27 July 2013

*** Collision Course

The U.S. and India are headed for a trade war over immigration and protectionism. Can it be stopped before it's too late?

India and the United States have come a long way over the past two decades. A once fraught relationship has developed real strategic significance, especially as both nations face major security challenges in Asia. Much of this progress has been fueled by the enthusiasm of U.S. businesses, who recognize that to be successful in a globalized economy, they need access to Indian talent and the giant subcontinental market. India also understands that to lift itself out of poverty and become globally competitive, it needs access to U.S. markets and the capital and technology of American firms. As a result, bilateral trade has quadrupled to nearly $100 billion since 2006 and, with this, cooperation has blossomed in many other areas -- including intelligence and security.

However, with U.S. Vice President Joe Biden visiting Mumbai and New Delhi this week, it's worth noting that over the past three or four years, the business environment for U.S. firms in India has deteriorated, and tensions have grown over trade and investment matters. American pharmaceutical firms and multinational companies are concerned about how policies and regulation compromise their business model. Many others face nightmarish tax challenges. For their part, Indian IT companies are very concerned about proposed changes in the U.S. Senate's immigration bill to the rules on skilled Indian workers who want to emigrate to the United States.

All companies, Indian and American, face severe headwinds in their day-to-day business operations. As a result, the business ties that have been a pillar in U.S.-India relations for decades have been dramatically weakened. Honeywell CEO and co-Chairman of the U.S.-India CEO Forum Dave Cote spoke for many of his colleagues recently when he said, "Over the last two years, we have felt a cooling when it comes to U.S. interests in investing in India." Ajay Banga, CEO of Mastercard and chairman of the U.S.-India Business Council added frankly, "There are cracks in our relationship." But this cooling may not remain restricted to trade and investment alone; the United States and India may be headed for a collision that could be seriously detrimental to the strategic interests of both nations unless U.S. President Barack Obama and Indian Prime Minister Manmohan Singh lead forcefully and personally to get things back on track

The list of grievances on both sides is long. For U.S. firms operating in India, relentless harassment by tax authorities is at the top of this list. Add to this the much-criticized Preferential Market Access (PMA), a proposed policy that would give preference in government procurement contracts to domestically manufactured electronic, computing, and telecommunciations hardware. Pharmaceutical companies are concerned about intellectual property rights protection and enforcement. Solar panel manufacturers, and companies in insurance, retail, and defense complain about continued regulatory and bureaucratic hurdles to market access in their sectors. Progress on the civil nuclear agreement between the two countries that was signed with much fanfare in 2008 remains stalled over concerns on liability which has scared away French, Russian, and American firms.

Lack of progress on improving infrastructure, a rapidly slowing economy and a rapidly depreciating currency raise further concerns about India's economic progress. For multinational companies eager to enter the Indian market, the mounting list of issues is causing frustration and annoyance to mutate into anger as more and more CEOs fear that India is discriminating against U.S. firms and failing in its obligations as an emerging economic power.

U.S. government officials expect India to collaborate with them in multilateral trade negotiations to shape the global trading system rather than setting dangerous precedents that other countries might emulate. This would drive a stake through the heart of the global expansion of American firms. It is a matter of paramount importance and urgency therefore to get India to act responsibly.

From India's standpoint, the most urgent and lethal threat is that some of the provisions of the U.S. immigration bill currently being considered by Congress would create a huge problem for the country's flagship IT industry, not to mention the American companies that are its clients. The most onerous proposal is one that prevents U.S. technology firms from placing personnel at client's sites if more than 15 percent of their employees are on H1-B visas. This destroys the business models of many global IT service providers and is also extremely problematic for U.S. companies that have become dependent on the amazingly competitive, 24/7 capability provided by Indian firms.

Global Economics

For India's Inflation Crisis, See Onion Prices
July 25, 2013 

Apples are too expensive now, so Shilpa Gethe settles for bananas. She doesn’t have an easy substitute for onions. Gethe, 32, a housewife in the Mumbai suburb of Vashi, buys more than four pounds of onions a week. About two months ago a pound cost 10 rupees (17¢). Since then the price has doubled, she says. A 500-rupee note used to get her through a week of vegetables. Now it’s two days, sometimes less. To stick to her monthly budget, Gethe sends her husband to work with a packed lunch. “I have to put in more work,” she says.

India’s perennial battle with inflation is enshrined in a humble staple: the onion. On July 15, the nation’s commerce ministry reported that the price of onions had shot up 114 percent since June 2012. Consumer price inflation rose 9.9 percent in the 12 months through June—the biggest jump among the BRIC nations. It was 6.7 percent in Brazil, 6.9 percent in Russia, and just 2.7 percent in China.

Rising prices for food—which makes up slightly more than half of the consumer index—are the main culprit. Other staples, tomatoes for instance, have also registered large price jumps. But it’s the onion that’s the national bellwether. The vegetable is a key ingredient in the Mughal cuisine of much of the country. Annual per-capita consumption stood at 18.1 lb. in 2009, a bit under the 20 lb. per year in the U.S., according to figures supplied by the National Onion Association, a Colorado-based trade group. India is the world’s No. 2 producer of the vegetable after China.

Onions have played an outsized role in Indian politics, too. The Congress Party won national elections in 1980 after turning the high price of onions into a campaign issue. In 1998, the rival Bharatiya Janata Party lost control of the capital, New Delhi, when a shortage of onions sent prices soaring. “Higher onion prices create a huge negative sentiment, especially for the poor, as they are a significant part of the consumption basket,” says N.R. Bhanumurthy, a professor at the National Institute of Public Finance and Policy in New Delhi.

Inflation “is a regressive tax, and it hurts the poor the most,” said Duvvuri Subbarao, who heads the Reserve Bank of India, during a speech in London on July 17. Unfortunately for India’s poor, there’s little Subbarao can do to tame the price of onions—or any other foodstuff. Between 2010 and 2012, India’s central bank raised interest rates by almost four percentage points, and has lowered them only slightly since the beginning of this year.

