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The Raisina Dialogue – Beginning of an era for India

Guest Post by Hemant Chandak

India hosted the three day Raisina Dialogue – 2016, in the first week of March. The event focus was for better connectivity of India with Asian countries. Issues of regional connectivity and issues including maritime trade and security that India was working towards was also discussed. The foreign secretary S. Jaishankar highlighted the AGAR (Security and Growth for All in Region), IONS (Indian Ocean Naval Symposium), SOMS and Joint Strategic Vision for Asia in his speech. Connectivity, as both a driver and outcome of national economic growth, and as a yardstick to measure influence was repeatedly highlighted.

As a ‘significantly under connected nation’, India’s ability to use its breadth, diversity and strategic location has been significantly undermined. Central to the lack of reach has been the Indian government’s inability to put together a concrete and working plan to connect to the north east. THe centrality of north east as a gateway to East asia is critical. The current NLD government, inspite of recasting the north east issue in a different light and making attempts to change the narrative on India’s east asia policy, hasn’t succeeded significantly.

The 15,000 crore NE connectivity project, an agreement that India signed with Japan to develop the region as a manufacturing base, hasn’t kicked off, except on paper. In what is seen as a three phase project to connect nearly 1,200 km, there are challenges and disagreements even on the first phase with an estimated cost of around Rs 5,000 crore. The first phase will connect two highways (380 km of NH54 in Mizoram and 50 km of NH51 in Meghalaya). It was to be funded as a loan at a concessional rate by the Japanese government-owned development agency JICA. However, differences between JICA and the National Highways and Infrastructure Development Corporation (NHIDCL) have emerged. And differences are not only around the costs involved, but even the technology that is to be used in building roads. Furthermore, how to carry assessments around environmental and social impact assessments remains a bone of contention too.

Things moved post Japanese PM Shinzo Abe’s visit to India, but if significant progress has to be made over the next 3-4 years, projects such as this will need to work much more efficiently than they have. The second phase comprises improvement of NH 127B, NH40, NH53 and NH 39 in the region as well as construction of two bridges, while the third phase comprises improvement in NH62, NH 102A and NH 44 with two more bridges. We have seen bridges in NE remaining in construction phase for nearly 5-7 years during the last government, but if this government is serious about its commitment, lethargy and corruption has to be checked.

If India is able to work through these plans quickly, sort out its differences and stick to the timeliness of construction, NE region would move away from a subsidy dependent region to become a significant contributor to overall India’s growth story. North East will play a significant role ones the infrastructure is in place to become key part in Bangladesh, India, China and Myanmar-Economic Corridor (BCIM-EC). This proposed corridor will originate from Kunming in China’s Yunan province and pass through Yangon and Mandalay in Myanmar, Chittagong-Dhaka-Sylhet in Bangladesh before entering North Eastern states, Bengal and ending in Kolkata. This is part of reviving the old Silk Route by the entire four nations’ involved. We will have to pull our act together to build the infrastructure in our geographic belt of the corridor to build credible reputation among the other nations involved, some of who are working at rapid pace to develop the same at their end.

Hemant Chandak works for CISCO systems. He is presently doing GCPP 13 and tweets @hemantchandak

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GM Crops — a scientific temper needed

Guest post by Anjana Kaul

A mention of GM crops (genetically modified crops) tends to invite strong opinions – both in favour and against. Those in favour believe that GM crops are a key to addressing food security not just in India but globally. Those against have many arguments, the most emphatic being that the effect of consuming or using GM crops on the human body are unknown.

In the heat of passion, there have been many objections raised against GM crops that are clouding the narrative and preventing a serious scientific assessment of the risk and the value of this new technology. Let’s discuss some of the objections raised:

Genetic modification is wrong in principle: Anyone who studied biology in school understands that every living thing that is present on earth is a result of many genetic modifications. Some proponents of this argument qualify it – genetic modification by humans is not right. Almost every food crop in its original pre-historic form was toxic for human consumption. The early settlers selected the wild varieties that were consumable and cultivated them thus hugely influencing the natural selection of those species. In more recent times, hybrid varieties are new plant varieties created by combining two or more existing varieties so that the new varietal has genes from the parent varieties. So one could take a variety with high yield but low resistance to disease and another with high resistance to disease and combine them to get a hybrid that has both high yield and high resistance to disease. The hybrid is a genetically modified version of the two original varieties. Does that imply that all types of genetic modification is good or should be allowed? All new technologies have risks and some technologies fail altogether. One could argue that nuclear power carries a significant risk to human life as well but we continue to use it.

