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China and U.S. soften tone on yuan

The poor will pay a price ... as usual.

The poor will pay a price ... as usual.

Amid harsh rhetoric, Chinese Vice Commerce Minister Zhong Shan and U.S. Treasury Secretary Timothy Geithner sounded some conciliatory notes on Wednesday.Mr. Zhong, making a 30-hour visit to the U.S. to try to ease bilateral tensions, expressed confidence that politicians from the two countries “have the wisdom and ability to resolve existing problems.“Mr. Geithner said he be- lieved China would allow its currency to appreciate over time, according to a CNN interview transcript. While the U.S. “can’t force them to make that change…I think we can work through the tough things we have together,“ Mr. Geithner said.The stakes are high for both sides. The U.S. and China are among each other’s biggest trading partners, and numerous U.S. companies have investments in China. The U.S. is increasingly looking to China to cooperate on international strategic issues, such as nuclear nonproliferation and the fight against terrorism. (via WSJ ON YUAN – China and U.S. soften tone on yuan).

Let the games begin!

Rousing 'macho' WASP voters!

Rousing 'macho' WASP voters!

The Dragon and the Eagle are squaring off! An experienced US stalks China, waiting behind high walls of US$2500 billion foreign exchange reserves.

The US-China game has started in earnest. US, egged on by ‘macho’ voters and a cheering media, will:-

  1. Act tough
  2. Behave in a morally outraged and indignant manner
  3. Commentators will prescribe a trade war and sanctions

In parallel, analysts, academics, think-tanks, journalists will talk-up China. Like Greenspan talking-up the US dollar or Dow Jones. They will: –

  1. Hold up China an nation-exemplar
  2. Write books analysing on China. Such books will start pour out of our ears
  3. Make movies and novels about the ‘dominant’ Chinese in the US
  4. Study, extol Chinese culture /tradition /history, and hold forth as a shining example.

And China will be ‘uncompromising’! Act as though, they have a choice.

A certainty

The change in dollar-yuan exchange ratio will happen. Peacefully, or with violent side shows. Assuming that the dollar-yuan revaluation will happen smoothly, is fraught with risk. That it will happen, without any significant disruption, is one, big, huge, slippery assumption. What will follow the Chinese moment in the sun?

Economic mayhem?

What remains to be seen

What could set off economic mayhem in China? Crime in China (a simmering threat), terrorism in Xinjiang (remote possibility), real estate bubble (a real scenario)?

Will the Chinese Government be able to ride this storm? Without a war with India? Which side of the fence will China fall? Answers to these questions will be worth waiting for! And prepared with!

Last time …

It would do well to remember that last time when China had a problem, it resulted in the India China War of 1962. Just after the disastrous Great Leap Forward and before the equally disastrous Cultural Revolution.

The Great Leap Forward began in 1957-58, saw famine and hunger across China. After the Communist takeover of China, land seized from land owners, was given to peasants in 1949. Ten years later, in 1959, the Chinese State took away the same land from the same peasant. Food shortages, starvation followed. Western (questionable) estimates are that 30 million people died during this period. War with India followed in 1962 – a diversion from the domestic Chinese catastrophe.

What will it be this time?

India Pakistan Cricket – new light or old wine …

Shadows across the playing field : 60 Years of India-Pakistan Cricket By Shashi Tharoor and Shahryar Khan

Shadows across the playing field : 60 Years of India-Pakistan Cricket By Shashi Tharoor and Shahryar Khan

Shashi Tharoor and Shahryar Khan in Shadows Across the Playing Field tries to provide answers by analysing 60 years of this intense cricketing rivalry, one, which has, on occasions superseded the intensity of the Ashes. (via something to hope for, and look forward to).

Nearly a year ago, 2ndlook wrote how Cricket administrators in India and Pakistan had managed to sustain a healthy business relationship for nearly 20 years.

This India Pakistan Cricketing relationship is very healthy – and has been managed by four people. Of course, there has been no case study, or a book or even a news report on this partnership. So some of this is my perception based on media interaction.