There are several reasons food inflation in India has proven resistant to traditional macroeconomic fixes. As people become richer in India, they’re starting to consume fewer cereals, like wheat, and more vitamin- and protein-rich foods, like onions and chicken. That’s why prices for nongrains have been rising faster than those of grains for several years now. Yet even though demand for perishables is growing, there remains no way for the government to stockpile reserves for lean years, as it does with grains.

Indians’ tastes may be changing, but the way they grow their food is not. Small plots and outdated farming practices have kept onion production static for years. Yields average 14.2 metric tons per hectare, compared with 22 metric tons per hectare in China, according to India’s National Horticulture Board. Unable to afford irrigation systems, Indian peasants entrust their livelihoods to the monsoons. Too much rain, rather than too little, has been the problem in recent years. In 2010 output of onions in the top producing states of Maharashtra, Gujarat, and Karnataka dropped by 20 percent after two wet years, creating what economists came to call the onion crisis.

Infrastructure is another problem. India has proven adept, over the last two decades, at moving people to its cities. It’s not nearly as good at getting vegetables to urban markets. According to a 2011 paper by the Reserve Bank, about 40 percent of India’s fruit and vegetables rot before they’re sold.

While heavy rains are a factor in this year’s onion price spike, Ramdev, a vegetable vendor in Vashi who would only give his first name, suspects the many middlemen are taking advantage of the shortage by jacking up prices. “It’s beyond my understanding why onion prices have gone up so much,” he says. “This is something unusual.” Following in the footsteps of previous administrations, the government is considering a temporary ban on onion exports. That would be a quick fix—and much cheaper than having to improve roads, shorten supply chains, or build climate-controlled warehouses. For that, India’s housewives will have to wait.

The bottom line: The onion is the preferred gauge by which many Indians measure inflation and the competence of their politicians.

Greeley is a staff writer for Bloomberg Businessweek in New York. Goyal is a reporter for Bloomberg News in New Delhi.

HIMALAYAN HEROINES- The remarkable social activists of Uttarakhand

Politics and play Ramachandra Guha

A submerged truck in Uttarakhand, June 27

I wrote, in my last column (“No lack of warning”, July 13), about the precocious environmental work of Mira Behn (Madeleine Slade), the British admiral’s daughter who became a close associate of Mahatma Gandhi. I write this time of another Englishwoman whose commitment to, and understanding of, the beautiful and fragile Himalaya was even deeper.

Catherine Mary Heilman was born in London in 1901, of mixed English-German parentage. Her father, a goldsmith, was interned during World War I because, in an ethnic sense, he was ‘alien’. During and after the war, his daughter faced hostility from xenophobes too. Then she met some Indian students, who told her about Gandhi and the freedom struggle. This inspired Catherine to come out to India in 1932, to join the staff of a school in Udaipur. Two years later, she met Gandhi for the first time. For the next few years, she was based largely in Sevagram, working with Gandhian experiments in basic education. Her admiration for Gandhi grew, yet she also came to appreciate the rock-like solidity of Kasturba, whose self-effacing support had done so much to make the Mahatma’s work possible.

Catherine had now taken an Indian name — Sarala Devi. She felt fulfilled in Gandhi’s ashram; however, the climate of central India did not suit her. She suffered from dysentery, and more worryingly, from malaria. From Gandhi’s friend and follower, Acharya J.B. Kripalani, she came to know of an ashram in Almora set up to propagate khadi. So Sarala went northwards, to come under the care of Shantilal Trivedi, the Gujarati Gandhian who ran the ashram in Almora. She loved the hills, the woods and the views especially, and very quickly made herself at home here.

In 1942, the Quit India movement broke out. The Almora district witnessed sustained protests. Farmers and students took out processions, hoisted the banned national flag, and shouted slogans against the British. The State came down hard. Hundreds of men were arrested, and also some women. Sarala did not herself join the open protests, yet her sympathy with the protesters was marked. She visited them in prison, provided succour to their families, and carried messages to and from activists who were underground. Finally, she was also arrested, and spent two terms in prison.

Her incarceration made Sarala’s identification with the Indian cause complete. After she was released, she chose to start a girls’ school in memory of Kasturba Gandhi (who had died in prison during the Quit India movement). The Uttarakhand society was extremely conservative; here girls worked in the fields and in the kitchen, and were not encouraged to educate themselves. The British-born Indian set out to change this. She acquired a cottage in Kausani named Lakshmi Ashram, and prevailed upon Congress workers to send their daughters there. As she recalled, “some elderly, conservative elements in the village, forever shaking their heads, accused us of breaking all the old social rules, that our girls would be looked upon as having lost their caste, and then how would they get married?”

The girls in Lakshmi Ashram grew their own vegetables, raised their own cows, cooked their food and cleaned their premises. They also learnt their letters, with the curriculum, based on Gandhian principles, teaching languages, science and social studies, and livelihood skills such as weaving. The girls also ran the ashram office and kept the accounts.

Sarala’s wards became self-confident, capable young women, who, after they graduated from the ashram, went out into the world, working as teachers and social workers. Some started schools of their own. Together, they created a quiet, silent revolution in Uttarakhandi society. Sarala inspired some very capable men to join the Gandhian movement as well. Through the 1960s and 1970s, graduates and associates of Lakshmi Ashram played major roles in struggles against alcoholism, deforestation, and the siting of large dams in the hills.

As she grew older, Sarala grew more pessimistic about the direction that her nation and the world were taking. “By keeping man far removed from Nature”, she wrote despairingly in 1976, “by making a slave to the machine in the spheres of production and entertainment; through the rapidly increasing pollution of air, water and natural resources; the excess of words and speed; the breakdown in family relations and concern for society”— by all this, “mankind is now facing a condition of unprecedented crisis in the areas of both mental and physical health.”

The Sen-Bhagwati slugfest: Not the 1st in history

July 26, 2013

Is the unfolding Sen-Bhagwati debate likely to have the same impact on economic policy in India as Hayek versus Keynes had on the West?

At a time of economic crisis, a distinguished group of economists wrote a letter to a major newspaper, making a case for increased government involvement in the economy. A few days later, an equally distinguished group of economists wrote a letter to the same newspaper, arguing against the first lot.

