Nobel laureate Ellen Johnson Sirleaf conferred with Indira Gandhi peace prize 2013

 Nobel laureate Ellen Johnson Sirleaf conferred with Indira Gandhi peace prize 2013

Liberian leader Ellen Johnson Sirleaf was conferred the coveted Indira Gandhi peace prize by President Pranab Mukherjee who said India will continue to support the African nation in its pursuit of stability and economic growth.

74-year-old Sirleaf, the first democratically elected women Head of State of any African country, was honoured for serving as an example and an inspiration for ensuring the return of peace, democracy, development, security and order in Liberia and for her strong interest in the consolidation and improvement of ties between both the nations. The award ceremony for the 2012 prize for President Sirleaf, a Nobel Peace Prize winner, was held at Rashtrapati Bhavan on Thursday and was attended among others by Vice President Hamid Ansari, Prime Minister Manmohan Singh and Lok Sabha Speaker Meira Kumar. Congress President Sonia Gandhi also made her first public appearance after returning yesterday from the United States where she had gone for health check-up. Sirleaf is the 27th recipient of the Indira Gandhi Prize for Peace, Disarmament and Development which is in recognition of the values she stood and fought for in the service of India and its people. "India and Liberia have a longstanding relationship of friendship and cooperation. We stand with President Sirleaf in her efforts to pursue stability, economic growth and democratic governance for the Liberian people," Mukherjee said. "It is, therefore, befitting that the Indira Gandhi peace prize honours those who have made significant contribution to peace, disarmament and development, causes that were so dear to Indiraji. She was truly one of the twentieth century's most remarkable personalities," the President said. "As the first woman elected to lead an African nation, President Sirleaf is an inspiration to women everywhere, indeed to all of us who seek and work for building peaceful and prosperous communities that enable the development of an informed empowered and productive citizenry," he said. Mukherjee said peace and development are the two concepts closely intertwined and necessary to break the vicious cycle of poverty, hunger, inequality, violence and war. "Emerging from a dark night that saw so much violence and bloodshed in a country, which is Africa's oldest republic, Liberia is now moving towards its tenth year of sustained peace. India has been privileged to have played a key role in peace keeping efforts in Liberia," the President said. Citing long history of civilisational contacts, friendship and cooperation between India and Africa, Mukherjee said India will continue to assist Africa in charting its own course through institution building, infrastructure development and technical and vocational skill development. Sirleaf dedicated her award to people of Liberia. "I dedicate this award to Liberian people who have trusted me as their leader and to the women of Africa and elsewhere," she said. "Women are peacemaker and angels of development," she said and asked all women in the world to have courage and daring to do what is more meaningful to their life. The award ceremony in grand Darbar hall of Rashtrapati Bhavan was also attended by Congress Vice President Rahul Gandhi and cricketer-turned-politician Mohd Azharuddin among other dignitaries. Former Prime Minister late Rajiv Gandhi, Afghanistan's President Hamid Karzai and Prime Minister of Bangladesh Sheikh Hasina had also received the awards for 1991, 2005 and 2009 respectively. Prime Minister Manmohan Singh appreciated the courage of Liberian President in overcoming difficulties and winning hearts of people of Liberia. "It is often easy to end a conflict, but hard to win enduring peace. It is sometimes easier to end violence and injustice, but more difficult to heal and to reconcile. "Getting political freedom does not always lead to sustained democracy. You and your nation have shown great wisdom in addressing these challenges and we wish you continued success on that global path," Singh said. India and Liberia are committed to forge a partnership that will demonstrate that neither asymmetry of size nor the challenge of distance matters when nations with shared values and mutual respect work together for mutual benefit and the larger good of humanity, the Prime Minister said. "You serve as an inspiration not just for women but for all those who seek a better life for their fellow human beings," Singh added. Congress chairperson Sonia Gandhi called Sirleaf a "trailblazer" who battled disadvantages faced by women in developing countries and worked for their cause. "She truly is trailblazer, and it is only fitting that I draw a parallel to Indira Gandhi, the first woman Prime Minister of India, who helped revolutionise the global political arena as one of the world's pioneering women leaders in the 20th century," she said. Sirleaf's passionate commitment towards women's rights is very much in keeping with Indira Gandhi's own values, the UPA chairperson said. President Sirleaf's story has been one of indomitable courage, string determination and the yearning to achieve greater heights in all that she has undertaken. "Sirleaf has also restored financial health into a Liberian economy, which was once in crisis and reeling in debt," Gandhi said. "We hope that she continues to inspire her countless admirers from all corners of the world. We too are proud to acknowledge her achievements and embrace her as a friend," she said.

India to test launch nuke-capable Agni-V

India to test launch nuke-capable Agni-V

India will on Sunday test-fire the 5,000 km-plus range Agni-V missile for the second time, from Wheeler Island off the Odisha coast, a step towards boosting the country's nuclear deterrence. The missile, first tested in April 2012 - will arm India with the capability of delivering a one-tonne nuclear warhead anywhere in China.  Developed by the Defence Research and Development Organisation (DRDO), the Agni-5 can carry a single nuclear warhead of over 1000 kg and can strike with precision targets in China and Europe.

The launch, scheduled for Sunday morning, will validate the reliability of this complex missile which weighs about 50 tons and is 17.5 meters long. The first test flight of the Agni-5 on 19th April 2012 was a phenomenal success after which India joined the select club of USA, Russia, France, UK and China who have such capabilities. Agni-5 will give India the ability to hit back or have second-strike capability even after a nuclear attack.

China in Central Asia

China in Central Asia : Rising China, sinking Russia In a vast region, China’s economic clout is more than a match for Russia’s

Sep 14th 2013  : LESS than a decade ago little doubt hung over where the newly independent states of Central Asia had to pump their huge supplies of oil and gas: Russia, their former imperial overlord, dominated their energy infrastructure and markets. Yet today, when a new field comes on stream, the pipelines head east, to China. As if to underline the point, this week China’s president, Xi Jinping, swept through Central Asia, gobbling up energy deals and promising billions in investment. His tour left no doubts as to the region’s new economic superpower.

In Turkmenistan, already China’s largest foreign supplier of natural gas, Mr Xi inaugurated production at the world’s second-biggest gasfield, Galkynysh. It will help triple Chinese imports from the country. In Kazakhstan $30 billion of announced deals included a stake in Kashagan, the world’s largest oil discovery in recent decades. In Uzbekistan Mr Xi and his host, President Islam Karimov, unveiled $15 billion in oil, gas and uranium deals, though details in this opaque country were few.

Yet Russia and China have much riding on their bilateral relationship. The government in Moscow is eager to benefit from its eastern neighbour’s economic might, while in Beijing policymakers view Russia as a critical ally on the world stage. (Knowing the premium China places on protocol, it was no accident that Mr Xi’s very first official visit as president was to Moscow; and that he went to St Petersburg for the G20 summit in the middle of his Central Asian tour.) All this suggests the two giants will aim to co-operate as much as compete, at least for the moment. As for Central Asians, says Vasily Kashin, a Moscow-based China expert, Russia has accepted that “they will try to get the best deals out of this rivalry.”China is the biggest trading partner of four of the region’s five countries (the exception being Uzbekistan). During Mr Xi’s trip, Chinese state media reported that trade volumes with Central Asia topped $46 billion last year, up 100-fold since the countries’ independence from the Soviet Union two decades ago. Though neither side puts it like this, China’s growing presence clearly comes at Russia’s expense. Russia still controls the majority of Central Asia’s energy exports, but its relative economic clout in the region is slipping—other than as a destination for millions of migrant labourers. For years Russia has treated the region as its exclusive province, insisting on buying oil and gas at below-market rates through Soviet-era pipelines, while re-exporting it at a markup. The practice helped drive Kazakhstan and Turkmenistan, both with huge energy reserves, into China’s arms.

