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Author Topic: CURRENT AFFAIRS (23-07-14)
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on: July 23, 2014, 04:51
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<h1>1. Allow No Compromise on Independent Judiciary</h1>
 

Even six and a half decades after India became a Republic, a proper system of appointment of judges to the Supreme Court an d the high courts has not been brought into being. The controversy created by Press Council of India chairman Justice Markandey Katju that three former chief justices of India were pressured to confirm a corrupt high court judge is a reflection of this failure. The Union law minister’s statement in Parliament that since all the chief justices concerned had retired, the government could do little in this regard has some merit. The incident happened over 10 years ago and the judge on whose behalf a political party had influenced the government is also no more.Nonetheless, the Modi government has done well to initiate discussions with political parties and jurists on finding a proper system of recruitment. There was a time when the government could choose any of its favourites in the judiciary as judges. There was also a time when the government talked about a committed judiciary and chose chief justices in wanton disregard to seniority. Then came the present system of collegium, whereby the Chief Justice of India plays an important role in the selection of judges. That it is not flawless was proved when a controversial judge was chosen by the collegium without knowing his background, forcing the Chief Justice to transfer him.Judges once appointed cannot be removed except through a time-consuming impeachment process. They enjoy enormous power, which can be detrimental to the country if it is not exercised properly. This is all the more reason that only persons of unimpeachable integrity, impartiality and ability are appointed to the post. A basic flaw of the collegium system is that it allows judges to choose their own successors. The UPA government tried to introduce a new system by attempting a constitutional amendment but it did not bear fruit. Whatever be the new system, the independence, transparency and accountability of the judiciary should not be compromised. The government should have a say in the selection of judges but the final word should be that of legal luminaries.<b></b>

 
<h1>2. Build Roads to Build Nation</h1>
 

If Sher Shah Suri were alive today, he would have felt proud to see that the Grand Trunk Road continues to serve three nations—India, Pakistan and Afghanistan—four centuries after its construction. One feels equally proud to read that India’s road network is second only to that of the US. This feeling ends the moment one steps out to find uneven, potholed roads, offering a bumpy ride. The journey often ends on a sad note!India may have a road network of over 4.7 million km but quality-wise, it is one of the worst. Last year, the World Economic Forum in its report on travel and tourism competitiveness ranked India 27th on the quality of its roads. It has one of the lowest road densities in the world—2.59km per 1,000 people and less than 0.7km of highways per 1,000 people. Indian roads are among the world’s most dangerous to drive.According to a recent WHO report, in India a person is killed every 3.7 minutes in a road accident and one accident takes places every minute. India has twice the number of accidental deaths compared to the US—18.9 and 10.4 deaths per 1 lakh people respectively. The figure is all the more appalling when it is computed for 1 lakh motor vehicles—134 deaths against 15 in the US. Around 1.5 lakh people die in road accidents every year, compared to 33,000 in the US. Low road density and poor maintenance of roads account for the high accident rate.The road network, which caters to around 85 per cent of passenger traffic and 60 per cent of freight traffic, is given a step-motherly treatment. Around 50 per cent of the roads are not in good condition. It is not an unknown fact that roads are allowed to wither till they become unfit for use. Local authorities don’t act until political pressure is applied on them. It is cheaper to maintain a road than to reconstruct it again.The South African National Road Agency Limited has estimated that the repair costs increase up to six times the maintenance costs if a road is neglected for three years and 18 times in five years. It is elementary knowledge that before a road is built, water drains should be built on both sides. This is something which our road builders seldom remember.Equally disappointing is the recent white paper on the National Highways Authority of India (NHAI) released by the ministry concerned. Though it is alleged to have been prepared to show the UPA government in a poor light, there is an element of truth in it. The paper says that over the last decade, the government laid undue stress on awarding new projects without going into technicalities like availability of land, environment clearance and other statutory approvals. A record number of 189 projects in 20 states involving `27,209 crore are mired in controversies and disputes.A recent CRISIL report says that cost overrun, along with traffic slowdown, questions the viability of these projects. Project returns have dimmed from a projected range of 22-26 per cent to a mere 8-14 per cent. These projects follow the self-financing model by earning revenue through tolls and cess. Even a 1 per cent traffic drop can adversely affect the economic viability of such projects. In other words, the developers will find it difficult to service their loans. Small wonder that these projects fail to impress and find competitive bidders.The policy paralysis and short-sightedness during the UPA government are clear from the fact that the ministry had to reduce its target for 2013-14 to 5,000km from 9,500km in 2012-13. It’s a different matter that the ministry could not even award projects for 2,000km in 2013-14.India has around 70,000km of national highways and 1,76,027km of state highways with an average annual traffic growth of 7-10 per cent. Of this, only 2 per cent of the road length is four- or six-lane, 34 per cent two-lane and 64 per cent single lane. The deficiencies in the network cause huge economic loss due to slow transportation, which increases transit and inventory costs. Besides, most of the development in road transport has been concentrated in urban areas.The rural areas continue to be linked through outdated, potholed roads. Over 30 per cent of agricultural produce gets spoiled due to poor infrastructure. The Rakesh Mohan committee pegged the economic cost of bad roads at `20,000 to `30,000 crore annually. The figure is bound to be more if adjusted for present-day prices.It is high time the NHAI is restructured by giving it autonomy. This will speed up decision-making. The projects should be awarded only after obtaining all the necessary approvals and clearances. The government should concentrate on project implementation and commencement, rather than mere initiation. The golden quadrilateral of four- to six-lane projects are inadequate considering the growing traffic and increasing population. A high-speed 12-lane shall not only reduce transaction costs but also cater to future passenger and freight traffic.In India, only 30–40 per cent of the revenue from road transport is ploughed back into road development. In contrast, countries like the US, Switzerland and Japan use the entire revenue for road development. India’s revamped central road fund and state funds have failed to meet the road development needs, as they work without any management board, lack specific governance mechanism and transparency in decision-making. They don’t even publish annual reports. Had the funds functioned properly, infrastructural cost would have reduced greatly.Border areas—sensitive both in terms of defence and economic activity—are also neglected. Lack of infrastructure implies India isn’t ready even for a low-intensity conflict. Since 9/11, nations like the US and Canada have made huge investments in border roads, which not only yield economic benefits but also enhance security.While China has established rail and road links to Tibet, Indian infrastructure projects continue to lapse deadlines. India has managed to build only 18 all-weather road projects out of 73 identified in 2006, thanks to the age-old monopoly of the Border Roads Organisation and lack of political will. A number of centrally-sponsored schemes overlap one another. For instance, the Pradhan Mantri Gram Sadak Yojana and the Biju Setu Yojana are meant for providing all-weather roads in rural areas. Such schemes can be clubbed together and modified to save resources.The Modi government has set an ambitious target of constructing 8,500km roads for the current financial year. It must not follow the precedent set by the UPA government but take the challenge head on like Sher Shah Suri did.<b></b>

