Columns/Op-Eds, Development Goals, Politics / Globalisation


By Samir Saran and Shuvaloy Majumdar, Feb. 25, 2018, MLI

Original link is here 

Prime Minister Justin Trudeau’s visit to India this past week came at a time when Canadians are particularly preoccupied with two other compelling international relationships facing unprecedented strains born from a changing global order: the United States and China.

The US friendship is inescapable, forged by geographic, economic, and cultural realities. American leadership remains the lynchpin of an international order Canadians cherish, dedicated to free peoples and free markets. Yet as NAFTA undergoes a tough re-examination, Canadians are reminded that even the closest alliances are not immune to diverging interests.

Amid anxieties over America, China is often presented as Canada’s obvious alternative, and the creeping “Sinofication” of Canada’s economy, and Sinophilia of its political class, has increased at a rapid clip. Canadian access to Chinese markets and global influence comes at high cost to Canadian interests. Critical voices have rightly questioned the degree to which Canada can enter into the good graces of a one-party command economy while keeping traditional Canadian business and political ethics intact.

India, more than any other growing power, offers Canada economic and strategic possibilities that are genuine, pragmatic, and achievable.

Canada needs new room to manoeuvre, and the Indian opportunity is an essential corridor to the high growth Indo-Pacific region between these two demanding poles.

India, more than any other growing power, offers Canada economic and strategic possibilities that are genuine, pragmatic, and achievable. It is a common-sense, practical alliance, free from tyranny of geography, grounded in shared values and mutual interests. A stronger Canada-India relationship holds the promise of enhanced prosperity and security for both parties without threatening the character and agency of either.

The rapid modernization of the Indian economy, and with it, the material improvement of the lives of millions, is a remarkable achievement of modern history. Within the next two decades, the Indian economy may be valued at $10 trillion, placing it firmly in the most elite upper tier of nations. The country has established a window for global opportunity through a growing array of modern industries, including technology, energy, urban planning, and agriculture.

The bright future such development portends has not gone unnoticed by Canadian firms hungry for international partners, and Canadian investors eager to diversify their portfolios. Canadian pension investments in India in particular have risen dramatically, from virtually nothing a decade ago to over $14 billion today. With each passing year the evidence becomes clearer: Canadians who fail to appreciate the economic opportunities of India do so at their own risk.

On the security front, New Delhi plays a critical role as the defender of the international order which Canada is so invested in. India’s strategic geographic location, increasingly sophisticated military and security forces, and principled opposition to the hegemonic and regressive ideologies of our time make it an essential ally in an uncertain era. The country has proven itself a willing partner in the fight against violent extremism, including the false prophesies of Khalistan and political Islam, within its borders and beyond. Its proximity and understanding of West Asia, Pakistan and Afghanistan make it an invaluable partner for the West.

On the security front, New Delhi plays a critical role as the defender of the international order which Canada is so invested in.

Perhaps most importantly, India provides an essential counterbalance to China’s rising ambition as Asia’s unquestioned regional superpower. When Beijing threatens the sovereignty of other nations, for example its “Belt and Road Initiative” to construct highways through disputed territories in Asia, or the uninvited presence of Chinese warships and military infrastructure in the Bay of Bengal, Indian Ocean and South China Sea, it is India’s strength, both militarily and diplomatic, that make it the most credible voice of resistance. At a time when many of Canada’s leaders seem oblivious or resistant to the consequences of Chinese power, India’s informed insights demand a Canadian audience.

As we enter the third decade of this century, both countries’ political and opinion leaders need to explain India’s contemporary economic and strategic realities to Canadians. We must make clear the vast opportunities for productive cooperation. In announcing a new era of collaboration between our two organizations while our national leaders meet in New Delhi, the Observer Research Foundation and Macdonald-Laurier Institute intend to serve as leading proponents of this mission from both our capital cities.

Although our two countries share symbolic and cultural bonds born from decades of migration and common political heritage, the true strength of our partnership will ultimately be defined by the ability of Canadians and Indians, in both the private and public realm, to coordinate tangible activities of mutual geopolitical and material interest. It is a testament to the skills and resources of both nations that this objective seems easily within our grasp.