When it comes to security issues in Central Asia, in public China still defers to Russia. Both look warily on as NATO withdraws from Afghanistan. China’s chief concern is the threat posed by Uighur separatists and their sympathisers in Central Asia. And so, in security matters too, China’s influence is growing. As The Economist went to press, Mr Xi was expected in Bishkek, capital of Kyrgyzstan, to attend the annual summit of the Shanghai Co-operation Organisation, a block which China was instrumental in founding. A chief aim is to counter the “three evil forces” of terrorism, extremism and separatism.

Arguably, Chinese investment in Central Asia promotes that goal, by improving living standards and thus stability in a region that shares a 2,800km (1,750-mile) border with Xinjiang, China’s westernmost province and Uighur homeland. Yet China’s soft power is undermined by a beast it is not good at fighting: resentment. Chinese contractors are flooding into Central Asia, building roads and pipelines and even, in Tajikistan’s capital, Dushanbe, the government buildings. The cruel irony is not lost on the millions of unemployed men leaving for Russia to look for jobs. But it is lost, says Deirdre Tynan of the International Crisis Group, a think-tank, on policymakers. “Central Asia’s governments see China as a wealthy and willing partner, but on the ground little is being done to ease tensions between Chinese workers and their host communities,” she warns.

A few years ago a Kazakh activist, protesting against his government’s plans to lease land to China, publicly decapitated a toy panda. But local Sinophobia does not stop at silly gestures. When Kyrgyzstan ceded disputed territory to China a decade ago, the protests which that set off eventually brought down the president. More recently Chinese workers in Kyrgyzstan have been getting badly beaten up. Central Asia is not yet happily in the Chinese fold.

Politics this week Sep 7th 2013 |From the economist

Politics this week  Sep 7th 2013 |From the economist

Barack Obama spent the week drumming up support in Congress for a punitive strike on the Assad regime in Syria. The American government contends that the regime crossed a “red line” when it used chemical weapons to kill more than 1,400 people in a Damascus suburb on August 21st. The Senate Foreign Relations Committee voted, by 10-7, to support a limited strike and John Boehner, the Speaker of the House, and other Republican heavyweights gave their backing. But many in Congress want America to leave Syria to its fate. See article

Mr Obama also sought international support for action in Syria. After a day of meetings in Stockholm he went to St Petersburg for a G20 summit hosted by Vladimir Putin, the Russian president, who insists that any response should not be taken without UN approval.

François Hollande, the French president, declared that France was “ready to punish” those who “took the decision to gas innocents”. Britain will not take part in any action, however, as the government was defeated on the issue in Parliament. The opposition Labour Party voted against intervening, as did 30 Conservative MPs; another 33 Tories were absent. It is the first time a British government has not been able to secure support for a military operation since 1782. See article

The UN’s refugee agency reported that there were now more than 2m Syrian refugees, with 1m of them having fled the country within the past six months. The UNHCR described the situation in Syria as “unparalleled in recent history”.

Learning curve
Mexico’s president, Enrique Peña Nieto, delayed his first state-of-the-nation address by a day after Congress was blocked by teachers protesting against an education reform. The bill was overwhelmingly passed by the Senate this week. See article

Brazil’s lower house unanimously approved a law to ban secret voting in Congress, one of the demands of the protest movement that swept the country in June.

A power cut left 70% of Venezuela in darkness. Nicolás Maduro, the president, blamed sabotage by the “twisted and desperate minds” of the opposition. The finance minister admitted that the economy had “structural problems”.

Carlos Menem, a senator and former president of Argentina, appeared in court accused of fiddling his taxes, which he denies. In June he was convicted of trafficking arms while in office in the 1990s, but remains free because of congressional immunity.

Days of reckoning
Egypt’s state prosecutor said that Muhammad Morsi, the Islamist president deposed by the army in July, would stand trial for inciting the murder of protesters at a demonstration against his government last December. Mr Morsi has been held by the authorities in an undisclosed location since losing power. A military court, meanwhile, handed down lengthy sentences to several of Mr Morsi’s supporters for shooting at the army. See article

Armed forces from the Democratic Republic of Congo, backed by UN personnel, secured their biggest success against rebels from the M23, a group thought to be backed by Rwanda, by pushing them back from positions around Goma, a city near the Congo-Rwanda border. The UN’s special envoy for the region said that now would be a good time to resume peace talks.


Ibrahim Boubacar Keïta was sworn in as Mali’s president. He called for a period of national reconciliation following the routing of separatists and Islamists, with the help of French troops, earlier this year.

Thinning the ranks
China sacked the man in charge of overseeing its state-owned companies. Jiang Jiemin is accused of “serious disciplinary violations”, a term often used to refer to corruption. Several executives at CNPC, a state-run oil company formerly run by Mr Jiang, were also detained. Observers think he may be caught up in a broader political purge linked to the downfall of Bo Xilai, a former Politburo member put on trial last month. See article

Meanwhile, a state-run newspaper in China alleged that an official who died during interrogation in the city of Wenzhou was drowned by Communist Party investigators. The Beijing Times published a photo on its website of a coroner’s verdict on the cause of the man’s death, and said the investigators would be tried. His death had been initially described as an accident.

Radiation levels at Japan’s crippled Fukushima nuclear plant rose to a new high. The readings came from an area around tanks storing contaminated water at the plant.

India’s upper house of Parliament approved a plan to subsidise food for two-thirds of the population. The scheme, which was passed by the lower house last month, aims to make food a legal right and provide grain every month to 800m poor people. India accounts for a third of the world’s poor and supporters say the bill will help reduce hunger. Opponents say it is ill-thought-out and expensive.

Malaysia detained 2,500 migrants at the start of a crackdown on illegal immigration. The authorities want to deport 500,000 foreigners from neighbouring countries such as Indonesia, Bangladesh and Myanmar. Falling growth and a fear of crime have fuelled a backlash against the migrants who flocked to Malaysia during its construction boom.

Angela wobbles a bit
Angela Merkel, Germany’s chancellor, failed to win a clear victory in the first and only televised election debate with her main challenger, Peer Steinbrück, the candidate for the centre-left Social Democrats. She remains the firm favourite, however, to win the election on September 22nd. See article


There were big protests in Romania against the government’s support for a plan to start Europe’s biggest opencast gold mine in Rosia Montana, a small Carpathian town. The project is the brainchild of a Canadian consortium that aims to use cyanide to mine gold and silver. Opponents say this would destroy villages and ancient Roman mines.

The swimming 60s
A 64-year-old woman became the first person to swim the 180km (110 miles) between Cuba and Florida unprotected by a shark cage. Wearing a swimsuit to guard her against jellyfish stings, Diana Nyad came ashore in Key West after nearly 53 hours at sea.

