8 ISSUES AND INSIGHTS MUMBAI | FRIDAY 29 MARCH 2019 >

pass very close to a satellite without hit- > CHINESE WHISPERS ting it. The Mission Shakti test hit a 740 The Mission Shakti test: Why now? kg satellite in an orbit about 300 km from Earth. While this creates debris, it’s The geostrategic consequences to the Mission could be mixed. We will intercepting a ballistic missile, as India close enough to the Earth for the pieces Forbidden line has successfully done many times. to fall into the atmosphere and burn up If a topic have to wait and see what the pros and cons are Most medium and long-range ballistic quickly, reducing the danger. ignites Twitter, missiles climb well above 300 kilome- Why did India do this now? Well, social media of modern arsenals. Satellites provide There is a need to track a fast-moving tres during their flight and they have apart from elections, there is an ongoing teams of observation and communication ser- object, to predict its path, and to have complicated flight trajectories, while 25 nation conference in Geneva where various police vices, while ballistic missiles can carry weapons that can reach it. This has to satellites have predictable orbits. a Group of Government Experts are dis- units in the nuclear payloads and hit targets thou- happen quickly — the system must be India’s earlier reluctance to carry out cussing the prevention of an arms race country barely sands of kilometre away. able to detect, track, and hit the object an anti-satellite test could have been in outer space (PAROS). In analogy to let it go The ability to interdict ballistic mis- inside a few minutes. due to the widespread condemnation the Nuclear Non-Proliferation Treaty, unutilised. The siles and scramble satellite-based India had to develop these capacities of China’s testing of an anti-satellite PAROS may ban the development of Kolkata Police communication networks could be to manage its own satellite assets, and system in 2007. China hit one of its own anti-sat systems, while offering a waiver (KP) was quick crucial. Such technology might also be its missile system. Such a defence sys- defunct satellites, which weighed about to nations already possessing these. to lap up the useful to guard against the Earth being tem may itself be deployed in space to 750 kg, at a height of about 800 km. After Shakti, India may be hoping to pre- hotly debated hit by a meteorite that causes large- give quicker response times, and extend That created 3,000-plus pieces of sent a fait accompli. 'Mankad' controversy from this week’s QUANTUM LEAP scale destruction, or even a mass range. ISRO has launched satellites with debris, each cricket-ball-sized, or larger. India is a signatory to the Outer Indian Premier League match between extinction, as has occurred in the past. payloads of 5,000 kg-plus. So the DRDO Some debris collided with a Russian Space Treaty, which bans weapons of Rajasthan Royals and Kings XI Punjab in DEVANGSHU DATTA Under President Ronald Reagan may even be technically capable of satellite and other pieces caused risk to mass destruction being deployed in Jaipur. Drawing an analogy between Jos (1980-88), the USA stumbled upon a deploying such a system in space. the International Space Station. space. This test doesn’t breach those Buttler's dismissal in that match — who more subtle, economic reason for a bal- India had a ballistic missile defence The European Space Agency esti- terms. India is also a member of the was controversially run out by the ow can you knockout, or dis- listic missile defence/anti-satellite system in place, by 2012. By then, it had mates that, as of January 2019, there Inter-Agency Space Debris Coordination opposition captain Ravichandran Ashwin able, an object hundreds of defence project. The R&D of the so- carried out at least five successful tests, were 1950 functional satellites and Committee and Shakti was calibrated to — and traffic violation, KP put a H kilometres above the Earth, called Star Wars was expensive. The hitting and blowing up missiles (with- 3,000-odd defunct satellites orbiting ensure minimised debris. screenshot of the dismissal on Twitter moving at more than 3 kms per sec- Soviet Union lacked the financial out warheads) using versions of the Earth. Space Surveillance Networks The geostrategic consequences to along with a photo that showed a car ond? Mission Shakti involved hitting resources to stay abreast of the Prithvi and the Agni. The chief scientific track 22,300 pieces of debris larger than the Mission could be mixed. The sys- crossing the stop line at a traffic signal. it with a missile. It could also be tar- Americans, and the arms race triggered adviser at the time, V K Saraswat, 10 cm. So this is a very serious problem. tems were indigenously developed The message in Bangla read: "Crease or geted with laser beams, or an electron- an economic crisis that probably has- claimed at the 97th Indian Science In 2012-13, the DRDO was looking to and DRDO, ISRO, et al, have been road, you will regret if you cross the line." ic pulse weapon, to fry the object with- tened the demise of the USSR. Congress that India had “all the build- tweak the ballistic missile defence sys- inured to sanctions since 1998. But This brought back memories of the Jaipur out blowing it up. In technical terms, viable ballistic- ing blocks in place for an anti-satellite tem electronically to carry out anti-sat other programmes may be affected. Police using the infamous no-ball that Why would you do this? Satellites missile defence systems and anti-satel- system”. simulation tests, maybe with a “fly-by” We’ll have to wait and see what the Indian pacer Jasprit Bumrah had bowled and ballistic