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Trade wars will linger: India should concede what it must, secure what it can

Trade wars will linger: India should concede what it must, secure what it can

As the US celebrates its 242nd Independence Day today, the global order it has dominated for many decades is again being transformed. Earlier transformations saw US influence alternately increase – such as when the Soviet Union and its satellites collapsed three decades ago – and undergo relative decline, as with its global clout vis-à-vis China in the years since the Iraq war.

The current metamorphosis is fuelled by President Donald Trump’s muscular reorientation of US policies, most notably on trade. This impacts India’s interests, but not necessarily in black and white terms. There are both pitfalls to be avoided as well as advantages to be reaped.

Though many pundits, including most American ones, have been sharply critical of the US policy shift, it is important to grasp that it is not some fad foisted on the world by a whimsical leader. It was only after many months of sustained fulminations about Trump’s election that more balanced opinions have started appearing, attempting to understand and explain what had earlier seemed unfathomable to liberal mainstream media.

In a major inflection, the global economic order that prevailed post World War II, including the “consensus” on rapid globalisation in recent decades, is coming unstuck. Despite the many overwhelming benefits of free trade, commitment to it as an article of faith meant being blind to its losers.

There indeed were losers. It is well known that countries which rebuffed market forces, preferring grossly ineffective statist and protectionist models, have without exception bitten the dust. The Soviet bloc was the biggest example, and now countries like Cuba and Venezuela. But there were losers even in countries that participated in and benefited from the freer global trade system.

Ironically, even in the US, the leader of this global system, there were enough disaffected voters getting a raw deal to trigger a pushback. America had seen economic woes earlier during this era too, for instance during the stagflation years of the 1970s. But productivity gains, especially from technology, had helped it rebound in the 1980s and 1990s.

In this century, however, with much US manufacturing having already shifted to cheaper-labour countries, and a dysfunctional education system, there are enormous political pressures to protect those at the bottom of the American pyramid. Of course, protectionism cannot provide a sustainable solution, with gradual pressure on competitiveness and costs, but could very well provide short to medium term benefits.

On the other hand, the unequivocal winners of freer trade were nations that invested in education, embraced technology, reduced red tape, and thus ramped up their productivity and competitiveness. Singapore is the poster child of that kind of economic trajectory, succeeding beyond all expectations. Several other countries of various sizes have experienced similar upward mobility for decades, for the same reasons.

India was a latecomer to the system. With its highly controlled “mixed economy” model, it missed out on high growth opportunities for nearly half a century after independence. We have been catching up for the past quarter century by gradually opening up the economy, and now with a surge in infrastructure and a substantive structural rejig, the Goods and Services Tax (GST). But we are still held back by several legacy domestic hurdles.

Until we dismantle those domestic hurdles, India will continue to struggle with freer trade regimes, because of compulsions to be protectionist due to lack of competitiveness. To be competitive, we need to drastically reform our anti-investment and anti-employment labour laws; speed up the judicial process; further slash red tape; reform agriculture; and improve education. That would propel us into the top 50 of the World Bank’s Ease of Doing Business index from the current 100.

China is the outlier, having harnessed market forces and the open global trading system to grow rapidly for four decades, but is now accused of lack of reciprocal openness, and of gaming the global system to secure unequal benefits. Its massive trade surpluses have spurred tensions for years, and are the direct target of Trump’s attempt at forceful re-adjustment.

China and India’s responses to US tariffs are revealing. While both have retaliated, the former has blustered, ranted and threatened escalation, the latter has, wisely, quietly done the minimum necessary.

The most significant trade war in decades, if not centuries, is now well underway. Most leaders have responded with homilies like “There will be only losers” (French finance minister Bruno Le Maire) and “There will be no winners” (Chinese premier Li Keqiang).

While that is broadly true, the harsh reality is that some have more to lose than others. It is, therefore, no coincidence, that there is reportedly a sudden slowdown in Chinese funding for its Belt and Road Initiative (BRI). Moreover, China has recently shown an increased willingness to co-opt rather than constrain India through economic overtures. For its part, having demonstrated resolve during the Doklam standoff last year, India has now responded positively.

In discussions this week for creating the world’s largest trading bloc, the Regional Comprehensive Economic Partnership (RCEP), India sought free movement of people in lieu of lowering tariffs. That is a big ask amid growing global concern about immigration. But India will need some such sweetener, perhaps capped in absolute numbers for a specified period, until its economic competitiveness is improved with further domestic reform.

