Tag Archives: Samir Saran

Columns/Op-Eds, Politics / Globalisation

Column in Russia & India Report: Return of Putin? India hedges bets

Published on February 1st, 2012
by Samir Saran & Jaibal Naduvath
specially for RIR 
Please find here the link to the original article.
The mass protests in Moscow last December have had little resonance in India due to a limited media obsessed with defence and energy aspects of the India-Russia relationship. However, India will be watching closely the agenda of the new team that Putin, if he is elected, puts together as it will impact the trajectory of what could be a crucial partnership of the 21st century, say Samir Saran and Jaibal Naduvath. 

For over six decades, India’s relations with Russia and its predecessor, the erstwhile Soviet Union, have remained very cordial. From the heady heights of being “near allies” during the Cold War era to a brief pause in the 1990s as both countries recalibrated their own identities during a period of dramatic political transformation in each country, the Russia-India relations have endured dramatic shifts in global politics. Over the past 20 years though, there has been a pragmatic remoulding of the content of this engagement alongside an assured continuity on crucial areas of traditional cooperation like the defence sector. The non-continuance of the Indo-Soviet Peace and Friendship Treaty of 1971, seen by many as India’s security insurance during the cold war years, the subsequent Declaration of Strategic Partnership signed by the two countries in 2000, and renewed co-operation and strategic engagement at multilateral fora such as BRICS, Shanghai Cooperation Organisation (SCO) and the UN reflects diplomatic maturity and political realism in equal measure. However, despite the long-standing bonhomie, close trade ties and multiple cultural and political exchanges, Russia has not managed to emotionally engage the Indian psyche as much as it should have, even though the very mention of Russia evokes feelings of great warmth among most Indians. However, meaningful interest in Russia remains confined to the foreign policy elite, emancipated urban dwellers and business and trade communities with interests in the opportunities that Russia offers. In the larger public discourse Russia continues to be viewed through the prisms of defence and strategic relationship and the ‘energy narrative,’ with media and polity both guilty of selectively amplifying developments that impact these aspects. As a result, the response on the Indian street often tends to be binary and simplistic to what is transpiring in contemporary Russia. Media reportage and public discourse in India on the upcoming presidential elections in Russia is prey to this myopic syndrome. Indeed, Russia accounts for a majority of all Indian military imports and the reliability of such defence sales is vital for India. A stable Russia and more importantly a political dispensation in Kremlin that supports this defence sector engagement is crucial. There is, however, an urgent need to widen the discussions and media narrative on Russia, if there is to be meaningful and contemporary appreciation of this most significant ally in India.

As things stand, very little is known of presidential candidates other than Valdimir Putin, who has visited India several times, and is considered sensitive to this country’s interests. However, there is also a tacit realisation that sweeping political changes globally and reverberations in Russia which culminated in highly publicised street protests in Moscow (albeit modest in size and scale) against allegations of vote rigging in the parliamentary elections have led to a decline in Putin’s standing, rendering him more vulnerable than before. There is also a feeling that Putin losing his aura of invincibility, and the possible devolution and decentralization of power in Kremlin, could actually usher in greater pragmatism into the Russian political ecosystem making it a lot more dynamic and democratic, and, easier for others to empathise with. Despite being challenged by sections of Russian civil society, Putin may not have lost much of his personal brand appeal in India yet, for two reasons. First, very little is known of the opposition within Russia and even less so is available in Indian media. Secondly, dissent, discord, rebellion are all part of the political landscape in India and the leadership is indeed defined by the ability of the leader to resolve and navigate such challenging terrain. India itself has been ruled by coalition governments intermittently for over two decades with arguably, reasonable success. From their own experience, Indians could relate better to Putin if he is able to manage and share political space and carve out a consensus. Putin, slightly vulnerable and in the need for reaching out, makes him more attractive to the Indian people and its enterprises than Putin the steely and authoritarian figure.

The feeling is that under his potential future presidency, Putin may have to cede at least some ground to factions within his United Russia Party. Who the factions are and what their dispositions and agendas would be are unknown. In the coming days, prior to the March elections and certainly, if voted to power, in the period after Putin’s election, the main interest in policy circles in India, would be the sort of ‘arrangement’ Putin may need to put in place to manage dissent and preserve his influence.

Who (all) he devolves power to and how that impacts Russia’s external engagement will be important to India. As a global military power, Russia affords great counterbalance for India vis-à-vis China. If a pro-China faction emerges at the Kremlin, it will have the potential to further fuel China’s own ambitions in Asia and may drive India to develop a deeper partnership with the United States and other Asian powers to offset it. On the other hand, if the new power structure allows greater Russian outreach to the US and the European Union, it would not only balance the rise of China, but also help India and Russia develop a partnership beyond defence sales, elevating their engagement to a wider set of issues including, on managing the global commons.

