Pragati Issue3 June2007 Community Ed

8/14/2019 Pragati Issue3 June2007 Community Ed

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No 3 | June 2007

ISSN 0973-8460

www.nationalinterest.in


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Contents

PERSPECTIVE

2 Soft power, hard reality Nitin Pai & K S Madhu Shankar3 Channel !ndia Salil Tripathi5 The Indian corporate century Ravikiran Rao7 Climate change & international security Brahma Chellaney & Nitin Pai

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9 On India-US relations; Indias consumer market; The Doha round and free trade in services; Productivity miracle; and Climate change and the Indian farmerIN DEPTH

11 Remittances: Maximising Indias strategic leverage Mukul G Asher & Amarendu NandyROUNDUP

14 Microfinance: Charting new territory Mark Straub15 Readying for the next round Rohit Pradhan

BOOKS

17 In extenso: Six great revolutions Niranjan Rajadhyaksha18 Review: PLU engaged in WMD Chandrahas Choudhury

(Editors Note: Weve revamped the magazine. Hope you

noticed)

PragatiThe Indian National Interest Review

No 3 | June 2007

Published by The Indian National Interest - an independentcommunity of individuals committed to increasing public awareness and

education on strategic affairs, economic policy and governance.

Advisory PanelMukul G Asher

V Anantha NageswaranSameer WagleSameer Jain

Amey V Laud

Contributing EditorsNitin Pai

K S Madhu ShankarRohit Pradhan

AcknowledgementsIsabelle Mirzalalala (Front cover photograph)

World Economic Forum/Swiss ImagesJohn Wiley & Sons (Asia) Pte Ltd

Mint

Contact: [email protected]

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Neither Pragatinor The Indian National Interestwebsite are affiliated toany political party or platform. The views expressed in this publicationare personal opinions of the contributors and not those of their em-ployers.

2007 The Indian National Interest. Some rights reserved.

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FOREIGN POLICY

Soft power, hard realityMistaking popularity for power is just as bad as the other way round

NITIN PAI & K S MADHU SHANKAR

INSTEAD OF coercing them, advocates of power contend,co-opt them. Using culture, ideas and values to attract othernations and make them want what you want is far more

preferable, they argue, than threatening them with a mili-tary stick or paying them with economic carrots. Even if theterm itself has been used rather loosely in the popular me-dia, it is hard to disagree with the theory of soft power. Inpractice, though, soft power is tricky business. With the In-dian government having recently set up a public diplomacydivision under the Ministry of External Affairs, it is perti-nent to examine soft power and its prospects.

It goes without question that culture, ideas and valuesincrease a countrys esteem in the eyes of the world. In theserespects, India is certainly incredible. But while yoga, tan-doori chicken and Bollywood may help India occupy a part

of the international mindshare, it is a totally different ques-tion whether this will actually translate to support for In-dias domestic and foreign policies in places that count.This is not particular to India. America and Japan, by far the

worlds top soft-powers havenot been able to translate theircultural exports into support fortheir policies. America continuesto worry about waning popular-ity, while Japans national coolhas failed to triumph over badAsian memories six decades afterthe Second World War. Accord-ing to the estimates of JosephNye, former Dean of Harvards John F Kennedy School of Gov-ernment and a leading propo-

nent of soft power, France spendsthe most per capita to promoteits culture worldwide. Yet it ishardly the most well-liked ofcountries.The seeming paradox arises pri-marily because of the differencesin the way politics works within

and among states. Policies are the political resultants of the balance of interests (and interest groups). Unless the cul-tural export is ideologically totalitarian in naturecommu-

nism or religion, for examplesoft power is unlikely toswing this balance in Indias favour.Indian movies may be popular in Pakistan. Even if they

really co-opt ordinary Pakistanisa tall order, thatit ishard to see how this will lead to a change in governmentpolicy. And theyve been watching Bollywood for a verylong time. The situation is not restricted to Pakistan or evenauthoritarian states in general. It happens even in democra-cies. Consider Americas cold war disposition towards Indiaand vice versa. Or consider the row in both countries overthe US-India nuclear accord. Soft power affects the atmos-pherics, but actual policies remain in the domain of the hard

nose.A key goal of public diplomacy is to bring around other

countries to support India. It may be possible in a generalsense. But if it is defined as convincing governments of

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PRAGATI - THE INDIAN NATIONAL INTEREST REVIEW 2

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watch Doordarshan, you would think that the only news inIndia today is of ministers addressing meetings and cuttingribbons."

That was bad enough then. That Doordarshan still thinksthat it is not necessary to change, even as it aims to be thevoice of India internationally, is a sad matter. For India has a

story to tell, a perspective to offer. Indians do view interna-tional affairs differently, and how they respond to interna-tional issues, matters.

At a time when the duopoly of CNN and BBC is beingchallenged by Al-Jazeera from the Gulf and ChannelNewsAsia (CNA) from Singapore, an Indian network canplay a meaningful and important role. However hard ittries, CNN cannot shake off the impression that it tells thestory for an American audience, or to Americans abroad.The BBC, with its slightly sneering tone, cannot get awayfrom the fact that its claimed neutrality has rightly faced

criticism in recent years, not least over its reporting of theMiddle East (where it sometimes makes Al-Jazeera redun-dant) and poverty and development issues (where every-thing seems the West's fault). Al-Jazeera continues to pro-vide the oxygen of publicity to extremists, and CNAs capa-bility for independent journalism is suspect.

An Indian network in a globalised world, presenting anIndian perspective, would be welcome precisely becausethere is no single Indian view. The pluralistic society whichguaranteesat least on paperfreedom of expression, withits spirited debates on issues like the presence of pesticide insoft drinks, on farmers' suicides, on terrorism in South Asia,

can make absorbing viewing. India also has the added ad-vantage of soft power not necessarily in the classic JosephNye sense, but in terms of what images India conjures whenyou think of the country.

Think of China and you think of the lone student stand-ing in front of a tank at Tiananmen Square. Or the DalaiLama. Or cheap products floodingthe market. But think of India, andthe images are of Bollywood, oryoga, or sitar, or Satyajit Ray's cin-ema and Sachin Tendulkar. And

while we are at it, let us not forgetZubin Mehta and Jagdish Bhagwatiand Amartya Sen. These are virtues to capitalize on. ButDoordarshan's foray has, so far, flopped.

Can someone else do better? Here in London I also get tosee NDTVas well as Star, but then the Hindi that Star usesis often so abstruse, that it reminds me of that old joke aboutDoordarshan and Akashvani: that instead of saying, "Ab aapHindi mein kuchh samachar suniye" (And now, please listen tosome news in Hindi) they should say "ab aap samachar mekuchh Hindi suniye" (And now, please listen to some Hindi inthe news). While NDTV's reporting remains challenging,

and its talk shows provocative, its breathless reporters con-tinue to present an Indianness that simply doesn't travelwell overseas. When Rajdeep Sardesai on his new networkfawningly interviews Sonia Gandhi, he looks like a suppli-

cant seeking a Congress party Lok Sabha ticket. It looks badenough within India; it looks much worse when seen inLondon.

