It's been really disturbing to see the news around Microfinance Institutions (MFI) in India these days. By definition, these MFIs lend to the poor who cannot get access to bank credit and these are usually termed micro-loans since the amount lent itself is in few thousands of rupees (few hundred dollars).
Now what happened that these MFIs are in news? In an Indian state called Andhra Pradesh, where the largest number of MFI borrowers exist, there have been around 50 suicides and many have blamed that MFIs have used coercive methods to collect interest on these borrowed loans from these borrowers that has resulted in these suicides. MFIs deny it. While it is hard to say if this is true or not, which only an honest investigation can reveal, the thing that's been troubling me is the lack of transparency, not just on activities but on factors leading to policy decisions, in these MFIs. These MFIs charge an average interest rate of around 20%-40% annually. And MFIs say that such high interest rates are due to the high loan servicing costs. Reasons they give for this - the volume becomes more when lent in small portions to many individual borrowers; reaching and collecting money at remote villages and then there is the high risk factor to be calculated on these loans and the interest charged by state-run banks from where these MFIs avail money to lend to the poor.
Alright, the reasons they give seem genuine. But that's only one side of the coin. It's not an easy task for a poor who has had no or very little education and no or very little business-experience to earn an income that would surpass these interest rates. From the news I read, I see that the interest on these loans is generally collected on a bi-weekly or monthly basis. But many of the poor people who live in villages are largely farmers whose income is seasonal rather than monthly. Even if you consider just the non-farming people, there aren't many businesses that could be done in a rural village by such poor people that would give returns surpassing the high interest rates.
So now, these are the questions that linger in my head:
1. How do the MFIs decide on the people to a whom a loan could be given? Many times it is said that the loans are given to Self Help Groups (SHG) but what constitutes a credible SHG and what kind of verification is done?
2. How much percentage of the total loans in a MFI is for people who already have a business and want to expand and how much is going to people who want to start new businesses? Who is validating the claims done by the borrower to check the creditworthiness and how? What kind of requests for loans are trusted, validated and approved?
3. Since MFIs have been recently allowed to access capital markets, why are the interest rates still so high?
4. How does a MFI which has accessed capital markets differentiate the interests of an investor to that of a borrower? During times of conflict, who is given a higher priority - investor or borrower? What policies are adopted in this regard?
5. I know many MFIs share information to prevent a borrower from obtaining too many loans that would hinder his/her ability to replay. But are all MFIs registered in a centralized database?
6. And many more such questions.....
There has been a hue and cry about capping interest rates from the industry since they say that that would hinder growth in the industry and thereby credit to more number of poor people. Alright, let's not cap interest rates with a fixed number but why not set a target range for these interest rates? How about capping interest rates with a range instead of a fixed number? Why not the MFIs be asked to NOT exceed an interest rate of +X% the average of all MFIs' interest rates within a region (state)?
I ask for this because here is the problem - many of the borrowers are very poor and they traditionally depended on local village loans given by relatively richer people of the village to meet their needs. But these relatively richer people sometimes charged/abused the poor with super high interest rates and coercive collection methods. MFIs were considered saviors of these poor people in this regard. But the interest rates are still enormously high. While it maybe much lower than the ones charged by the relatively richer people of the village, it is still high, which will make the poor to reach the relatively richer people of the village to borrow money just to pay interest on these loans borrowed from MFIs. There is no way one could track if the interest that is paid timely is from earned money or if it is just again borrowed money from some other loan-provider. This might not be from another MFI but maybe from the so called relatively richer people who might suck the blood if the loan is not repaid.
These kind of borrowed loans would then spiral up and would cause the poor to reach a stage where he has no one to reach to borrow money to pay interest on these multiple loans and then comes the time when the poor is left alone to make a decision - a decision that sometimes makes him take away his own life.
There are many psyclogical ans cultural factors involved in this - for a poor man of this stage and in a country like this, debt is not just a liability but many times considered a shame. And if he is not able to repay the debt and when there are persons from the loan institutions knocking the house in a "harsher" way, the shame and guilt the poor feels reaches unimaginable stages. And this is where I get the fear about MFIs accessing capital markets. So my question again - How does the MFI differentiate the interests of the investor and the borrower, especially when the quarterly statement is not going to look well for that particular quarter? But I also agree the benefits of these MFIs accessing capital markets - especially this would reduce the dependency on loans accessed from the commercial banks by the MFIs, which should also be a factor that will help in reducing interest rates on loans given to borrowers from MFIs. But again, here is my question and fear - are these funds, accessed through capital markets, used to improve quality (by reducing interest rates) or to improve quantity (reaching more people without reducing the risk factors)? And not to forget the system-wide risk , since the public sector banks are in the link through loans to MFIs (if we look at the data from the Mix Market site, that has data about global MFIs, one can notice that the growth in the gross loan-portfolio of these MFIs is climbing at high-speed).
