6 May 2016, the interpreter

Original link is here

While droughts can be written off as an ‘act of god,’ the fact that the ongoing drought in India has acquired its current intensity is a reflection of the sorry state of economic governance and planning in this country.

This state of affairs has its origin in four structural problems that plague India’s political-economic system at large, and are of immense consequence when it comes to managing India’s water:

1. The continued use of government-mandated support prices and subsidies for farm produce and farmers.
2. The de facto orientation of infrastructure projects towards industry, and not for lifeline support.
3. The perverse effects of the rural employment guarantee schemes.
4. The absence of innovation and finance around fresh-water recycling, desalination, and river-linking schemes, as well as the continued dominance of revenue expenditure over capital expenditure for the rural sector.

The negative externalities of agricultural subsidies

India is the second-largest producer of sugar in the world after Brazil. Last November, India’s cabinet approved a US$173 million subsidy for sugar cane producers supplying mills that export sugar and produce ethanol. This subsidy would, in effect, make sugar and ethanol produced in India cheaper relative to other countries, and thus make it more competitive at a time when the global commodities super-cycle is at an all-time low.

Such subsidies, along with mechanisms like government-guaranteed minimum support prices for agricultural products, incentivise producers to cultivate commodities that are natural-resource intensive. It is not an accident that Maharasthra, India’s biggest sugar-producing state, finds itself hit the hardest by the current crisis. The drought in the district of Marathwada, a region which accounts for 25% of the state’s sugar output, is the worst since 1972.

Temples for the few, and the lucky

India’s first Prime Minister, Jawaharlal Nehru, once called dams the temples of modern India. It now transpires that these temples only serve a select few through a system of rent-seeking and patronage. The Jayakwadi dam in Maharastra is one of the largest of its kind in Asia. It was created in 1965 with the express purpose of providing relief to the drought-prone Marathwada district. Instead it seems, as India’s Agriculture Minister has claimed, that the biggest beneficiary of this dam is the sugar industry. Meanwhile 89 irrigation projects in the state have been on hold for more than 20 years.

It is not uncommon in India for these projects to be approved to placate certain sections of the population. Synching the approval and completion of lifeline projects to the electoral cycle leads to the kind of unmitigated disaster India is witnessing today. This electoral pandering, coupled with abysmal short-sightedness, leads to a situation whereMaharastra has 1845 dams (35% of all dams in the country), yet only 18% of agricultural land is irrigated (compared to the national average of 47%).

Wither rural employment guarantees?

But construction of dams and other large-scale irrigation engineering projects is only part of the solution. A sustained effort must be made to renew and rejuvenate traditional water bodies and harvesting systems.

The previous government’s much-vaunted rural employment guarantee (MNREGA) scheme took as its goal the provision of employment to the rural poor by directing surplus labour towards infrastructure projects. In principle, MNREGA should have been the perfect vehicle through which traditional water works could have been maintained. Instead, MNREGA has distorted labour markets by disincentivising rural industries and jeopardising the income potential of the most vulnerable. Meanwhile, the scheme continues to bleed money. In 2006-07 (the first year of the scheme’s implementation), MNREGA allocation stood at US$1.53 billion. By 2010-11, the heyday of last government’s populism, it had reached an astonishing US$6.2 billion. The Modi Government seems to have fallen for the same trap: MNREGA’s budget estimate for the current financial year stands at US$5.8 billion.

The sad fact is that despite India’s considerable success in achieving food security (through the Green Revolution), very little effort has been made since to push India’s agricultural products up the value chain, which would have increased rural income as well as reduced the vulnerability of India’s farmers to climatic shocks such as the ongoing drought. Instead of infusing private capital and public infrastructure into the sector, a system of patronage through doles and waivers continues, which seriously compromises the very people it ostensibly seeks to protect. The archaic mechanism of minimum support prices continues to drain the exchequer while insufficiently contributing to the laudable goal of subsidising food. In 2011-12, the procurement subsidy accounted for 85%¹ of all food subsidy. Under the Modi Government, this has come down to 43%², a worthy first step.

