7 July 2013

Lips And Purse-strings

Mukesh with Modi
Money talks; it also gags. A 2014-fixated BJP’s muteness on the gas-pricing issue proves that.

“I am sitting in front of the papers, I’m studying them and the party will have a response”

—Arun Jaitley
BJP leader.

“I’m away in Bihar, will study the issue and revert”

—Ravi Shankar Prasad
BJP spokesperson.

“This is not my beat”

—Rajiv Pratap Rudy
BJP spokesperson.

In the world’s largest and noisiest democracy, high-decibel debates on decisions made—and those not made—by the government are only to be expected. That’s why, perhaps, the silence by the principal opposition party about the gas price hike by the UPA raises such a stink. By now, its mahila morcha should have hit the streets, while its main leaders would have invaded our drawing rooms via TV. Yet, the loud silence sounds like a neat compact between the ruling party and the BJP (with the exception of the Left, the AIADMK and a smattering). What’s going on?

The BJP’s reaction is not without reason. Highly placed sources in the party have told Outlookthat the “deal to keep quiet” was struck at the “highest level”, keeping in mind the impending 2014 Lok Sabha polls. Senior BJP leaders confirm that the decision was taken around the time the UPA government cleared the gas pricing for Reliance. A handful of senior leaders in conjunction with Gujarat chief minister Narendra Modi—now heading the BJP campaign committee—decided that the party couldn’t afford to oppose the policy, given the short span of time left before the 2014 polls.

‘I wonder if the electronic media is the main culprit in shutting out debates on the issue. There hasn’t been a single discussion on it.’Arvind Kejriwal, Aam Admi Party 

Even as a faction in the BJP led by a veteran leader continue to insist that it “must lead a nationwide agitation against the UPA over gas prices and even stall Parliament in the monsoon session”, the BJP has decided to keep quiet. Why? “The party is in dire need of finances, especially since we have to face an election next year. There is no way we can afford to upset such a huge corporate group if we hope to get any funds for 2014,” says a senior leader.

So, what does the party have in mind? Senior leaders tellOutlook: “The party is clear there will be no real opposition to the gas pricing matter. Yet there is a need to register the protest coming from some quarters in the party. The same will be conveyed in sporadic, small measures here and there. You could call it token protest.” Little wonder then that the first signs of this has come from Gujarat itself. As CM Modi is seen to be close to Mukesh Ambani, Modi cronies like energy and petrochemicals minister Saurabh Patel are criticising the UPA over natural gas prices.

The hypocrisy is immediately evident—look at how quickly the BJP opposed the Right to Food ordinance, on the ground of parliamentary propriety. Why has it not thought it fit to ask the government to debate the gas pricing issue on the floor of the House? “The silence is conspiratorial and almost like the main opposition party is rallying around UPA. It is like the opposition by the political parties to the directive of coming under the ambit of the Right to Information Act,” says Madabhushi Sridhar, professor of law at nalsar Hyderabad.

‘There’s such a huge context to the debate on the pricing of natural resources, yet there’s no sign of protest. The silence is intriguing.’Pratap Bhanu Mehta, President, Centre For Policy Research 

The ingredients for a groundswell of dissent are all there. There is the simmering faceoff between CAG and Reliance over the audit process for the D6 wells in Andhra’s KG Basin. There are questions that naturally follow—whether all this was being done to benefit one company, namely Reliance? Or, if the decision to hike gas price was hastened by impending elections—considering the model code of conduct would have kicked in.

Also, a few months ago, Arvind Kejriwal of the fledgling Aam Admi Party had held a press conference, accusing the government of buckling to the pressure of RIL by shunting out its Union petroleum minister Jaipal Reddy as he had opposed a price hike. Today, Kejriwal says he is not at all surprised at the silence that envelops the media and political parties. “I wonder if the electronic media is the main culprit in shutting out debates on the issue. There has been no single discussion on such a crucial topic,” says he. The party is currently on an enrolment drive and misses no opportunity to raise the issue in the neighbourhoods of Delhi. “The media has not turned its attention to the most pressing issue before the people,” says Kejriwal, who warns of “the pressures of being owned by corporates”.

“The silence is intriguing,” agrees Pratap Bhanu Mehta, president, Centre for Policy Research and a columnist with the Indian Express. “At one level, it is easy to talk about ownership of the media and the self-imposed silence among the political parties. There is such a huge context to the entire debate on the pricing of natural resources, and yet there is no sign of protest,” he adds. It is also, he points out, a simple political story to follow. Sadly, there is ample evidence to show that this is a story that many in politics and media simply don’t want to follow.

By Anuradha Raman and Prarthna Gahilote in Mumbai

The Great Gas Heist

It’s done PM Manmohan Singh with Mukesh Ambani. 
One beneficiary, clear and corporate. How the UPA played for political positioning.

In the Niira Radia tapes, there’s this one delicious conversation the PR lady has with lobbyist Ranjan Bhattacharya. It was May 2009, and UPA-II cabinet formation was in full swing. Bhattacharya quotes Reliance Industries’ Mukesh Ambani as telling him, “Haan yaar, you know Ranjan, you’re right, ab toh Congress apni dukaan hai.” Apoc­ryphal or not, that earthy expression of ownership is relevant in the aftermath of the UPA’s recent decision to raise gas prices for five years, starting at a flexible $8.4/mmbtu—conceding a long-standing demand by India’s most powerful business house and its global partner BP.

This must be said because, apart from the Left parties and AIADMK, few even in the political establishment are raising obvious questions about this deal, of which Reliance, the country’s largest private sector gas producer, is the major beneficiary. The whole pricing exercise has been riddled with conflicts between the ministries of power, fertiliser, finance and petroleum; the formula has invited severe criticism; and there’s an attempt by the UPA to airbrush the obvious negative impact of the hike on the common man and taxpayer. Nearly everything will become expensive; or, obviously, the taxpayer will bear these subsidies.

Back-of-the-envelope calculations by Outlook show that the cost of this gas hike on just the power, fertiliser and lpg industries will be in the range of Rs 54,500 crore per annum. Also, the costs of industry in general will go up. “It is a massive loss to the nation. Already, fertiliser prices are soaring. Now, they will be increased again. This is a clear case of placing profit above people,” says Prof K. Nageshwar, an MLC from Andhra Pradesh. On the other hand, aided by a depreciating rupee, gas producers will rake it in. “Every $1 increase in gas price means $73 million profit for Reliance,” says Nageshwar. The irony: gas was meant to be a cheap, green fuel.