Business this Week : 1 Sep - 7 Sep 2013 Economist

The World This Week 1 Sep - 7 Sep 2013

It was a big week for the mobile-phone industry, with the announcement of two long-mooted deals. In the first, and after years of talks, Verizon agreed to buy the 45% stake held by Vodafone in Verizon Wireless, the pair’s joint venture in America, for $130 billion. It is the third-biggest business transaction yet seen (behind Vodafone’s own purchase of Mannesmann and the merger of AOL and Time Warner) and will reap $5 billion for the American taxman. Vodafone’s investors will also benefit, from an $84 billion payout in cash and shares. See article

Nokia surges, Microsoft drops

In the second big deal of the week Microsoft beefed up its business in mobile devices and services by agreeing to pay €3.8 billion ($5 billion) for Nokia’s handset division, which makes smartphones based on Windows. Nokia had tried various turnaround plans to tackle its shrivelling market share. It will still exist, focusing on networks and mapping, but 32,000 of its staff now work for Microsoft, including Stephen Elop, who was its chief executive. He is now a candidate to replace Steve Ballmer when he steps down as Microsoft’s boss.

Samsung unveiled its first smartwatch, the Galaxy Gear, beating Apple in bringing the first significant wearable device to market. The watch will cost $300 and can only link to Galaxy phones and tablets; other new smartwatches will work with lots of Android products. It is still unclear how much demand there is from consumers for the gadgets.

LinkedIn said it would issue new stock in a secondary offering, through which it should raise $1 billion. The social network for professionals has seen its share price rise by 200% since its IPO in 2011.

Who owns the programmes?
Time Warner Cable ended its blackout of CBS channels in several American cities, including New York, after the two sides resolved a dispute over rights. Like other broadcast networks CBS is keen to retain the ability to develop business in the future with blossoming internet-streaming services, such as Netflix, over the heads of the longer-established cable providers.

The European Commission turned its sights on money-market funds, with proposals that would require funds guaranteeing a stable share-price to build up capital buffers. American regulators are also eyeing similar restrictions.

Standard & Poor’s upped the ante in its legal fight with the American government when it asserted that it is being sued in “retaliation” for exercising its right to “free speech” in downgrading America’s AAA credit rating. S&P made the claim in court papers it filed defending itself against the lawsuit, which alleges that S&P gave sound ratings to bad mortgage products to keep its clients in the banking industry happy.

Bank of America decided to sell its remaining 1% stake in China Construction Bank, which should fetch around $1.5 billion. Many big American banks bought stakes in Chinese state banks several years ago, and have been cashing in their lucrative holdings. BofA paid $3 billion for an initial 10% stake in CCB. See article

The OECD revised its growth forecasts to reflect a moderately better outlook in rich countries and the “widespread loss of momentum” in emerging markets. It now expects output in America, Japan and Germany to expand by 2.5% at an annualised rate in the third and fourth quarters. Britain’s GDP is projected to grow by 1.5% this year, 0.7 percentage points higher than the OECD’s previous estimate.

The latest raft of purchasing-manager surveys suggested that manufacturing in America and the euro zone is growing at the fastest pace in over two years. Britain’s services industry, meanwhile, grew at the quickest rate in six years. See article

Ryanair’s share price fell sharply after it issued a surprise profit warning amid a price-cutting war among Europe’s budget airlines. The carrier said sales were weak during the summer and bookings are down for this autumn.

The sweet smell of success
Yankee Candle, which is based in Massachusetts, was bought by Jarden, a consumer-products company that owns a wide range of brands in a $1.8 billion deal. The firm started in 1969 when its teenage founder made a Christmas gift for his mother. According to its “Learning Scentre”, it now produces 200m aromatic candles a year and is expanding in Europe.

The annual Global Competitiveness index placed Switzerland in the top spot for the fifth consecutive year, followed by Singapore, Finland and Germany. America reversed a four-year decline to climb to fifth place and Britain fell to tenth. Among the BRICs, China came in at 29th, Brazil at 56th, India at 60th and Russia 64th. Greece was 91st, behind Iran and Moldova, but ahead of Serbia and Libya.

Striking Syria

Striking Syria
Fight this war, not the last one

When Congress votes on Syria, it will be defining America’s place in the world
Sep 7th 2013 |From the print edition Economist


JUST a decade ago, a short season in the ebb and flow of global influence, economics was in thrall to the Washington consensus and geopolitics was a wholly owned subsidiary of the hyperpower run out of the White House. Today, before launching an attack to punish Syria’s Bashar Assad for using chemical weapons, Barack Obama has felt bound to seek the blessing of Congress (see article). Britain has failed to stand alongside its closest ally (see article). The Middle East echoes to talk of America’s diminished leadership. And one of Mr Obama’s aides has briefed that the strike will be “just muscular enough not to get mocked”.

America has often let atrocities go unpunished before. In the 1980s it sent no missiles when Saddam Hussein gassed Kurds and Iranians; nor did it do so when Mr Assad’s father, Hafez, massacred as many as 20,000 of his own people. But that was back in the cold war, when Saddam was fighting Iran and before the ban on chemical weapons had been buttressed by a UN convention. Moreover, Mr Obama declared last summer that he would not tolerate Syrian use of chemical weapons. With more than a thousand dead in a nerve-agent attack that, it now turns out, was just the latest of many, the president rightly concluded that Syria was testing America’s capacity to impose its will.

This makes the congressional votes and the action to follow one of those episodes that will define America’s—and the West’s—place in the world. It will signal what is left after the hubris of Iraq and unfathomable complexities of Afghanistan. Amid challenges from Russia and Iran and the growing weight of China, both as an economic power and a champion of authoritarian purpose (as opposed to democratic indecision), it is also a measure of the West’s self-belief. The world is watching. Allies and foes alike will shape their behaviour around the expectations that this moment sets in train. It is vital, therefore, that America not only acts, but acts for the right reasons.

Baghdad baggage
This newspaper has argued that America and its allies should give Mr Assad one chance to renounce his deadly chemicals and, if he demurs, hit him hard. The purpose would not be to bring about regime change, but to re-establish deterrence and because Mr Obama must be seen to stand by his threats. Inaction will encourage Mr Assad to use yet more chemical weapons. Tyrants and proliferators everywhere, including Iran and North Korea, will be emboldened.

The hope is that Congress will for once put principle before partisanship and support the president. Joined by France, which all along has been admirably resolute, Mr Obama could then strike the regime in Damascus with an attack severe enough to bury any thought of mockery. That would be good. Yet the way Mr Obama is going about this operation is flawed, both in his choice of a congressional vote and in his rhetoric.

The vote in Washington has short-term merits for Mr Obama. Most Americans seem to be against striking Syria (as are most of the British and French). Here is a chance to establish the legitimacy of a strike and dip Republican hands in the blood. But at what cost? There is the possibility of losing the vote, of course—a real presidency-wrecking risk. But even with a victory in Congress, Mr Obama will have weakened the credibility of foreign policy, the very thing that he wants to safeguard. The executive needs to be agile and quick when dealing with the world. The president sometimes needs to take hard and unpopular decisions. Mr Obama insists that his choice to consult the legislature does not curtail that freedom. But this is an operation designed to bolster deterrence. Mr Obama’s request creates expectations that future enforcement will also be subject to the vagaries of congressional sound bites. That tends to weaken deterrence.

Mr Obama may retort that he is dealing with the legacy of George W. Bush. This has left Americans (and the British and French) with an abiding scepticism about the use of intelligence and the purpose of intervention. The West has paid for the campaigns in Iraq and Afghanistan with trillions of dollars of taxes and thousands of their soldiers’ lives. Even if they dislike saying it out loud, many Americans doubt that Muslims have much disposition for Western values like democracy and tolerance. Why try to be the world’s policeman if it is not just a thankless task, but a hopeless one?

The vision thing
These sceptics are fighting the last war. Syria is not Iraq. The evidence that the regime has committed atrocities is clear beyond doubt. Even if Mr Assad defies America after a strike by unleashing yet more sarin, Mr Obama is not about to invade.