missiles are part and parcel lite weapons require similar capabilities. Blowing up a satellite is easier than where an anti-satellite missile would pros and cons are. in the 2017 Champions Trophy final to give a similar message. Bumrah had not taken it kindly and had expressed his displeasure on Twitter. Wonder if Ashwin, usually an active and chirpy social media EC stand on VVPAT audit must change user, has taken note of the KP post. Another scheme With the introduction of the voter-veri- essary and very cumbersome. You don’t This is the season of giving and it simply VVPAT slips should be matched with the EVM count fied paper audit trail (VVPAT) machines, need a sample of 50 per cent for any ver- doesn't matter if you don't have a real in 14 booths per assembly constituency now there are two independent ways ification. Statisticians tell us that one plan. Now the Communist Party of India through which votes can be counted for need not think of sample in terms of per- (Marxist) government in Kerala has said each booth. There is the EVM’s display centage of the total number of booths. it would offer farmers a minimum parties. Three, voters should be allowed board that shows, at the press of a button, What matters is the actual number of support price that is 50 per cent above to register an objection if the paper slips the number of votes secured by each can- sampled booths, not the percentage. the cost of production, ~18,000 in do not match the party they voted for. didate. And now, there are paper slips So, let me repeat my earlier suggestion minimum wages, and ~6,000 as Four, the malfunctioning EVMs should produced by the VVPAT machine that go that meets both the requirements. One, minimum welfare pension. Thomas be replaced within 30 minutes. And inside a sealed box, which can be opened VVPAT audit should be done in 14 booths Isaac, Kerala finance minister, said the five, VVPAT slips should be matched and the slips can be physically counted. per assembly constituency (or assembly package his party was proposing was with the EVM count in 14 booths per The whole point of introducing segments within a parliamentary con- better than the income support scheme assembly constituency. VVPAT machines was to generate greater stituency). There is nothing statistical or of the Congress because the CPI (M) did To my pleasant surprise, I received a confidence among voters, candidates magical about the figure 14. It so happens have a strategy for resource response from secretary, Election and political parties. Thus, the EVM that each round of counting is done on mobilisation. And that includes raising YOGENDRA YADAV Commission (EC) that the first three of could now be subjected to “VVPAT 14 tables (for reasons I have never under- taxes on the rich and on corporate my suggestions are actually part of the audit”: Matching votes secured by each stood) in each assembly segment. profits, restoring the wealth tax for the electoral rules and are being followed. candidate in the EVM display with the Two, this audit should be done at the super-rich, the introduction of the he next hearing of the electronic There is an established protocol of first- physical counting of the paper slips. beginning of counting, not at the end. inheritance tax and restoring the long- voting machines (EVM) case in level checking of every EVM in the pres- However, under the existing provi- One randomly selected EVM and its term capital gains tax. T the Supreme Court on April 1 pre- ence of political party representatives. sion, this verification is for all practical TAKE NOTE The whole point of respective VVPAT should be opened and sents a golden opportunity to set this There is also a set procedure for two- purposes left to the courts. The EC man- introducing VVPAT machines was to matched on each of the 14 tables before debate to rest, just in time for one of the stage randomisation of EVMs, which dates (Rule 16.6) that at the end of the generate greater confidence among rest of the EVMs are counted. If these most critical Lok Sabha elections in the takes place in the presence of represen- counting, the VVPAT audit should be voters, candidates and political parties match, the rest of the counting should history of independent India. All we tatives of parties and candidates. done in only one randomly selected take place as it does now. If not, then More trouble need now is the Election Commission to There exists an enabling provision booth in each constituency. There is also report given by a committee of reputed paper slips should be counted for all the The Congress-Rashtriya Janata Dal (RJD) budge from a pointlessly stubborn posi- (Rule 49 MA of Conduct of Election a rule (16.5) that after the counting, but statisticians, which seems to have rec- booths in the entire constituency. understanding in Bihar will likely face tion, frowned upon by the apex court, Rules, 1961), which I did not know about, before the declaration of result, any can- ommended VVPAT audit in only 479 Three, once the counting is over, each more trouble in the days ahead. The that verification of just one booth per that allows a voter to object if he or she didate can request for a VVPAT audit in randomly selected booths throughout candidate should have a right (not left two parties came to an agreement that constituency is sufficient. suspects a mismatch between the paper any or all polling stations. But the deci- the country. The statisticians were not to the discretion of the returning officer) Alinagar's Member of Legislative I have been arguing for some time slip and the party he or she voted. In that sion is left to the discretion of the return- wrong. Such a small random sample is to