No, this is not about the ongoing Jagdish Bhagwati-Amartya Sen debate, although I’ll come to that later. I’m referring to a famous exchange of letters in October 1932 and the two economists that spearheaded the letters to The Times of London were no less than John Maynard Keynes and Friedrich von Hayek. 

That was only the beginning of a lifetime of public sparring between two individuals who disagreed vehemently on economic policy but held each other in high mutual esteem. Many writers have dubbed the intellectual duel between Hayek and Keynes as one of the great intellectual contests of the 20th century or indeed of modern times.

Echoes of their debate resonate even today in places such as the United States or Europe in shaping competing views of how best to combat the recession in which the global economy is still stuck.

What makes the Hayek-Keynes battle of ideas different from most intellectual controversies is that the ideas of these two men had a profound impact on economic policy in the US, Britain and elsewhere. The “Keynesian Consensus”, that governments needed to actively intervene to combat recessions by spending more, became orthodoxy after the end of the Second World War and held sway for almost three decades. 

Then, with the problem known as stagflation, a combination of high inflation and high unemployment, the faith in Keynesian economics broke down for a time, and new policies such as deregulation and privatisation came to the fore.

In this, Hayek, as well as Milton Friedman, had a huge impact. However, Hayek might not have had the last laugh. Keynesian economics, which had been rubbished by many serious economists, has made a comeback in the wake of the global financial crisis and the battle of ideas is far from over.

Is the unfolding Bhagwati-Sen debate likely to have the same impact on economic policy here as Hayek versus Keynes had on the West?

In some important senses, they both already have had a huge impact in different ways. Economic liberalisation starting in 1991 in many ways owed a debt to Bhagwati’s long advocacy, going back to the 1970s, that India’s economy needed to open up.

The fact that then finance minister Manmohan Singh was a Cambridge classmate of Bhagwati certainly didn’t hurt. More recently, however, one can see the imprint of Sen’s rights-based approach in many large schemes unveiled by the UPA, the most recent being the food security Bill.

While critical of many of the details, Sen is broadly supportive of the idea of creating an entitlement to food, which builds philosophically on the “capabilities approach” to well-being that he developed with philosopher Martha Nussbaum.

As it happens, Sen was also at Cambridge in the days when Manmohan Singh and Bhagwati were there. In fact, if I’m not mistaken, all three of them won the Adam Smith prize in different years when they were students. Just imagine having been there at that time.

A growing Iraq-Iran economic rivalry in India bolsters stability

Harsh V Pant
Jul 26, 2013 

Iran's growing influence in Iraq since the US invasion in 2003 has been cause for enormous concern for many in the Middle East and beyond. But a growing economic rivalry between Tehran and Baghdad has attracted little attention. 

Nowhere is this rivalry clearer than in India, where Iraq is emerging as an economic partner instead of Iran. Iraq's economic relations with India might also have implications for stability in this region.

Last month, Indian external affairs minister, Salman Khurshid, became the first Indian official to visit Iraq in 23 years. He emphasised India's commitment "to participate in rebuilding the infrastructure in Iraq". He went on to suggest that New Delhi wants "to look beyond all sectors" and that the priority India is giving to Iraq "will become more intense and stronger" in coming years.

Though Iraq remains mired in sectarian violence, it has been keen to attract Indian investment. Iraq is keen to revive bilateral ties with India and is seeking to take the relationship beyond that of oil buyer and seller. The Iraqi foreign minister, Hoshyar Zebari, invited Indian companies to invest in Iraq saying, "there are many places in the country which are peaceful and stable" .

With the world's third largest proven oil reserves, Iraq has replaced Iran as India's second largest crude oil supplier after Saudi Arabia. Iraq intends to double its output of 3.15 million barrels a day of crude by 2020 and is planning to increase its oil exports to Asian economies from the present 50 per cent to around 80 per cent by 2030. During the last fiscal year (2012-13), Iraq accounted for about 13 per cent of India's total crude oil imports.

India's petroleum and natural gas minister, M Veerappa Moily, visited Iraq earlier this month for the India-Iraq Joint Commission - which is designed to boost economic relations between the two countries - as part of Iraq's vigorous efforts to reach out to India.

In a bid to cement its position as one of India's main oil suppliers, Iraq has offered India three newly-discovered oil blocks in the Middle Furat oilfields in Karbala and has agreed to consider investing in Indian Oil Corporation's 15 million tonne Paradip refinery. It has not only offered to extend 60-day credit for crude sales to India but has also agreed to restart negotiations with India's ONGC Videsh Ltd to finalise the long-pending contract for oil block 8, an on-land exploration block in the western desert in Iraq. Iraq has assured India it is willing to provide as much crude as it can to fulfil the requirements of the growing Indian economy.

After the war in 2003, New Delhi consistently ignored Baghdad and refused to seriously engage with the democratic process in the country. Even as Iraq needed external support to rebuild its war-ravaged economy, India remained reluctant for fear of getting entangled in Iraq's domestic sectarian turmoil. Though India shares strong cultural and historical ties with Iraq, and despite the fact that Indian businesses had a strong presence in the country in the 1990s, India's recent hands-off approach has made it a marginal player in the country.

But with the recent visit of the external affairs minister, India has signalled a new willingness to reach out to Baghdad. And the warm reception Mr Khurshid received indicates the Maliki government views India as a serious regional and global partner.

This partnership comes at a time when turmoils in Syria, Egypt, Turkey and Palestine need regional and global attention. New Delhi and Baghdad are both keen to see stability return to this strategically crucial region.

Meanwhile, India's ties with Iran are facing difficulties. Under pressure from the West, the Indian government was forced to ask its refiners to cut imports from Iran by 10 to 15 per cent, even as Iran has tried to sell extra volumes to those refiners on long-credit terms. India has also struggled to find ways to pay Iran after the United States made dollar transactions almost impossible under financial sanctions. Indian oil companies are finding it hard to get vessels to transport Iranian cargo because of western sanctions. And Shipping Corporation of India, India's largest domestic tanker owner, has refused to provide its tankers to the Indian Oil Corporation for lifting Iranian oil. As a consequence, Iran's contribution to Indian oil imports is declining.