“Bartering India’s interests to the corporate world, the damage they have done is unfathomable.”D.A. Somayajulu, Member, YSR Congress Governing Council 

There’s also a political brazenness to the timing. A decision slated for April 2014 has been announced a good ten months before, neatly sidestepping an election code of conduct and buying the support of a crucial corporate. Given that AIADMK has said that it would review the deal if a coalition it is part of comes to power, this pre-emptive pricing takes the decision out of the hands of (potentially, of course) an unreliable Third Front coalition. “With elections around, who’d want to upset a major source of funding?” says a political analyst.

Given the token response by the BJP (see box), it appears that the national interest will ignite in the principal opposition party only after 2014. It’s no secret that, considering the growing (and open) corporate support for Narendra Modi, the UPA has made a political bargain by keeping Reliance happy. It is not just political parties that are observing a measured silence. Industry chambers, normally eager to put their point across to the media, were also trying to avoid eye contact. Last week, Modi, who normally draws a full house in his meetings, saw only a handful of prominent industrialists attending his session at a CII conclave in Mumbai.

Finance minister P. Chidambaram and petroleum minister Veerappa Moily have rightly pointed out that currently the public-sector ONGC and OIL dominate gas production. But what they have failed to clarify is who will bear the subsidy burden for the power and fertiliser sectors. Going by the track record of the government, the state-owned exploration companies may well have to pick up the tab. That leaves only Reliance. With global energy giant BP as its partner, there is no telling when the incentivised partners may reverse the drop in production to capitalise on the higher gas prices. “They (Reliance) have been waiting for this announcement for a long time. Production will go up,” says a person associated with Reliance’s D-6 block in the Krishna-Godavari basin, declining to be quoted. “The biggest beneficiary is going to be Reliance—eyes closed.”

Against the committed production of over 70 million metric standard cubic metres per day (mmscmd) at the KG basin, output has been as low as 15 mmscmd. Reliance has been in a high-octane war with the CAG, which has said the company is to be faulted for not complying with agreed investment and development plans. “Our production will go up only in mid 2017-18,” an RIL spokesperson says, seeking to deflate the charge that the price revision was orchestrated to benefit Reliance. In some three years, when Reliance hopes to bring its ‘R’ cluster and satellite fields in the KG basin block into production, the gas price in the country may well have reached $10/mmbtu. The company has made other finds of gas condensates in recent months. The indications are all in Reliance’s favour. It could well emerge as the biggest gas producer in the country unless ONGC can be stirred to monetise its discoveries, including in the KG basin. ONGC and OIL did not respond to Outlook’s queries.

“The cost of power and fertiliser will go up, so the government will have to moderate the impact.”B.K. Chaturvedi, Member, Planning Commission 

The government habit of selective picking of recommendations, including from the Rangarajan committee report, has come in for criticism. The new formula (cherry-picked from the report, and approved for 2014-19) is, to put it simply, based on the average of European nbp, Henry Hub of US and Japan’s import gas price plus the average of Indian gas import price. The formula is unique to India: no other gas-producing country has devised such a convoluted way to reward exploration companies. Moreover, the government has deviated from the committee’s recommendation of a monthly review, instead opting for quarterly revisions. Thus, the revised price of $8.4 per mmbtu put out by the government is merely an indicative price.

India, China agree to rebuild fragile defence ties

Ananth Krishnan

The Hindu Defence Minister A.K. Antony along with PLA Senior Colonel Zhao Kangping (right), inspects a PLA Air Force J-10 aircraft of the 24th Air Division in Tianjin, near Beijing, on Saturday. Photo: Ananth Krishnan
The Hindu Defence Minister A.K Antony visits the PLA's National Defence University on Saturday. Photo: Ananth Krishnan

Plan to increase frequency and number of locations of border personnel meetings along the disputed boundary

After two days of talks here, India and China have drawn up a long-term plan to gradually rebuild trust between their militaries, as they continue to grapple with the fall-out of the three week-long April stand-off along the border which has prompted both countries to re-examine the breadth of their defence ties.

The plan, announced in a joint statement released on Saturday and later detailed by officials after Defence Minister A.K. Antony concluded his talks, includes increasing both the frequency and number of locations of border personnel meetings along the disputed boundary, and expanding direct contact between the militaries.

The above two proposals, put forward by India, were a direct response to the April 15 incursion by Chinese troops into Depsang, in eastern Ladakh.

The incursion occurred in an area where differing perceptions of the disputed Line of Actual Control (LAC) were particularly pronounced. By increasing the number of border personnel meeting points, officials hope to gradually narrow the wide divergences between the two countries over the undemarcated border.

That the Depsang stand-off took as long as three weeks to be resolved also exposed the need for closer direct contact between the militaries. Part of the reason for the delay in ending the impasse was an apparent lag in communications between the Chinese military and the Foreign Ministry in Beijing, which was India’s main point of contact. Unlike in the Indian set-up, the Chinese Foreign Ministry holds far less authority than the PLA and is often kept out of the loop in the Army’s decision-making.

The Chinese side appeared to react positively to the two proposals, as Mr. Antony met his Chinese counterpart, General Chang Wanquan, and Premier Li Keqiang on Friday and held talks with State Councilor Yang Jiechi, Special Representative on the boundary question, on Saturday.

Mr. Antony said he was “happy about the outcome because there is a consensus of minds, a consensus between governments and military leaderships that till we find a solution to the border issues, we must maintain peace, stability and tranquillity.” He said the aim was “to avoid unpleasant incidents, and if they happen, to resolve them immediately.” “In that respect, military-to-military-level confidence building is essential. There should be trust and confidence and mutual respect at the ground level also,” he said.

While both governments have publicly continued to play down the April 15 incident, India has now made clear to China on at least three occasions in the months since the incursion that without peace and tranquillity on the border, there could be no foundation on which to take forward the relationship in any other area. This was first conveyed by Prime Minister Manmohan Singh when he met Mr. Li Keqiang in New Delhi in May. A similar message was stressed by National Security Adviser Shivshankar Menon, when he travelled to Beijing last week for the 16th round of border talks with Mr. Yang Jiechi.

The joint statement on Saturday reiterated that point, “noting that peace and tranquillity on the border was an important guarantor for the growth and development of bilateral cooperation.” The statement said both sides reviewed the working of agreements and protocols relating to maintaining peace and tranquillity, and “directed that it be further strengthened.”

Both sides also “agreed on an early conclusion of negotiations” for a Border Defence Cooperation Agreement, a draft of which was first put forward by China, which has similar agreements with many of its neighbours, in March. After India responded with comments on the draft in May, which included objections to any commitments to freeze border infrastructure considering the prevailing wide asymmetry in China’s favour, Beijing put forward a revised draft shortly before Mr. Antony’s visit. Mr. Antony said there was “forward movement” on the draft, adding that on “most of the provisions there is consensus.”

Intelligence Questions

The IB officer is a vulnerable being. Blame him not casually.