The arguments for intervening in Syria are narrower and less Utopian than they were in Iraq. First is the calculation of American interests. The international arena is inherently anarchic. Only laws and treaties that are enforced impose any order. By being the world’s policeman, America can shape the rules according to its own interests and tastes. The more America steps back, the more other powers will step in. If it is unwilling to act as enforcer, its own norms will fray. If it is even thought to be reluctant, then they will be tested. China already prods at America; Vladimir Putin’s Russia has begun to confront it—and not only over Syria. Whether Syria was a vital American interest before this attack was debatable, but not after Mr Assad’s direct challenge to Mr Obama’s authority.

Second is a reaffirmation of Western values. America’s potency comes not just from its capacity to project force, but also from the enduring appeal of the values invoked by its founders. Those are stronger than Mr Obama seems to think. With China’s economy slowing and its political corruption evident, the Beijing consensus will seem ever less enticing to citizens of the emerging world. Mr Bush tainted America’s values with inept invasion, prisoner abuse and imperial overstretch. Meeting Mr Assad’s atrocities with appropriate force will help to rebuild American moral authority in the world. If Congress must be involved, it should send that message just as loud and clear as it can—and so should Mr Obama’s allies.

Where’s the next Lehman?

Where’s the next Lehman?

Five years after the maelstrom of September 2008, global finance is safer. But still not safe enough
Sep 7th 2013 |From the print edition Economist


THE bankruptcy of Lehman Brothers, an American investment bank, in 2008 turned a nasty credit crunch into the worst financial crisis in 80 years. Massive bail-outs from governments and central banks staved off a second Depression, but failed to prevent a deep recession from which many rich economies have yet fully to recover. Five years after that calamity, two big questions need to be answered. Is global finance safer? And are more crises on the horizon?

The quick answers are yes, and yes. Global finance looks less vulnerable because reforms to the financial industry have made it more resilient, and because America, the country at the heart of the Lehman mess, has got rid of much of the excess debt and righted many of the imbalances in its economy. Today’s danger zones are elsewhere. They are unlikely to spawn a collapse on the scale of 2008. But they could produce enough turmoil to hit growth hard.

The three harbingers of the apocalypse

The disaster of September 2008 had many causes, as the first of our series of “schools briefs” (see article). But, put crudely, Lehman’s demise spawned catastrophe because it combined three separate vulnerabilities. The underlying one was a surge in debt, particularly in the financial sector, brought on by a housing bubble. The ensuing bust was made more dangerous because of the second weakness: the complex interconnections of securitised finance meant that no one understood what assets were worth or who owed what. Lehman’s failure added a third devastating dimension: confusion about whether governments could, or would, step in as finance failed. A rule of thumb for spotting future disaster is how far those weaknesses—a debt surge, ill-understood interconnections and uncertainty about a safety net—are repeated.

The overhaul of financial regulation since 2008 has made most progress on the first two. Under the new Basel capital standards banks are being compelled to hold more, and better, capital relative to their assets; the biggest “systemic” banks even more than others. Another strand of reforms, such as pushing derivatives trading onto clearing-houses, has tried to improve transparency. Least progress has been made on what to do when big banks fail—though new efforts to write global rules that would force banks to issue bonds that can be “bailed in” in the event of failure is a promising step.

American finance has become safer. The country’s big banks have raised more capital and written off more dud assets than most others. At around 13%, their risk-weighted capital ratio is far above the new global norms and some 60% higher than before the crisis. American property prices have adjusted and households have cut their debts. Government debt has risen, but most of that rise is the sensible mirror-image of efforts by households to reduce theirs. Now that the economy is recovering, the budget deficit is tumbling. You can find bubbliness in bits of American finance, including the corporate-bond market, and some nasty off-balance-sheet liabilities like student loans and public-sector pensions, but America does not look like a source of imminent trouble.

Britain and Japan have changed less. Abenomics has improved Japan’s prospects, but government debt is still close to 250% of GDP. In Britain the combination of budget cuts and weak private investment has produced a recovery that is built on the same ingredients—particularly rising house prices—that caused the last bust. Britain is not about to fell the world economy, but growth that was based more on investment, both public and private, would be an awful lot safer.

What about emerging economies, many of which have seen a big run-up in debt? China is often dubbed a Lehman-in-the-making. Since 2008 credit growth in the Middle Kingdom, now the world’s second-largest economy, has exploded, and by some estimates is over 200% of GDP. China’s financial system has few international connections. But, as in America in 2008, there is uncertainty about the true size of its debts and how much of them will be repaid. The danger China poses depends on the third ingredient of the Lehman conflagration: how the government behaves when trouble strikes. The country is a big net saver, the banking system is still largely deposit-funded and the government has the fiscal capacity to underwrite troubled loans. Provided it does so, the odds of a sudden collapse with global ramifications are low.

From Brazil to Thailand, many of the other emerging economies that are now wobbling have also seen credit booms. The difference with China is their vulnerability to global financial flows. Today’s drought in foreign capital is pushing down currencies like India’s rupee and making current-account deficits harder to finance. In the 1990s that dynamic caused crises. But this time round most countries’ defences are more powerful. Exchange rates float, far more debt is denominated in domestic currency and reserves are fatter. Some places may be overwhelmed: our index of vulnerability has Turkey flashing reddest (see article). Most are likely to suffer slower growth.

The shadow over Europe

If there is one part of the world that could still bring about another global meltdown, it is the euro area. Though less Lehman-like than a year ago, it remains a worry. Its debt problems are growing, not shrinking: European banks have thinner equity buffers than their American counterparts, and have written down far fewer debts. In the troubled economies on Europe’s periphery recession has made it hard to reduce debt burdens of all sorts. Too much austerity has proved counterproductive. A destabilising political backlash remains a danger, given Europe’s sky-high jobless rates. Its sleepwalking leaders cannot agree on how to complete necessary reforms, such as a proper banking union, while the European Central Bank’s ability to live up to its brave pledge to “do whatever it takes” to save the euro remains untested.

There may be no new Lehman-sized catastrophes on the near horizon. But plenty of smaller crises-in-the-making dot the landscape—and a potentially big one continues to threaten Europe. Five years on, global finance is a long way from safe.

133008: GS Mains 13 : SYRIA Crisis : Hit Him Hard

Hit him hard : SYRIA 

Present the proof, deliver an ultimatum and punish Bashar Assad for his use of chemical weapons

Aug 31st 2013 |

THE grim spectacle of suffering in Syria—100,000 of whose people have died in its civil war—will haunt the world for a long time. Intervention has never looked easy, yet over the past two and a half years outsiders have missed many opportunities to affect the outcome for the better. Now America and its allies have been stirred into action by President Bashar Assad’s apparent use of chemical weapons to murder around 1,000 civilians—the one thing that even Barack Obama has said he would never tolerate.

The American president and his allies have three choices: do nothing (or at least do as little as Mr Obama has done to date); launch a sustained assault with the clear aim of removing Mr Assad and his regime; or hit the Syrian dictator more briefly but grievously, as punishment for his use of weapons of mass destruction (WMD). Each carries the risk of making things worse, but the last is the best option.

I

No option is perfect

From the Pentagon to Britain’s parliament, plenty of realpolitikers argue that doing nothing is the only prudent course. Look at Iraq, they say: whenever America clumsily breaks a country, it ends up “owning” the problem. A strike would inevitably inflict suffering: cruise missiles are remarkably accurate, but can all too easily kill civilians. Mr Assad may retaliate, perhaps assisted by his principal allies, Iran, Russia and Hizbullah, the Lebanese Shias’ party-cum-militia, which is practised in the dark arts of international terror and which threatens Israel with 50,000 rockets and missiles. What happens if Britain’s base in Cyprus is struck by Russian-made Scud missiles? Or if intervention leads to some of the chemical weapons ending up with militants close to al-Qaeda? And why further destabilise Syria’s neighbours—Turkey, Lebanon, Jordan and Iraq?