What an Indian network should do is not simply high-light the good news stories of India (which the Confedera-tion of Indian Industry can do a good job of) or show the

bad news about Pakistan (which Doordarshan tries to do), but to view the world through Indian eyes. Its not hard.Old media is instructive. If you read the Times of India over arepresentative period, you'd think that the only stories inBritain on which Indians have a view are the ones dealingwith Shilpa Shetty, Indian doctors, or Elizabeth Hurley andArun Nayar.

But it should be possible to look at Britain and Europethrough Indian eyes. The question of including Turkey inthe European Union can be seen from the perspective oftrying to accommodate minorities. Or Britain's struggle to

maintain its tolerance of dissent with the challenge posed bythe July 7 bombings can be related to the way India re-sponds to such crises. Some correspondents of The Hinduhave succeeded in doing that in the past. An Indian networkthat sees the world through a different lens would be wel-come because of what it will say and how it will see will berefreshing and unusual.

Not just that: projecting how certain Indian institutionswork, how its civil society functions, can have instructivelessons for the world, as it tries to understand India. Whilethe equation with China may flatter many in India, it is notalways a good comparison. Most outsiders know China to

be a dictatorship with scant respect for civil rights. The be-haviour of Chinese companies abroad, particularly in Af-rica, has made them hugely unpopular in some countries,like Ethiopia and Zambia. Indian companies haven't en-countered such problems on such a scale, and that's at leastpartly because Indian companies don't behave like Chinese

ones. Why they don't behave the same way is as much be-cause the companies' foot-print is not that large, as the factthat they respond to external pressures stock markets, themedia and civil society. As India extends its soft powerreach, it is a point worth stressing and noting. And in thatlight, how India views China is important: for in reinforcingthat, India will find allies in the democratic, Western world.

But of course there will be many Indians who disagreewith some of these things. That is as it should be, becauseplurality of opinions is India's great strength. There cannot

be 'one Indian response' to anything, because there are a billion of us. But there can be a few Indian voices in theglobal village, viewing things differently, offering commentsabout how the acts of a few affect all of us, and point out the

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An Indian network in a globalised world, presenting anIndian perspective, would be welcome precisely becausethere is no single Indian view


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very strength of openness and synthesis that are at the heartof the Indian experience, and which allows Indian productsand ideas to permeate the world be they Chai Latte atStarbucks, A R Rehman's music in a Spike Lee movie, theterm "doosra" in cricket, our understanding of famines and

democracy in economics, or in references to Indian spiritual-ity in the Spanish poetry of Octavio Paz.

Salil Tripathi is a writer and journalist, based in London. He

writes on politics, economics, literature and social trends.

BUSINESS

The Indiancorporate centuryWill there be anything unique about Indian multinationals?

RAVIKIRAN RAO

THERE NEED no longer be any doubt over whether or notIndian companies will have a significant impact on theworld stage. They have been competing abroad, swallowingup companies and and alarming foreign protectionists for a

few years now. But what will their larger impact be? Is itpossible to identify a uniquely Indian impact on the interna-tional corporate world?

What possibly can be common between Sahara Indiaparivar, which wears its Indianness on its sleeve, and Info-sys Technologies, whose founder found singing the nationalanthem a cause for embarrassment? The Tatas who run aprim and propah meritocratic empire are a very differentcompany from the Munjals, who leverage a caste-basedsupply chain for success. What of Laxmi Mittal, who grewabroad because the quota raj did not let him expand in India

and the Ambanis, who thrived despite it? The nationality ofthese corporate houses may be useful for a journalist with abrief to write yet another India Shining story, but is it usefulfrom an analytic point of view?

Could anyone have predicted in the 1950s that the Japa-nese companies, then flooding the American markets withpoor quality knock-offs of American goods, would soon besynonymous with quality? Conventional wisdom had it thatthe superior quality of Japanese goods was due to culturaltraits like quality consciousness. But the truth turned outto be a tad more subtle. American companies had notcaught on to the reality that not only had automation freedup a lot of their workers' time, but also that the workers had become educated and thinking beings. Japanese corpora-tions figured this out, and as a result, encouraged workersto think and innovate constantly. The result was that Ameri-

can goods were products of a machine and a manual whileJapanese products were made by thinking humans. The dif-ference showed.

You could put down this difference to culture but then

just ten years earlier, the Japanese had lost a war becausethey had exactly the opposite problem - Japanese soldierswere unthinking automatons who wanted to die for theemperor, while the American soldiers had freedom to inno-vate.

The Japanese example tells us that though we may pre-tend otherwise, corporate culture can be rebuilt every gen-eration. More importantly, it is the encounter between cul-ture and the realities of the marketplace that determines theimpact a country makes.

The rest of the world is encountering India in many

ways, both good and bad. It is eating Indian food and likingit. It is starting to watch Indian cinema. It is relying on Indi-ans for customer support, and hating having to follow theaccent. It is getting its software developed by Indians. It islosing jobs to Indians. It is drinking Indian tea, beer, andwill soon drink Indian whiskey. In time, it will also giveover the job of building and running its power and steelplants to Indians.

Spirituality, of course, was India's first export. But will itsurvive the West's realisation that Indians are, in fact, nor-mal people who do not spend their time meditating in vege-tarian isolation? One of the selling points of Indian spiritualexports was that Indians were peaceful and happy in spiteof their poverty. What will be its selling proposition nowthat the Indians whom Westerners encounter are as keen torun the rat race as any of them? Or will the positive influ-

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ence of Indian spirituality survive and serve as a moderat-ing influence on any negative impressions that will inevita-bly generated when determined Indians take away foreignjobs and acquire and restructure foreign companies?

After zero, what?

Will Indian firms contribute to the world's store of busi-ness knowledge in some way - as the Japanese did whenthey completely overhauled the discipline of Quality Man-agement? One promising candidate for this would have been Software Engineering. The success of Indian firmscritically depends on being able to execute software projectsreliably and on time every time. Unfortunately, there hasbeen almost no contribution from an Indian firm that breaksnew ground in this discipline. To be fair, Software Engineer-ing had already gained a high degree of maturity by thetime Indian firms came up to speed, so there is some excuse

for being only a consumer of knowledge rather than a pro-ducer. Perhaps Indians will revolutionise the theory in thenext big thing they are participating in - Business ProcessOutsourcing. The opportunity is big. The discipline is rela-tively in its infancy - there is large scope to define the the-ory, not least about how processes are to be migrated howknowledge is to be transferred and how cultural differencesare to be handled.