Now one more thing that needs to be done, as many analysts have been saying, is to allow MFIs to accept deposits. This would help the MFIs to depend less on commercial banks and capital markets and use more money present within their own system. Currently, the hindrance to this is in the Indian policy - MFIs are classified as "NBFC" - "Non-Banking Financial Company", whereas only institutions classified as "Commercial Bank" can accept deposits. I think a waiver needs to be given to MFIs in this, while making them accept to additional supervision by the Reserve Bank of India (RBI) - India's Central Bank. Also, some kind of study needs to be done to see if deposits below a certain amount could be insured, by a combination of the central and state governments' money, to encourage more savings by the poor.
There are two sides of the coin here - MFIs cannot simply sit idle on a loan or interest not repiad timely. After all, it is business and it is a loan, not free money. But since poorest of the poor are involved in this, who many times do not even have a proper, transparent and secured access to the legal system of the country, for any wrong doing by the bigger player in the game (read: MFI) and with increasing link to the system-wide banking, I would like to have a microscopic watch by the RBI on the activities of these MFIs, even if that requires new policies or amendments in policies by the RBI.
Monday, November 29, 2010
Monday, November 15, 2010
Exporting to Aliens!
In these tough economic times, every country – be it developed or developing - is trying to export their goods and services to markets where there is demand. And this is the way the leaders of the world are looking to find a solution to bring the global-economy to pre-crisis levels and bring back jobs to millions of people unemployed worldwide. And where there is demand for this? Not on planet earth as far as I know.
Rich countries are increasingly trying to increase their share of exports to emerging markets. There is nothing wrong with that. But these rich countries wanted to use this increase in exports to offset their large debt-loads and deficits. There is something wrong in this. Emerging markets and particularly the export-dependent ones are increasingly trying to stick on to their pre-crisis growth patterns, that is, exporting their relatively cheaper goods and services to rich countries. There is nothing wrong with that. But they wanted to do it indefinitely without diversifying their economies that will give more weight to their own people’s consumption rather than the debt-loaded but rich consumers in the west. There is something wrong in this.
There are talks about “currency wars” these days and every sensible person is afraid of the so called “beggar-thy-neighbor” policy – which relies on consumption of one’s goods and services by another person who cannot really afford it, through artificial means. However you call it - “competitive devaluation” or “competitive undervaluation” of a currency, it simply is not right and will not work. And the reason is “un-coordination” or “under-coordination” of global micro-economic policies by governments across the world or should I call it the G-20 countries that constitute around 85% of the global output. Yes, you heard it right – not macro but micro-economic policies and I know many people would laugh at me for saying this – after all, some would ask me, is it not a sovereign issue of a government to decide on what is needed for their populations? And I would laugh back again.
Demand is very weak, but still countries like Britain have gone for a severe fiscal-austerity program. And they claim that this is the time to reduce-deficits. Alright good, but do they have any program to increase consumption through real-money instead of borrowed money? – No. Do they have policies in place that will help sell the goods produced by their companies? – No. Oh well wait, yes they do, not policies but dreams, dreams of selling it to emerging markets where middle-class consumers are growing at enormous rates. Enormous rates! – Yes, anyone who was earning $5 a day yesterday and who earns $10 today has grown at a rate of 100%. Isn’t that “enormous”? And yes, now the rich-world companies can sell their $100 goods to these people - right?
Demand is very weak, but still countries like China and other oil-exporting countries depend just on their exports (and for that matter even Germany). Yes, just on their exports to debt-driven rich world consumers. And when asked how you can depend on selling it to these consumers, they say – they are the ones who would buy our products. And I ask again - Why? Why not your own people? Answer – we are still not ready.
Alright, so it is clear. The global economies and particularly the G-20 countries came together and coordinated macro-economic policies (interest rates and stimulus packages) after the dawn of the financial crisis. But what happened to that effort of co-ordination? Two things happened –
a. Stimulus packages in some countries were not sufficient to address the scope of the problem.
b. Stimulus was spent to “replay” instead of “re-balance”.
It’s difficult to co-ordinate on micro-economic policies. After all, it is up to the individual governments and people to decide on what they want. But at the same time, there is difference between “I don’t want it ever” and “I don’t want it now”. This recession should have been the period where many export-dependent markets should have taken steps to diversify their economies and many over-consuming countries should have taken steps not just to reduce consumption but to re-balance their consumption.