demand VVPAT audit in at least one Assembly (MLA) Abdul Bari Siddiqui that the EVM debate is unnecessary and case, the presiding officer of the polling ing officer. Otherwise, the candidate has adequate to assess the overall reliability booth of his or her choice. Once again, would contest the Darbhanga seat, harmful. I had suggested that instead of booth can order a special ‘test vote’ to be to approach the courts. So, the number of the EVM count for the country as a in case of a mismatch, paper slips should leaving two-term incumbent Kirti Jha junking EVMs, we should tweak the exist- cast. If it shows a mismatch, polling stops of booths and the process of VVPAT whole. But that is not the operative ques- be counted for the entire constituency. Azad fuming. Azad, who won on the BJP ing procedures to bring greater trans- in that booth. I also received detailed and audit are now the heart of the matter. tion. The point is to verify the system for Let us hope the EC or the SC would ticket in 2014, recently jumped ship and parency and enhance public confidence. very helpful feedback from a serving civil To my mind, the current controversy each constituency and to do it in a way settle this matter once and for all. I really joined the Congress. The Congress brass In this spirit, I had made five suggestions. servant that clarified many of my doubts. can easily be resolved. The Election that not only meets statistical standards hope this is my last article on an issue that is looking for a seat to accommodate One, the EVMs should be open to That leaves us with only one real Commission’s insistence that VVPAT of proof but also generates public confi- should have been sorted out long ago. Azad. He is unlikely to be fielded from checking by political parties before issue: The number of EVMs to be audit in just one polling booth per con- dence. The EC’s proposal doesn’t do (By special arrangement with ThePrint) nearby Madhubani or Jhanjaharpur these are deployed. Two, EVMs should matched with the VVPAT slips and the stituency is sufficient makes the audit either of these. either, with the RJD firmly dismissing his candidature. be assigned randomly to different con- process of the VVPAT audit. look perfunctory and suspicious. The EC On the other hand, the opposition’s The author is the national president of stituencies in the presence of political “VVPAT audit” needs explanation. seems to be drawing upon an expert demand for 50 per cent audit is unnec- Swaraj India

INSIGHT > LETTERS

Be careful missile test was Bankers, you can have your Jet and eat it too not only violation This refers to “Airlines in India may skip of the model code Using interim financing under IBC is likely to resolve Jet’s woes faster and better Jet takeover deal” by Arindam Majumder, of conduct, but Shally Seth Mohile and Nivedita Mookerji also betrayed his (March 28). It is quite clear that selling Jet fears about a pos- way of assets if the fleet is leased). In Airways is not going to be an easy task. sible electoral ben- the case of Jet, all its value is embedded The State Bank of India’s (SBI) expecta- efit accruing to the in its operations and as such it is imper- tions to find a buyer and its assertion that Congress for its ative for its operations to continue to the banks hope to conclude the deal by minimum income preserve the remaining value for cred- May is just a pipe dream. The consortium, guarantee scheme. itors. In this light, the SBI chief is cor- especially SBI, should be more pragmatic. Finance Minister Arun Jaitley’s tasteless rect in insisting on what is being paint- Having been witness to the Air India sale comments against the Opposition fur- ed as a bailout package for the airline saga for years, one would've thought, we ther confirms the party’s nervousness. to keep its operations afloat. had learnt some lessons. By no stretch of imagination, the nation- Historically most major airline The real reasons — as indeed your al security imperatives demanded either DIVA JAIN bankruptcies have resorted to what is report points out — are high cost of buy, conducting such a test or a statement called debtor-in-possession (DIP) corporate governance issues and weak from the country’s PM at this juncture. financing to emerge from financial financials. These are going to be major It is clear that this has been done with to distress. Debtor in possession financ- road blocks in the sale of this once great shift the narrative back to an emotive he decline of Jet Airways’ busi- ing is a loan extended to a firm which airline. The lenders’ consortium, who are issue like national security. ness and the resulting distress to is already in bankruptcy. The loan is SETTLE DOWN By not dragging Jet to the NCLT process, bankers are robbing the new owners, would do well to (a) peg Some reports say the country’s capa- T its creditors have elicited a used by the firm to restructure its the company of an opportunity to overhaul its operations drastically and in a their sights low and be realistic and (b) bility to intercept and destroy adversarial sharply polarised response from operations and preserve or increase time-bound fashion to enhance value be prepared to accept whatever a poten- satellites in space had been tested suc- observers. Some have supported the value for creditors. Understandably, tial buyer, domestic or foreign, perceives cessfully in 2011 itself without making lead banker’s (in this case the State Bank such a loan prevails over claims from the banker’s proposal for Jet is the turing on the back of open-ended as the real value of the airline. They much noise by the Manmohan Singh led of India) assertion that providing Jet before the declaration of