Monday, December 7, 2009

Market economy's contribution to environment

Rather than focussing on reducing emissions, India can make a difference by liberalising its economy, improve efficiency, and thereby contribute to a cleaner and safer environment. On the eve of the Copenhagen climate conference, I look at the relationship between economic reforms and energy efficiency in this article, "Earth Story", published in the Financial Chronicle, on 7 December 2009.

With the opening of the climate conference in Copenhagen, India has an opportunity to change the climate of negotiations.

Surprisingly, Jairam Ramesh, the minister for environment and forest, decided to play for a draw with his statement in Parliament last week proposing voluntary reduction in India’s carbon intensity. Despite his strong assertion that India will not accept any legally binding international commitment to reduce emission, he proposed to reduce the intensity of the economy by a modest 20 to 25 per cent.

Just when the world of climate science was getting shaken by allegations of massaging of data to support claims of global warming, the minister acknowledged that Indians are among the most vulnerable to global warming, and then promised to announce domestic emission norms by 2011. Yet, he failed to drive home the point.

Between 1992 and 2005, India’s energy intensity, that is energy needed to produce a unit of GDP, improved by about 52 per cent, from 1,281 kg of oil equivalent per $1,000 of GDP in 1992 to 618 kilogram of oil equivalent (kgoe) per $1,000 by 2005. During this period, carbon intensity declined by 45 per cent, from a high of 3.15 tonne of CO2 per $1,000 to 1.73.

These figures are impressive, and comparable to the major economies of the world, which varied in 2005 from 0.44 tonne per $1,000 for the US, 0.252 tonne for Europe area and 2.44 tonne for China.

India’s GDP in 2008 was estimated by the World Bank to be $1,217 billion (current dollar). At 2005 energy intensity level of 618.46 kgoe/$1,000, this required total energy of 752,969 million kg of oil equivalent (mkgoe).

But in 1971 energy intensity was a high 2,259 kgoe per $1,000. To achieve the GDP level of 2008 would have required 263 per cent more energy than it actually did. Likewise, at 1981 energy intensity of 1,154, would have required 87 per cent more energy. And at 1991 energy intensity of 1,409, would have required 127 per cent more energy to attain the GDP level of 2008.

The improvement in energy intensity is mirrored in carbon intensity. At 2005 carbon intensity level of 1.73 MT per $1,000, the GDP of 2008 emitted 2,094,083,144 MT of carbon. But at carbon intensity levels of 3.08 (1971), 1.96 (1981) and 2.72 (1991) the GDP of 2008, would have emitted 79 per cent, 14 per cent and 58 per cent more carbon, respectively, than it actually did.

This suggests that between 1992 and 2008, effective saving in total energy used was 127 per cent and effective decline in total carbon emission was 58 per cent, for the 2008 GDP level. The decrease in carbon intensity between 1992 and 2005 was a whopping 82 per cent from the 2005 base, and energy efficiency improved by 56 per cent, according to an analysis of the World Development Indicators.

The minister’s defensive strategy became apparent, when invoking national interest he offered to do domestically, emission reduction and emission standard, while vehemently rejecting similar measures under any international legal mandate.

The dramatic improvements in energy use since 1992 were not a coincidence. Equally, there was little conscious effort aimed at such environmental goals. The real secret of this amazing transformation is the economic liberalisation initiated during this period, which unleashed greater competition, ushered in a relatively free trade regime and facilitated investment and technology adaptation.

Globally, however, decarbonisation of the economy has been going on for the past 400 years as societies moved from fuel wood to coal, oil and electricity, driven by economic needs, leaving a safer environment in its wake.

Given this track record, rather than seeking to balance economics and environment, we need to push ahead with economic reforms with much greater vigour. We need to recognise that cleaner and safer environment is like value added products, which become accessible only with higher economic growth and prosperity.

We need to recognise that the poor are vulnerable to natural hazards, were so in the past, are in present and will be in the future, because of their poverty, quite irrespective of any change in the planet’s climate. If we are really concerned about the plight of the poor, then it is the intellectual climate that we need to change.

Even at a nominal economic growth rate of 8 per cent annually, India’s GDP will rise 150 per cent from 2008 level to over $3,000 billion by 2020. At our current carbon intensity level of 1.73 MT of CO2 per $1,000, the total carbon emission could increase by 2.5 times. But if our carbon intensity falls to European or Japanese levels, 0.252, prevalent today, the total carbon emission would fall by a sixth. This is possible at current levels of technological development.

And this could happen irrespective of whether man-made carbon is the cause of climate change or not. It would happen because of the economic need to improve energy efficiency. This is the real “business as usual” model.