Iraq has replaced Iran as the second largest crude oil supplier to India as the Indian government has unofficially asked its top importers to cut shipments from Iran -though the US has exempted India, along with eight other countries, from financial sanctions for significantly reducing their dependence on Iranian oil. During the years of 2012 and 2013, India's oil imports from Iran declined by more than 26 per cent. In contrast to 10.5 per cent last year, Iran supplies now account for 7.2 per cent of India's oil imports.

To salvage its economic profile in India, Iran responded last week by offering India's state-owned oil companies production-sharing contracts in a departure from its usual practice of offering Indian companies 15 per cent fixed returns under a buy-back contract with the national oil company of Iran. There have also been reports that Tehran has offered to ship gas to Oman where it can be processed into liquefied natural gas which can then be shipped to India.

If Trayvon Were Pakistani…

Why isn't Obama outraged about a drone war based on profiling?

President Barack Obama surprised the White House press corps on Friday when he preempted the normal daily briefing to offer his unscripted ideas on the Trayvon Martin case.

Obama departed from his usual reluctance to talk publicly about his personal experience with racial bias, reminding viewers that African-American men -- including him, before he became a senator -- experience prejudice based only on their appearance, not their personality or behavior. He added that the African-American community was interpreting the outcome of the case through a "set of experiences and a history that doesn't go away." And he noted that, while the African-American community is not naïve about violence involving its young men -- they are "disproportionately both victims and perpetrators" -- that fact is no excuse for different treatment under the law.

It is striking to compare Obama's deliberate and thoughtful commentary about the tragic killing of Trayvon Martin with the military tactic that will forever characterize his presidency: killing people with drones. The president posits that it is wrong to profile individuals based upon their appearance, associations, or statistical propensity to violence. By extension, he believes that, just because those characteristics may seem threatening to some, the use of lethal force cannot be justified as self-defense unless there are reasonable grounds to fear imminent bodily harm. But that very kind of profiling and a broad interpretation of what constitutes a threat are the foundational principles of U.S. "signature strikes" -- the targeted killings of unidentified military-age males.

The use of signature strikes began in early 2008, when "instead of having to confirm the identity of a suspected militant leader before attacking," the New York Times reported, drones were permitted to "strike convoys of vehicles that bear the characteristics of Qaeda or Taliban leaders on the run." By the summer of 2008, as a Bush administration official recollected, "We got down to a sort of ‘reasonable man' standard. If it seemed reasonable, you could hit it." Early in his first-term, Obama actually authorized signature strikes before he knew what they were, as author Daniel Klaidman reported. When Steve Kappes, then the CIA's deputy director, explained to the president, "We can see that there are a lot of military-age males down there, men associated with terrorist activity, but we don't necessarily know who they are," Obama declared, "That's not good enough for me."

Apparently, it was good enough for him, though, since Obama vastly increased the scope and intensity of targeted killings in Pakistan and, in April 2012, expanded the practice into Yemen against unknown men, allowing the CIA to henceforth "hit targets based solely on intelligence indicating patterns of suspicious behavior." As Jo Becker and Scott Shane reported last year, "Counterterrorism officials insist this approach [of signature strikes] is one of simple logic: people in an area of known terrorist activity, or found with a top Qaeda operative, are probably up to no good." Indeed, transnational terrorist plots directed against the United States have disproportionately originated from Pakistan and Yemen. But, if you apply Obama's logic concerning the Trayvon Martin tragedy, hanging around in the wrong neighborhood or with bad people should not make a person guilty.

Since November 2002, the United States has killed over 3,600 people in non-battlefield settings with drones, cruise missiles, AC-130 gunships, and special operations forces. It is unknown how many of them were unidentified men killed only because of their profile and a U.S. claim that they posed a "continuing and imminent threat." President Obama acknowledged in May that "it is a hard fact that U.S. strikes have resulted in civilian casualties," though he said that "there's a wide gap between U.S. assessments of such casualties and nongovernmental reports." As first reported by Jonathan Landay, the still-classified CIA assessments of drone strikes conducted in Pakistan over 14 months in 2010 and 2011 found that roughly one-quarter of the 600 people killed were what the CIA termed "other militants," meaning that they were collateral damage or that they were targeted only because of their behavioral profile. Amazingly, no U.S. government official has ever acknowledged that the United States conducts signature strikes.

Afghanistan: A Dilemma for China and the US

July 26, 2013
By Jeffrey Payne

Both countries have an interest in Afghan stability post-2014. They should consider cooperation.

As NATO forces continue the process of withdrawing from Afghanistan, the People’s Republic of China finds itself in a conundrum. With tensions flaring throughout the Asia-Pacific, in part because of a more aggressive Chinese foreign policy, the last thing Beijing wants is to face a security risk along its western border. Regardless of Beijing’s wishes, it will need to become more involved in efforts to stabilize Afghanistan. The United States and its international partners thus have an opportunity to provide incentive for China to become a more reliable international security participant. Unfortunately, China seems unable to escape the inertia of its own politics, while the United States is increasingly consumed by concerns involving Chinese activities in the Asia-Pacific.

The Afghan Element within US-China Relations

The U.S.-China relationship is certain to define 21st century international relations to a great degree. As such, the two countries, as well as the world, are scrambling to better understand the relationship. China’s complaints about bilateral ties stem from a view that the United States is unfair to rising powers and, in particular, disregards Chinese traditions and history. The U.S. position is framed as one where China is an irresponsible stakeholder within the international system. China is content to free-ride off the efforts of others, while exploiting the goodwill of surrounding countries and global powers.

These portrayals aren’t completely inaccurate in either case, but they do not sufficiently define this bilateral relationship. It is undeniable that trust between the U.S. and China is low and that many parties within both countries see each other as opponents. Yet, much of the tension in the U.S.-China bilateral relationship is linked to territory, commerce, and relationships throughout the Asia-Pacific region. If we move beyond the Asia-Pacific, then greater opportunity for cooperation exists.

As such, the future of Afghanistan offers an opportunity for these two major powers to work together in furthering Afghan national – as well as South and Central Asian regional – security. With the majority of NATO forces to leave Afghanistan in 2014, China is realizing that its investments in Afghanistan will be at risk, its Central Asian trade threatened, and its relations with Pakistan strained. In short, China needs to take steps to protect its interests.

