Gist of The Hindu: March 2016

Gist of The Hindu: March 2016

Hope and clarity in Paris

Parisians are no strangers to violence. During the French Revolution in late 1793, the Reign of Terror swept across the city, killing more than 2,000 supposed ‘enemies of the revolution’. In 1871, the city played host to the largest European urban insurrection of the nineteenth century — the Paris Commune — in which nearly 10,000 Parisians were slaughtered. A little less than a century later, at the height of the Algerian War in 1961, terrorism returned with a vengeance. In June that year, the pro-colonial militants of the Organisation Armée Secrète planted a bomb on a Strasbourg-Paris train, killing 28. And, in October, the brutal police repression of a pro-nationalist demonstration left up to 50 dead and bodies floating in the Seine.

This violent history has continued in more recent times, with terrorist bomb attacks by Hizbollah and Lebanese Islamists in 1986 and Algerian Islamists in 1995 during the Algerian Civil War. Most recently, of course, Paris endured the massacre of Charlie Hebdo journalists, and shoppers in a Jewish superstore, in January 2015. None of this should take away from the shock that greeted the appalling coordinated attacks in Paris on November 13, 2015. The death toll and the scale make the latest events some of the bloodiest examples of terrorism in Europe, along with the Madrid bombings in 2004. For better or for worse, Paris has become another site in a global conflict that stretches from Mumbai and Peshawar to Bali and Beirut.

Nevertheless, the long history of violence in France can offer some clues into how an already fragile country might approach another shock to its social and political identity. In particular, three areas should hold our attention over the coming days and weeks: the implications of the attack for counter-terrorism in France; the impact on foreign and immigration policy; and the potential for a sharp rightward shift in French politics.
First, the question of counter-terrorism. It may come as a surprise to some, but France was long held up as a model of counter-terrorist and counter-insurgency strategy. The ruthless treatment meted out to anti-colonial activists in Indo-China and Algeria in the mid-twentieth century made the French army, police and intelligence services a model of how to root out ‘terrorism’. So much so that the torture of suspected political dissidents during the Algerian War in the 1950s and 1960s became a permanent blot on France’s reputation (and an inspiration for America’s War on Terror after 9/11).

This problem of how to build an effective counter-terrorism strategy is directly connected to France’s foreign policy. France may be a fading, post-imperial power, but it is still more involved in global conflicts than almost any other European country. In recent years, French forces have fought Islamist movements in Mali, Libya and Syria. French security services have also been used across the Sahel to protect France’s significant natural resource extraction operations from Islamist militant groups who have repeatedly kidnapped or killed French workers. France’s immigration policy is similarly intertwined with its foreign policy. Whether or not the November 13 attacks were committed by French citizens, foreigners or militants posing as refugees, the events will inevitably raise serious questions about France’s attitude to immigration and its participation in Europe’s Schengen free-movement zone.

Beyond party politics, however, there are reasons to think that the French will find more positive ways to understand or explain what has just happened to them. After all, a history of racism and inequality has not stopped France from becoming a complex, multicultural and mixed society. Likewise, the French have repeatedly found ways of discussing their bloody revolutionary and colonial histories despite the enormous controversy it has provoked. And, for all the intolerance, Islamophobia and anti-Semitism, the vast majority of French people since the 1980s have learnt to live with Europe’s largest Muslim population and become more open to foreigners in their midst.

Take charge of OROP

An army may march on its stomach, but for the force at large, izzat (dignity) has been a highly held ideal as well. In a country that boasts one of the world’s largest military forces that operates on the principle of voluntary enlistment, the government should try to resolve the current stand-off over the One Rank One Pension (OROP) issue with a realisation of this fact. Some of the responses heard from various quarters of the government so far do not indicate they appreciate that. Among other aspects, the latest OROP notification issued by the government goes against the spirit of encouraging younger officers by allowing premature retirement. It is a serious anomaly that goes against the post-Kargil military reforms that have helped bring down the average age of field commanders. In seeking a solution to the outstanding issues, appointing yet another committee to look into the grievances will amount to nothing but a travesty. The military has a core function in a democracy, and ensuring its apolitical nature is critical to the future of a maturing nation. Indeed, strained ties with the larger military community could have unintended fallouts in the long term. The widespread protests could contribute to disaffection against the government, going far beyond the cantonments.

Prime Minister Narendra Modi needs to take personal charge of the situation and deal with the veterans’ concerns credibly and earnestly. The first step should be to ask his Cabinet colleagues, including Defence Minister Manohar Parrikar himself, to be more circumspect in their reactions to the agitation. Concerted campaigns against the veterans, that the media tend to mirror, and attempts to ridicule their methods of protest are not solutions. Once a cohesive and viable response is formulated after addressing all the concerns that have been highlighted, the Prime Minister has to involve himself in the process and ensure that the veterans are dealt with in a manner that ensures dignity. The OROP agitation is not a mere episode involving some disgruntled retirees; it has already found significant resonance among the serving ranks as well. That is worrisome. The protests may be dispersed, but the fact is that its effects are felt across the country. The Modi government should also not forget that its journey to power in the summer of 2014 was significantly aided by widespread anger against the United Progressive Alliance government on various fronts, and the ex-servicemen community — which had felt short-changed by that government’s approach to the implementation of OROP — formed a vocal part of the anti-establishment wave. Mr. Modi’s personal promise during the election campaign to implement the OROP scheme in full had given the community of veterans so much confidence in his government. For that reason too, the Prime Minister cannot shirk political responsibility when it comes to resolving the OROP issue in a fair manner.