Samir Saran is Vice President of New Delhi’s Observer Research Foundation (@samirsaran). Shuvaloy Majumdar is Munk Senior Fellow for Foreign Policy at Ottawa’s Macdonald Laurier Institute (@shuvmajumdar).


Columns/Op-Eds, Politics / Globalisation

How India has actually done a great job in dealing with the Dragon

Hindustan Times, November 1, 2017

Original link is here

Despite the power differential, India successfully raised the cost of China’s land grab activities at Doklam, a feat that even the U.S. has struggled to accomplish in East Asia. While China was relentless in the pursuit of its goals, and had the resources to spend, India managed to call its bluff, and simultaneously allayed Bhutan’s concerns.


The benefits of low-key diplomacy must not be underestimated. By engaging China away from the media glare, much to the vexation of New Delhi’s foreign affairs press, the Indian government successfully arrived at a favourable compromise.(AP)

If recent news reports are to be believed, China is back on the Doklam plateau in a veritable redux of the 73-day standoff that began in June this year. For its part, the foreign ministry has denied any change in the status quo following the “mutual disengagement” in late August. Those now skeptical of the government’s apparent inability to tackle China fail to appreciate that Doklam was never just a “stand-off”. It is part of a continuum of geo-political struggles – the current one is only naked in its manifestation as an outright territorial brawl — between the heavyweight and revisionist China and the defender India. It will not be the last, either.

Defusing the crisis at Doklam was never likely to reduce tensions across the 4,000 km border that India and China share. These border disputes are only symptoms of the Chinese determination to assert itself and claim pole position in an Asia that plays by Beijing’s rules. It was but a matter of time until China, rebuffed in its earlier attempt to needle India, decided to press New Delhi harder. By utilising its time-tested technique of ‘salami slicing’, and through the coercion of India’s smaller neighbours, China continues to seek to dent India’s credibility as a regional power.

China’s perception of, and strategy towards, India is shaped by the gaping asymmetry of power between the two countries. At $11 trillion, China’s economy is roughly five times the size of India. Were China to grow 2% and add over $200 billion to its GDP, India will have to grow by 10% to remain at the same place. In real dollar terms it may well be a decade or more before India begins to close this gap. In terms of security capabilities, this gap is most visible in defence expenditure, with China’s being approximately four times larger at $215 billion, compared to India’s $55 billion.

Even though the prognosis might appear grim, smaller countries have successfully deployed denial and deterrence strategies against larger opponents, for instance China against the U.S., in the past. Despite the power differential, India successfully raised the cost of China’s land grab activities at Doklam, a feat that even the U.S. has struggled to accomplish in East Asia. While China was relentless in the pursuit of its goals, and had the resources to spend, India managed to call its bluff, and simultaneously allayed Bhutan’s concerns.

The lessons from this incident for India’s foreign policy establishment are seminal, and can help shape future responses to Chinese aggression.

During a discussion in the US last month, a defence expert asked me if any other country has entered Chinese-claimed territory and stopped construction, as Beijing alleged, or intervened on behalf of a beleaguered third party as India claims. The subtext of the question was clear: India’s defiance of China was a unique moment. This is the first lesson: the spectre of an invincible, fire-breathing dragon must not awe India. New Delhi must, and can, stand up to China when its national interests are at stake and cleverly deployed political muscle will succeed in some instances.

The second takeaway is that the benefits of low-key diplomacy must not be underestimated. By engaging China away from the media glare, much to the vexation of New Delhi’s foreign affairs press, the Indian government successfully arrived at a favourable compromise. That this diplomacy was backed by a resolute security posture on the ground only bolstered New Delhi’s credibility, both at the negotiating table, and among regional partners. Deft and quiet diplomacy works and should be pursued as the first option.

Third, by participating in the BRICS summit in Xiamen shortly after the crisis, and investing in the future development of this group, India showcased the future direction of its relationship with China. For New Delhi, the lesson was that it is both possible, and necessary, to be politically assertive with China in some cases, while co-operating on others. Until the asymmetry between India and China is bridged, every Indian government will have to walk this tightrope.