 
<h1>3. Finance Ministry wants banks to be exempt from CSR spend</h1>
 

Indian <a href="http://www.business-standard.com/search?type=news&q=Banks" target="_blank">banks</a>, particularly those owned by the government and facing an urgent need to raise capital, could get some relief.The finance ministry has written to the corporate affairs ministry, asking the latter to exempt banks from the corporate-social responsibility (<a href="http://www.business-standard.com/search?type=news&q=Csr" target="_blank">CSR</a>) spending mandated by the Companies Act.The Act, which came into effect from the current financial year, mandates companies to spend at least two per cent of their average net profit for the immediately preceding three financial years on CSR activities.The CSR provisions within the Act are applicable to companies that have annual turnover of Rs 1,000 crore or more, or net worth of Rs 500 crore or more, or net profit of Rs 5 crore or more.Almost all commercial banks have made profits of more than Rs 5 crore in the past three financial years. The Act also requires companies to set up CSR committees comprising their board members, including at least one independent director.Profitability growth of bank groups differed significantly last financial year. The new private banks were able to maintain a healthy growth rate of 19.7 per cent in their profit after tax during 2013-14, compared to a contraction of 30.7 per cent in the net profits of public-sector banks during the year.According to the finance ministry, since the country is considered a bank-led <a href="http://www.business-standard.com/search?type=news&q=Economy" target="_blank">economy</a> and as the economy is not doing well, banks should be exempted from spending on CSR activities till the economic conditions improve.All private-sector banks, both old- and new-generation ones, are incorporated under the Companies Act, and so are foreign banks' branches.Nationalised banks are incorporated under the Nationalised Bank Act. Though it is not clear if public-sector banks also need to spend on CSR activities - Reserve Bank of India laws allow them to make donations - the finance ministry wants all banks to be exempted from the stipulation for now. If the corporate affairs ministry agrees to the request, it will be a big relief for banks, particularly the public-sector ones.The move comes at a time when the government is constrained in infusing capital into state-run banks. According to the government's own estimates, public-sector banks will need Rs 2.4 lakh crore of capital infusion over the next five years, mainly to meet the Basel-III norms and to fund their business growth. Banks' capital positions are under pressure due to mounting non-performing assets (<a href="http://www.business-standard.com/search?type=news&q=Npas" target="_blank">NPAs</a>) and this is putting pressure on profitability. Also, from April 1 next year, banks will have to treat restructured assets as NPAs, for which provisioning requirement will go up sharply. At present, standard restructured assets require a provisioning of five per cent, while sub-standard assets need provisioning of 15-20 per cent, depending on whether a loan is secured or not.<b></b>

 
<h1>4. International pressure on India to sign WTO trade agreement</h1>
 

India has come under international pressure to sign on the protocol of amendment for the World Trade Organization’s (<a href="http://www.business-standard.com/search?type=news&q=Wto" target="_blank">WTO</a>’s) <a href="http://www.business-standard.com/search?type=news&q=Trade+Facilitation+Agreement" target="_blank">trade facilitation agreement</a> (<a href="http://www.business-standard.com/search?type=news&q=Tfa" target="_blank">TFA</a>) and help convert it into a legal document before the July 31 deadline.The country, though, is sticking to its stand that it will not sign the agreement till it gets assurance that the <a href="http://www.business-standard.com/search?type=news&q=Food+Security" target="_blank">food security</a>issue, concerning stockholding of food grains and subsidies under WTO’s Agreement on Agriculture, will be negotiated by the 159 member nations. This is even as India has received an assurance from US, Brazil, China, Africa and the G-33 group of developing countries that food security will be discussed.Until the end of last week, India had not spelt out its stance on Post-Bali Work programme, officials involved in the negotiations at WTO’s Geneva headquarters told Business Standard.“India did not even clearly spell out what will be it’s position... It was only last week that it came out with a half-baked proposal. Ever since Bali happened, India has been silent on the Bali package, which is waiting for a guidance from New Delhi. India has been saying for months it cannot debate on these issues, as its new government has not yet taken any position on the Bali talks,” said a senior trade negotiator, asking not to be named.The trade negotiator added India had this time been deserted by the <a href="http://www.business-standard.com/search?type=news&q=Brics" target="_blank">BRICS</a>, G-20, G-33 and the African group, all of which had agreed to adhere to the July 31 deadline for the trade facilitation agreement. The pact is to come into force from July 2015. The official also warned if India lost the opportunity on the agreement now, it would be “very difficult” to get everyone back on the table to talk on food security.According to sources, Commerce & Industry Minister Nirmala Sitharaman held separate meetings with WTO Director-General Roberto Azevêdo, US Trade Representative Michael Froman and other senior officials, on the sidelines of the G-20 meeting in Sydney last week. All of them assured her food security would be negotiated as soon as work on the trade facilitation agreement was over.“Not a single country, including the US and other developed countries, signalled in any way that there was a movement away from the promises made to India in Bali,” said another official involved in the talks.According to a ‘Summary of Discussion’ circulated to G-20 participants internally, which has not been made public, all members, including the developed world, have agreed that the trade pact was “not the only Bali outcome, and G-20 ministers are committed to working constructively on all elements of the Bali package of outcomes”, explicitly saying issues concerning public stockholding for food security purposes will be discussed.And, that’s not all. Apparently, India was also assured by the US, twice, that it was “committed to what was agreed in Bali, with all the specific deadlines, including on the issue of trade facilitation.” According to reliable sources, US has even assured India that it will start working towards food security issues once the work on the trade facilitation agreement gets over, as the deadline to find a permanent solution to the food security issue is 2017.However, it seems, India has not responded to either of the US authorities’ communications clearly spelling out the US’ approach on food security. In an internal communiqué on the Post-Bali Work Programme to the WTO members, the US even suggested compiling a report on food security and how it should be negotiated. At a press conference concluding the G-20 trade ministers’ meeting, Australian Trade Minister Andrew Robb said there was a “strong resolution” that India’s concerns on food security should be addressed.All eyes are now on what the Cabinet, chaired by Prime Minister Narendra Modi, will decide on the issue on Wednesday. It is unlikely to make its stance very clear but might show its intent of supporting TFA, provided talks on food security also moves on. Besides, the WTO Trade Negotiating Committee will meet in Geneva on July 24 to build a final consensus among all members.Industry body Ficci, meanwhile, has come out in open support of the trade facilitation agreement and urged the government to sign the pact, which will help reduce transaction costs across international borders.<b></b>