From an establishment standpoint, India has always accepted organic development of national political systems and hence is unlikely to be either unduly concerned or patronising as long as its core strategic concerns are not jeopardised. Muted media interest and public response to the Moscow street demonstrations, dramatic developments in a system with little tolerance for political dissent, needs to be seen in this light. Also, after having witnessed the upheavals in the West Asia and North Africa (WANA) region, the media coverage of the Occupy Wall Street agitation and the highs and lows of the civil society movement against corruption at home, the larger Indian public is unlikely to be very taken in by the limited protests in Moscow.

The Indian public sphere is unlikely to engage comprehensively with the happenings in the run up to the Russian elections. On the other hand, the Indian establishment will keenly follow political developments in Russia as the importance of the election outcome and its impact on both the Asian strategic architecture and bilateral relations is not lost on them. The two countries have enormous potential for greater strategic convergence and a favourable political dispensation in Moscow could well catapult the India-Russia relationship into one of the defining global partnerships of this century.

Samir Saran is Vice President at the Observer Research Foundation, a leading Indian policy think tank and Jaibal Naduvath is a communications professional in the private sector in India

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Books / Papers, Water / Climate

Carbon markets and low-carbon investment in emerging economies: A synthesis of parallel workshops in Brazil and India

Abstract

While policy experiments targeted at energy and innovation transitions have not been deployed consistently across all countries, market mechanisms such as carbon pricing have been tested over the past decade in disparate development contexts, and therefore provide some opportunities for analysis. This brief communication reports on two parallel workshops recently held in Sao Paulo, Brazil and New Delhi, India to address questions of how well these carbon pricing policies have worked in affecting corporate decisions to invest in low-carbon technology. Convening practitioners and scholars from multiple countries, the workshops elicited participants’ perspectives on business investment decisions under international carbon markets in emerging economies across multiple energy-intensive sectors. We review the resulting perspectives on low-carbon policies and present guidance on a research agenda that could clarify how international and national policies could help encourage both energy transitions and energy innovations in emerging economies.

Read the entire article here: Full article (PDF-version).

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Columns/Op-Eds, Politics / Globalisation

Article in Financial Express: Identity and Access in Uttar Pradesh

by Samir Saran and Vivan Sharan
January 30th, 2012
Please find here the original article

Uttar Pradesh (UP) is home to a population similar in size to Brazil and is spread out over a vast area, ranging from the fertile Gangetic Plains to the arid Vindhya Hills. It has traditionally also been the state that shaped national politics and the caste, class and religion based political landscape is representative of the complexities of democracy in India. It is also today a state that defines the challenges that lie ahead in the coming decade and more. Be it physical or social infrastructure, employment or environment, industry or agriculture, multiple narratives within the state need to be reconciled. However, the causal relationship of caste with opportunity continues to be most vexed. There are significant divergences in access to the basic necessities – water, electricity and modern cooking fuel (two out of Mayawati’s election rally cry trio of ‘bijli, sadak and paani’) across this geography. Once rich in economic growth potential, driven by the gains achieved by the agriculture sector through the Green Revolution, the state is now the primary contributor (21.3%) to the overall poverty in the country as per the Multi Dimensional Poverty Index of the UNDP with close to 70 percent poor households.

Over the years, the state has seen increasing political emphasis and rhetoric directed at the marginalized social groups that exist within the state, as a strategic ploy to secure voting constituencies. This specifically includes people categorised as Scheduled Castes (SCs) and Other Backward Classes (OBCs) who represent majority proportions in relation to the total population of the state (Figure 1). It is ironic then, that the average income of SCs and OBCs in UP, is over 18 percent and 20 percent lower respectively, than the all India average, according to the latest NSS data compiled at the India Data Labs at the Observer Research Foundation.

India DataLabs @ ORF: NSSO Consumption Expenditure 2009/10

In terms of access to drinking water (within dwelling) the SCs are the worst off amongst the 3 groups, followed by the OBCs. The Central, Eastern and Southern regions (the NSS divides the State into 5 regions found in Figure 1) fare poorly; a combined average of around 35% of SCs and OBCs have access within their dwellings in these regions, compared to close to 60% in the relatively prosperous Northern Upper Ganga Plains. This average diminishes to an appalling 14 percent in the Central, Eastern and Southern regions if only SCs are considered.