The Ishrat Jahan case is a classic illustration of how an investigation agency and an intelligence outfit can come into conflict. It is widely believed there are sharp differences between the Central Bureau of Investigation (CBI) and the Intelligence Bureau (IB) over the role of Rajinder Kumar, an IB officer of rank only one level below the director, in the case. Rajinder Kumar was once posted in Gandhinagar and is suspected to have a connection to the extra-judicial killing of 19-year-old Ishrat and three young men by the Gujarat police.

The Union home secretary reportedly held a sort-it-out meeting with the chiefs of the two agencies. The outcome is not known. But the CBI, which is investigating the case, seems to have an open mind on Rajinder Kumar’s involvement: it has not indicted him in its first chargesheet. The Gujarat police had made out that Ishrat and the three men shot dead with her were terrorists on a mission to assassinate chief minister Narendra Modi; that they had been intercepted and shot dead by its officers. Investigators have since found it was a fake encounter. Rajinder Kumar is said to have provi­ded intelligence input to the Gujarat cops. Was this to facilitate the extra-judicial killing? But the CBI seems to have weighed the officer’s record and unsu­llied reputation as it bought time to decide on his culpability. Now, the CBI and IB chiefs would do well to navigate past the gathering storm of inter-agency conflict.

Prosecuting an IB officer for passing on to the state police information that was possibly inaccurate, if not absolutely false, requires a high degree of application of mind. The media has created the unfortunate impression that some subjectivity and politicisation has crept into the CBI’s investigation of Rajinder Kumar’s role. I won’t buy this without solid, substantiating facts. After all, this is an investigation monitored by the Gujarat High Court: the CBI can’t play around with vital facts. If Rajinder Kumar is at all prosecuted, we will be able to arrive at its basis only after basic facts are gleaned from the CBI’s chargesheet.

In my view, the officer can be prosecuted only if he had been mixed up in local politics or was driven by a dubious personal agenda in furnishing false information to the Gujarat police. To fasten him to the crime, we must also ask these questions: Did he directly take part in the encounter? Was he present at the scene? Did he have the authority to aid in the execution of the diabolical conspiracy hatched by the state’s “encounter specialists”?

The IB, it must be remembered, is not a legal entity. It was created by an executive order and is merely an “attached office” of the Union home ministry. It has no powers under the Criminal Procedure Code (CRPC), which lays down investigation procedure for the police. So, before an IB officer is charged with criminal conspiracy—as, it is bruited, Rajinder Kumar might be—his role in a questionable encounter must be analysed clinically. If he is going to be hauled up as individual, and not as an IB officer, his mens rea (criminal intent) has to be proved. If, however, he is chargesheeted as an IB officer, the question will be on his legal authority, if any, and its messy entanglement with the crime.

The chargesheeting will also require clearance from the Union home ministry. It is anybody’s guess whether the ministry will accede to a CBI request on this. The ministry will be well within its right to refuse. This is usually not justiciable unless the facts are overwhelmingly against Rajinder Kumar, in which case the trial court could ignore the lack of clearance from the ministry and proceed with his prosecution. But such an action could be regarded as bad in law; a higher court could strike it down.

Even if Rajinder Kumar retires from the Indian Police Service (IPS), as he shortly will, prosecuting him under any section of the Indian Penal Code (IPC) will require the home ministry’s clearance. Without such clearance, a retired officer can be prosecuted only under anti-corruption laws. It is all, therefore, quite complicated. There is no clear-cut information available for the media to make the sort of categorical assertions it has made. The column-centimetres and prime-time news slots are riddled with speculation and conjecture. May I call for some responsibility here, in the interest of nursing the morale of the officers of a sensitive organisation like the IB, which plays a crucial role in national security?

(The writer has served as a joint director of the IB and as the director of the CBI.)

A Wellhead Of Blunders

Why did our market-friendly policymakers revert to the much-maligned administered price only for gas, while batting for market prices for all else?


Why did our market-friendly policymakers revert to the much-maligned administered price only for gas, while batting for market prices for all else? In a classic case of policy capture by a corporate, an effete government got inveigled into impleading itself into the Ambani family feud. On the pretext of gas being a national asset, it bailed out one sibling from both a private commitment and an inconvenient bid at $2.34/mmbtu to the NTPC tender. This also cheated the country of Malaysian LNG at $3.4/mmbtu.

Still, the GoI rewarded the truant contractor with $4.20/mmbtu. It further allowed him to sell part of the national asset for billions of dollars, only to see the reserves evaporate by over 80 per cent. Neither the buyer (BP) nor the owner (the government) demurred. The custodian of our reservoirs, the DGH, has been deafenin­gly silent. For this vanishing act, the contractor is further rewarded by doubled price, on a dubious formula conco­cted by a body unlettered in oil/gas, making it the highest wellhead price for gas anywhere in the world. The cou­ntry’s main opposition party is a silent accomplice in this.

Instead of doing the market’s job, the govt should have applied itself to formulating policy. 

The grounds adduced are specious. Crude oil gets int­er­national prices since the ’90s but production has sta­gnated. The gas story won’t be any different. The world over, oil/gas drilling rise and fall with market prices. Fields unviable at prices market can’t bear remain capped. At $200/bbl or more for oil, Assam, sitting on shale sands, can produce enough oil to make the country self-sufficient. But that’s not how e&p is played. Such artificially high prices hurt the economy. The FM, with his ‘pinch the baby, rock the cradle’ act, hints at further subsidising power and fertiliser sectors out of public funds, but not touch private profits. Already, power plants in India are switching to coal from costly LNG/gas, adding to higher carbon emissions and imports. On the other hand, the US shows what low energy prices can do; it’s enabled industrial units from Africa and Latin America to be transplanted to US, boos­ting its eco­nomy. High energy prices, fixed in dollars against a falling rupee, will have a disastrous effect on our economy.

Instead of doing the market’s job of determining prices, the government ought to have exerted itself to formulate policy measures non-existent now. Higher investment and competitive energy prices need a strong, independent and stable regulatory regime. All gas pipelines are natural monopolies and fragment the market. The policy regime should mandate the trunk pipelines to meet, ensure non-discriminatory access, destination flexibility facilitating price arbitrage so that gas-to-gas competition is generated. Reserve disclosure norms should be made statutory. The CCI should discourage monopoly pricing practices and start processes to decouple gas prices from oil. Otherwise, the country will remain frozen in time.

Will production rise now in KG basin? If so, why is ONGC being ‘persuaded’ to lease the gold-plated faci­lities, instead of building its own? All infrastructure here is fina­­nced by cost of oil/gas and so belongs to the government. Any lease rentals should accrue only to the government, a point to be noted by the CAG and the CVC.

T.N.R. Rao, former petroleum secretary; E-mail your columnist: tayur AT bol.net.in

Self-Reliance, Not Reliance

What we see now is a new and indigenous form of McCarthyism.