The four people in this complex relationship have been Jagmohan Dalmiya and Shahriyar Khan at the administration level. Between these two, they have managed a consensus between the Asian cricketing countries and South Africa. Jagmohan Dalmiya has a business background – and a career in cricket administration. Shahriyar Khan is a career diplomat and also a cricket administrator.

The other two are Sunil Gavaskar and Imran Khan – two well known and respected players in each of the countries. Between, these four, they have managed this complex cricketing relationship. Some of it is visible – but mostly, below the line. Especially, significant is the management of agreements.

Are things changing

This new book will probably throw some light on how this relationship was sustained and maintained – in spite of a adverse political climate and sometimes negative public opinion.

Radically rethinking Indian agriculture – Sanjeev Sanyal

July 9, 2009 7 comments

In recent weeks, there have been growing apprehensions that the monsoons of 2009 will fall short of normal. This has again raised fears of rising food prices, collapse in rural incomes and possibly farmer suicides. Many a tear will be shed for rural India. Predictably, there will calls for greater support for the agriculture sector in the form of subsidised fertilisers/pesticides, cheap electricity for pumping ground water and farm loan waivers. We have been doing this now for generations now and our impoverished farmers still commit suicide. Surely, it’s time to rethink this strategy. (via Sanjeev Sanyal: Radically rethinking agriculture).

The Good …

Sanjeev Sanyal’s article does raise some interesting points – and usual points. After a promising start he then loses his way half way through.

He demolishes the idea that “the route to prosperity in rural India lies in accelerating farm production. Agriculture … contributes 16.5 per cent of the economy … great exertion … cannot … (make it) grow much more than 3 per cent per annum on a sustained basis (when the rest of the economy routinely does 7-8 per cent).”

He correctly points out that “India … produces enough food to feed itself but … 20 per cent of output is wasted (a) problem … of distribution and storage, (and with) population growth is now 1.6 per cent per year … we need to grow production by no more than this rate. … we should … slow agricultural growth … if we do not want … greater wastage or a structural price decline …a buffer for drought years … is better management of bumper crops rather than ever more production. India should shift focus from increasing agricultural production to improving its efficiency (with) investment(s) … in storage and distribution.”

His best one is the warning that “farming comes with a large environmental cost … the Green Revolution is anything but “green”. Current farming techniques are severely damaging to the environment through the depletion of ground water, conversion of forest land and over-use of pesticides, fertilisers and other chemicals … sacrificing the long-term viability of the farm sector. It … made sense in the ‘70s to force a level-shift in food-grain production but why should we be still sacrificing the food security of future generations?”

He reminds us that “it makes … sense to strictly conserve ground water and use it only when the monsoons fail. Special attention should be given to water management (as opposed to extraction). Agriculture consumes 80 per cent of the country’s fresh-water in order to produce just 16.5 per cent of GDP … poor use of a scarce resource.”

The Bad …

Do we need this Great American Dream

Do we need this "Great American Dream"

After such good work, he succumbs to the banal – with some usual conclusions. He thinks that,

very large investments in water systems are needed to maintain even the current growth path.

Large investments in water systems are a bad, imported idea. India’s successful water management model is the nearly local 500,000 water bodies – ponds, lakes, anicuts, barrages, bunds, talabs, bawlees, wells. These water bodies stored surface water – and sustained Indian agriculture for the last 2000 years. Post-colonial India’s quest for Nehruvian “temples of modern India” spurred huge and wasteful investment in large hydro-electric dams. Reviving Indian water systems and rivers will take some 10 years and Rs.25,000 crores. About the cost of two large dams.

With around 70 per cent of the population still in the villages, it is absurd to hope that such a small and slow-growing part of the economy can bring salvation to such a large population.

US agricultural subsidies

US agricultural subsidies

Mr.Sanyal, you should consider the following, before you make such a sweeping statement. With the declining power and use of the dollar, the US is fighting a losing battle against agricultural subsidies. The US depends on less than 50,000 corporate ‘farmers’ for 50% of ts production. These corporate ‘farmers’ will abandon agriculture at the first sign of reduced subsidies. Over the next 20-30 years, this leaves India (and Russia) to cater to global food shortfalls. The Western industrial model is in its sunset phase. The Indian agricultural model can be the big winner in the next few decades – under the right stewardship.