Finally, New Delhi must realise the significance of creating new normative principles to manage regional affairs to get around the asymmetry of power with its neighbour. While boycotting China’s Belt and Road Initiative Summit in May, India cogently argued that regional integration must be premised on sustainable infrastructure investment norms and respect for sovereignty. That the US the EU and Japan have endorsed India’s position underlines the importance of “norm-fare” in the years ahead as an expansionist China continues to pursue its own version of the Monroe doctrine.

Samir Saran is vice president at the Observer Research Foundation and tweets at @samirsaran


BRICS, Columns/Op-Eds, Uncategorized

After Doklam, India and China must begin anew at the Xiamen BRICS meet

India will have to learn the fine art of staring down the dragon to preserve its political space, while embracing China for some important economic opportunities. At Doklam, it did the former; will a different India turn up at BRICS?

Hindustan Times, September 3, 2017, Opinion

Original link is here


PM Modi with Russian President Vladimir Putin, Brazilian President Dilma Rousseff, Chinese President Xi Jinping and South African President Jacob Zuma after the welcome ceremony at the 7th BRICS Summit in Ufa.(PTI)

Leaders of Brazil, Russia, India, China and South Africa (BRICS) have gathered this past weekend for the ninth annual BRICS summit in Xiamen, China. The prolonged Himalayan standoff between India and China will cast its shadows on this meet and will certainly add a new dimension to discussions on the future of this plurilateral.

The BRICS emerged out of a global order dominated and managed by the United States (US) post the break of the Soviet Union. The US led institutions catalysed global trade and financial flows, which in turn also helped in the organic growth of most of the BRICS economies. Despite their growth, their marginal role in management of key global institutions created an undesirable asymmetry in world affairs. BRICS came about as a vehicle to respond to this, and together they hoped, they would be able to loosen the vice-like grip the Atlantic system had on existing governance institutions.

There were two unstated principles that shaped the ethics of the BRICS formation. First, each nation placed a premium on sovereignty and its importance in the conduct of world affairs, and second, each state sought greater pluralism and equity in decision-making processes in a multipolar world.

The China and India standoff at Doklam compels us to revisit these organising principles. The Doklam incident was a contest around sovereign concerns. These concerns are rooted in history and muddied by China’s determination to implement a political and economic arrangement across Asia that is insensitive to the territorial rights of India. The Belt and Road Initiative (BRI) and the associated China Pakistan Economic Corridor (CPEC) are but thinly veiled attempts to shape an Asian order that plays by the Chinese rulebook alone. While BRICS symbolises a multipolar world, BRI and CPEC are the harsh face of an undesirable and unipolar Asia.

Further, China’s latest attempt at creating a ‘BRICS Plus’ platform, comprised of states who happen to be key actors in the BRI, makes it clear that it sees BRICS as an adjunct of the BRI and merely as a vehicle to catalyse its larger ambitions.

These events make it clear that we must shed the romantic notion that ideological convergence is possible within BRICS. Each member must see the group for what it is—a twenty first century ‘limited purpose partnership’ among states to achieve specific sets of outcomes. There is nothing inherently improper about such an alliance, however, if progress is to be made, it will be predicated on creating effectively designed institutions.

The most successful BRICS endeavour has been the creation of the New Development Bank. The time has come to build on this initiative and focus on creating more institutions for greater cooperation in issues such as finance, urbanisation, sustainable development and the digital space. This could include setting up a BRICS credit ratings agency, a BRICS research institution and institutionalising the process of managing the global commons such as the oceans and outer space.

It is obvious that each of the BRICS members will have their own reasons for being at Xiamen. Russia continues to see it as a geopolitical bulwark against the US, all the while tacitly acquiescing to Chinese leadership. South Africa will present itself as the leading voice of the African world and will raise issues of peace and development for the continent at the summit, while Brazil, which is undergoing a period of domestic turmoil, is unlikely to be too innovative or demanding. China is far more certain of what it seeks.

For India, this year’s summit becomes important. India will have to learn the fine art of staring down the dragon to preserve its political space, while embracing China for some important economic opportunities. At Doklam, it did the former; will a different India turn up at BRICS? Forums like Xiamen allow India and China the chance to begin anew.