The minister will emerge as a true ‘deal maker’ in Copenhagen if he succeeds in changing the intellectual climate at the negotiations. Economic freedom generates greater wealth and makes energy accessible, and that in turn, enables people to better insulate themselves from the vagaries of nature.

Tuesday, November 10, 2009

The Writing on the Wall

The 20th anniversary of the fall of the Berlin Wall in 1989, has become particularly poignant because of the current economic slowdown in much of the rich countries, particularly in that apparent bastion of capitalism, the US. Over the past two years, the foundation of global finance has been shaken, not because of any Marxian foresight, but because of the failure on the part of the capitalist world to appreciate the relationship between property ownership and valuation of that property. In this article, "The Writing on the Wall", published in the Financial Express, on 10 November 2009, I try to draw fresh lessons from the fall of the Berlin Wall, in the context of the current financial crisis.

On November 9, 1989, the Berlin Wall that divided East and West Germany, both physically and ideologically, finally fell. It was a political earthquake, which signalled the end of communism.
Communism was characterised by its contempt for private property, by the complete control of the state over the economy, and consequently, by its disregard for price as a signal of scarcity and guide for investment. For over 50 years, price of bread did not change in the erstwhile Soviet Union. Not surprisingly, for much of that time, there was hardly any bread available for increasing number of people.

Communism collapsed not because of its ideological baggage, but because of the practical cost of the ideology that tried to make private property redundant.

The 20th anniversary of the fall of the Berlin Wall has become particularly poignant because of the current economic slowdown in much of the rich countries, particularly in that apparent bastion of capitalism, the US. Over the past two years, the foundation of global finance has been shaken, not because of any Marxian foresight, but because of the failure on the part of the capitalist world to appreciate the relationship between property ownership and valuation of that property.

The blame for the financial crisis has been ascribed to many—from easy money to human greed, from a lack of government oversight to the lethal financial derivatives.

The fact is that this dramatic chain of events was triggered by the collapse of the housing market in the US in 2007. The housing bubble was supported by public policy aimed at widening home ownership, and facilitated by an elaborate network of financial institutions. These institutions created an ever more elaborate chain of securities that funnelled savings from all over the world into securities that were issued against mortgages taken out by US homeowners.

Originating in single, often modest, loans taken by US families, these mortgages were packaged by banks into so-called MBSs (mortgage-backed securities). First, a retail bank in a small town would bundle its mortgages and transfer them to a regional office. Within days, often hours, the paper would find its way to New York. There, one of only six rating agencies would slice the bundles into layers of securities. Based on statistics of housing loans over the earlier decade, the rating agencies would determine what proportion of the securities should be rated AAA (the safest, with correspondingly low interest rates), and how the remaining paper should be pegged down the ladder of safety—and up the ladder of return.

Thus rated, the paper would be offered to buyers across the world, to banks and funds. With electronic transfer from a US suburb to a small town in Germany, these securities were virtually ‘virtual’ in nature. The savings institution in Germany had no way to assess the risk underlying the paper it owned, except via the rating stamped on it in New York, and disseminated to it, perhaps by way of London and New York. When the bubble burst, as invariably happens with all asset booms, there were no reliable mechanisms to reassess the risk underlying the securities.

This financial crisis illustrates what happens when the relationship between property and ownership is lost or gets fuzzy. A modern economy is built on clear ownership of property, whether tangible or intangible, be it land, shares or intellectual property. It requires a commonly accepted form of documentation of that ownership, a continuous flow of information about the owners’ capacity to harness the property, and an unencumbered market where the transactions can be undertaken leading to the discovery of the real price of the asset concerned. This price information is critical because it allows capitalisation and ensures the flow of credit, which in turn keeps the wheels of a modern economy turning.

The stock market operates on the basis of continuous disclosure of financial performance of companies, and facility to freely trade the information. So, despite the widely dispersed share ownership, the information regarding the value of the assets, market capitalisation and future prospects gets continuously updated and vetted.

In contrast, for the various financial derivatives backed by the mortgages, it was no longer possible to identify the actual assets, no way to assess the financial health of the owners of these properties, and therefore no real market to vet the prices of these papers.

Unfortunately, much of the public discourse has ignored this fundamental dimension of the current economic woes. The housing bubble and the consequent banking crisis provide a glimpse of the tragic consequences of decoupling between property ownership and property valuation.
While world attention is focused on the economic situation in the US and in other developed countries, the situation also underscores the perpetual economic crisis in many developing countries and poor communities, where recognition of property rights and respect for ownership is weak, title documents often non-existent, and access to credit almost impossible. Typically, these are places where informal economic activities dominate.