Meanwhile, rural capital expenditure has fallen from US$71.3 million³ in 1999-2000 to a measly US$9 million⁴ in 2015-16. The sharpest drop happened between 2006-2007 and 2008-2009, from US$49 million⁵ to US$14.6 million⁶ — not surprising since between these two years, MNREGA allocations jumped three times. Even in irrigation and flood control, revenue expenditure growth overwhelmingly dominates capital expenditure growth: between 1998-1999 and 2015-2016, the former grew by 21%⁷ while the latter grew by 4%⁸ .

The need for large-scale innovation

A key challenge of a rapidly growing urban India will be the sustainability of its cities.

Modern India has never shied away from espousing faith in technology to meet its national challenges – a legacy of Nehru’s vision. However, as is the case with most ambitious national projects, the time-lag between announcing a vision and actually implementing it is often unacceptably large. An ambitious project to link 37 of India’s rivers in the north and the south is a case in point. First announced in 1982 by then Prime Minister Indira Gandhi, this project had laid dormant for more than 33 years, to be once again taken up by Prime Minister Narendra Modi last year. But opposition remains rife, from the usual coterie of nay-sayers who have a vocal anti-technology stance in the name of environmentalism. This view carries political weight in India.

It is estimated that India’s water demand will rise to 1180 billion cubic litres by 2050, more than 1.6 times the current consumption. The increase in demand for fresh water will be exacerbated by the dwindling water table. A government that plans for the future ought to incentivise the entry of the private sector into large-scale desalination plants that caters to cities along the coasts. For this to be commercially viable, the target cities should be empowered to generate more revenue. Industrial demand for fresh water is increasing at 8% annually while India’s large cities alone generate close to 40,000 million litres of sewage every day. Recycled water can also be directed towards agriculture as Israel does with 86% of its waste water contributing to farm irrigation.

If the government’s ambitious renewable energy targets are an indication of national will, large-scale deployment of desalination technology may not be out of reach.

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¹ Based on calculations derived from Yearly Account of Department of Food And Public Distribution 2011-12 and Food Subsidy, Expenditure by Broad Categories, Expenditure Budget, Union Budget 2012-13.

² Based on calculations derived from Yearly Account of Department of Food And Public Distribution 2014-15 and Food Subsidy, Expenditure by Broad Categories, Expenditure Budget, Union Budget 2015-16.

³ Based on calculations derived from Expenditure budget for Ministry of Rural Development (Department of Rural Development 2000-01 + Department of Land Resources 2000-01) and Ministry of Agriculture (Department of Agriculture Cooperation 2000-01 + Department of Animal Husbandry, Fisheries and Dairying, 2000-01).

⁴ Based on calculations derived from Expenditure budget for Ministry of Rural Development (Department of Rural Development 2016-17 + Department of Land Resources 2016-17) and Ministry of Agriculture (Department of Agriculture Cooperation 2016-17 + Department of Animal Husbandry, Fisheries and Dairying 2016-17).

⁵ Based on calculations derived from Expenditure budget for Ministry of Rural Development (Department of Rural Development 2007-08 + Department of Land Resources 2007-08) and Ministry of Agriculture (Department of Agriculture Cooperation 2007-08 + Department of Animal Husbandry, Fisheries and Dairying 2007-08).

⁶ Based on calculations derived from Expenditure budget for Ministry of Rural Development (Department of Rural Development 2009-10 + Department of Land Resources 2009-10) and Ministry of Agriculture (Department of Agriculture Cooperation 2009-10 + Department of Animal Husbandry, Fisheries and Dairying 2009-10).

⁷ Calculated using Budget Provision by Heads of Accounts- Revenue 1999-00 and Budget Provision by Heads of Accounts- Revenue 2016-17.

⁸ Calculated using Budget Provision by Heads of Accounts-Capital 1999-00 and Budget Provisions by Heads of Accounts- Capital 2016-17.