Take this case – statistics say (although varies all the time) that around 60% - 70% of the population in India depend on agriculture or agricultural related activity for their livelihood. Yet, were there any investments in agriculture during this crisis period? – No. Infact, in 2009, poor monsoons made many poor Indians go hungry due to the enormous increase in food prices and which still exists and hovers with a food-inflation rate of around 10%-15%. And take this case, in US and Britain, where educational investments have not taken place during this crisis period but agricultural subsidies have remained. Now can you see where the distortion lies? Countries like India should have imported irrigation-related technologies from rich-countries using their stimulus money and countries like US should have invested in education and technology to make more people produce technology at increasingly cheaper and efficient rates. With this, the agricultural markets of western countries should have been opened more to benefit real growth in poorer countries like India when at the same time this growth in the large sections of the population should increase imports of quality rich-world products.
Now who can advise this to the governments? Aren’t they supposed to know this? Well, after all, every country has its own bright people. But I don’t get then why do we see distorted investment patterns in the global economy today? It’s perplexing to see the underlying reasons for governments to not know what their populations require. Is it the absence of a “long-term” vision or the presence of “short-term” ambitions? I don’t know. But without any domestic investments, if exporting to demand-existing markets is the way governments are going to bring the global-economy back on track, then we should be exporting to new markets – the markets where aliens live!
Rich countries are increasingly trying to increase their share of exports to emerging markets. There is nothing wrong with that. But these rich countries wanted to use this increase in exports to offset their large debt-loads and deficits. There is something wrong in this. Emerging markets and particularly the export-dependent ones are increasingly trying to stick on to their pre-crisis growth patterns, that is, exporting their relatively cheaper goods and services to rich countries. There is nothing wrong with that. But they wanted to do it indefinitely without diversifying their economies that will give more weight to their own people’s consumption rather than the debt-loaded but rich consumers in the west. There is something wrong in this.
There are talks about “currency wars” these days and every sensible person is afraid of the so called “beggar-thy-neighbor” policy – which relies on consumption of one’s goods and services by another person who cannot really afford it, through artificial means. However you call it - “competitive devaluation” or “competitive undervaluation” of a currency, it simply is not right and will not work. And the reason is “un-coordination” or “under-coordination” of global micro-economic policies by governments across the world or should I call it the G-20 countries that constitute around 85% of the global output. Yes, you heard it right – not macro but micro-economic policies and I know many people would laugh at me for saying this – after all, some would ask me, is it not a sovereign issue of a government to decide on what is needed for their populations? And I would laugh back again.
Demand is very weak, but still countries like Britain have gone for a severe fiscal-austerity program. And they claim that this is the time to reduce-deficits. Alright good, but do they have any program to increase consumption through real-money instead of borrowed money? – No. Do they have policies in place that will help sell the goods produced by their companies? – No. Oh well wait, yes they do, not policies but dreams, dreams of selling it to emerging markets where middle-class consumers are growing at enormous rates. Enormous rates! – Yes, anyone who was earning $5 a day yesterday and who earns $10 today has grown at a rate of 100%. Isn’t that “enormous”? And yes, now the rich-world companies can sell their $100 goods to these people - right?
Demand is very weak, but still countries like China and other oil-exporting countries depend just on their exports (and for that matter even Germany). Yes, just on their exports to debt-driven rich world consumers. And when asked how you can depend on selling it to these consumers, they say – they are the ones who would buy our products. And I ask again - Why? Why not your own people? Answer – we are still not ready.
Alright, so it is clear. The global economies and particularly the G-20 countries came together and coordinated macro-economic policies (interest rates and stimulus packages) after the dawn of the financial crisis. But what happened to that effort of co-ordination? Two things happened –
a. Stimulus packages in some countries were not sufficient to address the scope of the problem.
b. Stimulus was spent to “replay” instead of “re-balance”.
It’s difficult to co-ordinate on micro-economic policies. After all, it is up to the individual governments and people to decide on what they want. But at the same time, there is difference between “I don’t want it ever” and “I don’t want it now”. This recession should have been the period where many export-dependent markets should have taken steps to diversify their economies and many over-consuming countries should have taken steps not just to reduce consumption but to re-balance their consumption.
Take this case – statistics say (although varies all the time) that around 60% - 70% of the population in India depend on agriculture or agricultural related activity for their livelihood. Yet, were there any investments in agriculture during this crisis period? – No. Infact, in 2009, poor monsoons made many poor Indians go hungry due to the enormous increase in food prices and which still exists and hovers with a food-inflation rate of around 10%-15%. And take this case, in US and Britain, where educational investments have not taken place during this crisis period but agricultural subsidies have remained. Now can you see where the distortion lies? Countries like India should have imported irrigation-related technologies from rich-countries using their stimulus money and countries like US should have invested in education and technology to make more people produce technology at increasingly cheaper and efficient rates. With this, the agricultural markets of western countries should have been opened more to benefit real growth in poorer countries like India when at the same time this growth in the large sections of the population should increase imports of quality rich-world products.