Because doing nothing carries risks that are even bigger (seearticle). If the West tolerates such a blatant war crime, Mr Assad will feel even freer to use chemical weapons. He had after all stepped across Mr Obama’s “red line” several times by using these weapons on a smaller scale—and found that Mr Obama and his allies blinked. An American threat, especially over WMD, must count for something: it is hard to see how Mr Obama can eat his words without the superpower losing credibility with the likes of Iran and North Korea.

And America’s cautiousness has cost lives. A year ago, this newspaper argued for military intervention: not for Western boots on the ground, but for the vigorous arming of the rebels, the creation of humanitarian corridors, the imposition of no-fly zones and, if Mr Assad ignored them, an aerial attack on his air-defence system and heavy weaponry. At the time Mr Assad’s regime was reeling, most of the rebels were relatively moderate, the death toll was less than half the current total and the conflict had yet to spill into other countries. Some of Mr Obama’s advisers also urged him to arm the rebels; distracted by his election, he rebuffed them—and now faces, as he was repeatedly warned, a much harder choice.

So why not do now what Mr Obama should have done then, and use the pretext of the chemical strike to pursue the second option of regime change? Because, sadly, the facts have changed. Mr Assad’s regime has become more solid, while the rebels, shorn of Western support and dependent mainly on the Saudis and Qataris, have become more Islamist, with the most extreme jihadis doing much of the fighting. An uprising against a brutal tyrant has kindled a sectarian civil war. The Sunnis who make up around three-quarters of the population generally favour the rebels, whereas many of those who adhere to minority religions, including Christians, have reluctantly sided with Mr Assad. The opportunity to push this war to a speedy conclusion has gone—and it is disingenuous to wrap that cause up with the chemical weapons.

So Mr Obama should focus on the third option: a more limited punishment of such severity that Mr Assad is deterred from ever using WMD again. Hitting the chemical stockpiles themselves runs the risk both of poisoning more civilians and of the chemicals falling into the wrong hands. Far better for a week of missiles to rain down on the dictator’s “command-and-control” centres, including his palaces. By doing this, Mr Obama would certainly help the rebels, though probably not enough to overturn the regime. With luck, well-calibrated strikes might scare Mr Assad towards the negotiating table.

Do it well and follow through

But counting on luck would be a mistake, especially in this fortune-starved country. There is no tactical advantage in rushing in: Mr Assad and his friends will have been preparing for contingencies, including ways to hide his offending chemical weapons, for many months. Mr Obama must briskly go through all sorts of hoops before ordering an attack.

The first task is to lay out as precisely as anybody can the evidence, much of it inevitably circumstantial, that Mr Assad’s forces were indeed responsible for the mass atrocity. America’s secretary of state, John Kerry, was right that Syria’s refusal to let the UN’s team of inspectors visit the poison-gas sites for five days after the attack was tantamount to an admission of guilt. But, given the fiasco of Iraq’s unfound weapons, it is not surprising that sceptics still abound. Mr Obama must also assemble the widest coalition of the willing, seeing that China and Russia, which is increasingly hostile to Western policies (see next leader), are sure to block a resolution in the UN Security Council to use force under Chapter 7. NATO—including, importantly, Germany and Turkey—already seems onside. The Arab League is likely to be squared, too.

And before the missiles are fired, Mr Obama must give Mr Assad one last chance: a clear ultimatum to hand over his chemical weapons entirely within a very short period. The time for inspections is over. If Mr Assad gives in, then both he and his opponents will be deprived of such poisons—a victory for Mr Obama. If Mr Assad refuses, he should be shown as little mercy as he has shown to the people he claims to govern. If an American missile then hits Mr Assad himself, so be it. He and his henchmen have only themselves to blame.

From the print edition: Leaders

1305: GS Mains 13 Probable Question : The way forward in Assam

The way forward in Assam......................Aug 24, 2013

The Manmohan Singh government’s decision to carve Telangana out of Andhra Pradesh has given fresh impetus to statehood demands particularly in eastern India. At least four ethnic groups have begun to press their claims for separate States to be carved out of Assam. The Bodos, the Karbi, Dimasas and Koch-Rajbongshis are up in arms in support of their respective demands.

Background

Assam issue

The demand for Bodoland, a separate state in Western Assam, is primarily based on the conflict over land resources between the ethnic Bodos and other communities in the region; the Bodos are also demanding statehood based on ethnic identity. The Bodoland Territorial Autonomous Districts (BTAD), an autonomous area for the Bodo tribes created in western Assam under the Sixth Schedule of the Constitution, has seen at least four violent confrontations between the Bodo tribes and Bengali Muslims, considered illegal immigrants from Bangladesh, in the past two decades. In the 19th and early 20th century, policies of the British administration on land utilisation and settlement of people brought from outside Assam to work in tea plantations and farmlands led to massive demographic changes in the region. The Bodos and adivasis practised shifting cultivation or jhum, but the migrants from East Bengal knew modern methods of farming using a plough. They were settled in what the British had termed as wasteland. But the land was actually grazing reserves and jhum land. Since the 1960s, there has been a demand for a separate state of Bodoland after regulations failed to protect the Bodos from land alienation.

Why are calls for a separate state recognised as impractical?

One, the territories being demanded by the different groups in pursuit of their own ethnically, homogeneous provinces actually overlap with one another. Moreover, Assam’s own territorial issues with more than one of its neighbouring States remain unresolved. Third, these conflicting and often competing political aspirations make for a toxic cauldron, predicated as they are on the dangerous assumption that it is not possible or desirable to create multi-ethnic or multicultural provinces in which the rights of ethnic, linguistic and cultural minorities are constitutionally guaranteed and administratively ensured.

Road ahead

 Strengthening the autonomous, administrative divisions in Assam established on the basis of the Sixth Schedule of the Constitution. Currently, these are the Bodoland Territorial Council, the Karbi Anglong Autonomous Council and the Dima Hasao Autonomous District Council.
 In addition, there are six notified tribal autonomous councils where the territory has not been specified. One of the sticking points with regard to the latter group relates to dual authority owing to the simultaneous existence of panchayati raj structures. This needs to be addressed suitably.
As in Tripura, the functioning of democratic processes at grass-roots level ought to be ensured in Assam. The sensitive handling of grievances over funding, and the protection that needs to be extended over issues of language, culture and land is essential. Powers and functions consistent with local customs, traditions and needs have to be conferred on tribal autonomous systems.

Demands for Separate States

In Uttar Pradesh, there have been demands for Awadh Pradesh, Poorvanchal, Bundelkhand and Pachimanchal or Harit Pradesh. There is also demand for creation of a Braj Pradesh, consisting of Agra division and Aligarh division of Uttar Pradesh and districts of Bharatpur and Gwalior from Rajasthan and Madhya Pradesh. A demand for creation of Bhojpur comprising areas of eastern UP, Bihar and Chhattisgarh has also been received by the home ministry. There has been an old demand for creation of a separate Vidarbha by curving out the Vidarbha region of Maharashtra. The most vocal demands for separate states came from Gorkhaland, by curving out Darjeeling and its adjoining areas in West Bengal. Demands for Bodoland, comprising Bodo dominated areas in Western Assam, and a separate state of Karbi Anglong, comprising the Karbi tribals living areas under Karbi Anglong autonomous district in Assam are also pending with the Centre.