 
<h1>5. Differentiated banking licence: Local area banks hopeful on RBI move</h1>
 

The recent proposals issued by the Reserve Bank of India (<a href="http://www.business-standard.com/search?type=news&q=Rbi" target="_blank">RBI</a>) on licensing of small <a href="http://www.business-standard.com/search?type=news&q=Banks" target="_blank">banks</a> has encouraged local area banks (<a href="http://www.business-standard.com/search?type=news&q=Labs" target="_blank">LABs</a>). However, they’re also looking for some additional benefits to enable them to explore the possibility of converting into small banks.The draft norms had said LABs, along with non-banking finance companies and <a href="http://www.business-standard.com/search?type=news&q=Micro+Lenders" target="_blank">micro lenders</a>, will be eligible for converting into small banks.There are four LABs in the country which are functioning satisfactorily, said the banking regulator. However, these are not considered scheduled banks, a hindrance for them in getting certain benefits.“One of the advantages of getting a scheduled bank status is that smaller loans are covered under the credit guarantee scheme. We, the LABs, are not eligible for this,” said T Eswara Chandra Rao, managing director of Coastal Bank, a LAB licenced by RBI in 1999. The bank operates with 33 branches in five districts of Andhra Pradesh — Krishna, Guntur, West Godavari, East Godavari and Visakhapatnam.The draft norms were not clear whether small banks will be given the scheduled bank status. “We need to have clarity on few issues before we apply for a licence,” Rao told Business Standard from Vijayawada, where the bank is headquartered. Coastal Bank has been profitable since its inception.“Since LABs are not considered as scheduled commercial banks, a number of institutions are not allowed to keep their deposits in these. So, LABs are not able to mobilise those,” said Manmath Dalai, managing director & chief executive officer, Krishna Bhima Samruddhi Local Area Bank. It operates in six districts, three each in Karnataka and Andhra Pradesh.The branch licensing policy of LABs are also restricted, unlike commercial banks. The latter can open any number of branches in a year and also don’t need to take prior RBI permission for doing so. However, they are mandated to open 25 per cent of their total branches in rural unbanked areas.LABs, on the other hand, are allowed to open only five or six branches in a year. The draft norm says small banks will need RBI approval for opening of branches in the first three years, RBI said this stipulation could be relaxed, based on experience.“We need to know how many branches a small bank is allowed to open in the first three years,” Rao said.Unlike scheduled banks, LABs are not eligible for refinance facilities from agencies such as National Bank for Agricultural and Rural Development. Nor are they eligible for farm loan subsidies provided by the Centre and the states, though they predominantly operate in semi-urban and rural areas.LABs will also face a challenge in terms of initial capital requirement, kept at Rs 100 crore. “Capital is probably the biggest constraint for local area banks. In India’s financial world, big is always beautiful. Since the capital base is small and there are restrictions on ownership, not too many investors are keen to invest their money in LABs,” said Dalai of KBS, which started operations in 2001.KBS will also consider converting into a small bank and will ask for its board of directors' approval. “KBS Local Area Bank currently operates in six districts which are considered backward. We deliberately decided to operate in these regions because we wanted to offer banking services to the poor. Our business model is different from the rest. We focus on micro lending and financial inclusion. Given the government's focus on financial inclusion, we believe this model will provide us with huge opportunity,” said Dalai.The other two LABs are Jalandhar-based Capital Local Area Bank, the largest, and Saubhadra Local Area Bank of Kolhapur.<b></b>

 
<h1>6. No patchwork reform</h1>
 

<a href="http://www.business-standard.com/search?type=news&q=Reform" target="_blank">Reform</a> of India's archaic and restrictive labour laws are central to any reform programme. This is a well-understood fact now; that the unfortunate stunting of India's<a href="http://www.business-standard.com/search?type=news&q=Manufacturing+Sector" target="_blank">manufacturing sector</a>, particularly in labour-intensive industries, can largely be laid at the feet of these statist laws is undeniable. Not only do they provide bureaucrats with a reason to harass entrepreneurs, and place an excessive and unfair burden on small and medium enterprises, but they have signally failed to protect India's workers. The fact that every employer wishes to avoid the incidence of these laws has led to widespread casualisation of the workforce. As a consequence, over 90 per cent of Indians work in the unorganised sector. Any comprehensive approach to restarting the economy from the new government will need to include a complete overhaul of <a href="http://www.business-standard.com/search?type=news&q=Labour+Law" target="_blank">labour law</a>.It is unfortunate, therefore, that the new government has shown little interest in pushing the envelope as far as this essential reform is concerned. Instead, the Bharatiya Janata Party (<a href="http://www.business-standard.com/search?type=news&q=Bjp" target="_blank">BJP</a>), which leads the <a href="http://www.business-standard.com/search?type=news&q=National+Democratic+Alliance+Government" target="_blank">National Democratic Alliance government</a>, has stressed that the Rajasthan government - which it also runs - is conducting labour law reform. The Rajasthan government will alter the application of related central laws: for example, raising the threshold of the number of employees who can be laid off without government permission from 100 to 300, and applying the Contract Labour (Regulation and Abolition) Act only to companies with more than 50 workers, compared with 20 now. Similar labour law changes are being contemplated in Madhya Pradesh, also ruled by the BJP, and even Haryana, which is ruled by the Congress. These are certainly welcome developments, indicating that labour law changes as necessary reforms to revive the manufacturing sector have begun to gain wider acceptance in many states.But the problem is the BJP's reluctance so far to initiate labour law reforms at the <a href="http://www.business-standard.com/search?type=news&q=Centre" target="_blank">Centre</a> and the argument that its acceptance of states' changes in these rules, when they come up for the president's assent, should be enough to demonstrate its commitment to reform. At best, this is a half-hearted approach to labour reform, raising questions as to whether the BJP has surrendered to anti-reform voices, such as its own affiliated trade union, the <a href="http://www.business-standard.com/search?type=news&q=Bharatiya+Mazdoor+Sangh" target="_blank">Bharatiya Mazdoor Sangh</a>. If Prime Minister <a href="http://www.business-standard.com/search?type=news&q=Narendra+Modi" target="_blank">Narendra Modi</a> is serious about pro-market reform and restarting manufacturing, he must act to change the labour laws at the Centre on the lines of Rajasthan's amendments. The Centre is where the problematic legislation is, not at the states. If the legislation is bad - which it is - the Centre must repeal it. Otherwise India faces the prospect of its states haphazardly and selectively applying various parts of central labour law. A patchwork of law will be as confusing for smaller enterprises, and increase their compliance cost. Mr Modi has been granted a majority in the Lok Sabha - what is he waiting for? It cannot be for a majority in the Rajya Sabha, too. After all, the Congress manifesto was more positive on a flexible labour market than was the BJP's; Rahul Gandhi told a meeting of industrialists earlier this year that labour law reform must happen. In other words, the conditions are ripe for Mr Modi to reach across the aisle and ensure support for an amendment in the Rajya Sabha, as well. At the very least, the amendments should be introduced into the Lok Sabha forthwith.<b></b>