Inherent barriers to social and economic mobility have compounded the inequities created by lack of basic infrastructure provision, and political apathy towards development in the state.  These worrying realities are exacerbated by the fact, that there has been negative growth in access to electricity (an average of -15.23%), over the five year period 2004-05 till 2009-10,  in the Central region and negligible growth in Eastern region, amongst all of the aforementioned social groups (Figure 2).  This negative growth is primarily driven by the sharp decline of access in urban areas. A nearly 22% decline over the 5 year period, in access to electricity in the case of OBCs  living in urban areas located in the Central region, is instructive of the fact that despite representing the largest political constituency in the region, they have been unable to secure commensurate development entitlement.

India DataLabs @ ORF: NSSO Consumption Expenditure 2004/05 & 2009/10

A recent World Bank Report on “The Role of Liquefied Petroleum Gas in Reducing Energy Poverty” suggests that everything else being equal, a higher level of LPG access is positively correlated with higher education levels in households in developing countries such as India. Unfortunately, there are large inequities in access to the modern cooking fuel across social groups (Figure 3). While affordability is a key concern, and according to the report, high costs are the most important determinant preventing consumption shifts across households; from less efficient primary sources of cooking fuels such as firewood, there are few justifications that help resolve facts such as – OBC urban households in the Central region have shown a 30 percent decrease in access to LPG over 2004-05 to 2009-10 (while access has remained nearly stagnant in rural areas).

India DataLabs @ ORF: NSSO Consumption Expenditure 2009/10

Indeed income class has a bearing on the levels of access to drinking water, electricity and LPG, and this is particularly true in developing societies, where lack of access reinforces income groups and in turn sharpens particularities of social groups. Low income poverty traps are dominant since the poor have no means to improve existence, owing to mediocre infrastructure, poor education and skills attained, lack of health services and poor productivity levels perpetuated by inequitable access to these essentials. The overall lack of access to specific social groups across regions, as visible in the case of UP, only adds to the sustained and absolute poverty levels of the state.

The higher levels of development seen in the Northern and Southern Gangetic Plains, serves to highlight that, successive governments have been unable to leverage the agricultural productivity of the region and enhance basic infrastructure throughout the state. The logical conclusion is then, that the bulk of the development in the state has resulted from proximity to water and fertile soil and the development of industry, rather than policy or administrative interventions, affirmative action or otherwise. Over the past decade, in the aggressive battle for votes, political parties have emphasised an inclusive development agenda and rallied support through promises for social mobility across castes and classes. The statistics while telling a part of the tale do suggest such promises to be mere rhetoric. Even in regions where some groups have telling political weight, ‘Bijli’ and ‘Paani’  eludes them. This is certainly a dangerous’sadak’ for the most populous state of the country, to keep treading on.

*Samir Saran is Sr. Fellow & Vice President and Vivan Sharan is Associate Fellow at the Observer Research Foundation, New Delhi.

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Books / Papers, In the News

REIL roundtable demands worldwide low-carbon policy framework.

This article was first published in the Global Energy Review online news, 12th July 2011
http://www.globalenergyreview.co.uk

Download the PDF-File here: Global Energy Reil-12-6-11.

Participants at the first Renewable Energy and International Law (REIL) roundtable in Cambridge argued that the UN must provide a worldwide common policy framework for low-carbon energy to get the renewables sector off the ground. Aled Jones, director of the Global Sustainability Institute at Anglia Ruskin University, and Samir Saran, vice president of India’s Observer Research Foundation, present the rountable’s key findings Renewable energy remains a policy challenge for many political leaders around the world. It is a topic many probably wish was not there.

Climate change and energy security create a complex political challenge that must not only be considered in the context of well-entrenched existing energy markets and their incumbents, but also with a host of other issues such as international security, international trade, financial stability, inequity, debt, health care, pensions and poverty (in all its guises). It is not helped by increasing divisions within countries, which means passing any sort of national legislation is incredibly difficult, if not impossible – never mind signing up to bold international treaties.

However, it is interesting to note that the world can look for insights from another industry that represents a significant percentage of global GDP, which did not really exist 20 years ago – namely telecoms and IT. The telecoms industry grew up with no real oversight and no drive from policymakers. The need to selfregulate by creating common standards became very clear early on, otherwise global growth would have always been limited by competing technology platforms failing to integrate and support each other. The standards and protocols that were developed allowed the industry to grow exponentially. It is quite likely that if the early entrepreneurs had had to deal with those issues when they set out on their quest for innovation, or were faced by demands from policymakers early on, we would not have the industry that we do today.