The price increase seems to be a consequence of RIL’s demand for a price revision over a year ago, and an attempt to head off a decision on a price revision in consonance with market prices. By offering a price now which will only be applicable in mid-2014, the government loses nothing and has everything to gain. Since the major part of the selling price goes to the state, why not let it benefit to then use it in a manner more productive?

I think the difference between the price announced and prevalent international prices is still large. What we basically need is a liberal economic regime, not one that robs Peter to pay Paul. Why should Ruias and Mittals sell steel at international prices while using gas at a subsidised price? I don’t think that is a deserved subsidy. And fertiliser, which is produced using subsidised gas, is a misdirected subsidy and goes to all the wrong people.

There is a direct relationship between oil prices and available reserves. As prices get higher, more reserves become viable. Most of the reserves lying just under the surface have been exploited. Now you need to go deeper and in far more hostile environments. Drilling 10,000 metres below in the middle of a deep sea is not an easy business and few have the expertise and technology to do so. This also becomes more expensive. If our feasible reserves go up, then we can extract more and reduce import dependency. Oil imports eat up almost 70 per cent of our exports.

Why should Ruias or Mittals sell steel at international prices while using gas at a subsidised price? 

Frankly, I don’t see many big players being attracted to take up an offshore block. ONGC OVL does not take up overseas blocks at pre-fixed prices. Why should we expect others to agree to this when investing in India? I think the best way to attract the big oil drillers here is to offer production-sharing options at market prices. My good friend Jaipal Reddy could never understand this. I am not sure if even Veerappa Moily understands this. But what the latter has understood well is that there are many oil brokers near and within government who collect good brokerages on every import deal. They are huge vested interests now and resort to the usual subterfuges to keep our energy dependency going.

The best yardstick is the international price. Today, we are importing coal at 1.5 times the domestic price. But in case of gas, while the international price is $13.77 per mmbtu, the price stated by the government is $8.2 per mmbtu. Is Mukesh Ambani happy with this? Why should Indian producers be penalised? And why is everybody so allergic to corporates making profits? Profits beget taxes and more investment. Companies don’t let their money lie idle. They always reinvest. But when politicians make money, it is for consumption. Besides, how much can one man consume? How many houses will Mukesh Ambani build and how many planes will he buy?

Somehow this issue of basic principles has been turned into a for or anti Reliance debate, when the only concern should be self-reliance. If there are grievances against Rel­iance, and I can expect there will be many, appropriate forums and institutions must be used for them. What we see now is a new and indigenous form of McCarthyism.

As told to Arindam Mukherjee

Mohan Guruswamy, chairman and founder of Centre for Policy Alternatives; E-mail your columnist: mohanguru AT gmail.com

Reliable Attitudes

By Anuradha Raman and Prarthna Gahilote in Mumbai
The late Y.S.R. Reddy wanted a special gas price for Andhra
YSR’s long fight for a share of KG basin gas
It’s ironical that none of the Andhra political parties are staging demonstrations against the gas price hike. The YSR Congress iss­ued one press statement; the Telugu Desam Party held a rally; the Congress remained mum, as did the TRS. The weakened Left seems to have little energy or drive to stage protests. With the schedule for panchayat elections having been announced (late July) and a dec­ision on Telangana in the offing, parties have other priorities.

It wasn’t always like this. During the course of an interview to Outlook in 2006, the late Y.S. Rajasekhara Reddy had gritted his teeth when asked about his tussle with Reliance over reserves in KG basin and a fair allotment to Andhra Pradesh. “Gas is a natural resource, a property of the nation, not of a private com­pany’s,” he had said. YSR said he raised the issue in the assembly as Opposition leader during Chandrababu Naidu’s rule, when the KG basin blocks came up for auction. At the time, the Gujarat gov­ernment had participated in the bidding. YSR argued that by not acting similarly, the TDP government compromised the state’s future.

As a CM who had almost single-handedly brought the Congress to power in 2004 on a promise of free power to farmers, a share in the gas in KG basin was crucial to YSR. In fact, such was the tussle between Reliance and YSR that files related to laying of pipelines moved at snail’s pace. He even spoke of leading an all-party delegation to the PM to seek a lower gas price for AP.

But in 2008, YSR said he would not pursue the fight for a reduction in gas price. “The Centre is bound by a contractual obligation under the New Exploration Licensing policy,” he explained. “There are fears that amendments now would hamper fresh investments,” he had said. YSR then dismissed reports that Reliance would face trouble while laying pipelines in Kakinada explaining that he was only concerned about a share in gas and special price for the state.

In 2009, a re-elected YSR government reopened the issue. He wrote a letter to the PMO in July, requesting that Andhra should get at least 10 per cent of the gas allocation on a preferential basis. He asked the PM to defend the Centre’s right to allocate national res­ources, as the legal battle between Mukesh Ambani’s RIL and Anil Ambani’s Reliance Natural Resources Ltd would hurt the common man. The Bombay High Court at the time had suggested that the two brothers could approach their mother for a solution, to which YSR had remarked that KG basin gas would be allotted to states by the Centre and not by Ambani brothers or their mother.

'We have been dismantling our organisations, be it IB or RAW...When CBI asks for sanction (against IB officer), they will have to come up with proof'

Manoj C G : Sun Jul 07 2013

In this Idea Exchange, Minister of State for Home Affairs R P N Singh speaks about the need for a central Naxal strategy and the controversy over the IB officer's alleged role in the Ishrat Jahan encounter. The session was moderated by Special Correspondent Manoj C G

Manoj C G: Now there is a Naxal attack in Jharkhand, which is under President's rule, coming directly under the Home Ministry. Do you think the present strategy of tackling Naxalites is working, or do we need to revisit it?

In the last three or four years, we have managed to get into their (Maoists') core areas such as Latehar. All the engagement that is taking place now is taking place in their strongholds. So be it Latehar or Bastar, the CRPF or Army, the engagement is happening in their strongholds. You cannot have a big military operation because we don't know who the enemy is. We get a lot of tweets asking why don't we let the Army go in, but who do we take out? We have 86 battalions of the CRPF in these states. We've tried to move all our paramilitary forces into the core areas.

There are two strategies to remove us from the core areas. One is to target soft targets, like they did in Chhattisgarh, politicians or normal people. And the second is opening new fronts, like what they have done with the SP of Jharkhand. There is no great Naxal problem in that area. In fact, there is not even a single battalion of the paramilitary forces in Dumka. After this incident, we have pulled out two battalions and rushed them to this area.

If you see the statistics of 2011, we have had a huge drop in security personnel getting killed or of Naxal violence. Overall, if you see 2011, it was a far better year than the last couple of years.