Advocates for Indian family businesses claim that theycan teach a thing or two to the rest of the world, both aboutfamily values and about running a business. But family val-ues are not unique to Indians. And family businesses have

disadvantages which come from having to put trust overcompetence. It is interesting to speculate over why thereisn't an Indian Taco Bella chain of Indian franchises offer-ing standardised Indian food abroad. Is it because running afranchise model requires the ablility to manage controlthrough arms-length contractual relationshipssomethingthat Indians, relying too much on trust-based relationships,are unable to do? Or is it just a matter of time before wehave a completely different kind of franchising model, onewhich relies on all the franchisees being, say, Patels? Whatwill be the impact of the often caste and clan-based cliques

that exist in Indian family businesses - especially in the topmanagement- on a world that expects meritocratic hiring?

Changes in relationships

Increasingly, the rest of the world's relationship with In-dia will move beyond buying things or getting services per-

formed by them to working for Indians as employees and

vendors. To the extent that market transactions involve hi-erarchy, Indians will increasingly move from playing a sub-ordinate to peer and superior roles. How will this transitionplay out? We don't know yet. Countries, as much as people,show their true character when they gain power, and in thatsense, India's true character is yet to be revealed.

So we are no closer to answering the question we startedoff with. Will India's enduring impact be any of the onesproposed so far? Or is it that the Indian's true strength liesin his famed ability to adapt to and thrive in any situation,whether the situation is as ordered as in the United States oras chaotic as in Africa? Will the Ambanis, learning fromtheir experiences in India, teach the rest of the world how tooperate in a relatively chaotic environment where contractenforcement is weak and your executives are often in physi-cal danger?

All these are interesting possibilities, but it is still tooearly to make narrower predictions. It is possible, though, topredict with some confidence that in another decade or so,there will be a thriving market in books that analyse thesuccess of Indian firms. Those books will attribute the suc-cess to India's culture and will attempt to find pearls of cor-porate wisdom in India's scriptures. That will be early result

of the Indian corporate century.

Ravikiran Rao is a lapsed blogger and a keen observer of socio-

economic trends in his spare time. He earns his living as a wage

slave to an American multinational.

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to:WEF/Swiss-Images


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FOREIGN POLICY

Climate change &

international securityA cooperation problem that the UNSC is ill-placed to solveBRAHMA CHELLANEY & NITIN PAI

CLIMATE CHANGE is real. There is a fair amount of scien-tific and policy debate on how much, but no reasonable per-son today can deny the upward trend in average globaltemperatures. This implies melting ice-caps, rising sea lev-

els, drying rivers and unusual weather conditions.An important determinant of how states will respond to

climate change has to do with how the discourse over itscause is framed. The dominant view, as articulated in a re-

cent report by the Intergovernmental Panel on ClimateChange (IPCC), is that climate change is primarily the re-sult of human activity: atmospheric pollutantsnasty by-products of human progresscause global warming. If only

human beings stop or reverse the course of environmentaldamage, it is possible to prevent the disaster from happen-ing.

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An alternate view is that rising temperatures are part ofa geophysical cycle that has little to do with human activity.It is part of the same cycle that caused the climate to changedramatically in the Middle Ages, the melting ice allowingVikings to sail across the Atlantic and land in America. Theycalled the landmass they found en route Greenland, not be-

cause of some kind of medieval sarcasm, but because, well,it was green with forests when they found it. Newfound-land is frigid today. But the Vikings called it Vinland afterthe fine wine it produced. Today, like Greenland, New-foundland is under ice most of the time, and certainly not because of anything the Vikings did. The element of geo-physical inevitability underlying this explanation of climatechange implies that there is not much that we can do aboutglobal warming, other than, perhaps, invest in Siberian realestate.

If it comes to be accepted that it is human activity that

causes climate change, then states will find it in their inter-ests to co-operate with one another, as their survival be-comes contingent on it. Although channelling this into aneffective international mechanism will pose an unprece-dented challenge, there is still room for optimism as allstates will have similar incentives.

Yet the creeping politicisation of the subject will onlymake it harder to build international consensus and co-operation on a concrete plan of action. One way politicisa-tion is happening is by seeking to securitise the risks ofclimate change. Take the insistence of some to add climatesecurity to the agenda of the United Nations Security Coun-

cil.The Security Council, at the instance of Britain, held its

first-ever debate on the security dimensions of climatechange on April 17th, with a number of delegates raisingdoubts whether the Council was the proper forum to dis-cuss the issue. In 2005, as president of both the Group ofEight and European Union, British Prime Minister TonyBlair elevated global warming to the top of their agendas,and then the following year moved Secretary MargaretBeckett from the environment to foreign portfolio. WhileLondon needs to be commended for its new foreign-policy

focus on climate change, its effort to put the subject on theSecurity Council agenda could do more harm than good tothe cause it now fervently espouses.

No doubt there is an ominous link between globalwarming and security, given the spectre of resource con-flicts, failed states, large-scale migrations and higher fre-quency and intensity of extreme weather events, such ascyclones, flooding and droughts. Some developmentswould demand intervention by the armed forces. Yet cli-mate change, despite its potential to engender greater intra-state and interstate conflict, can be tackled only through aconsensual international approach.

Securitising climate change in the context of globalgeopolitics may be a way to turn the issue from one limitedto eco-warriors to a subject of major international concern. Itmay also be a way to facilitate the heavy-lifting needed to

give the problem the urgency and financial resources it de-serves. But having succeeded in highlighting climate changeas a core international challenge, the emphasis now has toshift to building consensus on counteraction.

If climate change were to become part of the agenda ofthe Security Councila hotbed of big-power politicsit

would actually undercut such consensus building. With fiveunelected, yet permanent, members dictating the terms ofthe debate, we would get international divisiveness whenthe need is for enduring consensus on a global response toclimate change.

Instead of expending political capital to securitize cli-mate change, it is necessary to find ways to address the en-ergy dilemma. Given that global warming is a natural corol-lary to how we produce or use energy, climate change isactually the wrong end of the problem to look at. About 80per cent of the worlds energy still comes from fossil fuels.

What is needed is a new political dynamic that is notabout burden-sharing but about opportunity centred onradically different energy policies. This means not only afocus on renewable energy and greater efficiency, but also amore urgent programme of research and development onalternative fuels and carbon-sequestration technologies.

But what if climate change is not only inevitable, but alsoirreversible? Human beings may at best be able to buy moretime by changing their behaviour, but the game quickly be-comes one of every country for itself. Countries that canafford to prepare for the deluge or the droughtthe largeones, and the rich ones, generallywill do so even at the

cost of worsening the conditions of those that cant. In thisscenario large-scale international co-operation is impossible,and conflict inevitable. And the worlds poor will suffer themost.