Photo by Nitin Kanotra/Hindustan Times via Getty Images.

Ritika Passi| Samir Saran

The central feature of United States’ external engagement — financial institutions, military posture, diplomatic overtures — for much of post-WWII twentieth century and beyond has been the security of its energy interests. Likewise, recent conversations with Chinese scholars, party members and officials indicate that the ‘One Belt, One Road’ (OBOR) initiative of Xi Jinxing’s government is likely to become the lynchpin of Chinese engagement with the world in the decades ahead. If to understand American foreign policy of the days past, many have ‘followed the oil,’ to decipher Chinese interests going forward, we may just have to ride the Belt and the Road.

At the third edition of the India-China Think-Tank Dialogue in Beijing, hosted in early January, a cross-section of Chinese scholars (from Beijing, Guangzhou, Shanghai, Yunnan) and personnel from the official machinery discussed India-China relations and prospects for regional cooperation. Unlike at previous meets, this time around the conversation cursorily engaged with old tensions, contests and irritants in the bilateral relationship; instead, the centerpiece of all discussion was the OBOR initiative. Be it matters of security, climate change and sustainability, or trade and economics, each Chinese intervention located OBOR as its locus, projecting it as the response to a multitude of challenges and opportunities. To some Chinese scholars, OBOR represented but the second act of their country’s opening up and reform process, no doubt intended to be the crowning feature of Xi Jinping’s Chinese dream.

A Mandarin Tale

Every project must have a compelling narrative. Towards this end, the Chinese have begun to weave new formulations that are giving shape to Beijing’s vision for OBOR and Asia. Some facets could be discerned at this recent interaction.

The first was the novel idea of ‘entity diplomacy’. This construction argues for engaging within and across regions to secure the best interests of an entity that is necessarily larger and with interests broader than those of any sovereign. This follows from the argument of a revival of ‘continentalism’ as the Eurasian landmass deepens linkages and ‘Asia’ emerges, OBOR segues perfectly into this framework. It becomes, for the Chinese, an Asian undertaking that needs to be evaluated on the gains it accrues to the entity, i.e., Asia, as opposed to China alone. It therefore follows, from Beijing’s perspective, that Indian and other Asian nations must support and work for the OBOR initiative.

Entity diplomacy also translates into the establishment of “one economic continent,” the second theme undergirding the conversation. OBOR, then, becomes a vehicle that promotes convergence and alignment of infrastructure, trade and economic strategies. Indeed, for some Chinese speakers, India is already part of the initiative, as its own projects like Project Mausam and economic initiatives such as Make in India and Digital India complement and complete OBOR. Indian participation in the Asian Infrastructure Investment Bank and joint ownership of the New Development Bank only reaffirm India’s partnership in this Asian project for many in Beijing.

To counter popular allegations of OBOR being a “Chinese scheme” à la US Marshall Plan, the Chinese were quick to clarify that the original project is named the Belt and Road Initiative; the ‘One’ has been an English effect that has popularised a mien of exclusivity around OBOR, to the primary advantage of China, instead of an inclusive Asian economic project in which all participating nations would partake benefit.

The third formulation was that of a mutually beneficial ‘swap’ — India understanding and protecting Chinese interests in the Indian Ocean, and China securing India’s essential undertakings in their part of the waters, read the South and East China Seas. This was in the vein of prompting a “new thinking” of “inclusive collaboration” instead of “exclusive alliances.” However, there was unambiguous clarity that if India cannot assume more responsibility in the Indian Ocean, China will step in. (Coincidentally, this is telling of a Chinese Navy that is comfortable in securing its own extended waters.)

Core Conflicts

 There are some structural challenges that confront the Chinese formulations and the OBOR proposal.