 
<h1>7. Indira Rajaraman: Dismantling food inflation</h1>
 

Of all the measures in the final <a href="http://www.business-standard.com/search?type=news&q=Union+Budget" target="_blank">Union Budget</a> and <a href="http://www.business-standard.com/search?type=news&q=Rail+Budget" target="_blank">Rail Budget</a>for 2014-15, the micro-interventions that address <a href="http://www.business-standard.com/search?type=news&q=Food+Inflation" target="_blank">food inflation</a> by dismantling supply-side barriers are the most important. They carry added significance in a year when the monsoon has been deficient in a wide swathe of the western and northern parts of the country.The promise to bring down the hold of wholesale warlords in the <a href="http://www.business-standard.com/search?type=news&q=Agricultural+Produce+Marketing+Committee" target="_blank">Agricultural Produce Marketing Committee</a> (<a href="http://www.business-standard.com/search?type=news&q=Apmc" target="_blank">APMC</a>) designated market yards is the most significant.The central government "will work closely with state governments" to amend their respective APMC Acts, and provide for alternative private market yards. The new market spaces are expected to be privately funded; but, even so, the state government will have to provide approach roads, and much else besides, extending possibly to developing competing networks of aggregators. This is largely a political battle, which can only be won by an adroit mix of persuasion and funding for states.There is no direct budgetary provision towards this - which is perhaps wise, because that would pose the problem of having to define state shares within it. The rural last-mile road connectivity scheme (PMGSY) gets nearly Rs 15,000 crore, and goes as a grant to states, but it cannot fund upgradation of access to market centres. The <a href="http://www.business-standard.com/search?type=news&q=Rural+Infrastructure+Development+Fund" target="_blank">Rural Infrastructure Development Fund</a> which merely on-lends to state governments commercial bank funding earmarked for the priority sector, is not a concessional scheme.A new borrowing avenue for states is the resurrected <a href="http://www.business-standard.com/search?type=news&q=Kisan+Vikas+Patra" target="_blank">Kisan Vikas Patra</a> (KVP), but what it will do for state finances depends on how it is configured. This instrument will feed into the <a href="http://www.business-standard.com/search?type=news&q=National+Small+Savings+Fund" target="_blank">National Small Savings Fund</a> (NSSF) in the Public Account, from which states are presently compelled to borrow at least one-half of collections from their respective jurisdictions. The currently prevailing NSSF lending rate to states is reported in the budget documents at 9.5 per cent, higher than yields on state government securities on financial markets. KVP was closed some years ago for enabling laundering of undeclared income - it can be bought with cash, and cumulates until it doubles in value to cash-out at maturity. If the past is any guide, collections through the KVP should prove quite buoyant.The overall borrowing of states across all avenues is capped in their Fiscal Responsibility legislation as a percentage of state domestic product. If KVP accretions to the NSSF are added to what the states must borrow half of - and at 9.5 per cent - it will displace cheaper market borrowing and could actually worsen their fiscal situation. So presumably, the KVP will be a carve-out, and notified as a back-to-back instrument, passed on to states with the commitment to pay double the face value to the holder at the time of maturity. Even so, the implicit interest defined by the period over which it doubles has to be lower than the prevailing yield on government securities, for the states to actually get some benefit from displacement of market borrowings by the KVP. Therefore the maturity period and configuration of the new KVP will have to be carefully weighed.Two supporting budgetary provisions are Rs 5,000 crore towards the Warehouse Infrastructure Fund, and Rs 500 crore for a Price Stabilisation Fund. The price stabilisation fund will call for processing capacity for perishables. Perhaps the new agri-tech infrastructure fund (Rs 100 crore) is intended for this. The expectation seems to be that private entrepreneurs will respond to a small reduction in excise duty on specified food processing and packaging machinery from 10 to six per cent, although the duty drop could have gone all the way to zero with no significant revenue loss. The Rail Budget also provides for temperature controlled warehousing of fruits and vegetables by the Central Railside Warehousing Corporation, at 10 locations - a small beginning to serve a vast unmet need.Then there is a set of measures to address physical inputs into agriculture, which can yield productivity returns only in the medium term: a new Sinchai Yojana for irrigation (Rs 1,000 crore), and the promise of a new urea policy, hopefully soon. The damage done by unbalanced urea application does not have to wait for the diagnostics that will emerge out of soil health assessments.The greatest budgetary importance has been accorded to enhancing credit availability to farmers. There is a massive Rs 50,000-crore contribution towards refinance for short term co-operative rural credit (STCRC), a fund set up in 2008-09. Another pre-existing interest subvention scheme for short-term crop loans has been continued. There are two new provisions, one for long-term rural credit (Rs 5,000 crore for refinance support through NABARD), and one for building 2,000 producers' organisations across the country over two years (Rs 200 crore). There is also an unfunded initiative to provide access to credit for 500,000 joint groups of landless farmers through NABARD, which will benefit many landless women farmers.The Rail Budget draws attention to the problem of empty wagons on the return journey of as many as one-third of freight trains. In effect, this means that for a freight train carrying goods only one way, the freight revenue realisation by the railway is half the freight rate levied. Trial on a pilot basis of automated freight rate reduction for goods carried on the return journey is proposed. The huge delay in covering any given distance compared to road transportation is another deterrent to rail haulage. The practice of loading wagons with multiple destinations on a single train is what causes the delay, as trains are shunted aside for wagons to be detached and re-attached. A number of solutions are possible - such as, for instance, homogenisation of trains by type of good carried and nodes served on designated days of the week. Rail transport of goods is more cost-effective than road haulage, but has steadily lost market share for a number of reasons that are amenable to correction.If all the several budgetary initiatives to bring down food and overall inflation are well implemented, the <i>praja </i>would be happy.The great sage Kautilya would approve.<b></b>

 
<h1>8. RBI unveils tighter regulatory norms for ‘too-big-to-fail’ banks</h1>
 

The RBI today set out a framework for identifying and dealing with large banks, termed domestic systemically important banks or D-SIBs.A size beyond 2 per cent of GDP will be one of the criteria for designating a bank as a D-SIB and it will be subject to higher capital requirements, according to the Reserve Bank of India.The other three criteria for designating a bank as a D-SIB are: interconnectedness; lack of readily available substitutes or financial institution infrastructure; and complexity.The RBI framework comes as a solution to the problems faced during the global financial crisis of 2008, when such large institutions hampered the functioning of the financial system, negatively impacting the real economy.D-SIBs are perceived as banks that are ‘Too Big To Fail’. This perception creates an expectation of government support for these banks at the time of distress, the RBI said in its framework for dealing with D-SIBs.The expectation of government support leads to risk-taking, reduces market discipline, creates competitive distortions, and increases the probability of distress.These considerations require that SIBs be subjected to additional policy measures to deal with the systemic risks and moral hazard issues posed by them.The RBI said banks having systemic importance above a threshold will be designated as D-SIBs.