Now who can advise this to the governments? Aren’t they supposed to know this? Well, after all, every country has its own bright people. But I don’t get then why do we see distorted investment patterns in the global economy today? It’s perplexing to see the underlying reasons for governments to not know what their populations require. Is it the absence of a “long-term” vision or the presence of “short-term” ambitions? I don’t know. But without any domestic investments, if exporting to demand-existing markets is the way governments are going to bring the global-economy back on track, then we should be exporting to new markets – the markets where aliens live!
Wednesday, November 10, 2010
The $600 billion question in G-20.
When the G-20 leaders meet in Seoul, South Korea, today, this is how the discussion would start:
US: We need a balanced growth in the world economy. Some countries cannot run massive current account surpluses while some others run massive deficits. That is unstable and so to achieve a balanced growth we need countries to allow more flexibility in their currencies’ exchange rates - exchange rates determined by market forces.
China: Alright, wait. I have a question before you proceed further – Why is your Federal Reserve printing $600 billion more and flooding the world with liquidity? We are affected by this action of your Fed in two ways –
a. The dollar’s value is artificially weakened thereby giving an unfair advantage to your exports in the global market.
b. It is flooding emerging markets like ours with speculative capital thereby fuelling concerns about asset-price bubbles.
Can you please answer how this is helpful to achieve a stable global economic growth?
US: Look who is talking about “unfair advantage” to exports. Anyways, here is the answer – by doing this quantitative easing (QE2), that is, buying treasury notes/bonds for $600 billion more, we would drive down the long-term interest rates. And by that it means, the borrowing rate on loans, from car-loans to home-loans to you name it, becomes cheaper, thereby fuelling consumer demand. And when demand becomes more, supply has to become more. And for supply to become more, companies will be investing in production, hiring new employees and there comes the job-creation and further demand and further production and further job-creation and the cycle goes on. The economy will then be back on track and US getting its economy on track will the best thing that US can do to the global economy.
Before China could question/talk any further, a guy from the audience-floor gets up to clarify things. He first requests China not to question any further but instead to go home and start diversifying the economy that will depend less on exports and more on domestic consumption than what it is now. He then turns to US to ask/clarify certain things. Oh by the way his name is “Common-Man”.
Common-Man: What you said about QE2 is true but I still don’t get how that would get the economy back on track. Aren’t the interest rates already low enough?
US: But demand is very weak and hence we fear deflation in US. Driving down the long-term interest rates would make sure that demand picks up domestically and with the dollar becoming less in value relative to other countries’ currencies this would also increase international consumption of American goods. All this will lead to job creation in US. Also, all these steps will help Federal Reserve achieve expected inflation, which would make companies who are hoarding cash now to invest thereby creating jobs and demand.
Common-Man: US exports will undoubtedly grow. I agree. Some jobs will be created out of that. I agree. Inflation (that is needed to an extent now) might kick in. I agree. Due to inflation, people and companies will invest instead of hoarding cash that will bring down the unemployment rate. Hmmm, this is where I am not able to completely agree with you. Well, we might see investments occurring, but do you think that just export-led job creation and investments by companies and people to withstand inflation alone would be enough to achieve the expected economic growth and to bring down the unemployment rate that is so high – 9.6%. We actually need hundreds of thousands of jobs to be created every month to bring down the unemployment rate quicker.
US: See, when all I said happens, the cycle will kick in. It might be a slow start but eventually the economic cycle will run faster and we could achieve the needed growth.
Common-Man: Ok to sum it, why is the economic growth so slow and weak?
US: The demand is very weak.
Common-Man: And what are you trying to do to address this?
US: Basically, bring down the borrowing costs further and trigger a little inflation that will force companies to invest.
Common-Man: Ok, from the monetary-policy side, I completely agree with what the Federal Reserve is trying to do – looks like there is no other choice, even though the concerns expressed by some emerging markets about liquidity flooding their markets is genuine and very real. But that’s a topic for later discussion. Also, there is another fear about commodity prices sky-rocketing in the future due to this Fed action. But again, I would like to discuss it later. But I also have to tell you that monetary-policy alone will not be sufficient. It is not that the interest rates are not sufficiently low enough now or that the companies are without cash that is hindering investments. Infact, as per a news article I read (article source below), US companies are sitting on cash equivalent to $1 trillion, without investing. We have to think why? The answer is “uncertainty”. And from the government side, all that is expected is to induce “confidence” in the economy. Until this is done, I am not convinced that we will see enough investments that would bring the US economy back on track quickly. And remember, the more the time it takes, the more is the probability for the unemployment to become structural rather than cyclical (and this is very dangerous).