As we enter the second decade of BRICS, Xiamen would have to be the arena where the members recommit to upholding the founding principles of the BRICS. Thereafter, they must chart a new roadmap for greater institutionalisation of the group’s interests.

Samir Saran is vice president at the Observer Research Foundation and tweets at @samirsaran

The views expressed are personal



Putting life first

August 3, 2015, The Hindu

Original link is here

Photo of Samir Sir

Out of the 7 billion people that inhabit our planet, around 2 billion, still lack access to essential medicines and 925 million are chronically undernourished. Almost a third of all yearly human deaths are due to poverty-related causes. The richest 14 per cent of the world’s population have a mean life expectancy of 84, while the poorest 34 per cent live for only 36 years on average.

This situation represents a failure in the provision of a basic human right to “standard[s] of living adequate for the health and wellbeing” of an individual and his or her family, “including food, clothing, housing and medical care and [other] social services”, as highlighted in the 1948 Universal Declaration of Human Rights; these also constitute what is commonly referred to as the right to life.

International and multilateral processes continue to obfuscate the centrality of the right to life outlined in the 1948 Charter. The year 2015 is crucial for global agreements that establish the trajectories and paradigms of development. The Millennium Development Goals (MDGs) are set to be replaced with the Sustainable Development Goals (SDGs) at the UN General Assembly in September and negotiations on a new global treaty on climate change will culminate in Paris in December. The narrative of development in the 21 century will be defined by these two agreements. While the pursuit of European styled sustainability is important, the need to secure the right to life of each human should be paramount, unconditional and non-negotiable. The well-being of the planet holds no attraction for those excluded and the ambition to save it for future generations has little appeal unless we mobilise a wider set of ‘invested’ stakeholders.

The fact that the first of the newly delineated SDGs aims to “end poverty in all its forms everywhere” is promising, but the urgency of this objective could be drowned out by the wide proliferation of goals: 17 in total – with 169 targets. More goals will not translate into more funds to meet the goals. There is also concern that such targets could be turned into pre-conditions for flow of aid, whereby poverty alleviation efforts could be shackled by a focus on factors that are coloured by ideological considerations.

Key fault lines were again revealed by the informal substantive sessions leading up to the Financing for Development (FFD) conference in Addis Ababa this year. India and the rest of G77 warned against an overwhelming emphasis on environmental goals at the cost of poverty alleviation, and highlighted the principle of ‘additionality’ — new resources required over and above current Official Development Assistance (ODA) in implementing the SDGs. Contrastingly, the developed nations underscored the importance of sustainable economic practices, domestic resource mobilisation, and new financial instruments such as commodity-based derivatives.

Ultimately, the Addis Ababa Action Agenda adopted at the conference failed to yield concrete new proposals for additional funding that can be swiftly implemented to meet the world’s multiple challenges. Put simply, there was no new money brought to the table. Instead even the previous ambition of the rich countries to commit 0.7 per cent of Gross National Income as ODA remains only a statement of intent .

Worryingly, the Addis conference once again exposed the inequities present in global decision-making processes. The India-led initiative to upgrade the UN tax committee to an intergovernmental tax body yielded only symbolic gains (rallying together of the G-77) after developed countries blocked such efforts and instead argued that the OECD was taking the lead in such efforts. Over 100 developing countries thus continue to be excluded from decision-making processes on global tax standards. It is worth noting that lost tax revenue for development financing purposes in developing countries is estimated at over USD 300 billion annually. This dwarfs the total ODA financing for 2013 which stood at USD 135 billion. The process of building the post-2015 development agenda seems to be struggling to reconcile present needs like the eradication of poverty and hunger, with more value based goals. A worrying divergence in priorities has become apparent, a divergence that threatens to manifest itself in multilateral deals that neglect the need for survival of a large proportion of the world population.The economic and social compulsions faced by the poor must come first, ahead of value frameworks that are driven by first world priorities.  When more than a third of the world’s population does not live to see 40 on average, it is clear that securing the right to life for these people should be the only priority of global developmental processes. Can there ever be any shared values, if there is no agreement on the fundamental right to life?