In addition, this entrepreneurial approach allowed the industry to meet market demand at a price the market could bear. For example, in India the telecoms industry was able to tap into the billion customers at the ‘bottom of the pyramid’ by offering a price they could afford. There are of course several current issues within the telecoms and IT sector – not least privacy laws and differences in freedom of expression and freedom of information around the world. However, the industry can now tackle these issues from a strong base.

While regulation and policy in the renewable energy area exists, it is often uncoordinated, is marked by uncertainty, delivers unintended consequences and is subject to change. So is the absence of coordinated, long-term, well thought out regulation and coordinated action a good thing for the renewable energy sector? While it may be a good thing in the short term, allowing some early entrepreneurs to build substantial enterprises, it is unlikely to achieve anywhere near the same transformation that was seen in the telecoms and IT sector – especially when the cost of renewable energy must compete with more traditional sources of power that do not incorporate a cost for carbon.

Two key reasons why renewable energy is unlikely to have the same impact as the telecoms and IT sector: land and the fact that we can see it coming. Energy, in particular renewable energy, needs a lot of land (or a lot of ocean). This land is always owned by someone and is usually being used for something else, or is difficult to aggregate up to large-scale generation capacity in the case of rooftop installations on individual homes.

Within telecoms, the footprint of a mast is tiny and you only need one person in a large district to agree to have something installed on their land to open up a large customer base. For energy, you need to unlock a large portion of land ownership to get to a scale that attracts investment and allows significant generation capacity to be installed.

Aggregation of land needs rules usually framed by governments, overseen by authorities or regulators and adjudicated by courts in case of disputes. All of which creates regulatory and policy uncertainty, which could be a challenge for first-time innovators and could lead the sector to be dominated more by those able to manage the policy rubric rather than those with solutions and technologies.

When the telecoms industry started to grow no one knew what we would use this new technology for and there were many predictions about the global market for computers being small, the global market for mobile handsets being niche – and who would ever want to send a short message to someone when you can phone them? If the post office, pager companies or print photography industry had seen the impact that email, messaging and electronic photographs on mobiles could have on them, they may have put up a little bit of a fight, but there wasn’t really an industry that was being displaced by the new enterprises being set up.

However, in energy there are many vested interests and a range of assets that are potentially redundant if the renewable energy industry meets its full potential. How to transition across from a carbon-driven economy to a ‘green’ economy in a smooth and orderly way is the biggest challenge. And this challenge is only made greater because we can see it coming.

Those vested interests and owners of assets need a much greater level of confidence in this transition before it can happen. This applies not just to the large energy companies but also the employees of those companies, the governments that rely on the taxes from their employment and resource use, the pension funds that rely on their steady return and the consumers that rely on the cheap energy that they produce. Convincing all of these stakeholders to support the move to a ‘green’ economy is no small task.

While there is some scope for the deployment of exciting technologies over the short term, sometimes supported by government policies such as feed-in-tariffs in countries such as China and Germany, to achieve the scale of deployment envisaged under international political negotiations such as the United Nations Framework Convention on Climate Change (UNFCCC), requires much more political backing and legislative support.

In addition, domestic subsidies and other types of support programmes for renewable energy are increasingly being referred to the World Trade Organization (WTO). For example, the US’s complaint against China’s subsidies for wind turbines, which appeared to favour domestic manufacturing, has resulted in China revoking those subsidies. WTO GATT Article XX(g) refers to environmentally related trade measures and could be used to allow subsidies of this nature if domestic and international solutions are subject to the same restrictions. A price on carbon, delivered through a cap-and-trade scheme or a new tax, is often seen as the basis from which other policies can be built. For a business, being able to have a globally consistent price on a commodity makes strategy development much easier.

Achieving a price on carbon has, however, proved challenging in many national jurisdictions and the international process under the UNFCCC is unlikely to be able to agree on an international framework that gets to the level of detail that sets a price on carbon in the next few years. A price on carbon delivered through schemes such as cap-and-trade needs to support other policies that may be introduced such as renewable energy obligations, rather than be undermined by them. Even when implemented a price on carbon is not always a panacea. If an international agreement is achieved then it should set the basis for future partnerships around the world to tackle some of the biggest problems associated with climate change.

The UNFCCC process will not be able to set a mandate for national governments to push through energy bills and policies that they have not been able to agree within their own legislature. In addition, the legality of international environmental law, or at least its enforcement, also causes uncertainty. If a country fails to meet an international pledge to achieve an emissions reduction target, then what is the outcome?