The other problem is all the funds and the paramilitary forces are given to different states. Every state has a different policy to tackle Naxalism. Whichever political party is in power has its own way of dealing. We don't have a central policy where Naxalism is concerned. So that is something we have to adjust with the different state governments and work with them. But primarily, our target is to hit the top leadership. On the ground, we are seeing that they are not getting the kind of support that they need. Secondly, the biggest problem they are having is of arms and ammunition. That is the supply chain that we have managed to cut to a certain extent.

We can definitely do better. We can have better coordination among central forces as well as police forces. In my opinion, modernisation is in the kind of money that we have given to states that are worst-affected. After the unfortunate incident in Chhattisgarh, review meetings were held in Raipur, which the Prime Minister himself attended, and at the Chief Ministers' conference. Our priority is now infrastructure development of the worst-affected areas. I can understand there is outrage at what happened in Chhattisgarh and what happened on the train in Bihar, as well as with the Jharkhand SP, but it is something that can't be wished away. We have a programme in place. We will continue to have a hardline (policy) where engagement is concerned, but we will try to develop infrastructure in these Naxal-affected areas.

Manoj C G: What is your estimate of the CPI(Maoist)'s strength? And while you talked of different states having different programmes, even the Congress and the government have been giving mixed signals.

I think we are completely on board on how we are to tackle Naxalism. Where they are engaging with paramilitary forces and they are picking up arms, we will try to subjugate them. As far as rehabilitating tribals is concerned—which is extremely important and that's what people in the party also spoke about—that is something we are trying to do. We have given a lot of money. States were given 5,000 km of roads in these areas. We are trying to make schools and hospitals. We are monitoring that development takes place in a time-bound manner.

Maoist Insurgency in India: Impending Escalation and Dimensions of The State’s Armed Response

Resurgence of Maoist Violence

Since the mid-2011 or so, the intensity of Maoist insurgency had somewhat been less spectacular as compared to the preceding years. Indeed, there had been many Maoist-Police encounters during this time, mostly in Jharkhand and Chhattisgarh, but the frequency of such incidents had shown a definite downslide.


India: Strategic Challenges and Responses


The above subject has been primarily dealt from the foreign policy and security point of view. Many believe that strategic challenges should now include those relating to energy, environment, population, food, health, climate change and the like.


Afghanistan: Is US on A Misplaced Exit Course?

With the 2014 deadline for withdrawal from Afghanistan fast approaching and the ISAF military effort unable to break the back of the Taliban insurgency, the US appears to have concluded (one daresay wrongly) that it has run out of options for effecting a responsible and honourable exit from the Afghan quagmire. The desperate quest for any sort of a face-saving political solution which will also allow its troops to pull out safely from Afghanistan is, at least for the foreseeable future, the only real policy objective that the Americans are likely to pursue in the Afpak region. But imperial hubris and the embarrassment of a hyper-power losing to a rag-tag militia armed with nothing more than fanaticism, small arms, IEDs and suicide bombers, is forcing the Americans to proclaim certain principles, or if you will red-lines, that will determine the course of its dialogue with the Taliban.

It is of course an entirely different matter that the manner in which the ‘political office’ of the ‘Islamic Emirate of Afghanistan’ in Doha was opened and which the US has touted as a major breakthrough, has blurred, if not entirely erased, some of the red-lines that the US had declared so solemnly time and time again. The new formulation is that the red-lines – breaking the alliance with Al Qaeda, respecting the Afghan constitution and taking part in elections and ensuring rights of women and minorities – will now be the outcome of, and not a pre-condition for, a dialogue. Worse, the US has effectively accorded the Taliban legitimacy and the status of a government-in-exile, thereby undermining the legitimate government of Afghanistan.

Showing remarkable spine and spunk, President Hamid Karzai has raised the red flag over the US-Pakistan-Taliban-Qatari-Saudi-British (the last being the real villains as is their wont; as a sample, read William Dalrymple’s latest self-serving ‘pulp strategic fiction’ essay written for Brookings Institution painting the conflict in Afghanistan as being more an India-Pakistan proxy war rather than a part of the Global War on Terror) shenanigans against the Afghan people. By suspending talks with the US, not only has President Karzai refused to be a pushover, he has also let it be known that he has the ability to put a spoke in the wheel of any peace process that either keeps the Afghan government out of the loop or leaves it in the lurch.

No one in any case was really getting fooled by all the resolute American talk of inviolable red-lines, certainly not the Taliban or their patrons, Pakistan. Convinced that the US is all set to throw in the towel, the Taliban (with a nudge and push from their sponsors in Rawalpindi) have agreed to enter into a dialogue to pave the way for the US to cut and run from Afghanistan. The way the Pakistan-Taliban duo see it, even if the US spin is accepted that the Taliban have become amenable to a dialogue because they are exhausted by war and are uncertain of complete victory over their enemies after the withdrawal of the foreign troops, it makes eminent sense for the Taliban to enter into a dialogue that holds the promise of giving to them on a platter that which they will not be able get through force of arms. Leave aside the fact that the hate filled fanaticism that functions as the real force driving the Taliban/Al Qaeda fighters is far from exhausted and has only strengthened with the ever-weakening resolve of the effete European armies and flagging spirits of the US military, it suits Taliban to gain a modicum of international acceptability by entering into negotiations with the Americans, precisely the argument forwarded by the Pakistanis to their clients to bring them to the talks table.

Unlike the Americans and other Western countries who seem to have bought into the nonsense about ‘reconcilable’ Taliban, the anti-Taliban forces suffer from no such false illusion. They know that the Taliban wouldn’t be Taliban if they were ‘reconcilable’. The world-view of the Taliban makes them incapable of living in peace with anyone who doesn’t accept or subscribe to their medieval and barbaric mindset. The Afghans know that any assurances or agreements that the Taliban enter into on the political future of their country will be observed only in their violation. After all, how can a self-declared Amir-ul-Momineen (leader of the faithful) agree to fight an election, especially one in which he may lose. The concept of Democracy is an anti-thesis of the concept of Amir-ul-Momineen, what with the former revelling in allowing dissent, which is anathema for the latter because his word is law. What is more, the Taliban have given absolutely no indication of any sort of a change in their attitude towards women, minorities (especially Shias) and on other social and political issues that made then Pariahs in the eyes of the international community when they were in power in the 1990s.

IMF Mission and Government of Pakistan Reach a Staff-level Agreement on EFF-Supported Program

Press Release No. 13/249
July 4, 2013

An International Monetary Fund (IMF) mission, led by Mr. Jeffrey Franks, visited Pakistan from June 19 to July 2, 2013 to conduct the annual Article IV consultation discussions and to hold policy discussions with the authorities about possible IMF financial support for the government’s reform program under a three-year Extended Fund Facility (EFF).