This “uncertainty” about the future of the economy needs to be beaten by inducing “confidence” in the economy through a tool called – “fiscal policy”. Yes, monetary policy is needed but that alone is not going to solve our problem. It is the lack of a clear, long-term fiscal policy that is creating tensions and fears, not just in US but in the entire world about the stability of the future US economy and thereby the dollar. The question behind the fears of the global companies and community is not “Why are you printing money?” but instead it is the anxiety about – “Ok, you have printed money, now what?”. The world in one way or other will accept the difficulties that will come along with the loose monetary policy that the US is following, provided a confidence is built in them by assurances through a long-term credible US fiscal policy. And the responsibility for this lies directly with the US administration and the US Congress. As long as this concern remains unaddressed, there will be questions and anxiety about the future strength of the US economy and the dollar.
News Article Source:
1. http://finance.yahoo.com/news/US-companies-hoarding-almost-rb-2687745036.html?x=0&.v=1
US: We need a balanced growth in the world economy. Some countries cannot run massive current account surpluses while some others run massive deficits. That is unstable and so to achieve a balanced growth we need countries to allow more flexibility in their currencies’ exchange rates - exchange rates determined by market forces.
China: Alright, wait. I have a question before you proceed further – Why is your Federal Reserve printing $600 billion more and flooding the world with liquidity? We are affected by this action of your Fed in two ways –
a. The dollar’s value is artificially weakened thereby giving an unfair advantage to your exports in the global market.
b. It is flooding emerging markets like ours with speculative capital thereby fuelling concerns about asset-price bubbles.
Can you please answer how this is helpful to achieve a stable global economic growth?
US: Look who is talking about “unfair advantage” to exports. Anyways, here is the answer – by doing this quantitative easing (QE2), that is, buying treasury notes/bonds for $600 billion more, we would drive down the long-term interest rates. And by that it means, the borrowing rate on loans, from car-loans to home-loans to you name it, becomes cheaper, thereby fuelling consumer demand. And when demand becomes more, supply has to become more. And for supply to become more, companies will be investing in production, hiring new employees and there comes the job-creation and further demand and further production and further job-creation and the cycle goes on. The economy will then be back on track and US getting its economy on track will the best thing that US can do to the global economy.
Before China could question/talk any further, a guy from the audience-floor gets up to clarify things. He first requests China not to question any further but instead to go home and start diversifying the economy that will depend less on exports and more on domestic consumption than what it is now. He then turns to US to ask/clarify certain things. Oh by the way his name is “Common-Man”.
Common-Man: What you said about QE2 is true but I still don’t get how that would get the economy back on track. Aren’t the interest rates already low enough?
US: But demand is very weak and hence we fear deflation in US. Driving down the long-term interest rates would make sure that demand picks up domestically and with the dollar becoming less in value relative to other countries’ currencies this would also increase international consumption of American goods. All this will lead to job creation in US. Also, all these steps will help Federal Reserve achieve expected inflation, which would make companies who are hoarding cash now to invest thereby creating jobs and demand.
Common-Man: US exports will undoubtedly grow. I agree. Some jobs will be created out of that. I agree. Inflation (that is needed to an extent now) might kick in. I agree. Due to inflation, people and companies will invest instead of hoarding cash that will bring down the unemployment rate. Hmmm, this is where I am not able to completely agree with you. Well, we might see investments occurring, but do you think that just export-led job creation and investments by companies and people to withstand inflation alone would be enough to achieve the expected economic growth and to bring down the unemployment rate that is so high – 9.6%. We actually need hundreds of thousands of jobs to be created every month to bring down the unemployment rate quicker.
US: See, when all I said happens, the cycle will kick in. It might be a slow start but eventually the economic cycle will run faster and we could achieve the needed growth.
Common-Man: Ok to sum it, why is the economic growth so slow and weak?
US: The demand is very weak.
Common-Man: And what are you trying to do to address this?
US: Basically, bring down the borrowing costs further and trigger a little inflation that will force companies to invest.
Common-Man: Ok, from the monetary-policy side, I completely agree with what the Federal Reserve is trying to do – looks like there is no other choice, even though the concerns expressed by some emerging markets about liquidity flooding their markets is genuine and very real. But that’s a topic for later discussion. Also, there is another fear about commodity prices sky-rocketing in the future due to this Fed action. But again, I would like to discuss it later. But I also have to tell you that monetary-policy alone will not be sufficient. It is not that the interest rates are not sufficiently low enough now or that the companies are without cash that is hindering investments. Infact, as per a news article I read (article source below), US companies are sitting on cash equivalent to $1 trillion, without investing. We have to think why? The answer is “uncertainty”. And from the government side, all that is expected is to induce “confidence” in the economy. Until this is done, I am not convinced that we will see enough investments that would bring the US economy back on track quickly. And remember, the more the time it takes, the more is the probability for the unemployment to become structural rather than cyclical (and this is very dangerous).