Without even considering their economic priorities,given these uncertainties, states are likely to be cautiousabout international co-operation on climate change. It is, ofcourse, possible to make a disarming middle-ground argu-ment that the two potential causes are not mutually exclu-sive, and irresponsible human activity is only acceleratingthe environmental doomsday. At the very least, this will

allow the world to invest in the technologies that might of-fer humankind salvation.

Brahma Chellaney is a professor of strategic studies at the Center

for Policy Research in New Delhi. Nitin Pai is a contributing edi-

tor ofPragati.

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Occasional bumps on the road[THERE IS an] often unspoken assumption guiding the rela-

tionship: the unmentioned strategic glue holding it in place.Hovering like Banquos ghost at the banquet for both theUnited States and India is the rise of Chinese power. TheBush Administration does not mention this as a rationale,not wishing to provoke a negative reaction in Beijing. NewDelhi would likewise deny that this figures into Indias cal-culations. But the truth is that no one knows what sort ofChina will emerge in the decades ahead.

A strong U.S.-India partnership is a strategic hedge forboth countries against problematic Chinese behavior in Asiaand on the global stage.

There needs to be a certain degree of patience amongAmericans. Strategically, no other country is in the sameleague as the United States in what it can offer India, butthis does not mean that India is going to sacrifice or aban-don other bilateral relationships that serve its interests.There will be times when India will find a particular policyof a particular country more congenial to its interests thanaligning with the United States on that particular issue.With this reality in mind, the United States, particularlyCongress, needs to avoid applying a series of short termlitmus tests to Indian international behaviora piece of pol-icy advice easier said than done.

Indian politicians are sensitive to a public mood thatprizes independence of decision-making. Despite the majorgains India is poised to receive from the civil nuclear deal,there was nonetheless criticism in both the Lok Sabha (theparliament) and among pundits that by signing the agree-ment India would become beholden to the United States;that Washington would present New Delhi with a continu-ing bill (say, on accommodating U.S. preferences on Iran orPakistan) that would end up mortgaging Indias vital na-tional interests.

- Robert D Blackwill, A Friend Indeed, The National In-terest, No 89, May/Jun. 2007

Diplomatic sunriseIT NOW seems that the US mission in New Delhi is set to beamong the top five, possibly the second or third largest inthe world, at least in terms of staffing, if not physical size.

One reason why Washington is ramping up in NewDelhi is the massive traffic that burgeoning trade, academicties, immigration, family visits, and tourism are generating.

As the US envoy David Mulford said recently, his consularofficials are expecting to issue some 800,000 visas in Indiathis year the highest number after Mexico and "we don'teven share a common border".

How this has come about has been discussed ad nauseum,but purely in terms of diplomatic missions, Washington will

have to start looking for space in not just Hyderabad, wherea US consulate is in the works, but also in Bangalore, Ah-medabad, and Chandigarh (where the Canadians have al-ready pitched a diplomatic tent). Mexico, incidentally, has10 US missions and half a dozen consular agencies.

Not so much for the same reason, New Delhi will alsohave to think beyond its consulates in New York, Chicago,Houston and San Francisco. Boston, Atlanta, and Seattlelook ripe for new consulates with a sudden spurt in Indianpopulation and trade interest from American businesses.You might find it hard to believe, but distant American cit-

ies and counties are getting interested in India, both for sur-vival and profit.

- Chidanand Rajghatta, The visa thing, The Times of In-dia, 3rd Feb 2007

Changing shape of the the income

pyramidIF INDIA continues on its current high growth path, over

the next two decades the Indian market will undergo a ma-jor transformation. Income levels will almost triple and In-dia will climb from its position as the 12th largest consumermarket today to become the worlds fifth-largest by 2025. AsIndian incomes rise, the shape of the countrys incomepyramid will also change dramatically.

Over 291 million people will move from desperate pov-erty to a more sustainable life, and Indias middle class willswell by over ten times from its current size of 50 million to583 million people. By 2025, over 23 million Indiansmorethan the population of Australia todaywill numberamong the countrys wealthiest citizens.

While much of this new wealth and consumption will becreated in urban areas, rural households will benefit too.Annual real rural income growth per household will accel-erate from 2.8 percent over the past two decades to 3.6 per-cent over the next two. Indian spending patterns will alsoevolve, with basic necessities such as food and apparel de-clining in relative importance, and categories such as com-munications and healthcare growing rapidly.

But in order for India to achieve these positive results,the country must continue to reform and modernise itseconomy, as well as address significant shortfalls in its in-

frastructure and education system.

- McKinsey Global Institute, The Bird of Gold: The Rise ofIndias Consumer Market, May 2007

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9 No 3 | JUNE 2007

Essential readings of the month


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Freeing up trade in servicesWHILE THE main advantage for professionals from devel-oping countries lies in [outsourcing] and [movement ofnatural persons], market access is in effect restricted by de-veloped country members through the requirements under

domestic regulations. However, given that the main prob-lem in these countries pertains to accreditation and recogni-tion of domestic qualifications, this needs to be addressedby instituting complementary legal and statutory changes indomestic legal system. Without this, qualification recogni-tion will not be possible and signing of MRAs will not befeasible, even if disciplines on domestic regulations are im-plemented multilaterally.

The fact remains that given that domestic regulations inservices are used as de facto market access barriers by im-porting countries, unless there is any agreement on disci-plines on their indiscriminate use, no amount of market ac-cess negotiations would ensure gains for developing coun-tries from services liberalization, thereby undermining thedevelopment agenda of the [WTOs Doha] Round.

- Suparna Karmakar, GATS: Domestic Regulations versusMarket Access, ICRIER, May 2007

On the back of productivityTHE DATA indicate that the acceleration in economic

growth appears to be coming increasingly from increases intotal factor productivity (TFP) rather than greater inputs. Asteady increase in TFP appears to be largely driving growthin output per worker. In fact, according to a global survey ofproductivity trends, TFP accounted for the bulk of the in-crease in output per worker in India during 1980-2000,higher than in all other regions of the world except China,which had a similar trend (Bosworth, Collins, and Virmani,2006).

From a comparative perspective, India has enjoyed bet-ter growth in output per worker than many parts of theworld in recent decades. However, output per worker grewtwice as fast in China than in India during that period.

Indias GDP growth in recent years has depended pro-portionately more on TFP than on capital accumulation,compared with China and other fast growing countries.This is partly due to Indias growth strategy, which islargely based on the market cost of capital (in contrast withsubsidized capital in China and many East Asian countriesduring their years of rapid growth). It is also due to thecomparatively weaker development of Indian industry and

physical infrastructure, which requires more capital spend-ing.

However, recent policy changes have sparked more in-vestment in infrastructure, implying that capital accumula-tion could play a proportionately larger role in Indiangrowth in coming years.