Even if there is some legal framework to measure and report, policing this will be very difficult. A truly robust UNFCCC agreement should be able to provide a framework that allows countries to develop national policies that are at least consistent, allowing global solutions to get to scale quickly. In addition, a UNFCCC agreement can create international markets where they are needed to do particular jobs – for example, reducing deforestation – as well as providing a mechanism or common standards around the use of public sector finance to underpin the development of green economies in emerging and developing economies.

For example, the Indian approach to the UNFCCC is led by the national government, but many of the energy policies, and in particular land policies, are developed at state level. So while the Indian national government could sign up to an international framework and commit India to a ‘green’ pathway, to actually implement this requires internal buy-in and implementation, which is not guaranteed and is rarely driven from the federal level.

So the real challenge now is how to move renewable energy and the interrelated challenges into the ‘action’ pile within national, state and local governments. This is a bold challenge and it needs bold leadership to tackle it. It is about risk management and economic growth, however it does need a wholesale change in the economic supply chain, which unfortunately is very difficult to achieve piece-meal. This is why the UNFCCC process needs to agree a framework for common approaches to policy development as soon as possible. This process will be supported by domestic action – but domestic action is not a substitute for it, even with the recent change in attitudes towards nuclear power in key markets such as Japan and Germany possibly resulting in significant investments into renewable energy and major growth for the sector if their low carbon targets are to be met.

Kick-starting a new industrial revolution is no small task, but neither is spreading democracy across the Middle East – and access to information and visionary leaders created the ‘Arab Spring’. Maybe we need a ‘Green Winter’ to galvanise action to tackle climate change. With the Arctic ice melting at unprecedented rates we may achieve a ‘Green Winter’ sooner than we think.

***

The REIL network is an initiative of the non-profit Renewable Energy & Energy Efficiency Partnership, which aims to develop markets for renewable energy. Members of the network usually meet once a year at Yale University. The Global Sustainability Institute at Anglia Ruskin University hosted the first Cambridge Roundtable of the REIL network on 20 and 21 June.

In addition to Jones and Saran, participants included Bob Simon, chief of staff of the US Senate Energy news Committee; Brad Gentry, director of the Yale Centre for Business and the Environment; Melinda Kimble, senior vice president of the United Nations Foundation; Eomon Ryan, leader of the Green Party in Ireland; Mark Fulton, managing director and global head of climate change investment research & strategy at Deutsche Bank and Martijn Wilder, head of Baker & McKenzie’s global climate change and environmental markets practice.

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Books / Papers, Water / Climate

Re-imagining the Indus: Mapping Media Reportage in India and Pakistan

Published 2012, Observer Research Foundation, New Delhi

Overview
Water shortage has become a subject of intense public debate in the present political narrative on resource management and riparian rights. In an attempt to discern the divergence on core issues and mainstream media reporting, Re-imagining the Indus is a methodological study based on Media Content Analysis of the reporting on water issues related to the Indus, in the leading dailies of both India and Pakistan. This monograph seeks to capture the existing discourse and stimulate policy dialogue on the subject.

In Detail
What is the general discourse on water scarcity and related crises in the Indian and Pakistani media? The study conducted by Samir Saran (ORF) and Hans Rasmussen Theting, scrutinised the media coverage on water on three specific themes – the political discourse, water governance and people, practice and environment.

Titled ‘Reimagining the INDUS: Mapping media reportage in India and Pakistan’, the study found that the Indus Water Treaty (IWT) does not dominate the reportage in Pakistan, indicating a low level of discontentment or critique.

It also found that it is only in the months of winter, when the water flow is low, that inter-country dispute between India and Pakistan, and significant negative sentiment against India, gets attention in Pakistan. But in the Indian media, Pakistan only appears during spring months.

The study, now published in the form of a book, found that agricultural concerns and inter-provincial disputes dominate media reportage in Pakistan while in India media lays greater emphasis on urban water concerns and interventions, including ground water and domestic consumption.

The study also showed that media reports in both the countries, Pakistan more than India, recognise the need for the two countries to cooperate on water issues. From the study, it was also clear that in both India and Pakistan, there is equal emphasis on the aspects of water governance and infrastructure.

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BRICS, Columns/Op-Eds

Article in “Russia and India Report”: It’s time for a ‘BRICS Fund

by Samir Saran and Vivan Sharan
November 14th, 2011
Please find here the original article

With a post-crisis global recession deepening in the eurozone and other parts of the world, the BRICS countries can take the lead to set up a ‘BRICS Fund’ to reenergize faltering growth in both developed and developing economies, argues Samir Saran and Vivan Sharan.