The U.S., its population exhausted from war and its politics focused on domestic problems, is consumed with withdrawing its security forces from Afghanistan. However, Washington does not wish to watch Afghanistan fall into absolute chaos. Not only would it be negatively affected by the further loss of life, but it would also make the country’s years of investment meaningless and create a security vacuum that may once again require a major U.S. presence.

Thus, China wants to protect its Western border and the U.S. wishes to find a means to enhance Afghan security. This issue can be a basis for building cooperation between the two countries, while avoiding the tension stemming from the Asia-Pacific. Unfortunately, neither country is focused on the Afghan issue in respect to the other. That must change.

Bilateral Strategic Cooperation

Too many in the United States view China as an inevitable strategic opponent, ignoring counterevidence in favor of a quasi-Cold War worldview. Likewise, many analysts in China argue that the United States is a diminishing power intent on inhibiting China’s growth. Neither country should be so easily caricatured as such. Both countries’ foreign policy establishments constantly debate how to move forward bilateral relations. What both countries need to do is recognize mutual interests. Mutual interests, particularly outside the Asia-Pacific region, should be the source of U.S.-China international cooperation. In the security arena, Afghanistan’s stability is a major threat and a vital opportunity.

First, each country needs to figure out what costs it is willing to pay for Afghan security. Both countries publicly declare their desire for a prosperous and safe Afghanistan, but neither has made headway in exploring what international institutions it will need in order to reach the desired end stage. China, given its policies of peaceful development and respect to sovereignty, will resist pressure to step up its involvement in security matters. The U.S., for its part, will be intensely hesitant about China taking on a more robust role in Afghanistan. Yet the past ten years have proven that when it comes to Afghanistan, what works best is often not what any party favors.

Soldierless Jihad

How the Withdrawal Undermines the Taliban's Case for War

Graffiti left behind by Taliban fighters on the walls of a compound used as a command center for the U.S Marine Corps' First Battalion, Eighth Marines at Musa Qala in southern Afghanistan's Helmand province, November 10, 2010. (Finbarr O'Reilly / Courtesy Reuters)

On May 24, a group of Taliban fighters attacked an Afghan police and army post in the Syed Karam district of Paktia province, near the border with Pakistan’s tribal areas. The soldiers inside resisted, aided by air support. By the end of the battle, four Taliban fighters were dead: yet more casualties in the escalating violence that has rocked Afghanistan this year as efforts to start negotiations between the Taliban and the government of Hamid Karzai continue, and as the NATO withdrawal looms. According to the United Nations, over 3,000 civilians were killed in the first five months of 2013 -- nearly a quarter rise over the past year.

Still, the four Taliban fighters -- Sebghatullah, Sherif, Gul Ahmad, and Gul Padshah -- were more than statistics. They were also the cause and consequence of the Taliban leadership’s attempts to sustain the current conflict and rally supporters even as its raison d'être, the Western presence in Afghanistan, recedes. Their deaths reveal both the durability and the vulnerability of Taliban rhetoric among the most hardened militants and in the communities on both sides of the Afghan-Pakistani border, where the Taliban recruits new fighters.


After twelve years of war, the Taliban has no credible strategy to end its conflict with Western forces and the Afghan government -- only an ideology to sustain a seemingly endless fight. This clash between the Taliban’s war aims and doctrine was on full display in the funerals of the four fighters killed in Syed Karam. After the attack, fellow Taliban comrades retrieved their four bodies and transported them to their home district of Zurmat, also in Paktia. They all received quiet burials in their native villages. Three were buried in Sak, and the best-known of the four men, Sebghatullah, was taken to his family in the village of Qala Sarkari. Sebghatullah was buried by his father, Mawlvi Abdul Manan, a former comrade of the charismatic Maulvi Nasrullah Mansoor, who led a faction of militant clerics in the jihad against the Soviets in the 1980s. Civilians in Paktia are ambivalent about fallen Taliban fighters and wary of getting into trouble with the intelligence service by associating with them, which ensured that no elaborate funeral took place in their native villages in Afghanistan.

The real commemoration of the martyr of Syed Karam took place a few days later, four hundred miles to the east, across the frontier, in Pakistan. Sebghatullah’s brother organized a prayer service for him attended by some 350 extended relatives and Taliban comrades. Such a gathering of Afghans in the outskirts of a Pakistani city exemplified how the jihad spans this frontier. The affair also signified the long association of Sebghatullah’s family with jihadist circles in southeastern Afghanistan and northern Pakistan. Illustrating the links between cross-border communities and home villages, Sebghatullah’s brother even made a show of making a phone call to his father in Paktia, so the old jihadist could be a part of the gathering. Among the seven main speakers and assorted guests was a sprinkling of former Taliban ministers, current commanders, and officials. The gathering to honor a fallen fighter quickly became a political meeting in which funeral orators articulated the Taliban's case for continued war. 

For four hours, a succession of Taliban leaders and clerics lectured the mourners on the purpose of the Taliban’s fight and the worthiness of Sebghatullah’s sacrifice. The memorial service’s most animated speaker, a son of Mansoor, expounded the classic explanation for jihad as the sacred duty incumbent upon all Muslims, whether they participate directly, through fighting, or indirectly, through assisting the mujahideen. Subsequent speakers described the current fight against the Kabul government and NATO as being essentially the same one as their fathers’ war against the Soviets, three decades before. The legitimacy of that fight is an article of faith in most of rural Afghanistan, and the speakers sought to borrow some of its potency for their cause. Meanwhile, both the son of Mansoor and the brother of Sebghatullah counted the number of martyrs within their families, vowing that they remained committed to jihad and praying that they too would embrace martyrdom. 