- Joydeep Mukherji, India: Asias Next Productivity SuccessStory, International Productivity Monitor, Spring 2007

Climate change and the Indian

farmerAS IT IS, agriculture has not been doing famously well. Cul-tivation in the arid, rain-fed and drought-prone areas barely

permits minimal survival even today. With the food graincrops shifting to the more temperate countries, India might become, once again dependent for its food on shipmentsfrom abroad. The only ray of hope is provided by rapidtechnological advance in identifying and isolating droughtresistant genes and their introduction into selected varietiesof seeds. That, however, is a bleak prospect.

The Supreme Court, as it is, has ordered a stay on theapproval of new trials and new GMO varieties. As a conse-quence, only one multinational company and one Indiancounterpart that had managed to get all the approvals that

they needed for anti-bollworm varieties, are sitting pretty.On the other hand, some of the more recent Indian innova-tors who have made a breakthrough in drought andsalinity-resistant genes have been blocked.

The warming of the glaciers might ensure supply ofenough irrigation water for some years, but after that liesthe prospect of a horrid drought. The entire agricultural cul-tivation in India will have to start shifting gradually north-wards.

- Sharad Joshi, The Impact of Global Warming on Indian Agri-culture, Freedom First, No 480, May 2007

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PUBLIC POLICY

Remittances: MaximisingIndias strategic leveragePutting a resource to good use

MUKUL G ASHER & AMARENDU NANDY

LARGE AND growing cross-border remittances are an im-portant aspect of Indias engagement with the world econ-omy. India needs to simultaneously pursue policies whichmaintain robust remittance flows; better utilize them forenhancing trend rate of growth as well as for social devel-opment; and reduce dependence on them to finance uncom-fortably high merchandise trade deficit which was US$ 56billion in 2005-06. In addition, India needs to guard againstpotential moral hazard problems arising from remittances,and create conditions which are conducive for fully utilisingthe initiative, enterprise, and talents of out-migrants.

In 2006, Indias cross-border remittances through formalchannels were US$27 billion, equivalent to slightly morethan 3 percent of GDP, and about one-eighth of global remit-tance flows. This is a sharp increase from the time whenIndia embarked on the path of economic liberalisation. Thus

in 1990-91, cross-border remittances were only a modest$2.1 billion, rising to $12.9 billion a decade later; and sincethen they have doubled in just 5 years.

The geographical composition of remittances is alsochanging, with nearly two-thirds arising out of America andEurope, about a quarter from the Gulf countries, and lessthan a tenth from East Asia in 2005.

Since recorded data only captures remittance flows

through formal channels the above figures tend to under-state the magnitude of the flows. The importance of infor-mal channels appears to have decreased over time due tocompetent exchange rate management (which reflects ex-

ternal value of the Rupee according to market conditions),greater accessibility and reach of formal channels, andstronger regulation.

In 2005-06, remittances exceeded the combined inflowsfrom FDI (1 percent of GDP), foreign portfolio investment(1.6 percent of GDP), and foreign aid (0.1 percent of GDP).

In 2005-06, remittances financed nearly half of the mer-chandise trade deficit; four-fifths of the total trade deficit;constituted about a sixth of total household savings andone-third of total household financial savings in India. Re-mittances have now emerged as the single largest contribu-

tor to net foreign exchange inflows in the country.

Sources of strength and vulnerability

These figures illustrate intricate linkages between cross- border remittances on the one hand and management of

external sector imbalanceson the other. They alsosuggest that remittancesare an important compo-nent of household budgetsand savings decisions. Themanner in which thesesavings are channelled(e.g. whether in financialor physical form), and theultimate allocation of

these savings has important implications for saving-investment intermediation efficiency, and therefore on effi-cient allocation of capital.

Cross-border remittances represent a source of for Indiaas well as a source of vulnerability. To maximise Indiasstrategic leverage, policy measures should aim at to enhancethe former, while mitigating the factors giving rise to vul-

nerability.The growing importance of remittances, which are essen-

tially private flows, suggests that Indian Diaspora and out-migrants are maintaining their family and emotional ties,

IN DEPTH

11 No 3 | JUNE 2007

Out-migration adversely impacts the availability of skills and en-terprise in the originating communities. The regions and communi-ties from where migrants originate should take measures which

enable social and economic mobility, and improving quality oflife


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and perceiving investment opportunities in the country,even as they are contributing to societies and economies intheir countries of residence.

The robust remittance flows are however dependent onIndia being perceived as managing globalisation in cali-brated and inclusive manner, with due emphasis on visibleimprovements in the quality of the countrys governancestructures and institutions, including those involving fami-lies.

Education and livelihood opportunities must be vastlyexpanded for all sections of Indians, without artificial anddivisive restrictions; while ensuring merit-based demandfor education from all sections of the society to be met.

The behaviour of the Human Resources Development(HRD) ministry and the factions constituting the UnitedProgressive Alliance (UPA) government in response to thedecision of the Supreme Court concerning the 27 percentquota for Other Backward Classes in central higher institu-tions has been irresponsible, and unmindful of national in-terest. The higher education institutions and regulatorsshould become more determined to protect their autonomyand to sustain the brand value of their institutions. They

have strong public support on their side.It is the steady deregulation and liberalisation of the

economy, along with greater confidence in competing withthe rest of the world that has vastly expanded scope for In-

dian Diaspora and workers abroad. Uncertainties in politi-cal and economic management however can have adverseimpact on the remittance flows. This in turn could increasethe vulnerability of the economy.

Out-migration, both domestic and international, doesadversely impact on the availability of skills and enterprise

in the originating communities. Ideally, out-migrationshould be for a shorter period by each cohort to minimisefamily and social disruption, and adverse economic impact.The originating communities therefore should take meas-ures which enable social and economic mobility, and im-proving quality of life. India as a country and states such asKerala, Uttar Pradesh, and Bihar which ignore these aspectsdo so at their peril.

What needs to be done?

In the short-run, concerted efforts are required to further

reduce the transaction costs of remittances through formalchannels by allowing more liberal norms of technology us-age in sending remittances. This requires increasing the ac-cess and choice of the recipients to banking, and in generalstrengthening competition in the remittance industry. Thepublic-sector banks, with a wide network of branches acrossthe country, can play an important role in providing acheaper, faster, and a safer alternative as they enjoy suffi-cient economies of scale and scope; and retain high degreeof public trust from the general public.

In the medium-term, efforts must be made to ensure thatthe size and composition of the Indian Diaspora increas-

ingly reflects regional and global ambitions of its businessesand professional class. The Diaspora must be encouraged tobecome embedded in the recipient societies. This will alsoimprove the quality and sustainability of remittance flows.

Financial institutions have an important role to play inmobilising savings in local communities. Financial interme-diation services may involve providing improved access tobanking; more instruments to channel savings into physicaland financial assets (including insurance and housing fi-nance); and greater access to credit.