The current global economic scenario is uncertain, volatile and misleading. The uncertainty stems from a breakdown in macroeconomic correlations and a continuation of a post-crisis recessionary environment in large parts of the world.  The volatility emanates from the unpredictable price action across asset classes and increased sensitivity of almost all asset classes to financial and political fragilities, like those that are prevalent in the euro zone. Meanwhile, the misdirection and misallocation of capital across asset classes is a direct consequence of the lack of clear signals by political institutions and markets alike, leading to broad scale risk aversion especially in the case of sovereign investors such as central banks.

Increasingly, as such strains constrains economic development and investment flows, it is necessary for the BRICS nations to realise their new roles in the emerging global economic order. The imperative to shape the dynamics of future growth must come from these new drivers of economic momentum. One of the ways to do it could be the creation of a BRICS fund – a consolidated wealth fund with appropriate and proportionate monetary contributions from the central bank reserves of all the BRICS countries. Such a multilateral fund, with pre-determined investment mandates, could prove to be a useful tool for rebalancing capital flows, and reenergizing faltering growth in both developed and developing economies.

About one eighth of all assets managed in the US are allocated to “impact investments” or “social investments” – an impressive statistic that must be replicated by emerging economies. With a view to the future, it is clear that social, economic and environmental sustainability are going to be essential for economic development and growth – at individual company, industry and international level. A BRICS fund which invests back into sustainable initiatives both within the BRICS and outside in the least developed economies could prove to be an unparalleled tool to promote and accelerate sustainable growth trajectories. Rather than being a problem of capital generation, the key challenge in financing transitions to sustainable, low carbon trajectories is the redirection of existing and planned capital flows to financially viable allocations in non-traditional asset classes. Alternative investments into sovereign debt of struggling economies based on mutually agreed upon special purpose vehicles could be another avenue for funding which would also leverage the BRICS’ bargaining position in multilateral negotiations.

In the recent international climate negotiations at Durban, it was decided by member countries that that the second commitment period of the Kyoto Protocol will run from January 2013. Furthermore, it was decided that the Durban Platform for Enhanced Action – an agenda strongly backed by the EU and the Association of Small Island States (AOSIS) would be instituted to develop another new Protocol by 2015 – an international legal instrument that will be applicable to all parties to the UN climate convention and will come into effect after 2020. Simultaneously, the parties to the COP agreed to institute a $100 billion Green Climate Fund (GCF) – a measure largely intended to appease developing nations such as those in the AOSIS to come on board the EU agenda. The strategy worked well, although smaller economies should be aware that in the past a bulk of the funds that have been made available to developing countries through the Clean Development Mechanism of the UN have gone to private project developers in China, India and Brazil (in that order). China got the lion’s share of close to half of the total investments made till now. If the investment flows were analysed at from a primarily deterministic prism, it would be hard to conclude that the funds from the GCF would benefit small developing economies, or impact real organic change. The Durban negotiations provided a textbook case where bargaining positions of developing countries, and especially those in the BASIC group of countries including Brazil, South Africa, India and China, could have been leveraged, had these countries already committed to fund sustainable development through a parallel fund. Instead, the outcome was sub optimal – given that there still is no mechanism for the eviction of carbon squatters who have conveniently pushed the onus onto countries that are still in the low to mid income development profiles for what is effectively a $100 billion payoff.

The BRICS fund could also provide suitable SPVs to smoothen any future financial shocks to the highly integrated global economy. Just as in climate change scenarios, financial shocks and imbalances are likely to alter the growth trajectories of developing economies in a much more significant way than of advanced, developed economies which already have monetary cushions owing to high per capita incomes and strong existing infrastructure. The BRICS fund could help the central banks of the member countries counter the effects of erratic demand cycles, global resource pricing distortions, and systemic contagious failures in global financial markets, through strategic investment stimuli. Such a mechanism would not only be complementary to the policy mandates of the central banks of the BRICS nations, but would send a strong signal about their overall financial policy independence of Bretton Woods institutions such as the IMF.

Whatever the investment mandate – the overall emphasis for such a fund would have to be the generation of absolute returns to be considered worthwhile by all of the relevant stakeholders. Furthermore, it is beyond doubt that multilateral institutions have limited degrees of freedom. If a BRICS fund becomes a reality, a necessary condition would have to be complete operational and functional independence to deliver what is needed. This would only be possible with the effective and efficient delegation of policy sovereignty. The modern-day central banking trend of institutional independence would be a good model to follow. Ensuring political and financial goals are separate, and asset allocation occurs purely on the basis of the accepted common mandate and profitability would create a strong shared institution.