At the conclusion of its work today, Mr. Franks issued the following statement:

“The mission has reached a staff-level agreement with the authorities on the key elements of an economic reform program that is strongly owned by the authorities and that can be supported by a 36-month arrangement totaling some US$5.3 billion under the EFF. This agreement will be reviewed by IMF Management and finalized before going to the IMF’s Executive Board, which would consider the proposed arrangement in early September 2013, subject to the timely completion of prior actions to be taken by the authorities.

“Pakistan faces a challenging economic outlook, compounded by an uncertain global and regional environment. Macroeconomic imbalances have combined with longstanding structural problems, particularly in the energy sector, to sap the country’s growth potential. Growth has only averaged 3 percent over the past few years, well below that needed to provide jobs for the rising labor force and to reduce poverty. Technical and financial problems in the energy sector have led to large-scale power outages which have depressed output and imposed hardship on the public at large. A difficult business climate has contributed to a sharp fall in private investment. Weak performance in large public enterprises in key industries constitutes a drag on the public finances and on economic growth. Falling capital inflows have been insufficient to finance even a modest current account deficit, leading to large reduction in international reserves.

“A determined effort is required to improve medium-term growth and move toward sustainable fiscal and external positions. This requires a strong political consensus, in the central government as well as in the provincial governments, on a medium-term program of fiscal consolidation anchored on an efficient and equitable tax system. The 2013/14 budget recently approved by parliament is an important step in the right direction, and the government has agreed to complement this with additional steps to achieve a substantial deficit reduction at the beginning of the program. The mission and the authorities agreed on the need for a sustained improvement in tax collections as well as a significant widening of the tax base and a more equitably shared tax burden, including through a phase-out of all existing statutory regulatory orders (SROs) and other measures which grant special rates and tax exemptions. On the expenditure side, untargeted subsidies that disproportionately benefit the well-off will be phased-out, while fully protecting the most vulnerable members of society through targeted assistance.

“The authorities’ program includes a comprehensive strategy for tackling the country’s long standing energy problems through measures to address the ‘circular debt’ accumulated in the sector, tariff rationalization, and promotion of investment for energy generation and modernization. Such steps would help to mitigate the hardship of electricity load-shedding, improve the fiscal balance, and help boost growth. Energy reforms are complemented by significant structural reforms in the areas of trade, public sector enterprises, and the business climate to encourage higher investment. Restructuring and privatization of public enterprises—including those in the energy sector—are intended to help restore fiscal stability as well as boosting investor confidence in Pakistan’s future economic prospects and opportunities, leading to higher growth and job creation.

“Broad-based domestic and international support will be crucial for the successful implementation of of the authorities’ planned policies and reforms. The IMF remains commited to supporting Pakistan and its people face up to the challenges by providing financial resources and technical assistance.”

Crisis of the Muslim world

Meghnad Desai : Sun Jul 07 2013

There was the unrest in Istanbul against a non-secular government. Now there is a repetition of mass demonstrations in Cairo and the Army has taken it upon itself to remove a legitimately elected president. Was it because he was from a non-secular party or because unemployment and economic stagnation tipped the balance for the crowds in Tahrir Square?

The dismissal of Morsi is a setback for Arab Spring. Elsewhere in Syria, the civil war has now lasted two-and-a-half years with over 1,00,000 dead, chemical weapons used, arms flooding in financed by Saudi Arabia and Qatar for the Sunni opposition armies and from Hezbollah and Iran for the government (Shia) armies.

There is no end in sight. The Iraq experience has frightened off the US and UK from rushing in too quickly. Russia and China have stalled the Security Council. Lebanon is already being dragged into the war since Hezbollah is involved. Jordan and Turkey are receiving massive floods of refugees. Iraq with its Shia majority is playing along with Iran on Assad's side. Russia has supplied strategic missiles to Assad, which worry Israel. There is, for the first time in many years, a prospect of general conflagration involving the great powers in the Middle East.

There are two overlapping crises. The old, long-running saga of the demise of the Ottoman Empire has been alluded to in these columns. But, add to that the crisis of legitimacy, which has haunted the Middle East since 1973 when the Arab armies suffered their third and most decisive defeat at the hands of Israel. The region abandoned secularism and socialism as panaceas and turned back to religion. Sunni and Shia identities were reinforced; in Iran after the Khomeini revolution and in Saudi Arabia with the revival and international propagation of Wahhabism.

The revival of orthodoxy threw back the reform process in Islam which had been progressing for some decades. The other two Abrahamic faiths—Judaism and Christianity—have had their reform movements and continue to have their accommodation with modernity. The old texts have been reinterpreted and liberal values have been encouraged even in face of the old texts, which argue against liberal values. Thus misogyny and homophobia are being debated in Christian churches. The Scriptures are no longer held to be literal truths. There are some Creationists in the US but, by and large, the truth of Darwin's findings has been absorbed.

Not so in the recent revival in Islam. Here the literal truth of the text has been reaffirmed. There is an absence of the textual criticism to which the Bible has been subjected. The challenge of modernity has been met by its rejection and insistence that nothing has changed and the word of God is literally true as it always was.

But orthodoxy, however sound theologically, is no help in coping with the challenges of modernisation and globalisation. Jobs have to be found, incomes have to be earned, education is vital, especially for women. The luxury of a medieval lifestyle, which keeps women under wraps, unable to participate in modern life, is no longer affordable. Some Arab countries have had oil as a cushion for a while. But as we see from the anxiety in Saudi Arabia and Oman, local youths who are unemployed and unskilled need jobs and the immigrants who were useful for doing the dirty work are no longer affordable.

The Taliban wants to shoot women who go to school and the al-Qaeda is no better. This way half the population is confined and lost as an asset to the nation. But when oil is no longer enough to sustain a medieval lifestyle at the current price of $100, how will the countries cope when the oil price collapses, thanks to shale gas, to $50 and lower? The countries without oil are already struggling and hence the riots all over the Middle East and the Maghreb.

The war will take many more lives over many more decades before we see any real reform. But then Europe did the same, except that it was centuries ago. Islam has come to the task rather late in the day.

The End of Islamism?

Hazem Kandil 4 July 2013

Islamism was born in Egypt in 1928. And it was in Egypt, 85 years later, that the first successful uprising against an Islamist government occurred. The overthrow of the Muslim Brotherhood is a momentous event: but to foreign observers, the army’s intervention overshadowed everything else.

In their state of shock and denial, the Brothers would certainly like to think that their unseating was purely a coup by the old regime. After an eight-decade cultural war to impose their unorthodox interpretation of Islam, they believed they had the hearts and minds of Egyptians safely tucked away in their pockets. Nothing could persuade them that ‘the people’ (or so many of them) would freely reject them. They were not alone in this belief. Over the years, dozens of news reports and academic studies have assured us that the ‘politics of piety’ would be the trump card in any power contest – at least if it were free. And once the rebellion unfolded, journalists and scholars found solace in the conviction that what was happening was no different from the Algerian, Turkish and Pakistani cases, where anti-Islamist coups repressed the pious majority.