bankruptcy. insistence on not using the Insolvency financial support from the govern- should be willing to sell a clean product UPA-II. On the flip side, Modi’s well with interim support increases the prob- Debtor in possession financing has and Bankruptcy Code (IBC) /and not ment that is used in dribs and drabs without any baggage of old staff and any deserved compliments to the Defence ability of a recovery while others have been critical for the emergence of taking it to the National Company Law to patch up operational inefficiency other ties with the past owners. The buyer Research and Development Organisation enthusiastically invoked Schumpeter’s most major airlines from bankruptcy. Tribunal (NCLT). The key determinant but never to eradicate it. — if we are able to find one — would want scientists should also be seen as his tacit creative destruction to espouse a disso- American Airlines availed of $1.55 bil- of value and creditor recovery once a This would still have been under- to earn from his investment and it would acknowledgement of successive gover- lution of the troubled airline. Both the lion in DIP financing while in firm is economically bankrupt (which standable had the IBC not allowed for be possible only if it is a clean deal with- ment’s invaluable contribution towards views are partially correct and are bankruptcy in 2013 and is now in means that it can no longer pay what DIP financing thereby necessitating out any encumbrances. development of space research. unable to completely grasp the eco- robust health with creditor recoveries it owes in full) is the speed at which the restructuring of operations outside Krishan Kalra Gurugram S K Choudhury Bengaluru nomics of creative destruction and the higher than 100 per cent. Similarly, the operations are restructured and the ambit of NCLT. But the IBC does strategic purpose of bankruptcy. Northwest Airlines used $1.355 billion the new firm emerges from the ashes. allow for interim financing and it has Unnecessary drama Letters can be mailed, faxed or e-mailed to: Creative destruction does not mean in DIP financing before emerging from In this context the time-bound NCLT been successfully used to restructure The Editor, Business Standard the destruction of businesses with the bankruptcy and then merging with process provides the right impetus Alok Industries. If the bankers want to Prime Minister Narendra Modi’s (pic- Nehru House, 4 Bahadur Shah Zafar Marg New Delhi 110 002 attendant mass layoffs but the decima- Delta Airlines (which had used $2.5 both in terms of the time frame of provide Jet with time and financing to tured) unusual address after keeping the Fax: (011) 23720201 · E-mail: [email protected] tion of business practices that are no billion in DIP financing to emerge restructuring and the degree of recover its value, it is going to be more entire nation on its edge to announce a All letters must have a postal address and telephone longer efficient. Similarly the from its own bankruptcy). restructuring required to preserve the efficient and time-bound under NCLT successful conduct of an anti-satellite number bankruptcy process is not designed to Similarly, United Airlines had used value of Jet Airways. By not dragging than outside it. In this light the asser- liquidate the business but to allow it to $600 million in DIP financing to emerge Jet to the NCLT process, the bankers tion of bankers that applying IBC on restructure itself and realign its opera- from bankruptcy. Incidentally even in are robbing the company of an oppor- Jet will destroy value has been most > HAMBONE tions to market realities so as to min- the capitalist America, the airways tunity to overhaul its operations dras- puzzling. Earlier airline bankruptcies imise economic loss and maximise received $900 million in loan guaran- tically and in a time-bound fashion to prove the opposite. Using interim recovery for creditors. This is especially tees from the government while it was enhance value. By providing financing financing under IBC is likely to resolve true for service businesses such as air- in bankruptcy in order to restructure its without Jet being in NCLT, bankers Jet’s woes faster and better. Yes dear lines. A firm derives its value from two business. So the principle of using run the risk that the restructuring will banker, you can have your Jet and eat sources. Its assets and its operations. financing to restructure operations and neither be timely nor deep enough it too but only if you use IBC. In case of airlines (and other service preserve value for creditors is econom- and they will end up kicking the can businesses) the majority of the value is ically sound and the bankers are correct down the road and creating a zombie The author is a “probabilist” who derived from operations and not from in trying to apply it to Jet Airways. airline. The case of Air India is a classic researches and writes on behavioral finance assets (since they don’t have much by What boggles the mind in case of example of this half-hearted restruc- and economics OPINION 9 > STAY INFORMED THROUGH THE DAY @ WWW.BUSINESS-STANDARD.COM

Volume XXIII Number 161 ILLUSTRATION: BINAY SINHA MUMBAI | FRIDAY, 29 MARCH 2019 Another storm brewing Indian negotiators at WTO need to push harder