This “uncertainty” about the future of the economy needs to be beaten by inducing “confidence” in the economy through a tool called – “fiscal policy”. Yes, monetary policy is needed but that alone is not going to solve our problem. It is the lack of a clear, long-term fiscal policy that is creating tensions and fears, not just in US but in the entire world about the stability of the future US economy and thereby the dollar. The question behind the fears of the global companies and community is not “Why are you printing money?” but instead it is the anxiety about – “Ok, you have printed money, now what?”. The world in one way or other will accept the difficulties that will come along with the loose monetary policy that the US is following, provided a confidence is built in them by assurances through a long-term credible US fiscal policy. And the responsibility for this lies directly with the US administration and the US Congress. As long as this concern remains unaddressed, there will be questions and anxiety about the future strength of the US economy and the dollar.
News Article Source:
1. http://finance.yahoo.com/news/US-companies-hoarding-almost-rb-2687745036.html?x=0&.v=1
Friday, November 5, 2010
President Obama is going to India!
Come Saturday, November 6, 2010, the United States President, Barack Obama will be in India - his first official trip to the country. Expectations are running high over his visit and the Indian govt. made it clear not to expect any big bangs or breakthrough deals. I expect that this trip is going to be a consolidation of all gains obtained in the past decade or so in the US-India relationship and finding ways to increase this positive momentum built over the decade and push the relationship forward. Here are a few issues that will possibly come up in discussions and questions asked to the leaders of the two countries:
UNSC Permanent Seat: It has been India's long-held desire to get a permanent seat in the United Nations Security Council (UNSC) and almost all major powers seem to support an extended UNSC, with India as a new permanent member - except two "hesitant" countries - China and the United States. And the Indians ask: Well China, it is expected, but why US? Yesterday when this question of whether US would support India's bid to become a permanent member in the UNSC was asked to President Obama, he said that it is "complicated". During this year's World Economic Forum gathering, a poll conducted by India's TV channel NDTV and Facebook on "What does India expect from the world?" - showed that the majority expected the world to support India's bid to a permanent seat at the UNSC. This issue has been close to Indians' heart for sometime. So this question is definitely going to come up and I hope that President Obama makes it clear that though there are "sensitivities" on the US side on this issue and some unfulfilled expectations on India from a "US perspective" remain, the US would like to see India being an important part of any reformed international institution. But also, such words are uttered almost everyday by someone in the US administration but some kind of credible action would calm India's anxiety about how America envisions a future India - a credible action like that did by former former President George W Bush on the civilian nuclear program that brought the two countries closer than any other time in history.
Civilian Nuclear Deal:
The passage of a Civil Nuclear Liability bill by the Indian Parliament that holds the suppliers of the nuclear equipments liable, in addition to the operators, for any nuclear accident involving a faulty equipment, has become a thorny issue in this matter. US companies say that this is not in sync with international norms. But in a country where one of the world's disastrous industrial accident (Bhopal gas tragedy) happened and where people are still affected by this accident, both mentally and physically, this was the least the people expected from the Indian govt. and which the govt. had to oblige. When US companies say that such an inclusion of supplier-liability is out-of-sync with international norms, I would like to question who influenced the international norms? It's going to be a vain-effort if President Obama tries to push India for an amendment in the bill. While French and Russian nuclear companies are okay with this bill since they have state-backing to support them for any liability claims, amending the law just for US' request will not go favorable among Indian people. India has invited the US Nuclear companies to visit and get all clarifications - including what kind of suppliers would be held liable and under what circumstances. I hope the US companies understand the extreme sensitivity involved in this issue and I hope that all the hard-work done by both US and India on this deal do not go vain.
Economics:
i) Outsourcing: President Obama is sometimes seen as anti-outsourcing and protectionist by the Indian business community. But so be it - I strongly support President Obama on his decision to provide incentives to companies who invest in US (and this has to be done by cutting back incentives to companies who invest outside US or outsource jobs). Few things that we have to note here is - these are tough times in the US economy and it is nothing wrong in US policies to support investments in US. While I strongly denounce any protectionist policy, I also don't believe that all so-called "protectionist" polices are actually protectionist (Admission: Though I also noticed some clear protectionist policies by the US during the course of the last year). Secondly, the Indian IT companies have actually moved up the value-chain and most of them are no more just call centers or business process outsourcing centers, but are actually involved in research and development and other value-added services. Bottom line: Outsourcing is not going to stop and the Indian IT companies are not going to be drastically affected (we only have to look at the profits reported by some of these companies in the recent quarter) but atleast Obama's strict words and real-incentives would encourage investments in US. Infact, if someone had noticed closely, then they can see the investments by the same IT companies in US recently. And currently the private sector in US is not investing and so atleast the public sector can (actually should) invest through any additional resources obtained this way.
ii) Financial Services: US has been pushing India to open up their financial and banking sectors further. But the with the "credibility" of the US banking and finance industry is not-so-good condition, India is wary to oblige to any American request in this matter - especially feared of the thinking of how the "common-man" would view this in a country with a large number of "socialism-influenced" voters.