Naxalism in India

Article Title:”The soil isn’t coloured red”

The coyness with which Indian politicians desist from publicly describing Naxalites as terrorists is telling. But ask them privately,as I have of many,and a surprisingly large number of them have no compunction in saying that “encounters are the only way to deal with them.These anonymous endorsements for dispensing summary justice by way of staged encounters where police and paramilitary forces are encouraged to gun down suspects in cold blood also speak volumes about political correctness in the largest democracy on earth.

India has long been called a soft state when it comes to taking hard headed decisions in the national interest that is,taking those decisions in time,well before years of festering brings the country to the brink of calamity. After years of the central government pretending that Naxalism was a state level problem,we are now at that brink nationally. In large swathes of the country today,the writ of the state has been replaced by that of the Naxals,who collect taxes,hold trials,issue punishment (including executions),recruit and operate a standing army,and are deeply dedicated to overthrowing the six-decade old Republic of India.

It is,of course,the failure of the republic to improve the lives of hundreds of millions of Indians that created the conditions for Naxalism to grow in the first place. This original sin has underpinned the guilt-ridden response of many liberals. Naxalism is not a law and order problem,goes the argument; it is a socio-economic one. The reality,of course,is that it is both. The tragedy is that the debate on how to deal with Naxalism invariably treats the problem as one or the other  that is,either a law and order problem,to be dealt with harshly,or a socio-economic problem,to be tackled with dialogue and development  when what is probably required is to do both.

The origins of Naxalism might lie in socio-economic injustices,but the movement has long since gone past the stage of fighting for social justice and development. In fact,and this is what the liberal viewpoint often misses out,the Naxalites today actively oppose any form of developmental activity,be it the construction of roads,schools,hospitals,anything whatsoever,with the cold-blooded aim of securing their turf. Their sole objective today is to ruthlessly keep hammering away at the organs of the state until the state is no more. The movement is explicitly committed to dismantling the republic,doing away with elections,closing down the media,and,by way of its sympathy for regional breakaway groups,chopping up the country.

So are they terrorists or not? The only stretch by which it could be argued that they don’t meet all the characteristics of terrorists  as opposed to militants or freedom fighters of some kind  is that they do not officially target innocent civilians. But ask those who understand the problem best,those who have studied the Naxals credo and have actually risked their lives in the frontlines,and they will tell you that there is no doubt at all.

Does that mean that dialogue with them should be out of the question,military-style action the only option? Not exactly. National policy must first distinguish that all Naxals are not equal. Many of the Naxal elite are college and university educated,they form the core of the CPI (Maoist) party,are its ideologues,and aspire to come to power some day. They must be tackled differently from the grunts,the disaffected tribals and other disenfranchised Indians who are the indoctrinated foot soldiers.

The central government has finally put together a grand plan,which will hugely increase boots on the ground to fight fire with fire. Those of us from Naxal-affected states had for years been wondering when Delhi was going to wake up and smell the coffee. Delhi seems to have not only smelled the coffee,but ingested a large dose of testosterone as well. But while hitting back with firepower is a necessary evil  necessary because the policy needs to have both carrot and stick  it will sadly not be enough.

The Naxals have been preparing for this day for years. They believe they have the upper hand in guerrilla type hit-and-run jungle warfare against the paramilitary forces being massed against them. They will also not hesitate to use as cannon fodder their cadre of foot soldiers. While the resolve of the Government of India will surely be tested,that of the Naxalites will not be,until and unless their core leadership,their ideologues,are engaged.

It is here that dialogue,track two discussions,could help. As in other militant movements in the North East for instance resolute military action combined with astute discussions could help to bring them into the mainstream. But there are those who maintain that dialogue is not the only complement to massive armed action. A retired civil servant with experience of such matters recently told me that talks are a waste of time,but a hundred or more top (Naxal) leaders need to be wiped out by targeted action,just the way it was done in Punjab before the terrorism there could be solved,and exactly how progress has been made in Andhra Pradesh.

There is hidden irony in the underlying similarity of these vastly different approaches talks vs. encounters  in that both doves and hawks are unwittingly saying the same thing: the massive armed action being readied now will run into expendable,and renewable,low-level Naxalites; what is also needed is a plan to tackle their leaders.