 

These banks will be segregated into five buckets, based on their systemic importance scores and subject to loss absorbency capital surcharge, in a graded manner, depending on the buckets in which they are placed.A D-SIB in a lower bucket (bucket 4) will attract a lower capital charge (of 0.20 per cent) and a D-SIB in a higher bucket (bucket 5 or empty bucket) will attract a higher capital charge (1 per cent).An empty bucket with a higher common equity tier 1 requirement will incentivise D-SIBs with higher scores not to increase their systemic importance in future. In the event of the fifth bucket getting populated, an additional empty (sixth) bucket would be added with the same range and same differential additional capital.The RBI said the higher capital requirements applicable to D-SIBs will be applicable from April 1, 2016, in a phased manner and would become fully effective from April 1, 2019.<b></b>

 
<h1>9. India to propose setting up of South Asian Development Bank</h1>
 

India plans to propose the setting up of a South Asian Development Bank for financing infrastructure development in the region at a meeting of trade ministers from SAARC countries in Bhutan this week.“Unlike the BRICS Development Bank which will fund all developing countries, the proposed South Asian Development Bank will exclusively focus on South Asia,” a Government official told <i>Business Line</i>.India has already discussed the contours of the development bank with a number of SAARC (South Asian Association of Regional Cooperation) members individually.SAARC includes India, Nepal, Sri Lanka, Pakistan, Bangladesh, Bhutan, Afghanistan, and Maldives.Commerce Minister Nirmala Sitharaman is likely to discuss the proposal with all South Asian partners at the South Asia Free Trade Area (SAFTA) Ministerial meet starting in Thimpu on July 24, the official said.While SAARC members will contribute to the equity and get voting rights according to their contribution, funding will also be invited from third countries.“To get over the problem of financing the venture, the development bank will welcome investments from third countries who would also get voting rights in proportion to their contribution,” the official said.Multilateral agencies such as ADB and World Bank would also be asked to pitch in and join as observers.The initial corpus is yet to be decided, but it is expected to be modest. “We are going to start with a small size corpus and then leverage the corpus to pick up debt,” the official added.Since the development bank would mostly finance infrastructure that would encourage smoother flow of trade, the whole region stands to gain.“Smaller countries that cannot access funds from multilateral agencies such as ADB and World Bank because of tough riders can get it from the regional bank. It will result in overall development of entire South Asia,” he added.The trade ministers will also discuss a SAARC Motor Vehicle Agreement and a Railways Agreement that would allow movement of containerised traffic in the region without loading and unloading at borders.<b></b>

 
<h1>10. The labour reforms we truly need</h1>
 

The labour reform debate in India has acquired renewed vigour under the new government.The Rajasthan and the Haryana governments have recently proposed to amend a few Central labour laws. The Ministry of Labour and Employment has also circulated labour reform proposals. The Department of Industrial Policy and Promotion has issued an “advisory” to the state governments to institute reforms relating to inspection.Labour flexibility measures, especially in respect of hire and fire and contract labour, have caused industrial unrest and violence. India is committed to the pursuit of the ‘decent work’ agenda of the International Labour Organisation (ILO) which essentially seeks to promote just and efficient workplaces.The pursuit of some “good” reforms could also contribute to a rise in productivity via nutritional, incentive-based and efficient governance systems.

 

<b>An inclusive view</b>

 

The use of “thresholds” such as size of employment to exclude vast sections of workforce amounts to exclusionary governance. According to Economic Census 2005 about 75 per cent of total workers in India in 2005 were employed in establishments employing less than 10 workers, and these workers are most likely to be not covered by most labour laws save the Shops and Establishments Act and the Minimum Wages Act, 1948. The coverage of all the workers by separate legislations for micro and small enterprises and medium and large establishments would raise the floor level labour standards.India has not ratified four of the eight ILO Core Conventions concerning child labour (C.138 and C.182), trade unions and collective bargaining (C.87 and C98). Out of 185 countries, 153 countries have ratified conventions covering these three areas. While mere ratification does not lead to solutions, the commitment of the Indian Government to decent work makes early ratification imperative.The Trade Unions Act, 1926, merely provides for voluntary registration of trade unions and not for recognition of trade unions, which is more relevant for collective bargaining. Trade union recognition is provided for by laws at the state level, such as in Maharashtra. Legal amendments providing for trade union recognition, time-bound union registration, sharing of information by parties for efficient collective bargaining, strong union democracy and proscription of unfair labour practices must be initiated.The law on minimum wages and its implementation urgently needs reforms. For example, there is no definition of “minimum wages” in the law. The penalties prescribed in the law for violations of this important socio-economic law are absurdly low. Minimum wage boards are not re-constituted in time and minimum wages are revised after a considerable time lag. The frequent incidence of fatal industrial accidents especially among contract workers calls for stricter regulations and efficient governance.

 

<b>Smartening inspection systems</b>

 

The inspector <i>raj </i>critique is a case of overstatement. The introduction of self-certification in some states and sectors, relaxation in inspections in several states, high person-power deficits and multiple tasks of inspectorates in the labour department have weakened the inspection regime. Labour inspections and conviction rates have significantly declined in the post-reform period. According to the Government of Maharashtra, in 2010-11, an inspector for minimum wages had 5,062 establishments under him. With a workload of 100 inspections per month, he cannot cover the universe even in three years!Penalties need to be kept high enough to dissuade cheating. They need to be inflation-indexed to sustain their bite. Most penalties for violations are in the lower range, that is, less than ₹1,000 and only the Factories Act imposes heavy penalties (₹1-2 lakh in exceptional cases). This also weakens the significance of the critique of corruption by labour officers as compared to other high-profile government departments. Imprisonment for labour law violations is often not invoked.Due to the inadequate number of judicial bodies and judicial officers, there are delays in dispensation of justice. These are costly not only for the workers but also for the employers. The Government must increase the number of judicial bodies and personnel proportionate to the workforce.

 
<h1>11. Fewer girls-only families now, says report</h1>
 

In the context of falling sex ratios in India, a United Nations report points to a new level of ‘daughter aversion,’ most starkly visible in the negligible number of girls-only families in some parts of the country.“Sex Ratios and Gender Based Sex Selection, History Debates and Future Directions” by Dr. Mary E. John, senior fellow, Centre for Women’s Development Studies for UN Women, was released on Tuesday. The report, which reviews existing studies, says it’s time to look at girls-only families, which are starting to disappear — they are only two per cent in Haryana, Punjab and Rajasthan.The report says there is no doubt that contemporary India is witnessing a highly gendered version of fertility decline in northwest India.Extra sons are no longer wanted either. This cannot be read as reduced son preference, says Dr. John who feels that families are planning to have at least one son and at most one daughter. It points to institutions and personnel directly mediating sex ratios at birth, for example clinics and medical practitioners, as an important area for research.There are studies on the skewed sex ratios of children of doctors and gynaecologists that make it clear that they are guilty of practising sex selection for themselves, the report says.<b></b>

 
<h1>12. A new beginning with Nepal</h1>
 

No two neighbouring countries enjoy a more intimate and a more complex relationship than India and Nepal. India is where Nepalis come to study, work, spend holidays, plan weddings, invest in a second home; yet, India is also blamed for being insensitive, for meddling in Nepal’s internal affairs and often, for taking Nepal for granted.Union External Affairs Minister Sushma Swaraj’s maiden visit to Nepal this week will be keenly watched, especially as it lays the groundwork for an early visit by Prime Minister Narendra Modi. A high-level Indian visit is long overdue; after I.K. Gujral in 1997, only Prime Minister Atal Bihari Vajpayee has visited Nepal, in 2002 for a SAARC summit. There have been several visits by Nepal’s Prime Ministers and its President Ram Baran Yadav since. A Modi visit offers an opportunity to focus on future potential and remove some of the accumulated cobwebs of mistrust.