But there is no reason to indulge their fantasy. It is true that without the support of the military and security forces, the revolt would have been aborted. And it is true that President Morsi’s failure to appease either the remnants of the old regime or the secular opposition threw them together in a tactical alliance against him. However, none of this can take away from the fact that 22 million Egyptians signed ‘rebellion petitions’ in the last three months, and this week 17 million of them, according to official figures (33 million according to the opposition), have marched against the chief representatives of Islamism.

For a president who paraded his democratic credentials at every opportunity, the viciousness of the religious rhetoric he deployed against his opponents was unnerving: demonstrators were collectively excommunicated; supporters said that the Archangel Gabriel prayed at the mosque where they were camped out; images of the Prophet’s epic battles against infidels, hypocrites and Jews were conjured. Islamist clerics openly declared jihad against protesters in front of television cameras, and presented themselves as ‘projects for martyrdom’ – so much for the Brotherhood’s advocacy of freedom and citizenship. And this was only the latest charge in the barrage of abusive language that Morsi’s supporters, drunk with power, had unleashed over the months. It all backfired. Millions of self-proclaimed Muslims refused to be either threatened or patronised; they refused to endorse the Brotherhood’s conflation of Islamism and Islam.

Certainly, the Brothers’ dismal performance in power brought about their downfall, rather than some elaborate debate on the legitimacy of Islamism. There was nothing Islamic about the movement’s policies. On the contrary, the moral image they projected was quickly comprised by the shabby deals they tried (and failed) to strike with old regime institutions, and foreign powers they had previously condemned. Once in power, Morsi praised the Interior Ministry so highly that he even claimed this most patriotic of institutions had been an essential partner in the 2011 revolt; and his aides spared no effort in imploring America to save his presidency. Egyptians became rapidly disillusioned with Islamist incompetence, paranoia, double-dealing and, above all, profound arrogance towards people they regarded as less religious than them.

It turns out that Morsi’s tenure was a blessing in disguise. If he had lost the presidency, Islamism would have remained the path not taken. But today, millions of Muslims have voted with their feet against Islamist rule. Those who grieve over this affront to ballot box democracy forget that Egypt, like any new democracy, has every right to seek popular consensus on the basic tenets of its future political system. Revolutionary France went through five republics before settling into the present order, and America needed a civil war to adjust its democratic path. It is not uncommon in the history of revolutions for coups to pave the way or seal the fate of popular uprisings. Those who see nothing beyond a military coup are simply blind. I asked the old, bearded man standing next to me in Tahrir Square why he joined the protests. ‘They promised us that Islam is the solution,’ he replied. ‘But under Muslim Brotherhood rule we saw neither Islam nor a solution.’ The country that invented Islamism may well be on its way to undoing the spell.- See more at: http://www.lrb.co.uk/blog/2013/07/04/hazem-kandil/the-end-of-islamism/#sthash.n400DoIi.dpuf

Scandals Harm U.S. Soft Power

July 5, 2013

For the past few months, the United States has been rocked by a series of scandals. It all started with the events in Benghazi, when Al Qaeda-affiliated terrorists attacked the General Consulate there and murdered four diplomats, including the U.S. ambassador to Libya. Then there was the scandal exposed when it was revealed that the Justice Department was monitoring the calls of the Associated Press. The Internal Revenue Service seems to have targeted certain political groups. Finally, there was the vast National Security Agency apparatus for monitoring online activity revealed by Edward Snowden. Together, these events provoke a number of questions about the path taken by contemporary Western societies, and especially the one taken by America.

Large and powerful institutions, especially those in the security sphere, have become unaccountable to the public, even to representatives of the people themselves. Have George Orwell’s cautionary tales of total government control over society been realized?

At the end of the 1960s and the beginning of the 1970s, my fellow students and I read Orwell’s 1984 and other dystopian stories and believed them to portray fascist Germany or the Soviet Union—two totalitarian regimes—but today it has become increasingly apparent that Orwell, Huxley and other dystopian authors had seen in their own countries (Britain and the United States) certain trends, especially as technological capabilities grew, that would ultimately allow governments to exert total control over their societies. The potential for this type of all-knowing regime is what Edward Snowden revealed, confirming the worst fears that the dystopias are already being realized.

On a practical geopolitical level, the spying scandals have seriously tarnished the reputation of the United States. They have circumscribed its ability to exert soft power; the same influence that made the U.S. model very attractive to the rest of the world. This former lustre is now diminished. The blatant everyday intrusions into the private lives of Americans, and violations of individual rights and liberties by runaway, unaccountable U.S. government agencies, have deprived the United States of its authority to dictate how others must live and what others must do. Washington can no longer lecture others when its very foundational institutions and values are being discredited—or at a minimum, when all is not well “in the state of Denmark.”

Perhaps precisely because not all is well, many American politicians seem unable to adequately address the current situation. Instead of asking what isn’t working in the government and how to ensure accountability and transparency in their institutions, they try, in their annoyance, to blame the messenger—as they are doing in Snowden’s case. Some Senators hurried to blame Russia and Ecuador for anti-American behavior, and threatened to punish them should they offer asylum to Snowden.

These threats could only cause confusion in sober minds, as every sovereign country retains the right to issue or deny asylum to whomever it pleases. In addition, the United States itself has a tradition of always offering political asylum to deserters of the secret services of other countries, especially in the case of the former Soviet Union and other ex-socialist countries. In those situations, the United States never gave any consideration to how those other countries might react—it considered the deserters sources of valuable information. As long as deserters have not had a criminal and murderous past, they can receive political asylum in any country that considers itself sovereign and can stand up to any pressure and blackmail.

A Human Spring

The democratic revolutionaries have yet to prove that they are able to lead a country – in Egypt or anywhere else.

LET ME come back to the story about Zhou Enlai, the Chinese Communist leader. When asked what he thought about the French Revolution, he famously answered: “It’s too early to say.”

This was considered a typical piece of ancient Chinese wisdom – until somebody pointed out that Zhou did not mean the revolution of 1789, but the events of May 1968, which happened not long before the interview in question.

Even now it may be too early to judge that upheaval, when students tore up the cobblestones of Paris, confronted the brutal police and proclaimed a new era. It was an early forerunner of what is happening today all over the world.

QUESTIONS ABOUND. Why? Why now? Why in so many totally different countries? Why in Brazil, Turkey and Egypt at the same time? 

We know how it started. In the souk of Tunis, of all places. I have been there many times, when Yasser Arafat was staying in that city. The market always struck me as a happy place, full of noise, eager shopkeepers, haggling tourists and local men with jasmine flowers behind their ears.