There is a demand for Mithilanchal comprising Maithili speaking regions of Bihar and Jharkhand. The Centre has received demand for creation of Saurashtra by curving that region out of Gujarat. The Dimasa people of Northeast have been demanding a separate state called Dimaraji or Dimaland comprising the Dimasa inhabited areas of Assam and Nagaland. There is a demand for creation of Kongu Nadu comprising parts of southwest of Tamil Nadu, southeast of Karnataka and east of
Kerala. Demand for creating a Coorg state, comprising the Coorg region of Karnataka has also come to the Centre. Representation has also been s received for creation of separate Kosal state comprising some districts of Odisha, parts of Jharkhand and Chhattisgarh.

There is a demand for Tulu Nadu comprising a region on the border between Karnataka and Kerala. The demand for separate Kukiland, comprising Kuki tribal inhabited areas in Manipur has also been raised. A demand for creation of Konkan, comprising Konkani speaking part of Western India along the Arabian sea coastline has also been raised. There has been a demand for creation of Kamtapur comprising some districts of West Bengal, including Cooch Behar and Jalpaiguri. Some people from Garo regions of Meghalaya are demanding for a new state of Garoland. Furthermore, there is a demand for a separate Eastern Nagaland by curving out some parts of the north eastern state. The demand for creation of a Union Territory for Ladakh is also pending with the home ministry.

Reasons for Clamour

All these demands are from regions which are poor in despite being rich in natural resources. In addition, disputes exist over sharing and utilisation of natural resources with the mother states. Linguistic and cultural reasons, which were the primary basis for creating new states in the country, have now become secondary in most of these cases. Post Independence, it was people speaking the same language who got together to raise demands for new states. States such as Kerala, Tamil Nadu, Karnataka, Madhya Pradesh, Maharashtra, Gujarat, Punjab and Haryana were born as a consequence of the demand for separate statehood based on language. Even Andhra Pradesh, which is reluctant to part with Telangana, was created by re-adjusting the boundaries of the Telugu-speaking parts of the erstwhile Madras presidency with the Nizam's dominions or Telangana.

But language was not the basis for the formation of Chhattisgarh, Jharkhand and Uttarakhand in 2000 and now Telangana. All the three states formed in 2000 were richer in natural resources than their mother states but were more backward. Uttarakhand had a forest cover of 43 percent, Chattisgarh 42 and Jharkhand has 25 percent of the states' land area. Chhatisgarh and Jharkhand were extremely rich in mineral resources and Uttarakhand had huge growth potential to tap from its river systems. It was the political apathy of the mother states that forced people in these regions to demand for separate states. Similarly, Telangana has 45 percent of Andhra’s forest cover, 68 per cent of the catchment area of the Krishna River and 79 percent catchment area of the Godavari river, but people complain they have hardly got a share of benefit arising out of the development of Andhra Pradesh.

Arguments in favour of smaller states
 Better growth is observed in the newly created states, such as Jharkhand and Chattisgarh compared to the parent states during the 10th FYP period.
 Better democratic governance
 Greater awareness on local needs
 linguistic compatibility and cultural homogeneity
 Better management, implementation and allocation of public resources in provisioning basic social and economic infrastructure services.
 Easy communicability
 Gains for the electorates in terms of better representation of their preferences in the composition of the government.
Arguments against smaller states
 partition anxiety
 Fear the rise of regional and linguistic fanaticism as threats to national unity and integrity.
 Many believe that bigger states ensure cohesion and stability
 Susceptible to commercial pressure for limited resources
 Migration
 Violence

Questions
 Smaller states can augment the growth of the country. Comment critically on the statement.
 Why can bigger states better the integrity prospects of a nation if regional imbalances are addressed? Suggest your ways to deal with such inequalities.

References
 http://www.thehindu.com/opinion/editorial/the-way-forward-in-assam/article5052988.ece
 http://articles.timesofindia.indiatimes.com/2013-08-04/india/41057301_1_creation-new-states-least-50-states
 http://www.downtoearth.org.in/content/fight-over-regional-resources-drive-demand-new-states
 http://www.lokniti.org/pdfs_dataunit/A.Kumar.pdf

1304: IAS Mains 2013 Probable Question: India presses U.S. for renewal of GSP scheme

GS MAINS 2013 special : Editor - Desk of PEARSON ETEN IAS (www.etenias.com) : Puneet

India presses U.S. for renewal of GSP scheme  Aug 21, 2013

India has taken up with United States the issue for immediate renewal of the legal authorisation of the US Generalised System of Preferences (GSP) programme, which expired on July 31 this year, to avoid any adverse impact on trade exchanges between the two countries.

Background : What is Generalized System of Preferences (GSP)?

The Generalized System of Preferences, or GSP, is a formal system of exemption from the more general rules of the World Trade Organization (WTO), (formerly, the General Agreement on Tariffs and Trade or GATT). Specifically, it's a system of exemption from the most favored nation principle (MFN) that obliges WTO member countries to treat the imports of all other WTO member countries no worse than they treat the imports of their "most favored" trading partner. In essence, MFN requires WTO member countries to treat imports coming from all other WTO member countries equally, that is, by imposing equal tariffs on them, etc. GSP exempts WTO member countries from MFN for the purpose of lowering tariffs for the least developed countries, without also lowering tariffs for rich countries.

The United States and GSP
The Generalized System of Preferences (GSP) is a U.S. trade program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories. GSP was instituted on January 1, 1976, by the Trade Act of 1974. It helps in keeping products `made in America’ competitive for both domestic consumption as well as U.S. exports. The U.S. jobs and corporate interests are equally linked to the renewal of GSP program.

How would GSP aid trade prospects of the third world?
The GSP program helps developing countries expand their economies by increasing exports to the U.S. It also aids U.S. businesses by lowering the cost of imported goods that are used as inputs in value-added US production. U.S. businesses imported $19.9 billion worth of products under the GSP program in 2012, including many inputs used in U.S. manufacturing. As per the recently released Trade Policy Agenda of the U.S. administration, helping developing countries grow and expand their economies through trade would also help the U.S. by providing its exporters greater opportunity to sell products to billions of new consumers abroad.

GSP Renewal & India
Experts are of the view that timely renewal of GSP is very important to maintain stable bilateral trade between the two countries and to avoid uncertainty in quoting/bidding for any new business which will adversely affect the trade. The U.S. holds 16% of India’s total services imports. Indian imports of US services is expected to rise sharply in the coming years as India’s middle class market expands and key services sectors bring in further reforms.

References :

# http://www.thehindu.com/business/Economy/india-presses-us-for-renewal-of-gsp scheme/article5044988.ece
# http://en.wikipedia.org/wiki/Generalized_System_of_Preferences
# https://help.cbp.gov/app/answers/detail/a_id/266/~/generalized-system-of-preferences-%28gsp%29


Questions
1. Describe what is called the Generalised system of preferences?
2. Why is India keen to renew the Generalised System of Preferences with US on the backdrop of a depreciating rupee?

0813:Opinion : Can Egypt Learn From Thailand?

Can Egypt Learn From Thailand?

New York Times :  August 22, 2013

BANGKOK was rocked by anti-government demonstrations earlier this month — once a depressingly familiar sight. But that bad news shouldn’t overshadow the good. Disruptive protests may have been all too common in Thailand just a short while ago, but in the last two years, they’ve become an anomaly. The country has gone from a virtual wreck to a booming, and relatively stable, success story. Figuring out how it’s managed to do that is important, and not just for Thailand’s 65 million citizens. For if a place this polarized can pull itself back from the brink, other bitterly divided societies might be able to as well.