Currently, financial intermediation is primarily limited to

processing remittance transfers. Little emphasis is on trans-forming remittance senders and receivers into financial as-set builders. There is a significant role of both public andprivate sector financial companies in this regard. Financialinnovations designed to significantly reduce intermediationcosts should also receive attention, and this will requirecombined efforts of all the stakeholders.

In addition to improving financial access generally,micro-finance institutions could be used to channel some ofthe remittances into access to credit for businesses. It is es-timated that micro-finance institutions in India need aroundUS$50 billion to satisfy demand, but only a tenth of that

amount has been attracted so far.Grassroots migrant organisations should be encouraged

to pool their resources for investing collectively in income-

IN DEPTH


Wires and transfers

Photo:Spacejaq


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generating activities in their respective communities in In-dia.

Rapid inflow of remittances has been one of the factors,albeit relatively minor, in contributing to the appreciation ofthe Indian rupee vis--vis US dollar. The combined effect ofinward flows, including portfolio investments (in March

2007, the cumulative value was US$ 52 billion at cost priceand US$ 119 billion at market price out of total market capi-talisation of US$850 billion); and FDI (in 2006-07 it jumpedsharply to US$ 16 billion) has complicated the exchange ratemanagement for the Central Bank as well individuals and businesses. More efficient hedging instruments and finan-cial engineering has therefore become essential.

Remittances represent the most direct and observablebenefit from international migration. Therefore, it is impor-tant for India to ensure that Preferential Trade Agreements(PTAs) with other countries or regional groups should in-

corporate movement of natural persons. In negotiating eco-nomic agreements with countries with very low fertilityrates such as Japan, New Zealand, and Singapore, there areobvious mutual benefits in exploring easier but well-structured manpower flows from India.

Minimise over-dependence

Relatively easy availability of remittance financing hasperhaps subconsciously weakened the resolve to pursueexport-expanding and import-minimising policies; and tofocus on substantially larger inflow of FDI. Slow progress inreducing logistics, infrastructural, and bureaucratic con-

straints is hampering competitiveness of Indias exports. Itis also constraining broadening, deepening, and diversify-ing of Indias export basket, and geographical reach. In thefirst quarter of 2007, Indias outward FDI exceeded the in-ward FDI. This is a recent phenomenon, and it adds to theurgency of attracting inward FDI if over-dependence onremittances is to be reduced.

External conditions for sustained large flows of remit-tances are favourable, but there are many other countrieswhich plan to expand out-migration from their countries. In2006, China and Mexico received only slightly less remit-

tance inflows than India, and in 22 countries, remittancesexceeded a tenth of GDP. Sustaining Indias current share of

about one-eighth in total global remittance flows will there-fore pose challenges for all stakeholders.

Strengthen the Diaspora

There is a strong case for adding breadth and depth toIndian Diaspora in many countries and regions. As an ex-

ample, the Indian Diaspora numbers less than 20,000 in Ja-pan. As there are opportunities for diversification of globaleconomic and security risk through much closer partnership between the two countries, substantially large Diasporacould assist in Indias leverage. Similar opportunities existin other countries and regions such as Africa, particularlysouthern Africa and Nigeria, in Latin America, and Russia.

It is time for more concrete low-key private and publicinitiatives to enhance the size, depth, and sophistication ofIndian Diaspora. This will not only sustain the flow of re-mittances, but also widen and deepen Indian Diasporas

contribution to rising India.There are many organisations which facilitate network-ing among overseas Indians, and some which engage in pol-icy dialogues with Indian policymakers. The annual PravasiBharatiya Divas, which brings together Indian policymakersand Diaspora should be more forward-looking in deliberat-ing on extending Diasporas reach and strength rather thanbe a lobbying forum for concessions to the Diaspora. Ulti-mately, it is Diasporas resources, skills, and embeddednessin their respective countries which can provide win-winopportunities for all.

India must pursue policies that maximise its strategic

leverage from remittances. It is imperative that remittancesbe analysed in a much wider context of overall policies foreconomic and social development. Political leadership andvision, paucity of which is felt in various key decisionstaken recently, is crucial for better management of Indiasremittance earnings.

Mukul Asher is a professor of public policy and Amarendu Nandy

is a doctoral student at Singapores Lee Kuan Yew School of Pub-lic Policy

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13 No 3 | JUNE 2007

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MICROFINANCE

Charting new territoryBigger than just small loans

MARK STRAUB

IN A RECENT article in The Economic Times , J Padmapriyaputs the pieces together for the uninitiated as to why privateequity players are interested in these networks:

"India's microfinance, which is perhaps the ruling fla-vour of private equity players, is actually turning out to be adistribution highway for a variety of goods and services,given the huge outreach of over one million customers eachthat large entities like Share, SKS, Basix and Spandana havemanaged to create.Fuelled by private equity investment and expansion, manyof these entities are looking at reaching as many as five mil-lion people each in the near term. While the creation ofreach has been purely for their own businesses of vending

micro-loans, it now transpires that their channel could bewidely used, and profitably too, for peddling insurance,money transfer, procurement and supply chain financing foragriculture and allied activities."

With their trusted brand names and extensive branchnetworks, microfinance institutions (MFIs) are often theonly commercial link many rural or urban slum areas haveto the formal economy. In India, a few large MFIs have theability to touch a million or more people in the course of aweek through their "centre meetings". That's a powerfulasset. Internet venture capitalists talk about building a userbase before you worry about selling products. That's exactlywhat these large networks area user base. This surely wasnot the primary impetus for building these microfinancenetworks, but it is the ground reality today.

And it's not just about loans anymore. Microfinance rep-resents the first in a long line of products and services that

can be used to reach those outside of the formal econo-mythe poor, the rural, the un-bankedand bring theminto its fold. This could happen on the "village demand"side, through the sale of soap, medicine and other finished

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Microfinancing community meeting, Akbarpur, Rajasthan

Photo:AksjayMahajan


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goods to villages, as well as on the "village supply" side,with the sourcing of agricultural products and raw materi-als from villages, as in the case of Andhra Pradesh MFI BA-SIX linking potato farmers to Frito-Lay.

It makes sense that the first nut to crack would be finan-cial services as these worker-consumers can't make or buy

much until they are able to generate steady cash flows.Whether the goods and services they are now offered areproductive or life improving will be the real test of whetherthis model is sustainable and contributes to economic de-velopment.

It is along this paththe diversification of product offer-ing that will see the great opportunities and challenges.Once under the control of traditional investors or larger re-tail firms, how do we ensure that these microfinance organi-sations offer poor customers the products they really needhousehold goods, medicine, toolsand not ones that will

do them harm? The day a microfinance organisation startssellinggutka (chewing tobacco) through its branch networkis the day it have failed its mission. Clients and employeesshould continue to be given opportunities to advance their

own personal development and standards of livingtheyshould not simply become pawns in an effort to push harm-ful products into, or suck vital resources out of, one vulner-able community after another. This path ahead will trulyrequire a "stakeholder", and not just "shareholder", ap-proach from its leadership.