Let’s be realistic on FDI

In yet another significant move to attract foreign direct investment (FDI), the government has opened the door wider in several major sectors of the Indian economy, through what it calls “path-breaking” amendments in the extant FDI policy. These amendments can be clubbed into three categories: a “radical change” in the FDI regime in the construction sector; an increase in the threshold of foreign participation (the so-called sectoral caps) in several key sectors, including defence, broadcasting, private sector banks, non-scheduled air transport service, ground-handling services, and credit information companies; and simplification of the procedures for foreign participation in a number of sectors.

The scope for FDI has been widened over the years, a move that has been predicated on the understanding that India needs to attract a large amount of foreign investment and that FDI needs to be regulated only in areas which are of strategic importance, or which have implications for national sensitivities. The announcement made on November 10 should, therefore, be seen as another attempt by the Indian government to attract sizeable volumes of foreign capital by easing the procedures, which, in its view, were limiting these inflows. But as it makes its best efforts to catch the attention of foreign investors, the government may also like to consider the global realities and its own experience in this regard, since the country turned “investor-friendly” some two decades back.

First, globally, FDI flows of all hues have not been growing, especially from the developed countries. The reality is that the developed countries are reaping the benefits of their past investments. Real outflows from them are far less than what the aggregates suggest. Reinvested earnings (profits generated and retained in host countries) are bolstering the reported FDI flows. According to the United Nations Conference on Trade and Development (UNCTAD), the share of reinvested earnings is reported to have accounted for as much as four-fifths of total outflows in 2014 for select developed countries. A mere 10 per cent of total inflows were accounted for by direct equity flows, with loans making up for the rest. Obviously, further opening up by India cannot help attract more FDI that would not have come otherwise. Even if some additional inflows come in, they would soon be more than offset by outflows.

Another important factor is the costs associated with FDI, especially the servicing burden and crowding out of domestic investment. Developing countries like India have reached out to FDI not merely because of the capital they need, but more importantly, for the technologies to make their entities more competitive. However, experience shows that while developing countries have not been able to acquire the technologies they need, they have had to make a variety of payments “for use of intellectual property”. In fact, for India, the servicing burden of FDI in terms of repatriations, dividend payments and payments for use of intellectual property is now showing up prominently. About half of the inflows into India during the past six years were balanced by outflows. What are reported as payments for technology could, in fact, be disguised dividends which deny the exchequer and the public shareholders their due. Foreign companies which did not pay dividends for many years are happily sending remittances abroad on account of royalty payments, including those for the use proprietary brand names.

There was a special mention in the new policy announcement about the construction sector and the need to build 50 million houses for poor. This once again reveals that not much thought has been given to the nature of foreign investment that the sector has attracted so far. A vast majority of investment in this sector is by private equity investors and Indians bringing back (black) money in one form or the other. The forms of investment that the construction sector has attracted raised several pertinent questions. Will private equity investors, who seek multiple returns, and returning Indians invest in housing for the poor, or in townships for the rich and the upper middle class and commercial complexes? When the private equity investors encash their investments, what would be the net outflow? In this context, it should be pointed out that disinvestments/repatriations were more than a fourth of the total equity inflows during 2009-10 to 2014-15.

Indian subsidiaries of foreign companies in the manufacturing sector run a huge deficit on trade account. The data released by the Reserve Bank of India shows that there is large dependence on imported inputs. Together with other payments and expenditure on other heads, the overall effect on the country’s balance of payments could be substantial. This phenomenon could have significant implications for the ‘Make in India’ programme. Many Indian entrepreneurs have now turned into part-traders of imported consumer durables. Without changing the overall policy landscape and attitude, India cannot expect to make a success of ‘Make in India’ with the help of FDI alone. The new measures in no way address this vital issue. FDI cannot be a substitute for domestic resource mobilisation, and FDI policy cannot be a substitute for prudent domestic policies.

Policymakers need to take cognisance of the fact that it is domestic investment which has provided an overwhelmingly large share of India’s capital formation and has, therefore, been instrumental in pushing up the country’s growth rates. India should be careful not to create two classes of investors wherein the foreign investors, including returning Indians, are given disproportionate advantages. Even UNCTAD had underlined the large amount of losses to the exchequer of developing countries ($100 billion a year) due to the routing of FDI through tax havens. While bringing all related policy measures together, especially the Foreign Exchange Management Act rules, as proposed by the new policy is certainly a welcome step, the Indian government needs to take a realistic view of what foreign investors can do to shape the destiny of an emerging economic powerhouse.

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Courtesy: The Hindu

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