It was there that a policewoman confronted a fruit vendor and overturned his cart. He was mortally insulted, set himself on fire and set in motion a process that now involves many millions of people around the world.

The Tunis example was taken up by the Egyptian masses, who assembled in Tahrir Square and eventually overturned their dictator. Then it was our turn, and almost half a million Israelis went out into the streets to protest the price of cottage cheese. Then there were upheavals in Syria, Yemen, Bahrain and other Arab states, collectively known as the Arab Spring. In the US, the Occupy Wall Street movement staged its own Tahrir Square in New York. And now millions are demonstrating in Turkey and Brazil, and Egypt is aflame again. One may add Iran and other places.

How did this come about? How does it work? What is the hidden mechanism?

And especially: why at this point in time?

I CAN think of two interrelated phenomena in contemporary life that make the uprisings possible and probable: television and the social media.

Television informs viewers in Kamchatka about events in Timbuktu within minutes. The huge demonstrations in Istanbul’s Taksim Square could be followed in real time by people in Rio de Janeiro. 

Once upon a time, it took weeks for people in Piccadilly Circus in London to hear about events in the Place de la Concorde in Paris. After the battle of Waterloo, the Rothschilds made their killing by using messenger pigeons. In 1848, when revolution spread from Paris throughout Europe, it took its time, too.

Not any more. Brazilian youngsters saw what was happening in Gezi Park, Istanbul, and asked themselves: why not here? They saw that determined young men and women could withstand water cannon, tear gas and batons, and felt that they could do it, too. 

The other instrument is facebook, Twitter and the other “social media”. Five young men sitting in a Cairo café and talking about the situation could decide to launch an online petition for the removal of the incumbent president, and within a few days tens of millions of citizens signed. Never before in history was such a thing possible, or even imaginable.

This is a new form of direct democracy. People don’t have to wait anymore for the next elections, which may be years away. They can act immediately, and when the groundswell is powerful enough, it can develop into a tsunami.

Get Ready for the Next China

July 5, 2013

The Next China is now at hand. Yet the United States remains fixated on the Old China, unprepared for major transformation in the world's second largest economy. The US-China Strategic and Economic Dialogue slated July 10 to 11 in Washington, DC, provides a major opportunity for both nations to recast what could well be the most vital economic relationship of the 21st century.

China is most assuredly on the move. The debate over a strategic shift to a more balanced consumer-led growth model is over. The focus is on implementation. The 12th Five-Year Plan laid out the strategy - three pro-consumption building blocks of services-led job growth, urbanization-driven income leverage and a more robust social-safety net. But it was tough to get the ball rolling, especially in light of the inertia of China's deeply entrenched power blocs at the local government and state-owned enterprise levels.

China's new leadership under President Xi Jinping and Premier Li Keiqang has broken the gridlock. With a series of stunning moves in the early months of their administration, China's fiscal and monetary authorities have been given new marching orders. The growth slowdown of early 2013 has not been countered by a typical Chinese proactive fiscal stimulus. Instead, the new leadership seems content with 7.5 to 8 percent growth in gross domestic product. Similarly, the central bank did not rush in to stem a liquidity crunch in June. Instead, it used the occasion to caution banks, especially "shadow banks," against returning to an undisciplined and excessive expansion of credit.

The message from this new approach to Chinese macroeconomic stabilization policy is clear: Gone are the days of open-ended hyper growth. Significantly, this message has been reinforced by an important political overlay. Xi's rather cryptic emphasis on a "mass line" education campaign aimed at addressing problems arising from the "four winds" of formalism, bureaucracy, hedonism and extravagance underscores a new sense of political discipline directed at the Chinese Communist Party. The CCP is being urged to realign itself with the core interests of citizens and their need for fair and stable economic underpinnings.

This new mindset works only if China changes its growth model. A services-led growth dynamic, one of the pillars for a consumer-led Chinese economy, is consistent with a marked downshift in trend GDP growth. That's because services generate about 30 percent more jobs per unit of Chinese output than do manufacturing and construction - allowing China to hit its all-important labor absorption and social stability goals with economic growth in the 7 to 8 percent range rather than 10 percent as before. Similarly, a more disciplined and market-based allocation of credit tempers the excesses of uneconomic investments, necessary if China is to begin absorbing its surplus saving to spur consumer demand.

With China's new leadership embracing a very different approach to policy and politics, it has little choice other than to move ahead aggressively in implementing its consumer-led rebalancing. The United States needs to take that possibility as a given as it frames its approach to the upcoming dialogue with China. This raises four key issues:

- First, China's consumer-led growth presents the United States with an important opportunity. With the American consumer on ice for more than five years - underscored by average annualized growth of just 0.9 percent in inflation-adjusted consumption expenditures since the first quarter of 2008 - the US is in desperate need of a new source of economic growth. China is America's third largest and most rapidly growing export market. Washington negotiators should push hard on market access, ensuring that US companies and their workers have the opportunity to capitalize on China's transformation.

- Second, and related to the first point, is a potential bonanza in Chinese services. At 43 percent of its GDP, China has the smallest services sector of any major economy in the world. Under reasonable assumptions, the scale of Chinese services could increase by around $12 trillion by 2025. Increasingly tradable in a connected world, the coming explosion in Chinese services could translate into a windfall, up to $6 trillion, for foreign services companies from retail trade and transportation to hotels and finance. For the United States, with the world's largest and most dynamic services sector, this could be an extraordinary opportunity. US negotiators should push especially hard for access to Chinese services markets.

- Third, it's high time for US negotiators to give up the ghost of Chinese currency bashing. It has been the wrong issue from the start - after all, there can be no bilateral fix for a multilateral US trade imbalance reflected in deficits with 102 different nations in 2012. That multilateral imbalance is an outgrowth of an unprecedented US saving gap - a far cry from the politically inspired charges of Chinese currency manipulation. Moreover with the renminbi now having risen by 35 percent since July 2005 and with China's current account surplus having shrunk to less than 3 percent of its GDP, the argument is vacuous. The US-China strategic and economic dialogue has been hijacked by the Chinese currency issue for far too long.

- Fourth, concerns over cyberattacks should be elevated immediately to a high-priority issue between the two nations. In the early June summit between Obama and Xi, the US pushed on this point in the face of recent publicly disclosed evidence about China's aggressive cyberhacking attacks on US military and commercial targets. The two presidents agreed to set up a working group focused on this issue, starting with the early July dialogue. However, since the summit, revelations of comparable efforts on the US side - namely, the so-called PRISM and TAO (Tailored Access Operations) programs of the National Security Agency as disclosed by a former NSA contract worker - have cast this contentious problem in a new light. With both nations heavily involved in cyberespionage, there can be little doubt of the urgency in dealing with this critical issue.