The commercialisation of microfinance has begun inright earnest. It might be the beginning of a process that willdemonstrate how for-profit companies can serve poor cli-ents in a sustainable manner, or alternately leave the moralstanding of the microfinance industry undermined. It is in-cumbent upon the managers, employees and investors ofthese organisations today to take care that their actions liveup to their mission statements, so we end up toasting theachievement of such a model, and not forsaking microfi-nance clients to grasp after the crumbs left by its failure.

Mark Straub is a microfinance venture capitalist based in New

Delhi

GLOBALISATION

Readying for the nextroundWill the winners of the first round please speak up?

ROHIT PRADHAN

SOCIALISM, in addition to the injuries it inflicted on Indiasdevelopment, did much to enfeeble the Indian mind. By

snuffing out ambition and vitality driving the Indian mindinto isolation, it created an inward looking India suspiciousof what lay beyond the horizon.

Although 1991 balance of payments crisis forced openthe economy, Indian businesses, which for far too long hadrelied on a regime of quotas, licenses and political intriguefound themselves unprepared for this new world. The in-famous Bombay Club demanded that the process of re-forms be slowed down, that they needed more time beforethey could compete with the foreign players.

Cut to 2007, Indian companiesled by many members

of the Bombay Clubhave not only held their own againstforeign MNCs in the domestic market, but are also investingand acquiring companies abroad.

Superficially at least, liberating domestic reforms andglobalisation changed everything. India has emerged as the

outsourcing capital of the world. New generations of Indi-ans have been born: fiercely ambitious, unafraid and com-

petitive. This newly globalised Indian is at ease with theWest and wants to live the American dream, but at home inIndia. But is this change merely in form or is it in substance?Has globalisation truly lifted the constraints on the Indianmind or merely fattened the bank balance?

Globalisation has certainly favoured India. But it willnot always be the case. As Indian salaries rise and other na-tions acquire Indias historical advantages like proficiencyin English, some jobs will be lost. Driven by the cold logic ofthe market jobs will go where the work can be done in themost efficient manner and at the least price. It is this con-

stant churningthe constant evolutionary need to rein-ventthat is the true hallmark of globalisation. Countrieswhich have failed to keep pace with the ever-changingworld, have discovered to their horror that the world hasleft them far behind. Is India up to this challenge?

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15 No 3 | JUNE 2007


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For the millions of Indians who have and can make thejump, many others remain trapped in the past. They remainsusceptible to politicians who rant against the alleged ills ofglobalisation and assure them that they can protect theirjobs. Among the means used towards this end is the incite-ment of regional, language and caste chauvinism with de-

mands that jobs be reserved for the local people. In a worldwhere national boundaries are increasingly getting blurred,it is patently absurd to believe that they can be made to re-spect state borders. With such narrow minds, how will peo-ple react when jobs are lost to Vietnam or China or whennon-Indians compete in the increasingly lucrative Indian jobmarket?

But there is worse. Indeed, the fear of globalisation hasbeen used by politicians to stall the very reforms that canempower those who are impatiently sitting on the sidelines.

The political system has come to thrive on denying eco-nomic freedom to hundreds of millions of Indians.

So the coming years will witness a keen contestbe-tween those who have benefited from globalisation andthose who seek to keep the rest away from it. It is a contestthat requires the successful not only to speak out, but also to

actively champion the cause of economic freedom that liesbehind their success. Unless this constituency mobilises it-self politically and actively participates in the policy-making process, India will find its early gains slippingaway.

Rohit Pradhan is a contributing editor ofPragati

ROUNDUP


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Jammu & Kashmir. Solve.

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Tell us in no more than 2000 words, that if it were up to you, how would you solve the problems in Jammu &Kashmir. Be imaginative, be bold and be compelling. Your essay should present the solution and support it witharguments.

The top two essays will win cash prizes of Rs 2500 and Rs 1500 respectively. Send your entry [email protected] by 20 June 2007. Further details are at http://acorn.nationalinterest.in/?p=2407


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IN EXTENSO

Six great revolutionsNIRANJAN RAJADHYAKSHA

IN MARCH 1977, the magazine that is famous for its cere- bral approach to life published an interview with DanielPatrick Moynihan. He had been US ambassador to Indiaduring the Nixon administration and then had had a stint asUS Permanent Representative to the United Nations during

Gerald Fords presidency. When the interview was pub-lished, Moynihan was set for a long and distinguished ten-ure in the UN Senate.

The interviewer asked Moynihan about US policy onIndia, which had been in the midst of an unusual two-yearhiatus from democracy and free speech - the Emergency -when the interview was taped. Moynihans answer wasblunt:

While the second most populous nation in the worldwas a democracy, the United States had an enormous ideo-logical interest in the pros-

perity and success of thatcountry. We want the worldto know that democracies dowell. So theyve given up onone claim they had on us.When India ceased to be ademocracy, our actual inter-est plummeted. I mean,what does it export butcommunicable disease?

Moynihans answer tothe question was infuriating-for an Indian at any rate- but

also interesting in equal measure. That bit about the UnitedStates having an enormous ideological interest in theprosperity and success of India was more rhetoric than real-ity. The natural alliances of democracies was most oftenlittle more than an empty slogan during the Cold War.

However, it is the last line of his blunt answer that isreally interesting. The question whether India exported any-thing other than communicable disease touched upon a dis-turbing truth. India actually did not export anything of notein 1977.

Nearly 30 years after Moynihans interview to Playboy,

there has been a dramatic change in the situation. The coun-try that he so imperiously dismissed as exporting ...[noth-ing] but communicable disease is being assiduously wooedb governments and corporations around the world. Why?Because Indias economic potential has finally begun to

match its economic potential.The story of Indias phoenix-like rise from the economic

ashes can be told in many ways. The way I have preferredto tell it is as follows. Six great revolutions are changing thevery nature of the Indian economy and society. The progress

of these revolutions has been uneven; some have beenwildly successful while others have been progressing in fitsand starts. Here is a quick overview.

The Demographic Revolution: India is a young country inan ageing world. It is rapidly moving toward a demo-graphic sweet spot, when the share of people of workingage in the total population will peak. Fewer dependents willmean, among other things, higher rates of savings, invest-ment and growth.

The Globalization Revolution:

Off all the economic mistakesthat India made after Inde-pendence, perhaps none wasmore serious than the deci-sion to withdraw into a pro-tectionist shell. Now, higherlevels of trade and invest-ments across national bor-ders are helping Indians spe-cialize, forcing them to bemore productive, and giving

them access to technological and organisational knowledge.

The Outsourcing Revolution: The drop in telecom costsand the increasing digitazation of key processes has helpedglobal companies transfer parts of their value chain to India,home to a huge pool of cheap and effective manpower.What started off at the low end of the value chain (like field-ing calls from dissatisfied credit call users in the West) hasnow spread to more high-value work like chip design orpharmaceutical research.