iii) Retail Industry: Now from the Indian side, opening up of the retail sector is not just a politically sensitive issue but also a confusing one. Retail industry is one of the largest employer in India and with 90% - 95% being in the unorganized sector (mom-and-pop shops), it has really been a tough time to analyse the positive and negative implications on the hundreds of millions of people (and most of them are poor). But India has to make it clear to the visiting US President that it has launched a serious study on this issue and is positive on opening this sector - though the time and pace remains largely undecided. One assurance India can give is to soon relax some FDI rules in the sector for greater foreign participation.
iv) Agricultural Sector: We all know that one of the contentious issue holding back Doha Agreement is developing countries' (read: India) stubborn position to not open this sector fully to foreign produce/commodities while developed countries (read: US) having political problems in cutting back farm-subsidies. I hope the two countries don't waste time in talking about opening this sector - since the answer is going to be a clear "NO" from both sides to any request by the other.
But the two countries should talk on forging closer ties on agricultural-related technologies and research (this also includes co-operation in space programs for activities such as weather-forecasting). India should give clear signs on how its going to formulate the public sector investment policy and the related procurement policy in irrigation related technologies (so far, India doesn't have clear policies in this regard but giving an assurance that it is serious about formulating a long-term agricultural policy involving greater foreign participation in related technology areas will be good.) Such policies will help the hundreds of millions of desperately poor Indian farmers, with increased business opportunity for US.
v) Export Control Restrictions: Any clue that US would ease restrictions on exports of high-tech and dual-use technologies will make Indians happy to the core - for, a message will be derived from such an action - that US sees India as the most important Asian "strategic" partner and not just as a business partner. But again, the sensitivities of US are understood but gradual reduction in restrictions will be a very good signal. There have already been improvements in this area of discussion and it would be great to see more.
vi) Infrastructure: This is an area where great co-operation could be achieved, not just in words but in action. India is in desperate need for foreign capital and technology to build infrastructure such as roads, ports, highways, bridges etc. We have the right demand in one hand and the right supply in the other, its just a matter of time before the two hands could be brought together for a business handshake.
Climate Change:
US and India almost stand on opposite sides on this issue - especially the argument that both sides put forward - one blaming the other of not doing enough. But discussion should instead be on co-operation in climate research and how the scientists could come on a common platform for the better benefit of mankind. India has made clear that for foreseeable future, fossil fuels are going to be the ingredient in the development of its economy. The reasoning behind this - extreme levels of poverty - needs to be recognized by the US, and America can come forward to initiate a consolidation and augmentation of resources by offsetting the weaknesses of one with the strengths of the other.
Geo-Politics:
Sorry this blog stays away from sensitive and complex geo-politics but one thing I can say is that when looked on a longer-term, the aspirations, goals, interests and values of the two countries remain aligned, though the degree of alignment varies currently. But I am very confident that the two countries would become the 21st century best-friends.
I wish President Obama a safe and successful trip. And Happy Deepavali friends! :)
UNSC Permanent Seat: It has been India's long-held desire to get a permanent seat in the United Nations Security Council (UNSC) and almost all major powers seem to support an extended UNSC, with India as a new permanent member - except two "hesitant" countries - China and the United States. And the Indians ask: Well China, it is expected, but why US? Yesterday when this question of whether US would support India's bid to become a permanent member in the UNSC was asked to President Obama, he said that it is "complicated". During this year's World Economic Forum gathering, a poll conducted by India's TV channel NDTV and Facebook on "What does India expect from the world?" - showed that the majority expected the world to support India's bid to a permanent seat at the UNSC. This issue has been close to Indians' heart for sometime. So this question is definitely going to come up and I hope that President Obama makes it clear that though there are "sensitivities" on the US side on this issue and some unfulfilled expectations on India from a "US perspective" remain, the US would like to see India being an important part of any reformed international institution. But also, such words are uttered almost everyday by someone in the US administration but some kind of credible action would calm India's anxiety about how America envisions a future India - a credible action like that did by former former President George W Bush on the civilian nuclear program that brought the two countries closer than any other time in history.
Civilian Nuclear Deal:
The passage of a Civil Nuclear Liability bill by the Indian Parliament that holds the suppliers of the nuclear equipments liable, in addition to the operators, for any nuclear accident involving a faulty equipment, has become a thorny issue in this matter. US companies say that this is not in sync with international norms. But in a country where one of the world's disastrous industrial accident (Bhopal gas tragedy) happened and where people are still affected by this accident, both mentally and physically, this was the least the people expected from the Indian govt. and which the govt. had to oblige. When US companies say that such an inclusion of supplier-liability is out-of-sync with international norms, I would like to question who influenced the international norms? It's going to be a vain-effort if President Obama tries to push India for an amendment in the bill. While French and Russian nuclear companies are okay with this bill since they have state-backing to support them for any liability claims, amending the law just for US' request will not go favorable among Indian people. India has invited the US Nuclear companies to visit and get all clarifications - including what kind of suppliers would be held liable and under what circumstances. I hope the US companies understand the extreme sensitivity involved in this issue and I hope that all the hard-work done by both US and India on this deal do not go vain.