But the consequences are very similar in both the rich and poor countries—lack of credit. In rich countries, the collapse of real estate prices has shaken the financial structure. With highly leveraged banks and over-extended borrowers, flow of credit has inevitably dried up.
On the other hand, the problem in poor countries is not that people don’t have assets, but that they are unable to effectively capitalise their assets. With lack of title, grossly inadequate documentation of ownership and relatively high transaction costs have contributed to these assets remaining perpetually uncapitalised. This is what Hernando de Soto, the eminent economist, explained in his path-breaking book The Mystery of Capital.

Developed economies, despite the current turmoil, are strongly rooted to property rights. With a greatly diversified economy, they are likely to come out of the present trough, sooner than later, shaken perhaps, but not stirred!

Poor countries, with lack of institutional recognition and respect for property ownership, may not have been shaken as much by the financial crisis. But the vast majority of people will continue to languish in perpetual poverty with little prospect of being able to capitalise their assets, build their creditworthiness and climb the ladder of prosperity.

This partly explains how one small section of India, operating in the formal economy, continues to shine even in these turbulent times, while a vast majority of people operating in the informal sector barely crawls to hold on. Tragically, these poor people, who may not be much shaken, are constantly stirred by the swirling grind of poverty all around them.

Property ownership and respect for property rights laid the foundation for capitalism and opened the door of prosperity in much of the Western world. On the 20th anniversary of the fall of the Berlin Wall, as the global economy grapples with the turmoil and tries to come out of it, it’s time to once again renew our appreciation of the significance of private property.

Tuesday, October 27, 2009

India beats China in prosperity index

India is ranked 45 compared to China's 75 on parameters of wealth & well-being. Roger Bate & I look at the new global prosperity index, in the Daily News & Analysis, on27 October 2009. Read the original article here.

Together, India and China account for 40% of the world's population and about 16% of the world's economic output. China bests India in both categories. And as home to glittering cities like Shanghai and Hong Kong, it's generally considered more prosperous than the subcontinent.
But is that really the case? Just as an individual's well-being is based on more than his bank balance, a country's prosperity depends on more than rote calculations of its gross domestic product (GDP). And on these less-celebrated, but no less important metrics of prosperity, India surpasses China, on all of them.

If prosperity is defined as a mix of wealth and well-being, India is streets ahead of China, ranking 45th worldwide, while China lags far behind at No 75. In Legatum Institute's recently-released Prosperity Index, which assessed 104 nations comprising 90% of the world's population, prosperity is defined through 79 variables sorted into nine overarching categories.

A growing number of world leaders are rethinking the conventional barometers of prosperity. French president Nicolas Sarkozy, for instance, has charged a commission whose members include five Nobel laureates — including Amartya Sen and Joseph E Stiglitz — to come up with a more accurate measure of a nation's level of advancement than GDP. The blue-ribbon panel recommended a range of new variables to capture not just the cash value of a country's output, but its quality of life as well.

That is precisely the rationale behind the Prosperity Index. So, while it's true that China outperforms India on several economic indicators, including the level of foreign direct investment, the population's savings rate, the unemployment rate and even entrepreneurship, India bests China in critical non-economic categories. These categories demonstrate how citizens benefit from freedom, sense of community, and governmental integrity that a democratic system fosters.

These characteristics put India in a much better position to deal with economic challenges in the future.

Take "democratic institutions," a category which evaluates everything from the civil and political protections afforded a citizenry to the relative level of power and independence granted to the executive and judicial branches of government. On this metric, India ranked 36th — 64 places higher than China, with its repressive regime.

Or consider "personal freedom," which encompasses freedom of speech and religion, national tolerance for immigrants and ethnic and racial minorities, and the amount of satisfaction that a country's citizens express with their level of freedom. Once again, India scored far better, ranking 47th, compared to China's 91st.

Indians also demonstrate more confidence in their country's governance. The index measured levels of political participation, citizen approval of elected officials, and popular perception of government integrity and corruption. Again, India outpaced China, ranking 41st - 52 spots higher.

India especially excels in the "social capital" category. The index considered the percentage of the citizenry who volunteered, gave to charities, helped strangers, felt they could rely on family and friends for support, or were otherwise active in community organisations. While China hovered in the bottom third of nations, India ranked a stellar fifth, behind the wealthy western countries New Zealand, Switzerland, Sweden, and Australia.

"A growing economy is necessary, but not sufficient, for national prosperity," concludes the Legatum report. "Without additional factors such as an accountable government, healthy citizens, strong social capital, and respect for civil and political liberties, a nation cannot achieve sustainable prosperity."

China may enjoy economic supremacy over India at present. But given its strong and free political and civil society, India's citizens are much better positioned to enjoy not just marked levels of economic growth, but also a level of prosperity unattainable in authoritarian China.