Speakers also outlined what they believe is wrong in Afghanistan and what the Taliban seeks to change. Like other Islamist militants, they invoked the specter of Islam in danger. The United States invaded Afghanistan, they held, because it could not tolerate the Taliban’s sincere application of Islamic law. Furthermore, they explained, the presence of foreign troops is an unjust occupation. “The invaders have taken our land and we must fight to free it,” a speaker insisted -- a sentiment repeated by several others. They described the oppression inherent in the foreigners’ occupation -- arbitrary arrests, killings, harassment by the foreigners and their local Afghan allies alike. With a degree of relish, the speakers singled out the third grievance, describing the moral corruption that is supposedly prevalent in Kabul and “infidel-influenced” Afghanistan. The modesty of no Afghan woman was safe in the face of occupied Kabul’s licentiousness, they said. Wistfully, the speakers recalled the period of the Islamic Emirate from 1996 to 2001, a time when, by their accounts, the law of God was enforced and citizens enjoyed security. 

Talking to the Taliban

July 25, 2013

President Obama is losing sight of our interests in Afghanistan. Again.

Despite clearly laying out U.S. interests in Afghanistan at West Point in 2009—disrupting, dismantling, and defeating Al Qaeda—the president faltered when he authorized a nation-building-cum-counterinsurgency strategy that far outstripped that goal. Mission leap, not mission creep. Now the White House is allowing its efforts to get the Taliban to the negotiating table to obstruct more important aims.

The path to negotiations in Afghanistan has been a troubled one. Thus, a White House desperate for good news was quick to trumpet the long-awaited, painfully brokered grand opening of a Taliban office in the Gulf state of Qatar. But hope erupted into disappointment, as it so often has since President Obama took the reins of foreign policy in 2009. President Hamid Karzai condemned the office and abruptly cancelled a more crucial negotiations processthat over the status of U.S. forces in Afghanistan post-2014.

Why did our President Karzai respond to an opening towards peace in this way? A sign. The Taliban representatives in Qatar had posted a sign in front of their office that read, “The Islamic Emirate of Afghanistan.” Karzai was widely ridiculed for his hostile reaction over such a “cosmetic” issue and the White House, in frustration, let loose a leak that the “zero option,” that would see all U.S. troops depart by the end of 2014, had been mooted within the confines of the National Security Council. The message from Washington was clear: You need us more than we need you. Play ball on talks, or else.

The trouble is, this was not really about a sign, but rather was a consequence of larger problems in the U.S.-Afghan relationship and, in particular, Washington’s imperious approach to the issue of talks with the Taliban. This stems from President Obama’s misprioritization of U.S. aims in Afghanistan.

Our core interests vis-à-vis Afghanistan are the pursuit and containment of terrorists with transnational ambitions and the maintenance of sufficient regional stability. The latter concerns Pakistan—an unstable, paranoid nuclear power with a penchant for sponsoring militants—far more than Afghanistan (U.S. policymakers often fail to appreciate the extent to which the U.S.-led campaign in Afghanistan has destabilized Pakistan). A negotiated settlement between the Kabul government and the Taliban movement is a useful but not essential for either of these interests. This is not to say that a negotiated settlement with the Taliban is not a desirable outcome—first and foremost for Afghans—and that America does not have a role to play on this issue. But, the pursuit of talks must not be allowed to obfuscate America’s ability to keep a residual force of special operators, trainers and air support in Afghanistan beyond 2014.

How can Washington get back on track to play a positive role in Afghanistan’s political future?

Step back. “Afghan-led” is a term that has been bandied about liberally in Washington, London, and the headquarters of the International Security Assistance Force (ISAF). However, the Afghan National Security Forces have only recently taken the lead on security operations across the country. The same must now occur for talks. Thus far, the U.S. has sought to coerce and prod Kabul to the table, often in ways that are callous to Afghan interests and oddly disconnected from our own. Talks must be pursued at Kabul’s pace and in line with Kabul’s interests. Last year, the Afghan High Peace Council assumed a more robust approach when it visited Islamabad and announced a five-step “road map” toward a negotiated settlement. This is encouraging, not only because Afghans are taking the lead, but that the center of gravity for talks need not be the Presidential Palace. Indeed, if President Karzai leaves office as he should next year, the Afghan government will be in a stronger position for talks having taken control over most insurgent prisoners and assumed authority over the “night raids” so feared by the Taliban. These are two important “sticks” now held by Afghan government.

The Abbottabad Commission Gets Realist

July 23, 2013 · by Stephen Tankel · 

When President Obama made the decision to launch a raid to kill Osama bin Laden, he knew this would further damage U.S. relations with Pakistan. Indeed, the President ordered that additional forces be made ready in the event of a firefight between the Navy SEALs conducting the raid and the Pakistani military. As my colleague Mark Stout noted last week, in doing so the U.S. made the best of a bad set of options: avoid further damage to the relationship, but fail to accomplish a core national security objective; or run roughshod over Pakistan and take out the al-Qaeda amir. From an American policy perspective, it’s difficult to argue with the decision. Even the Abbottabad Commission, which called the U.S. raid an “act of war,” acknowledged that it was an understandable one for the United States. Indeed, one of the most notable elements of the Commission’s report is the way in which its examination of the raid was grounded in a relatively transparent assessment of each country’s national interests.

“Where Do We Stand?”

Anyone who has ever been in or on the cusp of a relationship that remains ill-defined will recognize that question. It’s more common among couples than countries, but the U.S. and Pakistan have had several bad marriages to one another. Each of the previous ones ended in an ugly divorce and the current one has been quite volatile. No one expects it to last, but at least this time officials in both countries appear to understand that normalized relations should be their goal. Both sides have been guilty of overplaying the nature of the current relationship during the past twelve years, pretending there are more and deeper areas of convergence than actually exist. The Commission’s report said publicly what numerous Pakistani (and American) interlocutors say privately: the two countries are not natural allies; their priorities are not aligned and their objectives are sometimes in conflict when it comes to how each views various sub-sets of militants in Pakistan; and officials in both countries raise expectations and fuel crises by failing to be transparent about these facts. They also acknowledged that the bilateral relationship nevertheless remains a necessary one, something on which US policymakers by and large agree.