Big multinational seed companies will benefit from GM crops: The argument here is that since most of the research on GM crops has been done by large multinational seed companies, if GM crops are allowed, these companies will dominate the space and misuse their power. That is analogous to saying that since only large pharma companies can afford to develop new drugs, we should not allow any new drug development as these large pharma companies will have an undue advantage. In fact, unlike pharma, agriculture gets a lot of government funding for research. Just in India there are more than 100 government institutes and about 50 private ones working on genetic engineering of various crops.

GM crops will destroy genetic diversity: The effect of GM crops on genetic diversity is not that different from the effect of hybridization. There is absolutely no doubt that we are losing genetic diversity in crops (when was the last time you saw 2 or more varieties of potatoes for sale?). This is happening because neither farmers nor consumers in India are sensitive to it. Since consumers don’t care about potato varieties, the farmer doesn’t pay much attention to mixing new seeds with old; seeds of one variety with another. Where consumers do care e.g. rice, some amount of diversity and distinction does prevail. In high value varieties like Basmati, the farmer is extra careful. To preserve the genetic diversity scientifically, there are now gene seed banks being maintained by various countries both for internal and global use.

GM crops will ‘infect’ normal crops: All plants have flow characteristics i.e. pollen from a field of one variety gets blown over to neighbouring fields and pollinates those plants. This happens in all farms today as well. To prevent such mixing of varietals where purity is important, farmers buy certified seed from seed companies rather than planting from an existing crop. It is true that the crop yield from a farm next to a GM crop farm may contain produce that inadvertently carries the genetic modification. A farm using chemical fertilizers and pesticides will ‘infect’ any organic farm next to it as water and air will carry the chemicals across the farms. To prevent this, a buffer zone is created and the organic farms are periodically tested to ensure there is no impact. The same principles could be used to devise techniques to prevent GM crops from ‘infecting’ neighbouring farms.

The effect of GM crops on human bodies is unknown: This is indeed true. Not enough research has been done to be certain of what the long term effects might be. Every new drug and almost every new technology invented for mass consumption goes through an evaluation phase. Watching too much television harms the eyes; cell phones destroy brain cells; microwave ovens destroy nutritional value of food are all popular beliefs or were at some point of time. True or not, these technologies exist and are being used extensively. The consumer evaluates the benefits and risks and decides whether to use them or not. Even today the consumer is choosing between food products that may contain harmful chemicals (pesticides and fertilizers) and various kinds of organic foods.

The passion that surrounds any debate on GM crops makes it difficult to have a purely scientific discussion about it. Just as with drugs, there need to be standards created that all food crops (not just GM) must adhere to. The process for testing must be rigourous and independently carried out by an accrediting agency before any crop is passed for field trials and later for mass release. Such a process exists and has been in use – this is how new drugs are developed and released into the market. We need to develop a similar scientific evaluation process for GM crops as well. Let there be trials; empirical data collected; analysed; studies on animals; etc. and let the scientific community and a regulatory authority make a dispassionate recommendation.

Anjana Kaul is a participant of the 13th cohort of GCPPB, the flagship course of Takshashila Institution

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The economic recovery part 2 — what the Indian economy needs is a reverse Indira Gandhi policy

Guest post by Akshay Alladi

To catalyse the investment cycle, the government needs to privatise banks, rather than use public funds to recapitalise them with no change in management and ownership

The principal problem holding back  Indian economic growth now is the “twin balance sheet” problem described in the Economic Survey, whereby the investment cycle has been stymied since public sector banks are unable to lend due to high NPAs, and large conglomerates are unable to borrow due to high debt on their books.