 

<b>Reviewing treaty</b>

 

Two examples illustrate this adequately. First, the 1950 India-Nepal Treaty of Peace and Friendship. Most Nepalis are unaware that it was Nepal that had wanted this treaty, in order to maintain the special ties with independent India that it had with British India. Nepal’s security concerns had been heightened by the Communist revolution in China and its takeover of Tibet. The treaty provides for an open border between the two countries and allows Nepali nationals to work in India without a work permit, to apply for government jobs and the civil services (except for the IFS, IAS, and IPS), to open bank accounts and buy property. Incidentally, India had waived its rights under reciprocity as a sign of goodwill. The provisions of the “secret” side letters to the Treaty, which required Nepal to consult India on its defence requirements, which Nepalis perceive as unfair and which are often used by politicians to whip up anti-India sentiment, are no longer secret or even observed. Today, the open border is used by Pakistan to infiltrate terrorists and pump in significant amounts of fake Indian currency. Although India has agreed to review and update the treaty, every time the matter is taken up, Nepal sidesteps the issue. The Modi government should declare its readiness to have open and transparent discussions with Nepal on this so that political leaders stop using it as a stick to beat India with.

 

<b>Hydel cooperation</b>

 

The second example relates to Nepal’s hydropower potential. Today, Nepal faces a chronic power shortage, with daily power cuts up to 14 hours long. Its installed capacity is 600MW and it imports about 150 MW from India. Meanwhile, demand is growing by 20 per cent annually. Ironically, Nepal has a hydel potential of 75,000 MW of which 40,000 MW has been assessed as technically feasible and economically viable. And India remains an open market for Nepal’s surplus power! However, accumulated resentment over the 1954 Kosi Agreement and the 1959 Gandak Agreement, cited by successive Nepali regimes as unfair, has rendered progress on hydel cooperation impossible. Three mega-projects — Saptakosi with 5,000MW, Karnali-Chisapani with 11,000MW, and Pancheshwar with 6,500MW — have been languishing for 30 years. When the hydel sector in Nepal was opened up to the private sector, Indian companies (including Tata Power, LANCO, GMR, Jindal, IL&FS, L&T, and GENCO) won 27 survey licences for projects ranging from 100 to 1,000 MW each, but not a single one is even close to beginning construction.A Modi visit is an opportunity to reach out, demonstrating goodwill, generosity and timebound delivery on infrastructure. Announcing a 300-500 MW power plant to address Nepal’s electricity demands and enable a light in every Nepali home is one way to do this. A run-of-the-river project or one with “peaking” (i.e. limited storage), should be possible to complete within three to four years if its technical feasibility has been completed. The cost of the project would be in the range of $400 million and the government of India could fund half the equity (about $60 million) with project finance coming at a concessional rate from the EXIM Bank Line Of Credit. It could be undertaken jointly with Nepal Electricity Authority with the understanding that after 10 years of operation, India’s equity would be given to Nepal. Such a gesture could change mindsets and help unlock Nepal’s hydel potential, making it one of the richest countries of the region.

 

<b>Resentment despite links</b>

 

Not many are aware of the extensive economic linkages and cooperation between the two countries. Two-thirds of Nepal’s foreign trade is with India which also accounts for half of Nepal’s foreign direct investment. The Nepali currency is pegged to the Indian rupee. Over the years, India has built highways, optical fibre links, medical colleges, trauma centres, polytechnics, schools, health centres, bridges, etc. For flood protection and embankment construction in Nepal, India provides more than Rs.75 crore annually. To facilitate the movement of goods and people, India is providing Rs.270 crore to build four integrated check posts on the border, Rs.650 crore for extending two railway links out of the five proposed, and Rs.700 crore for the first phase of rebuilding old postal roads in the Terai region. In addition, there is a second EXIM Bank Line of Credit for $250 million available and another $125 million for the power transmission line upgrades. About Rs.1,300 crore is disbursed annually to the 1.25 lakh Indian Army pensioners in addition to other welfare schemes. The provision of iodised salt, conducting cataract and trachoma camps, gifting of ambulances and school buses in the remotest of Nepali villages are initiatives that have made a difference to life in rural Nepal. Still, an undercurrent of resentment against India has persisted.

 

<b>Political happenings</b>

 

Nepal’s current political transition began with the Jan Aandolan in 1990 and is still unfolding. Since then, no government has lasted even two years. A Maoist insurgency and the resulting civil war claimed more than 15,000 lives over a decade (1996-2006). The monarchy never recovered after the palace massacre of 2001 and finally, the 240-year-old institution was abolished in 2008, with the Royal Kingdom of Nepal becoming a republic. The historic election in 2008 had given a two-year mandate to the Constituent Assembly (CA) to draft a new Constitution. Four times the CA extended its life but it was finally dissolved in 2012 when there were credible legal challenges to any further extension and it was clear, after four Prime Ministers (2008-12), that a fresh election was necessary. A second CA was elected in November last year, with the goal of completing the Constitution-drafting exercise in a year. Outstanding issues of the type of government (presidential or Westminster) and a federal structure (ethnicity-based or geographical) are polarising, and have to be handled wisely. As the Maoists have learnt, rising expectations cannot be satisfied by <i>laal salaam </i>or empty rhetoric.As a large neighbour, India has to be extra-sensitive to assertions of Nepali sovereignty during its political transition. Different ethnic groups and Nepali political parties will certainly appeal to sections in the Indian establishment for “guidance,” but such entreaties are best avoided by New Delhi. Groups like the Vishwa Hindu Parishad profess nostalgia for reverting to a “Hindu rashtra” in Nepal; some Indian political leaders would push for supporting the Madhesis who enjoy a close kinship with Indians in north Bihar and Uttar Pradesh. The Modi government should ignore these and advise Nepali leaders, both publicly and privately, to resolve their differences internally.For too long, India has ignored the changing political narrative in Nepal. We remained content that Indian interests were safeguarded by quiet diplomacy even when Nepali leaders publicly adopted anti-India postures — an approach started by the Palace in the 1950s and adopted particularly by the Left parties as a means of demonstrating “nationalist credentials.” Ignored by India, it has had long-term negative consequences. It has led to distortions in Nepali history textbooks and created negative stereotypes in the Nepali media. Appropriately targeted public diplomacy initiatives are necessary to address this. At official and diplomatic levels, a more open and straightforward approach will prevent creating ambiguities that give rise to conspiracy theories and providing grist to the local media. Mr. Modi is well placed to put his imprint on such a diplomatic style.<b></b>

 
<h1>13. For the BRICS bank, a tough road ahead</h1>
 

The announcement of a new BRICS Bank displays the desire of emerging economies to move away from Washington D.C.-style lending institutions. But between India’s bureaucratic efficiency and China’s indifference to humanitarian, environmental and regional concerns, they resemble John F. Kennedy’s tart characterisation of the very place they hope to leave behind. Much work lies ahead for the creators of these new multilateral financial institutions before the first loan can be made.