he United States Trade Representative is working closely with the hits — are acceptable and indeed celebrated. Bowling tactics are looked as cheating. Greg Chappell was director general of the World Trade Organization, Roberto Azevedo, within the law when instructing his brother to bowl to tweak the global trade rulebook in order to address some of the underarm against New Zealand but he was excoriated Tconcerns of the world’s largest economy. If successful, the move can and vilified. lead to the WTO rescinding certain key flexibilities to some emerging countries, Where the rules do not damage the bowler, the including India. A key element of the changes the US proposes to push relates associations do. Australia banned the doosra in 2009, to the developing countries availing special and differential treatment (S&DT). saying it was a chuck. The other aspect is technology, which is allowed S&DT gives developing countries special rights and enables them to take com- unchecked when it comes to bats and other batting mensurate trade commitments based on their economic capacity. It allows gear. Dennis Lillee was criticised for coming out with developing countries to tweak and, in particular, commit to less than full reciproc- an aluminium bat, but the modern bat is a bludgeon ity in trade based on their low economic capacity. very different from the wood used by Bradman, S&DT was adopted by the WTO in recognition of the fact that developing coun- Sobers and even Gavaskar. tries don’t always have the required capacity or resources or indeed the level of Modern pads have an outer shell designed to ping The second-class the ball off them to maximise leg byes. market reforms for them to fully compete in all trade arenas. The US argues that Cricket balls have remained the same for a cen- many of these countries, such as India, are now members of the G20, and are no tury. Indeed, bowlers have been begging in recent longer the weaklings for whom the provision was made. But a reversal of S&DT will times to be allowed to play with the Duke’s ball in not only stall the progress under the WTO but will also actively discourage the par- citizens of cricket Test cricket, because it is of a higher quality and ticipation of developing countries in the multilateral trade framework. retains a strong seam even after wear. But India For India, in particular, this development could not have come at a worse continues to use another manufacturer, whose Rules of the game favour the bat over the ball product, our bowlers say, does not meet the stan- time. For a while now India has been at loggerheads with the US on trade issues. dard they expect. Both sides have traded protectionist barbs in the recent past in an attempt to hy was there a controversy over R Ashwin’s leg stump or hits him outside off stump (a rule The changes in bats and rules have punished the appease their domestic constituencies. For instance, Indian restrictions on US- Mankading of Jos Buttler in the current edi- brought in the 1970s). bowler in terms of the number of sixes hit in inter- made medical devices, particularly cardiac stents and knee implants, did not Wtion of the Indian Premier League? Buttler The front foot rule for fast bowlers changed in national cricket. The most devastating batsman of go down well with policymakers in the US. Another flashpoint was when India was given out because he was unlawfully outside his the 1960s, pulling the bowler further back into the the modern era, according to the greats who played prevented the import of dairy products from the US for “religious reasons”. crease. In an era when run-outs are determined by crease. The limitation on bouncers is more recent. him, is Sir Vivian Richards, who over a 15-year career millimetres, Buttler’s action was tantamount to The bowler is warned after the first one, though hit 210 sixes. It may surprise and dismay readers to Things came to a head earlier this month when the US decided to exclude cheating. Ashwin was not only within the law, he dangerous injuries in top flight cricket have been know that he is only ranked 22 in the list of all-time imports from India from its Generalised System of Preferences (GSP) scheme, was also right in doing as he did. very rare. six-hitters. All the 21 batsmen who have hit more which allows for certain sets of goods to be imported into the US with zero Indeed, the law was clarified as recently as 2017 All sorts of field restrictions are imposed on sixes than Richards have played after him. In fact, tariffs. India has been the largest beneficiary of this scheme, with imports worth in Ashwin’s favour. Under the previous Marylebone bowlers through the 30-yard circle and Power Plays the next most recent batsman on that list retired 15 about $5.6 billion benefiting from the GSP. This has hurt Indian interests, espe- Cricket Club (MCC) rule, bowlers were permitted and leg side limits. ODIs have two balls, one at either years after Richards (who left in 1991). The man to attempt to run out the non-strik- end, to keep them harder and, immediately above Richards, and who is 21st on that cially since Indian exports have suffered a long period of middling growth. er only before entering their deliv- therefore, making it easier to hit list, is Marlon Samuels, hardly a player of the same Under the circumstances, India is likely to be hurt further if the S&DT aspect ery stride. Now, bowlers at all lev- them farther. calibre but helped along by tech and rule tinkering. is withdrawn from the WTO. For instance, it is feared that in the absence of the els of cricket will be able to run out Batsmen are constantly reward- All this has produced damage. We must not S&DT provision, India will not be able to secure the livelihood concerns of its the non-striker up to the instant ed and bowlers punished through think it has not. Bowling has been looked down on fishermen in the new trade rules for fisheries subsidies. India will also lose its at which they “would be expected new rules like free-hits, first for from the time of Harold Larwood (it was Jardine 10 per cent farm subsidy elbow-room, which