The Financing Revolution: Indias savings rate has startedclimbing. It is the job of the financial sector to ensure thatthese savings are channeled into the right sectors and pro-

jects While Indian banks are more stable than many of theirAsian counterparts, they have not been able to reach out tothe people who really need bank loans. The move towardgreater financial inclusion has now begun.

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17 No 3 | JUNE 2007

Excerpts

The Rise of India: Its Transformationfrom Poverty to Prosperity

by Niranjan RajadhyakshaJohn Wiley & Sons (Asia), 176 pages, 2007


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The Aspirations Revolution: Twenty-five years of strongeconomic growth and 15 years of exposure to the world - beit through trade, tourism or cable television - have un-leashed a wave of social change in India. It is very difficultto precisely define the contours of this wave. But there is nomissing it: the new generation expects a better life and is not

ashamed to pursue it.The Policy Revolution: Many of the old shibboleths of eco-

nomic policy have now been buried, but not all of them. Thepoor still find it difficult to participate in and benefit fromthe global economy. Another round of reforms is needed toaddress this problem. It means far-reaching changes - fromfreeing markets to building roads. But the most importantchallenge: giving property rights and access to finance tothe poor. This is one of the biggest unfinished tasks in India.

Each trendnaturallycomes embedded with certainproblems and ensuring that these problems are dealth with

satisfactorily will test the resilience and creativity of Indiansociety. For example, a young population can be a blessing

only if the millions of potential workers are educated andskilled and have jobs to use their knowledge and skills.Otherwise, there will be growing hopelessness and frustra-tion. The vitality that is bubbling up to the surface today canquickly transform itself into rage.

Indias long march out of poverty is unlikely to be a

smooth one. Yet, what is important is that Indians - one outof every six people on the planet - have a better chance thanever to break the shackles imposed by centuries of povertyand economic inertia. The rest of the world is watchingtheir progressas well as the threats, risks, and opportuni-ties that the rise of India will throw up.

Niranjan Rajadhyaksha is the editorial page editor ofMint. Copy-

right 2007 John Wiley & Sons (Asia) Pte Ltd. Published withpermission.

BOOK REVIEW

PLU engaged in WMDCHANDRAHAS CHOUDHURY

THE TITLE of Arun Maira'sbook, Discordant Democrats,might strike some readers asa tautology. After all, as thephilosopher Sidney Hookhas argued, in a true democ-racy the idea that in somecrucial respects all men areequal must be comple-

mented "by a belief in thevalue of difference, varietyand uniqueness". If this is so - and India in particular is afairground of difference, variety and uniqueness - then howcan democracy not be discordant? The word "discordant" inthis context is not necessarily the negative value that itwould be with an orchestra, a cricket team, or a firm.

Yet the concern advanced by Maira, currently chairmanof The Boston Consulting Group, India, is that Indian de-mocracy is so fractious and unruly that it detracts from de-velopment. The parallel that pops up in his book, as it often

does in discussions about Asia, is that of undemocraticChina, which has put together world-class infrastructurewithin the span of a generation. By contrast, people enteringthe city from Mumbai's airport face eyesores, traffic snarls,and other signs of retarded development. Yet, as India has

chosen the democratic wayof life, there is no alternativeto democracy; the only hopeis to better it."[T]he improvement ofdemocratic decision-makingmust be the agenda," arguesMaira, "for Indians whowant to accelerate the coun-

try's progress." It is with thisspecific problem in mind

that he suggests five graduated steps for better debate and building consensus. These steps, he suggests, are like thegears of a car: some are to help us take off, but we cannotaccelerate unless we move further down the chain of suc-cessful problem-solving. Readers will want to decide forthemselves whether they find Maira's ideas about such con-cepts as aspiring, realising and framing helpful.

Maira is a widely read man - among the many writers hecites in his book are Fareed Zakaria, Lewis Lapham, Jona-

than Schell, Tariq Ali, and Thomas Friedman. Sometimes hissurvey or what other people have written can be insightful,such as when he cites the Dutch political scientist ArendLijphart's classification of democracies into majoritarianones, in which a stable two-party system is the norm, and

BOOKS


Review

Discordant Democrats: Five Steps toConsensus

by Arun MairaViking (India), 224 pages, 2007


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consensus ones, in which power is divided between manycompeting players as in India. Intuition suggests that con-sensus democracies are slower and more inefficient, but intruth such democracies also manifest many good qualities,because forging a consensus means to some extent listeningor deferring to the other side. When thinking about the pros

and cons of fractured mandates of the kind widely seen inour era of coalition politics, it is useful to have informationlike this at hand.

Yet all too often Maira's book feels unhelpful, because itis too general. Maira's background is that of the corporateworld, and the tone of his book is that of a self-help manualfor managers. "Listening, like the atom, seems a very smallthing. Yet it has enormous power to change the world," hecounsels. On another occasion he writes, "In this scenario,many people rise like fireflies - living lights - all over thecountry and begin to transform darkness into light, despair

into hope and passivity into action." Many of the examplesof successful conflict resolution Maira cites come fromseminars and "leadership conclaves" he has attended.

Like many management gurus, Maira has a weakness forgenerating acronyms, such as the concept of PLU ("PeopleLike Us" for the tendency of people to assume conformitywith their own values) and the catchy WMD ("Ways of MassDialogue").

But the fallacy manifest in Maira's book is also a PLM(People Like Me) kind, which assumes that all the actors inIndian democracy are committed to liberal values and todemocratic debate and consensus - that they have the willbut perhaps not the skill, which they can learn by adoptinghis "five steps to consensus". By doing so, he greatly simpli-

fies matters. But six decades after our experiment with de-mocracy began, Dr B R Ambedkar's assertion that "democ-racy in India is only a top-dressing on an Indian soil whichis essentially undemocratic" still rings true today.

The real problem with India may be not so much that itis a nation of discordant democrats, but rather that it is un-der pressure on all sides from forces who do not subscribeto or have lost faith in the resolution of disputes by demo-cratic and non-violent means. In other words, the weaknessof Indian democracy is less that it is impracticably discor-dant and more that it is insufficiently deep-rooted - democ-

racy is not yet for us a way of life. The failure to frame theproblem properly makes Maira's treatise a well-intentionedbut somewhat inadequate one.

Courtesy: Mint (www.livemint.com)

BOOKS

19 No 3 | JUNE 2007

More online

Contributors websites and blogs

Salil Tripathi http://www.saliltripathi.comRavikiran Rao http://blog.ravikiran.comBrahma Chellaney http://chellaney.spaces.live.comMark Straub http://bankerinindia.typepad.comChandrahas Choudhuryhttp://middlestage.blogspot.com


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