 

<b>How were they able to agree?</b>

 

Simply reaching sufficient agreement to announce the new BRICS Bank represents a significant achievement for the six-year-old BRICS group. While it may seem silly to organise a serious international grouping based on a clever acronym, the BRIC countries are the four largest economies in the developing world. They have economic heft, but do they have much in common?Unlike, say, OPEC, their economic fundamentals differ dramatically. Russia, Brazil and South Africa export different commodities, while China exports manufactured goods and India exports services. Two are current account surplus and three are deficit countries.What they most need to succeed is trust. Russia and India have long histories of conflict with China. Brazil and Russia are not famous for being creditworthy. South Africa is a solid neutral party, but also, frankly, a lot less significant than the other members. So apparently their joint desire to plant a flag on the global economy sufficiently overcame mutual differences.

 

<b>Escaping Western hegemony</b>

 

What does it mean to be freed of the dominance of developed economies for a development bank? Where have these countries disagreed with developed countries on World Bank policy, for instance?The preponderance of the friction on lending policy at the International Financial Institutions (IFIs) reflects typical lender-borrower conflict. Developed countries, most often net lenders, want high standards to make sure money is used responsibly and repaid. The developing countries, most often net borrowers, resent outsiders imposing conditions on the use of money inside their own country.Any lender must pay attention to prudential concerns to survive. But given business practices in the BRICS — especially where government is involved — this cannot be taken for granted. The BRICS governments have not always been enthusiastic about World Bank scrutiny and transparency in the past. They must be vigilant to ensure that BRICS Bank money is used wisely and gets repaid.Developed countries have also imposed high-minded lending values, the benefit of which can be more reasonably debated. High environmental standards, for instance, may feel like a luxury that poor borrowing countries cannot afford. Some Western-imposed mandates feel more like development fads. Most are legitimate values that the BRICS should aspire to follow.If the BRICS are comfortable with lowering their lending standards I do not doubt they will find plenty of projects to fund. But if they are, it is best that the existing IFIs are not affiliated with it.If they do maintain high standards, then it is not clear where their comparative advantage lies. As Robert Kahn at Council of Foreign Relations (CFR) rightly identified, the World Bank and regional development banks largely fill current demand.From what has been announced, the BRICS Bank will take a very democratic approach to governance by giving each member equal voting rights. Undoubtedly there is value in such an equal arrangement for symbolic solidarity, as well as to avoid concerns about Chinese domination.But is it practical? The allocation of vetoes matters. If equal vote means equal veto power, like in the UN Security Council, the institution may be doomed.Despite its shortcomings, this arrangement may be the only way to overcome their mutual trust deficit. Mihir Sharma has already pinned the BRICS Bank as a vehicle for the Chinese to commandeer the friendlier public image of the three southern BRICS as a front for China’s foreign economic policy.On the other hand, can an institution survive being funded primarily by China and Russia, the only two BRICS with excess reserves, when their influence is no greater than any other member? If adequate checks are put in place to prevent Chinese dominance, will China remain interested in this project?This works as long as they see long-term value in the institution. U.S. taxpayers would not accept such a bargain, but China and Russia have less need to answer to their own taxpayers.

 

<b>Unanswered questions</b>

 

The BRICS clearly want something tangible to demonstrate their global prominence and the power of non-Western values. Yet the new BRICS Bank faces two critical tensions. The first pits the desire to be free of Western-imposed constraints on lending, versus the need for prudential lending. The second sets the high-minded desire for equality of governance against the reality that lack of Chinese dominance may result in institutional neglect by its primary benefactor.While the BRICS Bank project was put together in an impressively short two years, most of the difficult questions remain unanswered. These tensions — critical to the bank’s viability — will not be easily resolved. I expect it will be several years before the details are sufficiently ironed out for the BRICS Bank to open its doors.

 
<h1>14. A map and a compass for climate talks</h1>
 

An interesting recent public duel over India’s past approach to climate negotiations and tactics illustrates both the dissonance of Indian climate policy and the opportunities lost for a creative strategy. Former Environment and Forests Minister Jairam Ramesh wrote in <i>The Hindu </i>(June 17 and 30, 2014) of his efforts to evolve India’s negotiating position in the context of real-time negotiating situations and politics at the Copenhagen and Cancun climate talks, even while seeking to safeguard India’s interests. Chandrashekhar Dasgupta, a mainstay of India’s negotiating team for two decades, retorted in the <i>Business Standard </i>(July 7) that Mr. Ramesh’s efforts weakened the pillars of India’s long-standing positions while winning no concessions, amounting to own goals that were cheered on by the opposition.Mr. Ramesh’s account criticises a dogmatic adherence to past negotiating positions, which he feels speak inadequately to current geopolitical reality and side-step rather than engage with key legal issues. Mr. Ramesh implicitly urges the need for an updated geopolitical map and correspondingly creative and strategic new approaches. Mr. Dasgupta critiques Mr. Ramesh’s failure to adhere to the principled moorings of India’s position, which he elaborates and defends at length. He urges continued use of the compass that has long guided India’s negotiating stance. Clearly, both map and compass are required for successful negotiations: flexibility in the context of changed political circumstances is needed, but is most useful when it can be calibrated against a clear understanding of interests and clarity of strategy.India faces a challenging context before the next landmark climate negotiating session, planned for December 2015 in Paris. While exhuming the past can be illustrative, and even entertaining, it is now perhaps time to look forward and anticipate how a principled approach, strategic vision, political acumen and technical expertise can be better combined in India’s negotiating approach. What should we be preparing for between now and Paris?

 

<b>Unsettling political calculations</b>

 