As the report made clear, some of those the Commission interviewed from the military and intelligence services indicated they miscalculated the nature of the relationship, calling the raid a “stab in the back.” That accusation speaks to the sort of emotional approach that people in both countries have too often taken. Those in the U.S. complain that Pakistan is stabbing America in the back by accepting its aid and then supporting militants that kill U.S. soldiers in Afghanistan. Pakistanis complain that the U.S. calls their country an important ally and then repeatedly violates its sovereignty with drone strikes and introduces spies onto its streets. The fact is both sides are pursuing their interests. The U.S.-Pakistani relationship is a particularly frustrating verification of realist principles. Indeed, the report even noted that given the ISI’s failure to deliver in terms of the search for bin Laden, its support for various militant entities (historical, according to the Commission) and the consequent lack of U.S. faith in it as a partner, the raid was understandable from an American perspective. Moreover, the Commission condemned the military and ISI for failing to assess U.S. intent given the state of affairs. The report’s authors appear to know where the U.S. and Pakistan stand. They don’t like it. But they understand it.

What Should We Do?

That was another key question the Commission asked. Last week I wrote about its findings vis-à-vis domestic reforms. A fair amount of the report was as concerned with how the U.S. managed to mount a raid as it was with how bin Laden remained hidden for so long. This seemed to surprise some in the U.S., but it shouldn’t have. Through an American optic, bin Laden’s presence was the story. From a Pakistani perspective, that was only one half of the humiliation. America’s ability to infiltrate intelligence officers into the country to find bin Laden, followed by several helicopters full of commandos to kill him, was equally galling. Individuals can make value judgments about equating the two, but it won’t change the reality. Given that, it was natural for the Commission to explore the geopolitical side of the equation.

Israel Accused of Suppressing Terror Evidence to Help Out New Pal China

Posted By Elias Groll 
July 24, 2013 

Israel is a country desperate for friends. Isolated in the Middle East and hated in large parts of the Arab world, it struggles to make alliances. The few it has, it guards fiercely. So it should perhaps come as no surprise that for years Israel has been courting China, inking trade deals and fêting one another over champagne. But that process now finds Israel in an awkward bind, one that may lead the country to compromise on its core anti-terror policies.

According to a report in Haaretz, the Israeli government is currently under enormous pressure from Beijing to suppress evidence that the Bank of China laundered money for Islamic Jihad. In 2006, a Jewish-American teenager, Daniel Wultz, was killed in a suicide bombing carried out by Islamic Jihad at a Tel Aviv shawarma restaurant. His parents have now sued for damages -- at the initial encouragement of Israel -- and allege that the Bank of China laundered funds for the terror group, effectively bankrolling the operation that killed their son. Prior to filing the case, according to Haaretz, Israeli officials told the parents, Yekutiel and Sheryl Wultz, that they would support their case and provide evidence implicating the Bank of China. Now, at Beijing's urging, they're having second thoughts. So far, Israel has declined to provide the expert testimony they promised and are currently deliberating over whether to make Uzi Shaya, a former intelligence official, available to a New York City court.

That's right, under Chinese pressure, Israel may prevent the victims of a Tel Aviv terrorist attack from extracting damages from the people who bankrolled an operation that killed their son. Chalk it up to the cost of a new friendship.

If the burgeoning alliance between Israel and China sounds unlikely, bear in mind that it's a relationship forged in political and economic calculation. Israel was one of the first countries to recognize China following its Communist revolution, and while it took over 40 years for to China establish diplomatic relations with Israel, the two countries have something off an oddball history of military cooperation. Awash in seized Soviet weapons following the Six Day War in 1967, Israel quietly worked to upgrade China's military arsenal. That relationship continued into the 1990s when President Bill Clinton furiously vetoed the proposed sale from Israel to China of an advanced radar system.

Now, the relationship between the two countries has become primarily economic, though geopolitical concerns still hover in the background. Trade between the two countries stood at $8 billion in 2012, and when Israeli Prime Minister Benjamin Netanyahu visited Beijing in May he was accompanied by a retinue of Israeli businessmen who hope to push that figure above $10 billion over the next five years. While there, Netanyahu signed a series of bilateral agreements and shared a champagne toast with Chinese Premier Li Keqiang. And in January of last year, the two countries inked a $300 million line of credit designed to bring Israeli investments to China. Now, a free trade pact is under consideration.

But even as Israel and China draw closer to one another economically, awkward geopolitical concerns threaten to poison their relationship. China habitually obstructs efforts to crack down on Iran's nuclear program and is all too happy to undermine Western and Israeli interests in the region at times. But for this reason, Israel has little to lose -- and a lot to gain -- by moving closer to China. "We do hope that if we are able to improve economic ties and connections between Israel and China, it will help us also to explain our positions with regard to the Iranian nuclear threat, with regard to the events in Syria," then-Israeli Finance Minister Yuval Steinetz said in an interview with Bloomberg prior to signing the $300 million line of credit. Steinetz currently serves as the intelligence minister, and the calculation at play is an obvious one: Through its trade ties Israel hopes to win influence with China and alter its positions on issues critical for Israel.

But that calculation runs both ways, as Israel is currently learning in a New York courtroom. In arguments last Friday, lawyers for the Bank of China tried to convince the judge that Israel's reluctance to make its intelligence expert available signaled that the Israeli government no longer backed his conclusions about the bank's involvement with Islamic Jihad. But the judge, Shira Sheindlin, did not buy it. "It's hard for me to accept that assumption,"she said.

Reading China on Sino-Indian Border Issue

Paper No. 5534 Dated 26-Jul-2013
By Bhaskar Roy

The Chinese Communist leadership has perfected the art of saying things and giving signals leaving it to the other side to decipher and understand.

Their internal speeches and documents are similarly crafted bemusing the common people. Meanings of major speeches and documents are explained in Party Study Sessions as and when required. Many times top leadership speeches are not published for months as they are first discussed in the politburo and the Central Committee of the Party to decide what to give out and how. They also follow up by giving unsolicited advice and ‘talking to’ to foreign interlocutors on how to behave with them. It is like the teacher talking to kindergarten children. What is dismaying is that many countries including India tend to follow the Chinese dictates. What is difficult to understand is that the Indian foreign affairs establishment has highly experienced China Watchers, yet they go into some kind of freeze. On the other hand, some turn ballistic. This writer does not claim to be a Pundit, but has enough experience to try and read the tea leaves.