(Samir Saran is vice-president at the Observer Research Foundation and tweets @samirsaran)


CONTRA VIEW: Financial inclusion is the key


Original link is here

For the last two decades India has not only accepted but actually revelled in being labelled an “emerging market”. India felt pleased and privileged by this tag, which seemed to signify that it had somehow ‘arrived’.

Strangely enough, the country’s sense of pride came not from being an industrial powerhouse, financial centre, or innovation capital. It was perversely derived from being seen as a ‘market’.

The problem is that markets fluctuate and can be a haven for merely temporary investments. As just a ‘market’, India was consigned to remain the chosen destination for everything the rest of the world produced in excess. Therein lay a deep disconnect — consumption can only go hand in hand with production. Surely India could not have hoped to emerge as a global power on the back of being a mere market, one that ran a trade deficit with over 100 countries!

PM’s ‘Make in India’ initiative will transform the nation


Clearly, India’s self-image needed a re-boot. This rebooting of India’s 1.3 billion aspirations was conducted by the Prime Minister on the 15th of August last year. He did it with characteristic simplicity, by a simple call for “Make in India”. A call he hoped, would catalyse a seismic shift in India’s image of itself.

The world has changed since the Financial Crisis. Economic growth cannot be taken for granted. According to the IMF, global growth will continue to be under four per cent for some years. Even this nominal growth will not come without innovation to increase productivity, enhance quality and cut costs. And importantly, the race to be at the forefront of global innovation has intensified. India’s economy and enterprises must be prepared to face increasing global competition. “Make in India” must therefore attempt pushing Indian industry through global competition into a tsunami of innovation. It must not be misappropriated for primitive protectionism or misunderstood to imply insular industrialisation.

The “Make in India” initiative is at its core a ‘call to arms’ so that we as a country invest in our most precious resource- our demography. In a few years India will have the world’s largest workforce. It perhaps already is the world’s youngest workforce. Why must our youth be productive and innovative in Silicon Valley alone or help create financial instruments in only London and New York? To rectify this, we must build the eco-systems and conditions that can create the most productive, the most innovative army assembled in human memory; a peaceful army of wealth creators for the society and country.


“Make in India” is therefore a rallying cry for “Made by India”. Its purpose is to arm close to quarter of a billion youth, between 15-24 years of age, with the tools to be productive. The rallying cry is also immediate. It is to skill around 500 million workers to innovate, create and add value to the global economy. We have in a limited way shown this can indeed be done. We have shown it in the automotive sector, which has rapidly become the seventh largest in the world. We have shown it in refining and petro chemicals where we use the worst quality raw materials and transform them into top-end products intended for the most discerning markets. We have shown it in telecom, where we are constantly innovating to empower millions through technology — a transformation which will soon touch the lives of a billion telephone subscribers in ways not imagined elsewhere.

But in all these areas we have shown it as an exception—an exception that only proves the rule. What has been the rule for India? The rule for India so far has been Jugaad. “Make in India” is not Jugaad. Moving beyond frugal innovation, it means delivering value to the consumer at the bottom of the pyramid, the 800 million or so who live at less than two dollars a day. The bottom of the pyramid also needs value, and it increasingly demands value—not just in manufactured products but in services, in transportation and in financial services. They demand the same value that high net worth consumers of the Atlantic countries demand of their manufacturers and service providers. “Make in India” is a proposition to “Make for this India.” And what is made for this India is relevant to many communities in Africa, Asia and elsewhere too.

Simultaneously, the “Digital India” initiative offers unforeseen opportunities to small producers, farmers, artisans and solution providers. It has the potential to ensure that we find an Indian fingerprint in every mosaic, a little bit of India in everything produced and consumed globally. It offers India the opportunity to leapfrog generations of industrial evolution and become part of global value chains. It offers the chance to make the informal sector—employing more than 90 per cent of the workforce—as productive as the formal sector. There is an unprecedented opportunity to integrate with the global market place, virtually. The “Digital India” initiative can transform “Make in India” to “Make with India.”