To get a sense of how far and fast Thailand has come, consider its recent past. Marketed to tourists as the land of a thousand smiles, Thailand spent most of the last decade fighting with itself.

The trouble really began in 2006, when the military, in connivance with royalists and the courts, overthrew the populist prime minister Thaksin Shinawatra. The coup ignited years of running street battles between citizen armies of “yellow shirts” — defenders of the old, semifeudal order — and “red shirts,” Thaksin supporters among the rural and urban poor. Political power changed hands four more times in four years. In January 2010, the police responded to enormous red-shirt protests by killing over 90 demonstrators, injuring 2,400 others and jailing hundreds. The economy went into a tailspin.

Then, in August 2011, Mr. Thaksin’s sister Yingluck Shinawatra became prime minister. And today, barely halfway through her four-year term, Thailand looks like a different country.

According to Ruchir Sharma, head of emerging markets at Morgan Stanley, the economic outlook is the brightest in 15 years: the currency is up, land prices have climbed and the stock market has more than quadrupled since 2008. Tourists have returned, and the streets (despite the August flare-ups) are mostly quiet.

So how did Ms. Yingluck, initially considered a mere proxy for her exiled brother, do it? The formula turns out to be deceptively simple: provide decent, clean governance, compromise with your enemies and focus on the economy.

Ms. Yingluck understood that she’d never accomplish her broader agenda and improve life for the poor unless she could first calm the place down and complete a full term in office. And to do that, she had to give all Thais a stake in her success. So she began a bold economic stimulus and reform campaign. Some of her moves, like a 40 percent minimum-wage hike and subsidies for car buyers, were aimed directly at her lower-class base. But others, such as $67 billion of infrastructure spending and cuts to personal and corporate taxes, have benefited the wealthy as well.

She also sought to make peace politically. She has courted opponents, holding respectful meetings with the powerful and popular king — and even with the general allegedly behind the coup against her brother.

According to Thitinan Pongsudhirak of Chulalongkorn University, Ms. Yingluck has brought the elites onside by offering a tacit bargain: she preserves their privileges and they let her hold onto power.

Thus she has left the military alone, even recently naming herself defense minister so she could ensure that no one would mess with the army’s prerogatives. She has avoided challenging the Constitution, including the infamous lèse-majesté laws that ban criticism of the monarchy. She has kept corruption, a perennial problem in Thailand, to a minimum. And she has ensured that her brother, whom the aristocracy still fears and loathes, remains in exile.

This, in many ways, is an ugly deal. It means Ms. Yingluck must tolerate undemocratic checks on her power and the repression of free speech. Despite an amnesty law now being debated in Parliament, some of her red-shirt supporters are angry that she hasn’t done more for the families of those killed and imprisoned by the military-backed government in 2010.

It’s also a fragile bargain. Thailand’s recovery could easily unravel. Die-hard yellow shirts have pounced on the prime minister’s mistakes, like a scheme to boost the price of rice that backfired spectacularly. Other dangers loom: the economy is still too export-dependent, and while everyone is getting wealthier, inequality is growing.

Ms. Yingluck hasn’t erased Thailand’s dividing lines so much as papered them over, and the underlying power struggle could erupt again at any time — especially if her brother returns or if the king, now 85, dies. But the longer Thailand remains at peace, and its economy keeps growing, the greater the odds that real democratic politics will take hold, so that when Thailand does finally confront its divisions, it will do so through ballots, not street battles.

Indeed, the flaws in Ms. Yingluck’s grand bargain are part of its genius. The fact that everyone is irritated by the truce she’s negotiated is a good sign, not a bad one: it means nobody is getting everything he wants.

That’s how compromise is supposed to work. It may seem messy; it is. But it’s the kind of mess that other countries like Egypt or Venezuela or Zimbabwe can only envy right now.

0813: National : Cure over India's Poverty

Rival Economists in Public Battle Over Cure for India’s Poverty

Mansi Thapliyal/Reuters

The role of the Indian government in programs like this one, in which a government-run school provides meals to the poor, is one area in which Amartya Sen and Jagdish Bhagwati disagree.

By GARDINER HARRIS   Published: August 21, 2013

Her name is Rohini, and other than pleading for bread, she had little to say when asked about her life. Instead, she threaded her way through thick traffic to her mother, Kamlesh, who on a recent rainy day was carrying one of Rohini’s sisters, a toddler with a cloudy eye and a disturbingly quiet demeanor.NEW DELHI — She is 7 years old, covered in dirt and spends her days asking for food from pedestrians and drivers in one of this city’s central business districts.

“We don’t have the money to send the kids to school,” Kamlesh said simply.

India’s inability to pull Kamlesh and hundreds of millions of others out of desperate poverty despite decades of robust economic growth has been one of history’s great governance failures and economic mysteries.

Does India simply need more time for growth to work its magic, or is there something fundamentally wrong with its formula? Do improvements in health and literacy create growth or simply derive from it? And would India’s people have better lives if the government focused on improving workers’ skills or on bettering investors’ opportunities?

Those are some of the questions behind an unusually nasty fight between two of this nation’s greatest economists. It is a fight that has echoes in poor countries across the globe.

The battle between Amartya Sen, a Nobel Prize winner and Harvard professor, and Jagdish Bhagwati, an eminent professor at Columbia University, has broken out just as India’s economy seems to be coming undone. The rupee has plunged to historical lows against the dollar, and extraordinary efforts by the government to stem the slide, including limits on investments abroad by Indian companies, appear to be having little effect. Growth has fallen to 5 percent annually, and Prime Minister Manmohan Singh recently admitted that it was unlikely to snap back soon. Foreign investors are turning away, and the nation’s stock market has recently swooned.

Into this combustible mix came Mr. Sen and Mr. Bhagwati.

A courtly man with a cackling laugh, Mr. Sen, 79, is one of India’s greatest living intellectuals. His speeches are thronged, his pronouncements make news and college students give him the kind of rock-star adulation that economists in the United States may never know.

Mr. Sen returned to India this summer to promote his new book, “An Uncertain Glory,” co-written with Jean Drèze. In an interview, he said that he had no idea that his book tour would make national political news or that he would be forced to defend himself against his old rival, Mr. Bhagwati.

After Mr. Sen made critical comments about an opposition politician, he was denounced by Hindu nationalists. But in an interview, he said that those who view him as sympathetic to the governing Indian National Congress Party have probably not read his book, which is a searing indictment of India’s present government and every previous one.

In the book, Mr. Sen argues that India, almost alone among emerging Asian nations, has failed to invest substantially in the health and welfare of its people. This failure could doom its economy and people, he says, because a country’s future growth depends just as much on its social infrastructure as its physical state.

India’s economy grew nearly 8 percent annually in the past 10 years, second only to China among major economies. This improved incomes for hundreds of millions and created a growing middle class that in recent years has thronged Delhi’s streets in protests about corruption and gang rapes. Meeting the growing expectations of this middle class has become a potent political issue.

But Mr. Sen argues that India’s growth has failed to translate into substantially better lives for hundreds of millions of others. He points out that countries like Bangladesh, which have grown far more slowly and have much lower income levels, have performed better on key indicators like life expectancy.

“Living conditions in the poorer half of India are not much better, if at all, than in the poorer half of Africa,” Mr. Sen wrote.