First, by all accounts the U.S. and China are on the brink of a bilateral understanding on climate change that will completely unsettle existing political calculations. The U.S. has recently unveiled its most ambitious effort (albeit by its rather low standard of past effort) to domestically address carbon emissions, and China has sent out signals about capping its emissions in the near future. A potential shift in China’s position toward emission caps will be tectonic. Most notably, without China, India’s current favoured group of allies, the ‘like-minded developing countries’, will be reduced to an assorted assemblage of oil producers such as Saudi Arabia and Venezuela and some Latin American countries such as Bolivia, Cuba and Ecuador. India will be making cause with countries that many climate vulnerable nations view as obstructionist in climate talks. In reality, India is both a highly vulnerable country, and also a large emerging economy. Our alliances need to account for this national context, and consider the likelihood of a U.S.-China rapprochement before Paris.Second, the negotiations toward Paris are premised on preparation by countries of ‘intended nationally determined contributions’ to be submitted in early 2015. There is a reassuring recognition that these contributions will be tailored to national circumstances and constraints and backed by a national processes that take into account domestic priorities and plans. Many countries, including our BASIC partners, have launched national consultations to determine what their contributions should be. In the negotiations there is an emerging understanding that these contributions should contain an emissions mitigation component (which could include sectoral and/or emissions intensity targets), but could also contain adaptation, finance, technology and capacity building components identifying needs and current and proposed investments. India needs to carefully prepare these contributions so as to demonstrate not just what we can do with our own resources but what additional actions we could take with appropriate support. While the need to develop contributions is mentioned in the recent Economic Survey, we are starting extremely late. There is little evidence of a serious national dialogue on such contributions, which is critical to ensuring ownership of, responsibility for and delivery of these contributions across levels of governance and segments of society. Without carefully considered contributions, India will be hard pressed to ensure domestic objectives are well safeguarded even while contributing to building an effective global climate response.Third, India has long and effectively championed the cause of equity in the climate talks. It has argued and continues to argue that the strict division of responsibilities between developed and developing countries in the Framework Convention on Climate Change, 1992, based on the principle of common but differentiated responsibilities, must be honoured. It has thus managed, at least so far, to ward off quantitative emission mitigation commitments for developing countries. Beyond this, however, it has neither offered concrete ideas for operationalising equity in the ongoing negotiations nor supported others who have. Indeed, India, with some other like-minded developing countries, has actively rejected an Africa Group proposal for a ‘Equity Reference Framework’, which has focused on how burdens may be equitably shared given differing historical responsibilities, development needs and current capabilities. Operationalising this framework would require a multilateral assessment of national contributions. India has proven suspicious of any assessment, even though the use of criteria proposed by the Africa Group can only work in India’s favour. In the political and legal context of the ongoing negotiations, a rigorous and consequential multilateral assessment process is the solitary mechanism under discussion that could potentially assess and perhaps even deliver equity in the distribution of climate burdens as well as adequacy of contributions by countries in relation to the agreed 2°C temperature goal. India’s rejection of an assessment process sacrifices an opportunity to operationalise equity and risks allowing developed countries off the hook.

 

<b>Effective and equitable deal</b>

 

Updated strategic alliances, substantive domestic policies well articulated with international negotiating positions, and a savvy approach to achieving our long-standing principled objectives are all important ingredients of a proactive and strategic Indian approach to the climate negotiations. An effective and equitable climate deal is in our interests as a climate-vulnerable country with development imperatives. We need to shape the emerging climate agreement to our needs, not merely seek insulation from mitigation commitments at any cost. There is still time to craft a forward-looking proactive approach premised on our development imperatives, faithful to the principles that inform our climate policy, yet tailored to the emerging geo-political context.Lessons from the past are useful, but more useful still if used to productively and collaboratively address the sizeable task of looking forward.<b></b>

 
<h1>15. Contours of a new Cold War</h1>
 

While the tug of war over the downing of the Malaysian plane over troubled Ukraine continues against the background of the carnage in Gaza, the contours of a new Cold War are emerging. The manner in which Western Prime Ministers, including those of Britain and the Netherlands, are lecturing Russia’s President Vladimir Putin must surely rank as a new low in relations between Moscow and the West.There is admittedly justifiable rage over the downing of a passenger plane leading to the deaths of nearly 300, almost 200 of them Dutch, but the alleged perpetrators of this terrible act, Russian-supported Ukrainian rebels, have been transformed into an East-West tussle. In Western eyes, President Putin is in the dock for supporting and provisioning these rebels. US sanctions against Russia have been tightened and the old Cold War logic is being unveiled.Behind these moves is the simple fact that for the West, absorbing Ukraine into the European Union and the Western camp is a priority because after the break-up of the Soviet Union, Russia is dismissed by Washington as a regional power. By the same token, Moscow is resisting the diminution of its status and among the many complications is the fact that Ukraine is a divided nation, with roughly half the population original Russian-speakers and deeply attached to Mother Russia.Russia failed to sign up Ukraine for its eastern economic initiative essentially to keep its traditional influence intact. The attractions of the bright lights of the West for the western half of Ukraine were simply too great, as they proved to be for other once Communist-ruled East European countries. Apart from a starkly divided nation and the zeal of the European Union to integrate it, the West did not pay attention to the legitimate geo-political interests of Russia vis-à-vis the huge land mass of 45 million people on the Russian border.One consequence of the Russian assertion of its interest was the incorporation of the Crimean peninsula, the home of the Russian fleet, into the federation. And in assisting Ukrainian rebels, Moscow was making two points. A new Ukrainian Constitution must give wide autonomy to the regions and Ukraine becoming a member of the North Atlantic Treaty Organisation was a no-go area.Who brought down the Malaysian plane is still a matter of speculation although Western accusing fingers are being pointed at the Russian-supported rebels. But from Moscow’s perspective, things have got out of hand and President Putin has now to factor in the new rage in the West while ensuring his country’s vital interests.What is being attempted now is some kind of truce on the issue, but there is little prospect of an end to the wider conflict between a West manoeuvring Russia into a corner as a regional power in league with Turkey and Moscow’s assertion of its interests as it sees it.The United States, for one, is hobbled by its Israel baggage, as was apparent by the new Israeli-Palestinian conflict leading to a virtual carnage of Palestinian civilians. The United States has been keeping all mediation between the warring powers — one an occupier and the other the occupied — under its wing, with the UN Security Council powerless by the use of the American veto.The right-wing government of Prime Minister Benjamin Netanyahu is in no mood to make real concessions, reinforced as it is by the most modern American military equipment and a hefty annual subvention. In fact, it is open to question whether a two-state solution, the mantra of the international community, is at all possible. The inevitable prospect, therefore, is millions of people bottled into a highly crowded Gaza Strip policed by Israel on land, in the air and at sea and millions of others living as second class citizens in Israel.The only country that can change this situation is the United States, but the Washington establishment is answerable to the powerful American Jewish lobby and American legislators are in hock to the Jewish influentials in winning their seats. It was no surprise that even as the death toll of Palestinian civilians was mounting by the hour as a result of the Israeli onslaught, the one mantra of US leaders from the President and secretary of state down was that Israel had the right to defend itself from Hamas-fired rockets.There will be a ceasefire; the UN Security Council has called for one. But there is no early move to resolve a crisis at the heart of which is a simple problem. Israel does not want to give up the land it has occupied and colonised. The three abducted and murdered Israeli teenagers lived in the occupied territories and the extraordinary Israeli Army’s move to comb the West Bank and Palestinians’ habitations and arrest more than 500 Palestinians was a precursor of what was to follow.The Netanyahu government was uncomfortable with the formation of a Fatah-Hamas unity government and broke off the sham negotiations. But by conducting bombing runs over Gaza and invading the territory, the Israeli Prime Minister has set in train a chain of events that will further complicate an already complicated picture.Where do the West and Russia go from here? Will the new trend of name-calling lead to an inevitable Cold War-like freeze? The two crises are inter-connected in as much as one feeds on the other in reinforcing suspicions on the two sides. Will the United States reassess its view that Russia is a mere regional power of little consequence in running the affairs of the world? Will Europe, newly enraged by the bringing down of the Malaysian Airline plane, become more compliant with the American agenda on suppressing Russia?These questions are connected with how and when the shooting war in Gaza stops and how far the Ukrainian rebels continue to cooperate with the international teams in solving the puzzle of the downing of the Malaysian aircraft. But the larger problems demand answers.

 

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