The “Digital India” initiative is complemented by the Prime Minister’s Jan Dhan Yojana, which has far greater power than any similar initiative to transform the lives of the excluded. Fifteen million bank accounts were opened in one day, and potential remains immense. Jan Dhan Yojana can be a basis for providing access to rural credit, crop insurance, loans to scale MSMEs, and for families and individuals to respond to special events and calamities. Financial inclusion is the building block for unleashing the creative capabilities of this country.

When these three initiatives can be synchronised and skilling the workforce made central to each of them, the prospect for India becomes truly transformational. It becomes a promise that it is now “Time to Make India.”

The writer is vice presdent, Observer Research Foundation. His Twitter handle is @samirsaran

Columns/Op-Eds, Uncategorized, Water / Climate

As communications infrastructure collapses, social media is saving lives in J&K

20:32 GMT, 9 September 2014, Mail Online India

Original Link is here

Tragedy has struck Kashmir once again.

That it is perhaps the severest since Independence is undeniable.

The human despair, spirit and resolve are all on display, and the entire country (real and virtual) seems affected by nature’s cruel intervention.

The efforts to rescue those stranded are feeble as the institutions, infrastructure and administrative resilience have been found wanting – yet precisely because of this, the courage and heroic efforts of individuals and some organisations stand out in stark contrast.

SS 1
Floods: The entire country (real and virtual) seems affected by nature’s cruel intervention.

Even as the embankments built in the times of the Maharaja have been breached by ravaging waters, the unfolding tragedy and response is also about the ‘angels or demons’, depending on your take on it – Social Media and the Armed Forces.

A recent report in a leading daily had one of the most powerful men in India, its Home Secretary, observe, “I simply cannot speak to anyone in J&K.”

The last 72 hours have seen the near total collapse of the phone network, and power lines have collapsed. This has complicated coordination and rescue, because stranded people have no way of telling rescue centres of their plight.

Worse still, Delhi is cut off from the Government of J&K, while the Government of J&K is cut off from the army, which is coordinating rescue efforts.

The army is the only body there that has managed to maintain some semblance of intra-organisational communications due to satellite phones. However, it has no way of knowing the location where people are stranded, or how many and how critical their situation is, since the normal method – air reconnaissance – is difficult at best given the cloud cover and weather.

And the much-vilified social media is coming to the rescue. Even as large parts of the mobile communication infrastructure have collapsed, some wireless communication and the traditional wire line communication networks have allowed people access to social media and various messenger services, websites, and some agencies.

SS 2

To the rescue: Social media has helped save the stranded

It has also allowed a degree of dissemination of situational reports, videos and distress messages, many of which have reached the army.

Whatsapp, FB messenger, Twitter and others are the most potent tools for the rescue teams in the valley today.

As a result what we have is the army using satellite phones to communicate, but basing its rescue efforts significantly on guidance from Whatsapp, Facebook and Twitter.

In that sense these have effectively replaced the search helicopter, the emergency beacon and the communications network of the valley.

For the governments at the Centre and in the state of J&K, which have frequently demonised social media, this must be a moment of revelation.

In February this year, the then Home Minister, Sushil Kumar Shinde, had vowed to “crush social media” to great applause from within his party and some others.

Yet today the home secretary cut a sorry figure, claiming “there is no means to communicate with anybody” till the 15 wireless systems he has sent to be set up in the valley come online.

Social Media, angel or demon? Let the debate begin.

The second story is that of the ‘men in green, blue and white’. Among the nation’s armed forces, they are reviled by a few liberals and a section of those in Kashmir, at the receiving end of Pakistani venom and terror, and frequently derided by the political class in the state and centre.

Yet had it not been for the army’s rescue teams and its “infrastructure of occupation,” as secessionists would call it, how many more lives would have been lost?

At a time when the democratically-elected government of J&K has failed in its civic duties in buttressing the embankments (which they should have known about anyway) and a home ministry that is fumbling in the dark, it is this supposed villain that has come out as the knight in shining armour.

It is this same “infrastructure of occupation” – helipads built on apple orchards, hospitals built on peach orchards and supply dumps built on farm land – that are now being used so effectively to rescue the stranded, treat the wounded, and provide relief supplies to the displaced.

It is this same infrastructure with its bulldozers that is being used to clear roads, and the army trucks that sustain the “occupation” that are being used to ferry in essential supplies for the “occupied”.