To solve this policy interventions are required on two fronts- with large conglomerates, and with the public sector banks.

In Part 1- What the Indian economy needs is to help more companies fail!, I described the potential solutions with large conglomerates. We turn our attention now to the policy interventions required with public sector banks.

The NPAs and stressed assets in public sector banks is at over 12% of total assets. With high NPAs, and stressed assets, the banks are constrained from lending; and without such lending large companies will be unable to borrow to invest- leading to lower GDP growth. In fact the public sector banks are in such bad shape that the market cap of 20 public sector banks put together is nearly matched by HDFC Bank alone- despite those banks having 70% of the assets of the entire banking industry!

The simplistic solution would be for the Government to bailout the banks- essentially by infusing equity into them. Then the banks will not be capital constrained any more and can lend. Variations of this include hiving off the stressed assets into a “bad bank” that is passed on to an asset reconstruction company, so that the PSBs do not have them on their books any more and can then start lending.

Two challenges with this approach are i) The stress it would place on the Government’s own finances- and the opportunity cost of the use of such funds and ii) The moral hazard it creates which would exacerbate the problem in the future.

Firstly on the Government’s own finances: By the FRBM Act,  the Government needs to reduce the fiscal deficit to 3.5% of GDP by 2017. It would be unwise to deviate from this path as that would reduce credibility, leading to increasing costs in the bond markets. Also, it is highly unlikely to work anyway- what India suffers from now is not lack of domestic demand (in fact consumer demand has been quite healthy), but inability of the supply side to work due to balance sheet problems; a credible argument for Government spending to drive fiscal stimulus could have been made if the issue is low consumer spending due to stressed consumer balance sheets (like it was in the USA after the financial crisis), but that is not the situation that obtains in India today.

In fact an increase in Government spending or in the use of funds for recapitalisation leading to stress on Government finances at this stage could not just be ineffective, but actually counterproductive. With an aggressive inflation targeting central bank like the RBI under Raghuram Rajan, any deviation from the fiscal path that would increase inflation risks would be counteracted by the RBI by a tighter monetary policy with high interest rates. High interest rates would exacerbate the balance sheet problems of the corporations (since firms would have a higher interest burden and even less money to invest) and hence would further slow down the economic recovery. As the economist Ila Patnaik argues, India needs a “tight fiscal, loose monetary” regime. Deviating from the fiscal deficit target to fund the banks is a move towards the exact opposite policy- “loose fiscal, and tight monetary”

The scale of the requirement for recapitalisation is also huge- the government has already committed Rs. 70,000 crore for recapitalisation, but several agencies, such as Moody’s, believe that the amount required would be much higher- upto Rs. 1.45 lakh crores (and could be even higher given that the total impaired assets are closer to Rs. 7 lakh crores). While some of this can be raised by the RBI itself helping bank recapitalisation, there will still be a huge gap to fill.

While evaluating whether recapitalisation led by the government reasonable we should look also at opportunity costs. Money spent on large scale bank recapitalisation is money that is diverted away from other core functions of the government. In fact the Economic Survey itself points out that the highest Return on Investment (RoI) that the government can get from any spending is on maternal and early life health and nutrition. Even at its current stage of economic development, India underperforms on key indicators of maternal and early child health. Hence from a both moral and practical standpoint it would make sense to over-index on government spending in these areas, rather than on bank recapitalisation.

The moral hazard issue is the other to consider. This bank recapitalisation is yet another in a series undertaken periodically- a virtual bailout now will probably lead to the same behavior repeating, and a need for further recapitalisation in a  few years. Merely recapitalising banks is a Band-Aid solution, that doesn’t address the underlying issue- which is that the political economy of public sector banks is fundamentally flawed. Over 90% of the loans written off over the last 5 years have been of large corporates– and this is no coincidence. Public sector banks are prone to interference from political forces, which in turn could also lead to capture by large, well connected corporations. While the “Indradhanush” reforms, and Bank Board Bureau are welcome reforms, they are still far from addressing the root and branch reform of the way PSBs are governed and managed.