From purely the perspective of profitability and diversification of sovereign assets, such a fund would provide a good alternative mechanism for central banks within the BRICS to allocate appropriate portions of their reserves to riskier assets than they traditionally are mandated to invest in. Thus, the fund could substitute for Sovereign Wealth Funds, an increasingly popular concept for diversifying sovereign reserves through alternate mechanisms, while simultaneously creating significant signaling benefits which would be advantageous in matters of setting trends and norms in international financial investment agendas in the future. Today, financial institutions are zealously protective of their cash assets. This is far from being a panacea for the prevailing economic scenario with a failing European idea and a politically problematical environment in the US. A BRICS fund could provide the much-needed liquidity and confidence, especially to capitalise on resilient business models looking for seed money.

For decades, economies in the BRICS consortium have been subjected to the rhetoric of structural reform by actors that have consistently overspent on consumption. The retooling and rebalancing of the global financial system is an imperative that cannot be ignored any longer. With the increasing cooperation between BRICS countries along political and economic lines, the conceptualisation of alternative mechanisms to promote the development agenda at a time when financial institutions are cautious with their money is certainly justified. Disruptive changes to status quo policies and investment patterns are traditionally most effective in uncertain, volatile environments. Looking forward, this decade presents a mixed bag of opportunities and challenges for nations and economies. With the emphasis and impetus of growth shifting to the emerging and recently emerged economies, it is only natural that the BRICS countries take the initiative and the lead to innovate their way out of international crises.

Samir Saran is Senior Fellow and Vice President at the Observer Research Foundation. Over the past year, he has been actively involved in setting up a green business “gTrade” to promote sustainable investing in India. 

Vivan Sharan is Associate Fellow at the Observer Research Foundation. He has interned at the UNDP, and PWC undertaking disparate research tasks. His primary research interests are in monetary policy, equity/debt markets in America and the BRICs.

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In the News, Politics / Globalisation

Impulses: Trends That Will Shape India’s World

Please click here for the online audio file and here for the presentation.

On December 2, the Atlantic Council’s Strategic Foresight Initiative and South Asia Center hosted a discussion on the global trends shaping India’s future towards 2030.

India has undoubtedly taken a central seat in the international arena with a growing population of over one billion citizens and a globally competitive economy. The country is now a hotspot for technological innovation, urbanization, and an expanding private sector. Such rapid growth, however, brings new challenges for this emerging nation. Scarce water resources, lack of urban infrastructure, the need for rural development, and weak coordination between government, public, and private institutions, can put India at a critical juncture in its development as a regional and global power. This discussion will explore both the potential challenges and opportunities for India in the coming decades.

Introduction by

Sunjoy Joshi
Director
Observer Research Foundation

A discussion with

Samir Saran 
Vice President
Observer Research Foundation

Moderated by

Banning Garrett
Director, Asia Program and Strategic Foresight Initiative
Atlantic Council 

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BRICS, Columns/Op-Eds

Article in “Russia & India Report”: BRICS and eurozone crisis


by Samir Saran and Vivan Sharan
November 2nd, 2011
Please find here the original article

The rise of the BRICS nations as new epicentres of economic activity in the rapidly evolving world order has been simultaneously accompanied by a steady decline in the relative economic strength of many of the member countries of the eurozone.

The single currency union has become essentially a two-faced beast. A North–South divide in economic fortunes is clearly visible within Europe (and the irony of this is probably lost on most Europeans). It is time for the leaders of this grouping to recognise the fact that the major rebalancing and recalibrating actions that are urgently needed within the economic and monetary union must also address the concerns of external creditor nations such as those within the BRICS grouping.

After much introspection and procrastination, the European leaders managed to pass a controversial but necessary deal on Greek debt. The deal, which calls for a “voluntary” cut on a nominal 50 percent of private sector investments of over 450 financial firms to reduce total debt burden in the economy by 100 billion euros, is a desperate attempt by policymakers to stymie the relentless bouts of selling pressures on Greek debt.  Although given the circumstances, it was extremely important for the eurozone to signal some form of cohesive multi-stakeholder action to the financial markets, the deal is built upon ambiguous foundations.

The private sector has voluntarily decided to take these ‘haircuts’ and at the same time banks have agreed to increase capital reserves to 9% to shield against an imminent market collapse in Greece. This translates into tremendous pressures on banking institutions, without much positive effect on the bond markets, with Greek bonds still yielding unprecedented rates of interest. It is clear that the projected reduction of Greek debt to GDP ratio from 160% now to 120% in 2020 is not impressing bond traders.