Given the police, local government and central government networks failed within the first few hours of the flood and the Doordarshan system which could be used as an emergency communications system also collapsed in this period, it has been the army’s communication systems that have provided the only link between J&K and the rest of the country.

It is the maligned Armed Forces Special Powers Act used to “suppress” Kashmiris, that the army is using to deliver critical supplies to the “occupied”.

And yet vultures who some in Kashmir refer to as “freedom fighters”, would rather support infiltration even at this time, then help their brethren. The IAF, let this debate end.

This is not to say that social media and the deployment of the Armed Forces are always virtuous. The use of social media for malicious purposes is proven. The use of the medium to incite and radicalise is also rampant.

Yet it is a force for good as we saw this past week.

Challenge and vilify the user, do not condemn the tool.

Similarly, the deployment of armed forces has resulted in actions that are highly avoidable. Some of their heavy-handed interventions have resulted in justifiable anger and resentment.

Here again, challenge the political mandate and policy direction from the government, not the army, which remains a force for good.

The writer is vice president at the Observer Research Foundation. His twitter handle is @samirsaran



BRICS, Columns/Op-Eds, Politics / Globalisation

Waking up to the BRICS

Opinion» Lead 

Original link is here

BRICS members should democratise the New Development Bank’s functioning if new stakeholders are included in the future. If anything, the NDB must be a template for change, not a mirror to the existing hegemony of money

In his 2001 paper titled “Building Better Global Economic BRICs”, economist Jim O’Neill of Goldman Sachs calculated that “if the 2001/2002 outlook were to be extrapolated, over the next decade, China would be “as big as Germany” and Brazil and India “not far behind Italy” on a current GDP basis. Cut to 2013; Jim O’ Neill’s expectations seem modest. Last year, China was the world’s second largest economy, Brazil ahead of Italy and India just one rank behind in terms of current GDP. In purchasing power parity (PPP) terms, all the BRIC countries were within the top 10, with China and India at second and third position respectively. BRIC, in Wall Street lingo, is an “outperformer.”

Despite the crippling financial crisis, BRIC has done better on pure economic terms than most expectations. But the acronym is today representative of much more than an investment narrative alone. With the inclusion of South Africa, BRIC became BRICS, giving a pluralist and inclusive veneer to an economic idea. This group now has a significant political dimension, as is evidenced by the increasing number of converging positions on political issues.

In a follow-up paper in 2003, titled, “Dreaming with BRICs: The Path to 2050,” Goldman Sachs claimed that by 2050, the list of the world’s largest 10 economies would look very different. It is remarkable then, that in 2014 the list already looks radically different, and it is clear that it is time to “wake up” to the BRICS.

NDB versus existing banks

In this context there were at least two concrete arrangements inked at the sixth BRICS Summit in July, which will have a large economic and political impact. These were the Contingent Reserve Arrangement and the New Development Bank (NDB). Conversations and reportage on these two were shrill, coloured and obtuse in the run-up to the Summit. It continues to follow in the same vein. Indeed the NDB is at once the most celebrated and critiqued outcome of the Fortaleza Summit. Now that we are a few weeks away from its public conception, it is time for a reality check on this widely discussed BRICS achievement.

The first reality is the NDB can neither replace nor supplant the role of the existing development banks. The NDB will not be able to compete with the reach and expanse of existing institutions such as the World Bank, which has a subscribed capital of over $223 billion. The bank borrows $30 billion annually by issuing Triple-A rated debt in international bond markets. Such easy access to capital markets on the back of high promoter creditworthiness allows the bank to have a lower cost of funds. Other development finance institutions enjoy similar financial backing. The Asian Development Bank (ADB) too has a large balance sheet, backed by 67 member nations and a subscribed capital of $162 billion.

In contrast, the NDB will require over half a decade before it can accumulate the stated capital base of $50 billion from within BRICS and another $50 billion (approximately) from other countries and institutions. Indeed, in the immediate term, only a modest $150 million has been promised by each of the BRICS countries. A contribution of $1,850 million thereafter, staggered over five to six years, will require some doing as the BRICS countries are grappling with weak balance sheets, fragile current accounts and other domestic imperatives.