What has upset the Indian public is not the Chinese intrusions into the Indian side of the Line of Actual Control (LAC), but the manner in which they have been done, and how the Indian government has responded to each of these. Certainly, the LAC has not been demarcated, but soldiers/border guards of each side are well briefed by their respective senior officers on the perception and holdings of each side. There are normal overlapping by patrols of either side, but not of consequence.

The recent three intrusions by Chinese PLA troops in the Western Sector bordered on aggression. They brought soldiers from both sides face to face or even to eye-ball to eye-ball situations. It is normal for Chinese soldiers posted on the Indian border to be taught about the 1962 India-China border war, when under-armed and under-clothed Indian soldiers were routed. But they have not been suitably briefed that the Indian armed forces have gone well beyond 1962, with battle experience and now, well armed and well clothed for the conditions. The Chinese army fought a war way back in 1978 against Vietnam and suffered heavy losses.

Even then, the PLA strategy is to push and provoke, test Indian resilience, and gain actual ground for claims when the real discussions on delineation starts. This is a dangerous policy because one bullet fired by either side can incite a local conflict.

Alarmed by the Chinese aggressive action on the borders, some Indian strategists believe Beijing is creating a situation to launch larger attacks in selected sections of the border, to occupy Indian territories strategically important to them. There is a reason for this view. China is strong now and would want to control as much of territory as possible and then talk on resolution of the border issue. Given more time, India will become stronger militarily and economically and would thwart any Chinese misadventure. This thesis is supported by China’s aggressive behaviour backed by military strength to aggrandize maritime territory from other claimants involving the Spratly Islands in the South China Sea, and the Senkaku Islands currently in Japan’s possession in the East China Sea.

There are serious concerns, however, on China’s policy on territorial disputes in the South China Sea. From 2008, China started pushing the Spratly Islands claimants, especially the Philippines and Vietnam. By 2012 China’s policy changed from assertive to aggressive. China’s claims on the Spratly Islands have been questioned by some well known Chinese strategists. Ding Gang, a senior editor of the Party mouthpiece the People’s Daily wrote (Sept.26 and 27) in the Global Times and the People’s Daily that the Chinese map making the claims lacked validity. Another expert, Zhu Feng of the Centre for International and Strategic Studies, warned that China’s aggressive behaviour was making its neighbours come together in a united front against it. The US pivot to Asia (Asia Pacific region) has given some hope to these countries. But till now China is not deterred. It is trying to neutralize the US through trade and economic inducements, but the apprehension among its neighbours remain high.

Rajiv Gandhi lessons on the food bill

Surjit S Bhalla : Sat Jul 27 2013, 

The poor get just 13 per cent of the money spent in their name in schemes like PDS and NREGA — what Rajiv Gandhi said many years ago

According to data just released by the UPA government, 250 million people, or 22 per cent of the Indian population, was absolutely poor in 2011-12, a steep decline from the 38 per cent level recorded in 2004-5. This is great news for India, but given the reaction in the media and among opposition politicians, it is as if disaster had struck. Learned people lamented and argued that the Rs 30 per person per day poverty line, the basis of the above estimates, was set too low, that it was impossible for a person to survive on such low consumption.

This is very true. None of the politicians or learned experts can survive on Rs 30 per day. Theirs is an upper-class survival definition. Unfortunately, the whole point about wretchedly poor developing country poverty is that most people do not earn enough to achieve "not-poor" middle-class survival status.

No matter what poverty line the "experts" choose, it is the case that poverty has declined significantly during the first seven years of UPA rule. And it is the same UPA that has significantly increased welfare programmes and expenditures for the poor. And it is the same UPA that is now stating that really two-thirds of the Indian population is absolutely poor and in need of food subsidies of 5 kg per person per month virtually free of cost (actually at Rs 2 per kg, with the market price at about Rs 18 a kg).

In my previous article ('The unimportance of NREGA', IE, July 24), I had estimated the effect of the employment guarantee dole (NREGA) on poverty reduction. In this article, I look at the effect of the three times larger dole of food subsidies on poverty reduction. Food subsidies are financed by the middle-class taxpayer, and provided by the Food Corporation of India (FCI), a government organisation in charge of procuring, storing and administering the supply of food to the ration shop.

There are two important leakages in food subsidy expenditures. (A leakage is defined as expenditure that does not reach the intended poor beneficiary.) The first leakage is in the quantity of foodgrains the government (FCI) states it has delivered to people, rich or poor, versus what the people actually receive (NSS data). Both in 2009-10 and 2011-12, this leakage amounted to Rs 30,000 crore (with quantities valued at market prices of foodgrains). This leakage is not administrative costs, payments to FCI employees, etc. This is simply the Indian vanishing rope trick. One can speculate as to what causes this disappearance into thin air. Leakage suspects include theft, food rotting (and rotten wheat going to the liquor trade?), PDS food diversion to non-ration shops, etc.

The second leakage is food going to the non-poor. In 2011-12, the non-poor receiving a food subsidy were at an average percentile level of 64 per cent. As it happens, this is near identical to the average consumption percentile level of the non-poor receiving NREGA payments for imaginary work (as reported in my previous article). Between a third and half of the non-poor who purchased a first- or second-hand scooter in 2011-12 also received food subsidies. Ditto for those purchasing a TV or refrigerator. This is the second leakage component and one that accounted for Rs 22,000 crore in 2009-10, and a much larger Rs 31,000 crore in 2011-12.

Adding up the expenditures on NREGA (Rs 31,000 crore) and food subsidies (Rs 74,000 crore), the government spent about Rs 105,000 crore in 2011-12. The poor received only Rs 14,000 crore, or just 13 per cent of the money meant for them! This gives as 13 per cent the estimate of the "Rajiv Gandhi Corruption Index", so named because he was the first, and only politician, to honestly and publicly state that less than 15 per cent of the money meant for the poor actually reached the poor. He said that in 1985. His wife Sonia Gandhi, along with prominent advisers like Amartya Sen, has gone to great lengths to reject his well-founded rejection of corrupt government policies and, instead, to implement policies that further enhance corruption. Ironic, sad, but very true.