The European leaders have announced that they seek to increase the size of the European Financial Stability Fund (EFSF) from its current capacity of 440 billion euros to over a trillion euros.  It is not clear how they intend to do this, and whether a trillion euros (approx.) is the amount they consider to be sufficient to counter the effects of possible contagious sovereign debt defaults and banking crises in member countries. While these leaders attempt to keep kicking the can down the road with respect to how they manage the myriad financial crises that are evolving in southern Europe, it has become increasingly clear that the problem is too big to be handled without outside help.

The Chief Financial Officer of the EFSF recently told a Brazilian newspaper that his colleagues are “pleased” to see BRICS countries starting to invest in the EFSF. The composition of the investments into the EFSF is not public, and therefore there is no real way of knowing how much each of the BRICS nations have contributed to the fund so far. The EFSF was originally set up to raise money for the Portuguese and Irish bailout packages through the disbursal of loans. Although the Fund has nearly risk-free credit ratings by all the major rating agencies (AAA by Standards and Poor’s and Fitch, and Aaa by Moody’s), it can be argued that investing in Greece’s sovereign debt is a far riskier proposition for creditors to the Fund.

Many of the BRICS nations are already heavily invested in the euro. The central banks of China and India hold approximately 25% and 20% in eurozone bonds respectively and are therefore not likely to spend much more of their international reserves buying into a now suspect currency. However, much like Brazil, which is allegedly considering investing into euro debt via its Sovereign Wealth Fund (which allows greater risk taking) rather than purchasing debt through its international reserves, the economies of China, India and Russia could soon follow suit.

Given the volumes of trade between the euro zone members and each of the aforementioned nations (China surpassed the U.S as E.U’s largest trade partner in July) along with hefty direct investment flowing both ways, it is certainly not in the interest of any of the stakeholders – to let the euro collapse. The involvement of countries like China, with immense amounts of liquidity, does not fail to inspire market confidence as was seen last year in July, when China announced that it would purchase a billion euros in Spanish debt. The bond auction was oversubscribed and lead to a turnaround in market confidence in Spanish debt even though China only committed 400 million euros.

Keeping in mind their leveraged bargaining position in current circumstances, the BRICS nations should coordinate their positions and assert themselves while negotiating investments in eurozone debt. Although the BRICS nations have a diverse set of agendas and priorities, it is not hard to see a future where there is greater coordination within the nations in the grouping, especially between geographical neighbours Russia, China and India, in order to deepen global financial integration and reverse the Western narratives that have dominated the larger economic realm for the past century.

At the Sanya BRICS summit in April, the leaders put on record that the “international financial crisis has exposed the inadequacies and deficiencies of the existing monetary and financial system” and that the BRICS nations support “the reform and improvement” of this system. In order to support the troubled European economies, the BRICS countries need to devise a formal set of pre-conditions for granting bilateral loans and investing in various bailout funds. Perhaps these could be centred on some basic premises such as further trade liberalization, increased access to intellectual property and perhaps they can even be self-righteous enough to demand more friendly immigration laws.

The Europeans will no doubt be faced with some hard choices. They have to be careful to juggle two contradictory imperatives – that of enlarging existing regulatory capacities in order to strengthen and deepen European fiscal, monetary and political integration, while at the same time accepting the inevitable growing interdependence with external nations.

If the evolving debt crisis in the eurozone is viewed through a deterministic prism, it becomes immediately apparent that panaceas such as debt write downs only offer short term relief to the markets as long as structural imbalances persist. In light of this, the Europeans will be hard pressed to look for a multipronged approach to dealing with the existing problems of their southern peripheral nations.

The glory days of Western credit and forced fiscal reforms in Asia and other ‘south’ countries are far behind us, with hegemonic Bretton Woods era relics such as the International Monetary Fund struggling to find its ‘traditional’ relevance within the new political and economic realities. Although it is in no way certain that the balance of power will completely shift towards the emerging or recently emerged nations such as those in the BRICS, as they are grappling with internal problems of their own, one can be relatively certain that the growing degrees of independence – both from Western policies and from Western demand —  will provide the perfect platform for increasing economic leverage through investments in equity and debt as well as direct investments. Europe has few options left but to align economic expectations with those of the BRICS. The question that still looms large is whether there is enough political unity and substance in the grouping (BRICS and other emerging nations) to make the right kind of bargains.

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Politics / Globalisation

Impressions: ‘Asian Forum on Global Governance’, Delhi, 2011

The Observer Research Foundation in association with the ZEIT-Stiftung Ebelin und Gerd Bucerius of Hamburg, Germany, started an annual ten day policy school for young leaders in October, 2011. The inaugural ‘Asian Forum on Global Governance’ provided an instructional and networking platform for young professionals from around the world, aged between 28 and 35.

 

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