And in the meantime, he himself follows up with an observation, “studies by economists like Dipankar Gupta suggest, non-agricultural activity already accounts for around half of rural India’s economy and provides employment to 35-45 per cent of the rural workforce.”

Third, encouraging agricultural growth for exports in not a viable option for India. Export of agricultural products is tantamount to export of water. International trade may make sense for some niche products like tea or for managing natural cycles in food-stocks. However, it cannot be a central strategy for a water-starved country like India. It is especially careless to be thinking about exporting water when climate change may be putting even current supplies at risk.

As pointed out earlier, both water management and agricultural exports is something that is both feasible and sensible thing to do. This is something that India must prepare itself for.

The truly ugly

Meanwhile, policies should be aimed at encouraging the process of moving the rural economy away from agriculture.

Broke ... and Broke

Broke ... and Broke

The Ikshavaku clan, (of Ramchandra in the Ramayana fame), became a ruling family for developing the agricultural strain of sugarcane. Bhagwan Krishna came to be known as Natho, for domesticating wild bulls. Balarama is the 7th avataar of Vishnu – whose ‘weapon’ was the plough – the founder of Indian agricultural practice.

The Indian agriculturist has made a remarkable recovery after the colonial collapse – and he may still surprise you.

The aspirations of rural India have already shifted — the literate children of subsistence farmers want real jobs, not pesticides. Why should we stop them? However, this requires a big shift in policy mindset. For instance, we need to shift from a regime of cheap but irregular power supply (which may work for irrigation) to one that is fully-priced but regular (necessary for the non-farm sector). This is our best bet for making India drought-resistant.

After ceaseless bombardment of advertising, with Indian languages weakening due to massive Government subsidies to English language education, is the movement to urban lifestyle a surprise? Not to me Mr.Sanyal. Though, why you are surprised, Mr.Sanyal is a puzzle to me. We need to invest in rural India. Currently rural credit is way below its contribution to GDP – and the low price realizations for agricultural output makes the case for investments stronger.

Next, we need to revisit general governance in rural India. The traditional structures may have worked for subsistence farming (even this is debatable) but they will not support large investments in industry, construction and services. The government needs to focus on how to deliver policing, enforcement of contracts, property rights and so on.

This is about shifting from a world of farm-loan waivers to one that can support large-scale mobilisation and investment of capital in these areas. The Naxalite movement that affects a fourth of India is not due to the failure of agriculture but the failure of governance. At the same time, note that the cause of property rights and governance is not served by the indiscriminate use of “eminent domain” to acquire large chunks of land for so-called SEZs.

Do we need this American model?

Do we need this American model?

When you refer to ‘traditional structures’, are you talking about ‘general governance’ of the colonial Raj – that post-colonial India continued with? Or are you talking about the pre-Raj structures? The Indian peasant was the first and the only peasant in the world to own his property – till ‘Desert Bloc’ rulers started a 800 year trend of ‘landgrab’. Yes. India does need to re-visit ‘general governance’! We need traditional governance – and not the ‘modern’ colonial baggage, that India has not discarded.

We need to give back the lands that were grabbed from the poor Indian peasant and the poor Indian tribal.

The need is for a framework of governance that allows industry and services to grow organically in response to local conditions.

Finally, there should be a greater effort to provide urban amenities for education, health, shopping and leisure at places that are accessible to the rural hinterland. Together with the shift to non-farm jobs, this provision of amenities will inevitably lead to urbanisation. This is a good thing and should be encouraged. However, urbanisation is not just about migration to the mega-cities of Delhi and Mumbai … mofussil towns need to be revived as social and economic hubs

Indian agriculture has a great future – and don’t you ignore it, Mr.Sanyal. On the other hand, industrial over-production, debt-financed over-consumption, American economic model, funded by petro-dollars /Sino-dollars, is about to end.

India cannot go down that path.

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