The only way out is a large scale privatisation of banks- essentially a full reversal of the nationalisation undertaken by Indira Gandhi. That would not only infuse equity capital into the banks and help them cleanup their balance sheets without the government ploughing in more money, but it would also address the root cause- and cause a change in the management and governance of PSBs which would help their long term health. Japanese banks, in particular, may be attractive candidates to court as they are awash with funds and large balance sheets with low yield ,and search for high growth opportunities which the Indian market offers.

The Chinese character for “crisis” is composed of two parts- danger and opportunity. The boldness of the Government in reversing the course set by Indira Gandhi will determine which of those two paths the current crisis leads us to.

 

Akshay Alladi is a participant of the 13th cohort of GCPP, the flagship course in public policy of Takshashila Institution.

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The real-life trolley problem

Guest post by Akshata Prabhu
Imagine that you’re the driver of a runaway trolley, hurtling towards five innocent men working on the tracks. You can’t control the trolley, but can pull a switch, capable of diverting the trolley onto another track, where there is just one worker. Do you pull the switch, and actively kill the one worker? If you think this is ridiculous, and that any such situation is never going to actually happen, the days of such blissful ignorance are sadly over.
The trolley problem has been one of the most famous philosophical experiments of all time, and it’s not hard to see why. Conflicting answers are often the norm for the ‘right thing to do’; a result of the tension between our moral duty to not cause harm vs. to not do bad things. If harm were to be measured by the number of lives taken, adhering to Mill’s idea of utilitarianism, switching tracks is a no-brainer. However, the fear of ‘actively’ doing bad things i.e. murder, by choosing to pull the switch, keeps that from being the obvious choice. Either way, irrespective of choice, dismissing this experiment as a pointless one is often the first reaction. If seen realistically, the action of a person who might actually be in such a situation might be widely different from what he/she thinks is the right choice. If you’re driving a car, and are headed towards an inevitable crash, what you choose to do moments before the crash could be chalked up to fear, survival instincts or even reflexes. The idea of being human, rids you of the responsibility to take a strong ethical stance.
Over the last year or two, however, the trolley problem seems to have resurfaced, and this time it has enormous social consequence. With the advent of driver-less cars, the ethical questions that seem to haunt researchers is not unlike the trolley problem. Would a person get into a driverless car, if the algorithms chose to let the occupant die instead of allow a collision that kills multiple people? Helen Frowe, a professor of practical philosophy, supports the idea of protecting innocent bystanders, as those in the car have more responsibility for any danger. But this is where things get a little murky; in a situation where there are innocent people in the car, especially children, where does the responsibility lie? Or, if the collision is with a jaywalker, Frowe’s suggestion doesn’t seem right at all. According to Jean-Francois Bonnefon, a professor at the Toulouse School of Economics, utilitarianism, instead, seems like a popular choice. An in-depth attempt by him to gauge public opinion, however, resulted an almost predictable situation.  People wanted others to use utilitarianism-upholding vehicles, more than they themselves did! The paradox is laughable, but it also quite clearly sheds light on the sort of self-interest that comes up in such decision-making.
Irrespective of the choice made, any decisions made in this regard has significant impact on society. The imposition of one moral viewpoint over the world severely disadvantages innocent people on either side. Or, the existence of different moral algorithms, and the ability of buyers to choose, drastically changes responsibility for harmful consequences. But more than revolutionizing the idea of justice, the trickling down of the trolley problem into the world of artificial intelligence, seems to have opened up the door to a world of new possibilities; one where decisions will cease to be knee-jerk reactions, and one where we will have the ability to premeditate different options as we program how our machines act. From all this, one thing is clear; policymakers in the field of artificial intelligence are going to have to deal with some of the toughest ethical dilemmas that our society has ever seen. The decision on what constitutes ‘ethical’ and what doesn’t, will be crucial in determining the idea of right and wrong for mankind.
Akshata Prabhu is participant of the 13th cohort of GCPP, the flagship course in public policy by Takshashila Institution.
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