon is not willing to adhere to the Johnson or McMahon Lines, drawn, quaintly, if painstakingly, with a blunt red pencil by the Empire’s designated Cartographer cum Politico of the time. Instead, China asserts, with vomit inducing regularity, that modern countries cannot be bound over by colonial inheritances. What counts is traditional hegemony, calling Arunachal Pradesh-- South Tibet; and Ladakh an integral part of Tibet too. In short: Might is Right.

But on our part, we never seem to let Indian Might or Right or even Potential enter into the equation. Perhaps it’s a Gandhian hangover, but we should not expect a World War, with its third-party decimation of our oppressors and overlords, to come to the rescue of our peace-loving souls every time!

But who will explain this to Foreign Minister Pranab Mukherjee, speaking for the Government of India, after the 300,000 Chinese troops worth of pogrom unleashed in Tibet? We cautioned the Dalai Lama and earned a pat on the back from China. So, as the French say; the more things change the more they stay the same!

But France, under its new President of Hungarian extraction, does have the guts to threaten non-participation in the Beijing Olympics. As does Germany, ruled by a woman. This, even as Britain, mindful of its desire to be Olympic hosts in 2012; and the United States, looking to cheap Chinese goods and Chinese money in their Treasury Bonds, do not. Of course, if India refuses to go to the Olympics, we can’t expect to be missed as a sporting entity.

In 1959, the Dalai Lama and the Tibetan refugees came to us. China wasted no time in asserting that Tibet was an integral part of China with no ifs and buts about autonomy, let alone the independence the younger Tibetan people still aspire to! What a far cry from our perpetual dithering over Kashmir!

We acquiesced in that first show of strength, influenced by our Left leanings; a Fabian Socialist Prime Minister Nehru and a China admiring Defence Minister Krishna Menon; and probably, the romance of playing post-colonial, non-aligned statesmen on the world stage. But Mao and Chou-en-Lai saw our vulnerability, and, they couldn’t, with their peasant cunning, see why China should not push her advantage in 1962.

We pandered shamelessly, over a half century ago, and we are doing it again now, little realising that we are setting ourselves up again both in the North-East and North- West. For we are displaying the same lack of resolve and tacit declaration of military inadequacy, and refusing, on ideological and obscurantist grounds, and hopes of trade considerations outweighing hegemonistic ones; to strengthen our hands while we can.

In 2008, as a nuclear power ourselves, albeit an inferior one, this refusal to even mewl a political protest in support of the Dalai Lama and the people of Tibet makes us unfit to assume our place in history. Every day we seem to make it clear that we are not ready yet. We advertise our self-assessment as a second-rate power, in Asia, let alone the world! We lack “moxy”, even in comparison to a feisty, failing, Pakistan, a destroyed and civil-warring Iraq, a resolute Iran, or a re-talibanising Afghanistan -- undaunted for having been pounded, just recently, into the “Stone Age”.

But let us see what we, an ostensibly “soft” state, could do if we want. Militarily, should we mean business, we can have America’s help backed by NATO and the Western Alliance, and that of our traditional allies Russia’s too. If we stop dithering and actually take sides, we can have access to all the nuclear know-how and uranium we want, along with the most sophisticated military equipment globally available.

Economically, though coming up from a long way behind, we are now the second biggest success story after China in the world today. If the Chinese financial market has lost 35% after a 200% plus rise recently; India has lost 25% after a 100% plus rise too. If China has a trillion plus US dollars in financial reserves, India does have over 300 billion dollars as well, well up from less than the ten we had in 1991.

And, after all is said and done, India is a thriving democracy, with large helpings of political, as well as economic freedom to choose the pathways to our destiny. Our institutions, antiquated and creaky as they are, do work after a fashion. Our checks and balances, crude and unsophisticated, subject to subversion and fraud, do nevertheless keep India more honest than many a developed economy. Our banking system, while much smaller than that of the Chinese, is stronger, better regulated, less likely to be riddled with non-performing assets (NPA) under the eiderdown. We have no need to be so pessimistic about our chances if we look China in the eye. Unfortunately, we are innately timid, and China knows it.


(1,050 words)

By Gautam Mukherjee
Friday, 04 April 2008

Published also in The Pioneer www.dailypioneer.com on 9th April 2008 as "We're Timid and China Knows It" in Leader Edit slot, Edit Page