will be reduced to 5 per cent. When to deliver the ball”. front foot no-balls and then, after who devised Bodyline but shamefully it was But it was reported widely that 2015, all no-balls. The rules punish Larwood who was punished for it) to the Dalit crick- the GSP withdrawal happened, Indian policymakers tried to downplay the Ashwin was condemned for follow- errors by bowlers immediately — eter Balu Palwankar. adverse impact. That was a mistake. With reference to the S&DT revocation, ing the rule. The kindest thing said no-ball, wide-ball, etc — but not In our country, where manual labour is despised, however, India has made a more forceful attempt to fight it by raising an alarm about him is that he should have those of batsmen (running on the bowlers and bowling have suffered. India has for on how it can cause lasting damage to the multilateral trading system. But offered Buttler a warning (accord- pitch) who receive a couple of non- long led the world in looking down on the bowler AAKAR PATEL Indian negotiators need to push harder, as the time is ticking fast for countries ing to Rahul Dravid and Michael punitive warnings. and the data here is absolutely clear. Try making an such as India to have a rule-based trading regime with S&DT built-in as an Vaughan, both former batsmen) Batsmen can get runners, can all-time Indian XI. The batting is world class before running him out. come back immediately after retiring hurt, but (Gavaskar, Sehwag, Kohli, Tendulkar, Dravid), and instrument of natural justice. Of course, batters have no obligation to warn or bowlers cannot. Bowlers can only bowl fixed num- the bowling is pedestrian. Kapil Dev, Kumble, inform bowlers or keepers if they plan to step out of bers of overs in ODIs and T20s but there’s no limit Harbhajan and Ashwin are our highest wicket takers. the crease on the next ball to clout it. Why is the on how many overs a batsman can bat. The first three of them average around 30 runs a bowler obliged to ‘warn’? There is no letting up on the assault against wicket, and are not in the same league as the Crucial for federalism The answer is, of course, that the bowler is a sec- bowlers. Every new innovation seems to come Australians or the West Indians or the Pakistanis. In ond-class citizen in the Commonwealth of cricket. specifically to undermine them. The Decision the list of best all-time Test bowling averages, the Finance Commissions are central to the Constitution The rules are written and rewritten to undermine Review (DRS) system may be seen as a bowler’s highest placed Indian bowler is ranked 33 (Jasprit and deter him. We are often told that it’s a batsman’s friend but it is not. A 2017 study showed that bowlers Bumrah) the next one is ranked 62 (Ravindra Jadeja). eserve Bank of India (RBI) Governor Shaktikanta Das has expressed con- game. But the alacrity and enthusiasm with which got a DRS decision in their favour 20 per cent of the If we have not been world beaters in cricket for cern that the various Finance Commissions’ recommendations are too the International Cricket Council (ICC) is making life time, versus 34 per cent for batters. Even the proto- the longest time, here is the reason: We look down inconsistent with one another. Mr Das was earlier a member of the difficult for bowlers is disturbing. cols of the system itself favour the bat over the ball: on our bowlers and deify batsmen. Fifteenth Finance Commission, and has served as a senior official in the The bowler can claim an LBW if the batsman’s The batsman has the autonomy to ask for a review, We have been brought up on the cliche that the R body comes between the ball and the stumps but but the bowler must appeal to his captain. benefit of doubt must always go to the batsman. Union finance ministry. He argued that in the past different Finance Commissions the law saves the batsman if the ball pitches outside Batting tactics of all sorts — switch hits, reverse But why? had “adopted different approaches on tax devolution” and made grants to states, and that was a problem because more continuity was desired. Presumably in aid of that effort, he made a case for a permanent Finance Commission as opposed to the current system, in which it is reconstituted every five years. This was necessary now that the goods and services tax (GST) had come into operation, and the GST The great inflation escape Council could focus on the need for improving tax collections while the Finance Commission could manage other reforms. ndia, an economy infamous for high and per- kept real rates in positive terrain. econometric evidence that the education inflation Mr Das’ suggestions need to be given due consideration, given his background sistent inflation, is currently coming to terms As a result, inflation expectations became more data in India is prone to idiosyncratic shocks which and current post. However, his expectations from Finance Commissions seem mis- Iwith the opposite phenomenon — inflation over firmly anchored. Transitory shocks began to fade tend to dissipate. On the other hand, shocks in placed and do not take into account the continuing need for renewal in their rec- the past year has not just fallen, but fallen more more quickly. All of this has resulted in headline health can be both short-lived and long lasting. If ommendations. Finance Commissions survey the fiscal landscape as well as the than expected. Inflation forecast errors have converging towards core, a sign that the country the rise is due to a one-off jump in the index, for state of federalism and then make recommendations, which the political class has become one-sided. was perhaps moving a notch up on the macro sta- instance because responsibility