First, the perception, process and implementation till date do not inspire trust in OBOR as a participatory and collaborative venture. The unilateral ideation and declaration — and the simultaneous lack of transparency — further weaken any sincerity towards an Asian entity and economic unity. When questioned, the Chinese recognised this lacuna and remained convinced that the regime in Beijing is committed to pursuing wide-ranging consultations with 60+ nations OBOR implicates. An ‘OBOR Think Tank’ is also being established to engage scholars from these countries.

The second poser for the Chinese is on the appetite in Beijing to commit its political capital to this project and to ensure the security of its economic interests. While for obvious reasons the Chinese would not want to be seen as projecting their military and political presence along OBOR, it was clear that China is willing to underwrite security through a collaborative framework, minimising the anxieties that are already palpable. The success of the OBOR initiative will depend on their ability to fashion such a new security arrangement.

The third challenge deals with the success of the ‘whole’ scheme. OBOR is a five-layered lattice that promotes regional integration — the Chinese vision document lays out five components of connectivity: policy, physical, economic, financial and human. While no developing country will turn away infrastructure development opportunities financed by the Chinese, they may not necessarily welcome a rules regime built on a Chinese ethos. Could the physical layer translate into a buy-in to a Chinese-led global economic and financial order or trade architecture?

Finally, how can this initiative navigate the irreconcilable geometries of South Asia that prevent India from providing full backing to OBOR? A formal nod to the project from India will serve as a de-facto legitimisation to Pakistan’s rights on Pakistan Occupied Kashmir and Gilgit Baltistan under the China-Pakistan Economic Corridor (CPEC) that is “closely related” to OBOR.

Options for India

 The blueprint for OBOR remains fairly ambiguous as of now, and New Delhi does have options it can explore in the meantime. Fundamentally, it needs to resolve for itself whether OBOR represents a threat or an opportunity. The answer undoubtedly ticks both boxes. Chinese political expansion and economic ambitions, packaged as OBOR, are two sides of the same coin. To be firm while responding to one facet, while making use of the opportunities that become available from the other, will largely depend on the institutional agency and strategic imagination India is able to bring to the table.

First and foremost, India needs to match ambition with commensurate augmentation of its capacities that allows it to be a net security provider in the Indian Ocean region. This will require New Delhi to not only overcome its chronic inability to take speedy decisions with respect to defence partnerships and procurement deals, but will also necessitate a sustained period of predictable economic growth. OBOR can assist in the latter; in doing so, it becomes its own antidote that allows India’s political capacity to secure its strategic waters and territory.

Therefore, just as US trade and economic architecture underwrote the rise of China, Chinese railroads, highways, ports and other capacities can serve as catalysts and platforms for sustained Indian double-digit growth in the coming decades. Simultaneously, India can focus on developing last-mile connectivity in its own backyard linking to the OBOR — the slip roads to the highways, the sidetracks to the Iron Silk Roads. South Asia is among the fastest growing regions in the world. Such ‘niche’ infrastructure thus doubly makes sense, as India neither has the wherewithal to advance an alternate economic proposition nor the luxury to entirely shun OBOR.

Arguably, OBOR offers India another political opportunity. There seems to be a degree of Chinese eagerness to solicit Indian partnership, or at least a positive disposition; at the same time, the Chinese do realise that New Delhi is unlikely to endorse OBOR as long as CPEC remains part of the project. Can India, therefore, on its end, seek reworking of CPEC by Beijing in return for its active participation? It could, for instance, encourage progress in other regional connectivity offshoots of greater mutual interest — such as the Bangladesh-China-India-Myanmar Economic Corridor — or incentivise Chinese participation in newer tangents, such as in the maritime sphere or transport corridor projects across India. Effectively, OBOR could allow India a new track to its own attempt to integrate South Asia.

Furthermore, for the stability of the South Asian arm of OBOR, can Beijing be motivated to become a meaningful interlocutor prompting rational behavior from Islamabad? A new China-Pakistan-India equation has the potential to ensure that development concerns are not sacrificed at the altar of security considerations.

This is a longer version of an article that appeared in The Hindu.