Then, there are other questions that will need to be answered in the days ahead. If China is unable to dominate this institution, will it prefer to prioritise investments through its (proposed) Asian Infrastructure Investment Bank? How soon can the central banks of the member countries devise arrangements to act as depository institutions for the NDB? And, how will the NDB raise funds in different countries? What will be the currency or currencies of choice? All important posers which can be addressed if the resolve is unerring.

Development finance

The second reality is, in spite of its modest economic weight in the initial years, the NDB can change the ethos of development finance irreversibly. Rather than replacing or supplanting existing development finance institutions, the NDB will seek to supplement existing resources. In fact, the World Bank President, Jim Yong Kim, has welcomed the idea of the NDB and acknowledged its potential in infrastructure development and the global fight against poverty.

An important difference could be in the way conditions and restrictions are imposed on loan recipients. Bretton Woods Institutions such as the World Bank have been known to impose conditions for lending that create structural mismatches between project funding, demand and supply. As recently as last year, the World Bank Group decided to restrict funding for new coal plants in developing countries, deciding instead to invest greater resources in “cleaner” fuels. Of course, the World Bank would be well advised to reconsider this decision given lifeline energy needs and the energy access realities in developing countries such as India.

The NDB’s mission must be to create a business structure where borrowing countries are given greater agency in prioritising the kinds of projects they would want funded. Over a decade, this could become the demonstrator project through which the relationship between donors and recipients, lenders and borrowers, will be rewritten. Hopefully this will be in favour of developing economies and will enable the reimagining of economic pathways.

Location and ownership

The third reality — perhaps, the most debated — is that the location of the NDB is immaterial when governance and ownership is equally shared. Location has frequently been confused with ownership, skewed by our imagination of existing institutions such as the World Bank. According to its Articles of Agreement, major policy decisions at the World Bank are made through a Super Majority — 85 per cent of votes. Vote shares in turn are determined by the level of a nation’s financial contribution. With around 16 per cent voting share at the World Bank, the U.S. has a de facto veto. Conversely, BRICS, with 40 per cent of the global population and a combined GDP of $24 trillion (PPP), collectively accounts for a mere 13 per cent of the votes at the World Bank.

As such, the concentration of voting power and headquarter location in Washington DC in the case of the World Bank is merely a coincidence. Japan dominates the functioning of the ADB with a 15.7 per cent shareholding, despite the headquarters being located in the Philippines.

It is also useful to note that previous World Bank presidents have been U.S. citizens and the International Monetary Fund’s (IMF) list of managing directors is composed entirely of Europeans. Even the ADB’s presidents have been Japanese citizens, with almost all of them having served in the Finance Ministry in Tokyo. In this regard, the NDB, with its intention of rotating leadership, seeks to overhaul the existing governance framework prevalent in the international development finance institutions. Through equal shares of paid-in capital in the NDB, there is a clear intention of creating an alternative model that focusses on voting-power parity. The smallest country can negotiate at par with the biggest country.

Will BRICS create a framework that is as democratic in sharing governance space with other investors and stakeholders? This will be something to watch for as the systems and structures evolve. The notion that the NDB has been “Shanghai-ed” is perhaps a shallow understanding of this exciting new initiative.

With an equal voting share, all five countries have to be on board to move in a particular direction. Admittedly, this can be hugely inefficient and troublesome. Therefore, it is incumbent upon BRICS members to ensure that this initial at-par equity in governance does not unexpectedly allow for a super majority like gridlock, restricting decision making because of a lack of consensus. The NDB must be dynamic and lithe, much like the BRICS grouping itself. It would be useful for BRICS members to institute a professional management body for steering everyday operations of the NDB as well as all non-policy related decisions, including those dealing with project funding.

And most importantly, as discussed earlier, BRICS members should democratise the bank’s functioning if new stakeholders are included in the future. They must find ways to engage the recipients and beneficiaries in its decision-making apparatus. If anything, the NDB must be a template for change, not a mirror to the existing hegemony of money.

(Samir Saran is vice-president at the Observer Research Foundation and available at @samirsaran on Twitter.)