for data collection Moreover, inflation components continue to bility radar. has shifted from the post office to a new agency to take on board. This is substantially different from what Mr Das is suggesting, but confound, with persistent divergence between food But if this is indeed the case, three questions (the National Sample Survey Office NSSO), since it is a requirement that remains important. Mr Das might worry about inconsistency and core prices. (Core inflation is defined as head- become relevant: Why hasn’t headline been con- September 2018, the consequent rise in inflation in different Finance Commissions’ recommendations, but this ignores the fact that line inflation minus food and fuel.) In the latest verging to core over the last year, as the post-2013 will show up for a year and fade away thereafter. there is a broad trend in recent Commissions to increase devolution towards states. reading, food inflation is at -0.1 per cent and core period suggests? Despite inflation expectations Lower oil prices, a more stable rupee and a high This has been established, and future Commissions will no doubt take it forward. inflation at 6.1 per cent, with a mys- being better anchored since 2013, base could also help lower core inflation. Finally, if In fact, the problem is that such recommendations have not been followed up terious 6 percentage point gap why is core inflation rising? Will higher GST rates pushed the core index higher, this between them. Headline inflation headline inflation eventually go up is likely to show up in the inflation print for a year, on in the right spirit by successive Union governments. The current government, at 2.6 per cent is well under the 4 all the way to 6.1 per cent (where and normalise thereafter. All said, we believe core for example, did not properly act on the Fourteenth Finance Commission’s decision per cent target. core currently stands)? inflation could fall by a full percentage point a year to raise the proportion of the shared pool of taxes given to the states from 32 to 42 The big question doing the Here are three probable expla- down the line. per cent. Much of that increased allotment was clawed back through various types rounds is: Will headline move nations. Once core inflation stabilises in the 4.5-5 per of cess, as well as a sharp reduction in the Union’s outlay on centrally-sponsored towards core or will core move We believe there has been a slew cent range, and food inflation begins to rise gently schemes. Mr Das was speaking at the launch of a book by one of his predecessors, Y towards headline? The two possi- of price shocks over the past year from the current very low levels, we expect headline bilities have diametrically opposite that has distorted relative prices (of inflation to converge gradually towards core, resting V Reddy, and Mr Reddy pointed out that while different Finance Commissions implications for monetary policy both food and core) and hindered sustainably at the 4 per cent target one year from have made different recommendations, the impact of any one recommendation (rate hikes versus rate cuts). PRANJUL BHANDARI convergence. now. A huge win for a country that was earlier char- has never been more than 10 per cent on any particular state. In other words, fears Inflation in India can be divided Food inflation has been falling acterised by runaway prices. of inconsistency across Commissions are perhaps overblown. into two clear phases. The pre-2013 sharply since early 2018. We believe Until then, however, headline inflation could The Finance Commissions are a crucial part of India’s constitutional set-up. period was characterised by rising food inflation there are both structural and cyclical factors for remain under 4 per cent. We expect a 25bp repo They allow for constant renewal in how the Union of India approaches federal and loose monetary policy (characterised by nega- this. As demand in rural India gently recovers, part- rate cut in the April meeting, followed by another tive real rates). Inflation expectations became unan- ly led by the new direct cash transfer schemes 25bp rate cut in June, taking the policy repo rate to questions. Creating a permanent Finance Commission with a particular set of rules chored. Core inflation was elevated as transitory announced by the government, the cyclical pres- 5.75 per cent by mid-year. Even with this, real rates will hamper this effort and severely undermine the federal structure of India. The shocks became generalised more easily. And all of sures could reverse. We forecast food inflation to will remain positive, in our view, anchoring inflation states are watching this discussion closely. Already the Union has exerted undue this manifested in core inflation converging rapidly rise from -0.1 per cent now to 3.5 per cent by March expectations further and strengthening the process influence on the Fifteenth Finance Commission through a controversial set of addi- towards headline. 2020, though still lower than the 6 per cent long- by which headline inflation converges to core. tions to the Terms of Reference that some states, particularly in the south, fear will The post–2013 period is characterised by the term average. One word of caution: We would hope that the penalise them. The Finance Commissions should be respected, and not viewed as opposite —falling food prices and tight monetary Core inflation is not in equilibrium. It is in flux, Reserve Bank preserves these gains, and not cut policy. A combination of low global commodity grappling with a multitude of shocks, which we rates by too much, too soon. an inconvenience. prices and good harvests pushed food inflation believe could ease off over the next year. down. As the Reserve Bank of India (RBI) The education and health components of core The writer is chief India economist, HSBC Securities and embarked on inflation targeting, it consciously inflation have spiked since October 2018. We find Capital Markets (India)