Indeed, nearly a third of all newborn deaths occur in India. One in three malnourished children are Indian, and rates of malnutrition are higher in India than in sub-Saharan Africa. Such facts serve as the core of Mr. Sen’s book, and they are the kind of realities that much of India’s elite have trouble even discussing, he wrote.

 “Rapid economic growth has not achieved much on its own during the last 20 years or so to reduce India’s horrendous levels of child undernourishment or to enhance child immunization rates,” he wrote. These problems are hardly addressed — some say even worsened — by miserable government nutrition, education and health care systems, but Mr. Sen’s prescription is to expand these compromised programs.

“There has been a kind of write-off of public institutions by this administration, and they think the only thing that works is business, so they think the more we put in the hands of business the better,” he said. “That’s a disastrous position to take.” This argument is one that Mr. Bhagwati and his co-author on “Why Growth Matters,” Arvind Panagariya, denounce as not only mistaken but dangerous, since they view money spent on government programs as largely wasted.

Mr. Bhagwati, who is also 79, is one of the world’s great trade economists, but he has lived in the shadow of Mr. Sen’s Nobel for much of his professional life, and it clearly irks him. If  his written criticism of Mr. Sen’s work is shrill, his verbal criticism is downright nasty. “My impatience with him is that he is obfuscating things constantly,” Mr. Bhagwati said in one of his less incendiary descriptions.

To Mr. Bhagwati, India’s myriad problems have less to do with poor health and literacy than a poor investment climate. Give people jobs and money and they will invest in their own education and health, he said. Mr. Bhagwati’s embrace of the private sector is widely shared in India. Only the poorest send their children to government schools and hospitals, and the central government now promotes public-private partnerships.

Some economists in India resolve the debate by saying that both have good ideas but go too far with them.

“Both guys are at the extremes of the spectrum,” said Ajay Shah, a professor at theNational Institute of Public Finance and Policy in New Delhi. “We need to reinvest in some government programs and end others altogether.”

0813: Economy : Current Account Deficit : India Woes

India in trouble : The reckoning

Why India is particularly vulnerable to the turbulence rattling emerging markets

Aug 24th 2013 |

ON THE morning of August 

17th most of India’s economic policymakers gathered in the prime minister’s house in Delhi. They were there to launch an official economic history of 1981-97, a period which included the balance-of-payments crisis of 1991. The mood was tense. India, said Manmohan Singh, the prime minister, faced “very difficult circumstances”. “Does history repeat itself?” asked Duvvuri Subbarao, the outgoing head of the Reserve Bank of India (RBI). “As if we learn nothing from one crisis to another?”

The day before Indian financial markets had had their rockiest session for many years. The rupee sank and stockmarkets tumbled. Money-market rates rose. The shares of banks thought to be either full of bad debts or short of deposit funding fell sharply. The sell-off had been made worse by new capital controls introduced on August 14th in response to incipient signs of capital flight. They reduce the amount Indian residents and firms can take out of the country. Foreign investors took fright, fearful that India might freeze their funds too, much as Malaysia did during its crisis in 1998.

India is not being singled out. Since May, when the Federal Reserve first said it might slow the pace of its asset purchases, investors have begun adjusting to a world without ultra-cheap money. There has been a great withdrawal of funds from emerging markets, where most currencies have fallen by 5-15% against the dollar in the past three months. Bond yields have risen from Brazil to Thailand. Some governments have intervened. On July 11th Indonesia raised its benchmark interest rate to bolster its currency. On August 21st its president said he would soon announce further measures to ensure stability.India’s authorities have since ruled that out. But markets keep sliding. On August 20th the RBI said it would intervene to try to calm bond yields. The rupee has dropped to over 64 to the dollar, an all-time low and 13% below its level three months ago. It is widely agreed the country is in its worst economic bind since 1991.

India, Asia’s third-biggest economy, is more vulnerable than most, however. Economic news has disappointed for two years, with growth falling to 4-5%, half the rate seen during the 2003-08 boom. It may fall further. Consumer-price inflation remains stubborn at 10%. A drive by Palaniappan Chidambaram, the finance minister, to push through a package of reforms and free big industrial projects from red tape has not worked. An election is due by May 2014, adding to uncertainty.

India’s dependence on foreign capital is also high and has risen sharply. The current-account deficit soared to almost 7% of GDP at the end of 2012, although it is expected to be 4-5% this year. External borrowing has not risen by much relative to GDP—the ratio stands at 21% today—but debt has become more short-term, and therefore riskier. Total financing needs (defined as the current-account deficit plus debt that needs rolling over) are $250 billion over the next year. India’s reserves are $279 billion, giving a coverage ratio of 1.1 times. That has fallen sharply from over three times in 2007-08 (see chart 1) and leaves India looking weaker than many of its peers (see chart 2).

It is therefore vital that foreign equity investors stay put. They own perhaps $200 billion of shares at current prices. They have sold only about $3 billion since May, but if they head for the exit India would have no defence.

This is not a repeat of 1991. When India last had a crisis Boris Yeltsin was about to stand on a tank in Moscow and Nirvana was hitting the big time. Things have changed in financial terms, too. Back then India had a fixed exchange rate, which the state almost bankrupted itself trying to defend—it had to fly gold to the Bank of England in return for a loan. Today India has a floating exchange rate and a government with almost no foreign-currency debt. A slump in the currency poses no immediate threat to the government’s solvency.

The pain will be felt in other ways. Private firms that owe most of India’s foreign debt will be under intense strain, particularly if the rupee drops further. Some will go bust. Market interest rates will stay high, causing a liquidity squeeze. All this makes life even tougher for India’s state-owned banks, which already have sour loans equivalent to 10-12% of their loan books. Inflation will rise. And the government’s finances will be under strain as the cost of its subsidies on imported fuel gets bigger.

There is probably little the authorities can do to shore up the currency in the short term. The rupee is one of the world’s most actively traded currencies and at least half the turnover is abroad. Privately, officials reckon the rupee’s fair value, taking into account India’s higher inflation and productivity over the past few years, is a little less than 60 per dollar, so the market has yet to overshoot wildly. Raghuram Rajan, the incoming governor of the RBI, is likely to take a hands-off approach.

That doesn’t mean the government will—or should. On August 19th it banned the import through airports of duty-free flat-screen TVs, which Indians can often be seen heaving through check-in at Dubai. It may seek to raise duties further on gold imports, which Indians are addicted to in part because it is seen as a hedge against inflation. Gross gold imports were 3% of GDP last year, blowing a huge hole in the external finances. History suggests the higher taxes on gold imports are, the worse smuggling gets. But India imports 800-odd tonnes of bullion a year. That’s a lot of gold to hide in suitcases.

The government will also try to persuade the Supreme Court to lift its ban on iron-ore exports, imposed after a series of corruption scams. At its peak this industry generated exports worth about 0.4% of GDP, although experts doubt that mothballed mines can be ramped up fast. The government may also cut fuel subsidies. That would reduce demand for imported fuel and help it hit a fiscal-deficit target of about 7% of GDP (including India’s states).

The longer-term solution to the balance-of-payments problem may be to ramp up India’s manufacturing sector, and thus its industrial exports. But that will take a big improvement in the business climate, not just a cheap currency. Despite the rupee’s 27% tumble in the past three years there is scant sign of global manufacturers shifting production to India.

India’s position could still get worse. But assuming things stabilise, when the official histories come to be written about 2013, what might they say? Most likely that the rupee’s slump caused a severe shock to the economy that made a recovery in growth rates even harder. But perhaps, also, that it prompted a more serious debate about the policies that India needs to become less vulnerable to the whims of an unforgiving world.