Economics:
i) Outsourcing: President Obama is sometimes seen as anti-outsourcing and protectionist by the Indian business community. But so be it - I strongly support President Obama on his decision to provide incentives to companies who invest in US (and this has to be done by cutting back incentives to companies who invest outside US or outsource jobs). Few things that we have to note here is - these are tough times in the US economy and it is nothing wrong in US policies to support investments in US. While I strongly denounce any protectionist policy, I also don't believe that all so-called "protectionist" polices are actually protectionist (Admission: Though I also noticed some clear protectionist policies by the US during the course of the last year). Secondly, the Indian IT companies have actually moved up the value-chain and most of them are no more just call centers or business process outsourcing centers, but are actually involved in research and development and other value-added services. Bottom line: Outsourcing is not going to stop and the Indian IT companies are not going to be drastically affected (we only have to look at the profits reported by some of these companies in the recent quarter) but atleast Obama's strict words and real-incentives would encourage investments in US. Infact, if someone had noticed closely, then they can see the investments by the same IT companies in US recently. And currently the private sector in US is not investing and so atleast the public sector can (actually should) invest through any additional resources obtained this way.
ii) Financial Services: US has been pushing India to open up their financial and banking sectors further. But the with the "credibility" of the US banking and finance industry is not-so-good condition, India is wary to oblige to any American request in this matter - especially feared of the thinking of how the "common-man" would view this in a country with a large number of "socialism-influenced" voters.
iii) Retail Industry: Now from the Indian side, opening up of the retail sector is not just a politically sensitive issue but also a confusing one. Retail industry is one of the largest employer in India and with 90% - 95% being in the unorganized sector (mom-and-pop shops), it has really been a tough time to analyse the positive and negative implications on the hundreds of millions of people (and most of them are poor). But India has to make it clear to the visiting US President that it has launched a serious study on this issue and is positive on opening this sector - though the time and pace remains largely undecided. One assurance India can give is to soon relax some FDI rules in the sector for greater foreign participation.
iv) Agricultural Sector: We all know that one of the contentious issue holding back Doha Agreement is developing countries' (read: India) stubborn position to not open this sector fully to foreign produce/commodities while developed countries (read: US) having political problems in cutting back farm-subsidies. I hope the two countries don't waste time in talking about opening this sector - since the answer is going to be a clear "NO" from both sides to any request by the other.
But the two countries should talk on forging closer ties on agricultural-related technologies and research (this also includes co-operation in space programs for activities such as weather-forecasting). India should give clear signs on how its going to formulate the public sector investment policy and the related procurement policy in irrigation related technologies (so far, India doesn't have clear policies in this regard but giving an assurance that it is serious about formulating a long-term agricultural policy involving greater foreign participation in related technology areas will be good.) Such policies will help the hundreds of millions of desperately poor Indian farmers, with increased business opportunity for US.
v) Export Control Restrictions: Any clue that US would ease restrictions on exports of high-tech and dual-use technologies will make Indians happy to the core - for, a message will be derived from such an action - that US sees India as the most important Asian "strategic" partner and not just as a business partner. But again, the sensitivities of US are understood but gradual reduction in restrictions will be a very good signal. There have already been improvements in this area of discussion and it would be great to see more.
vi) Infrastructure: This is an area where great co-operation could be achieved, not just in words but in action. India is in desperate need for foreign capital and technology to build infrastructure such as roads, ports, highways, bridges etc. We have the right demand in one hand and the right supply in the other, its just a matter of time before the two hands could be brought together for a business handshake.
Climate Change:
US and India almost stand on opposite sides on this issue - especially the argument that both sides put forward - one blaming the other of not doing enough. But discussion should instead be on co-operation in climate research and how the scientists could come on a common platform for the better benefit of mankind. India has made clear that for foreseeable future, fossil fuels are going to be the ingredient in the development of its economy. The reasoning behind this - extreme levels of poverty - needs to be recognized by the US, and America can come forward to initiate a consolidation and augmentation of resources by offsetting the weaknesses of one with the strengths of the other.
Geo-Politics:
Sorry this blog stays away from sensitive and complex geo-politics but one thing I can say is that when looked on a longer-term, the aspirations, goals, interests and values of the two countries remain aligned, though the degree of alignment varies currently. But I am very confident that the two countries would become the 21st century best-friends.
I wish President Obama a safe and successful trip. And Happy Deepavali friends! :)
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