and vulnerable. The war instead strengthened the The US has played a central role in fomenting are in parlous shape. Iran is experiencing acute revolution and imparted to the Iranians a deep murky politics in the region, particularly with its economic distress due to US sanctions on its oil West Asia’s Cold War sense of grievance against their Arab neighbours military actions in Afghanistan and Iraq after exports and financial transactions. This has led and the US as they were targeted by missiles and 9/11. While its assault on Afghanistan prepared to widespread rioting and has also strengthened Given the ongoing conflicts in Syria and Yemen chemical weapons. the ground for Taliban resurgence, its overtly sec- hard-line elements in the political order that and the stand-off between the Islamic giants across The war also sent Saudi plans awry when, after tarian politics privileging the Shia in Iraq opened favour confrontation and even talk of war. the Gulf, Mr Hiro has now provided a timely and the conflict, its Iraqi protégé turned on his patrons the door for the spread of Iran’s influence in a In Saudi Arabia, Crown Prince Mohammed bin substantial account of the recent history of Saudi- and occupied Kuwait, bringing in the US as the major Arab country, creating fears of an emerging Salman now enjoys untrammelled political, mili- Iran relations, their convoluted domestic politics, regional hegemonic power, sealing Saddam’s ulti- “Shia Crescent”. tary and economic power, with aggressive actions their competitions on doctrinal and political bases, mate downfall and the destruction of his nation. The ongoing Saudi-Iran “Cold War” has against royal, religious and business personalities, BOOK REVIEW and their ties with the US which have often further The two countries have also competed for emerged from these concerns and has pitted the suggesting that the hitherto resilient royal order complicated their rivalries. influence in Pakistan and Afghanistan — with two rivals in destructive proxy wars in Syria and could be threatened by internal dissent. TALMIZ AHMAD Mr Hiro traces the histories of the two Islamic disastrous consequences. The kingdom and Yemen. The policies of President Barack Obama Mr Hiro concludes his monumental study on neighbours, both of which claim “exceptional” sta- Pakistan worked with the US to organise the “glob- rejecting a US role in regime-change in Syria and a pessimistic note, believing that the hostility ilip Hiro is one of the most prolific commen- tus but for different reasons: Iran remains proud of al jihad” in Afghanistan in the 1980s, while in the then working with Iran to finalise the nuclear between the two Islamic neighbours will not be tators on West Asia today. The London-based its pre-Islamic grandeur, its significant cultural 1990s Pakistan, with Saudi knowledge and assis- agreement had alienated both US allies — Israel moderated in the near future. This is a dire warn- Dauthor of about 40 books over the past 50 achievements, and its unique character as a major tance, promoted the fanatical Taliban in and Saudi Arabia. But this has been corrected by ing to countries such as India, which have an years, he wrote his first study on West Asia in 1982 Shia state. Saudi Arabia is the guardian of Islam’s Afghanistan and also used jihad as its instrument President Donald Trump who has placed his abiding interest in regional stability. and has since extensively discussed developments two holy mosques; it also has the world’s largest oil of war against India. country firmly on the Saudi-Israeli side. After in Iran, Iraq, Lebanon, Palestine and Central Asia. reserves. Uniquely, the country is named after its These short-sighted and incendiary policies withdrawing from the nuclear agreement, he has The reviewer is a former diplomat He has also commented on religious extremism in ruling royal family, which espouses Islam’s most have made Pakistan a haven for state-sponsored added threat of regime-change in Tehran to his the region and energy politics. rigid Sunni doctrine — Wahhabbiya. extremist groups which, while continuing to agenda by encouraging domestic unrest among Again, he has regularly analysed social, econom- Not surprisingly, since the Islamic Revolution attack India, have also become sources of indoc- the country’s minorities, many of whom are COLD WAR IN THE ISLAMIC WORLD: ic and political developments in his native India in Iran in 1979 the two nations have been fiercely trination and training for “lone-wolf” extremists. Sunni. Saudi Arabia is also being encouraged to Saudi Arabia, Iran, and the Struggle and even the state of India-Pakistan relations. All competitive in seeking to spread their influence They have also promoted trans-national jihad shape a “Sunni NATO” to confront Iran and for Supremacy his works are marked by painstaking research and across the Muslim realm: The kingdom encouraged across West Asia that threatens regional order reduce, if not eliminate, its regional footprint. attention to detail so that they are invaluable refer- Iraq’s Saddam Hussain to attack Iran in 1980 to and even the security of ordinary people in far- Mr Hiro has succinctly examined the domestic Dilip Hiro ences for scholars, journalists and students. overthrow the revolution when it appeared weak away Africa, Europe and the United States. scenarios in the two rival nations — both of which Hurst and Company, Pages 460, ~699