Note: The 2009 Legatum Prosperity Index will be released on 28 October 2009, at

Roger Bate is the Legatum Fellow at the American Enterprise Institute in Washington, DC. Barun Mitra is a founder and director of the Liberty Institute, a non-profit, independent public-policy research and educational organisation based in New Delhi, India.

Friday, September 25, 2009

India media battles China

Why does the India media blow hot and cold over China, every now and then? I look at this phenomenon in "Breaking news: TV battles China", published in the Financial Express, on 25 Sept 2009.

Apart from any geopolitical factors, there are two plausible explanations for the current focus on the China-India border, particularly on a few TV news channels in India. We are being daily fed with reports of Chinese incursions, China’s aggressive postures, China’s military buildup, China painting rocks red, and then the media is blowing hot and cold over whether the Indian military is capable or ill prepared to deal with any situation that may arise. Indian government has repeated that there is nothing unusual happening on the border. Indian military has said there has been nothing unusual on the border. But of course the media knows better.

I know very little about the Chinese response to the war being waged in Indian drawing rooms. One report in Indian papers quoted Chinese officials urging Indian media to show restraint. Of course no one can restrain the free Indian media, particularly when what is at stake is TRP. Particularly when many are suffering from withdrawal symptoms in a phase when there is no T-20 cricket to keep TV channels focused on the records made, the records missed, and the records that might be made, both on and off the field.

Here is my two cents worth contribution on why China-India border is dominating some TV news channels.

One, China is still relatively unknown to most Indians, quite unlike our other neighbours, and that makes it an easy target. For instance, Pakistan and its many non-state actors are a known devil, so whatever price they make us pay every time we are at the receiving end of their firework, we soldier on. There is very little personal animosity between ordinary people on both sides of the Indo-Pak border. On the other hand, historically and socially, China has always been on the periphery of awareness for most Indians, and the Himalayan range only reinforced that perception. Shekhar Gupta writes in his weekly column in The Indian Express, (September 19, 2009; news/stop-fighting-the-1962-war/ 518975/0), that the defeat of the

Indian army in the 1962 war at the hands of the Chinese in the Indian north-east may have scarred the Indian psyche for generations. So today, the little known China, coupled with the trauma of 1962, is casting a shadow over the reality of Sino-Indian relationship in 2009.

Secondly, like the Bollywood films that are forever eager to try and capitalise on any prevailing popular perceptions, there are some in the Indian media who think they now have an opportunity to try and leverage the Chinese dragon. In an economic slowdown, competition among news channels for higher TRPs has become hot, and what better than a T-20 thriller between China and India. The channels had a field day predicting a close election, when it was anything but that. Then the swine flu brought in the running commentary on the disease and death, triggering a panic. Then the monsoon, or its failure, and the media descended like vultures, excited at the prospect of picking at the worst drought in a century. And now it is time for a face-off between China and India, a battle which has been joined, with hardly anyone from the media actually visiting the border. Wait for the next media sponsored breaking news event. Far from being the messenger, the TV channels want to create news! Welcome to the media war in the information age.

Nevertheless, a war of words on TV channels is far more tolerable than any exchange of artillery between the armies.

The media warriors have, of course, attempted to wrap their rhetoric in tricolour. In the heat of battle, they may have missed one small point. Much of the China-India border is disputed by one side or the other, which is why we have the Line of Actual Control. And in some areas, even the LAC is not clearly accepted by both sides. There can hardly be anything but ‘incursions’ by one or the other, if there is no mutually recognised border cast in stone, in the first place.

On the other hand, if we are to accept the LAC as the de facto border, then it would basically mean that we surrender claims on the western sector in Aksai Chin, and China give up its claim in the eastern sector in Arunachal Pradesh. A lot of scholars think that it is precisely this kind of across-the-board settlement which is desirable, possible and doable. But it is the sector by sector, section by section, mile by mile negotiation between China and India that has perpetuated the talks, and held up settlement of the border dispute all these years.

One hopes that from this fog of battle in the media, a little light would shine through, giving impetus to the border negotiations. If the border is settled, the media warriors, of course, will lose one of their favourite punching bags. But that is one casualty from friendly fire that would be worth paying for.

Postscript: While the media goes to battle the dragon, the reality of Sino-Indian relationship goes on. China is India’s largest trading partner. Indian investment in China is growing. Many Indian students are studying at Chinese universities. China and India are working together at G-20, at WTO and other forums. The two sides recently acknowledged their identical positions on climate change. If these are a few of the highs, then as in any relationship, there are many low points too. The war drums in the virtual media cannot overshadow the realities.

Thursday, August 6, 2009

When Free Trade Means So Little

The new bilateral free-trade agreement between South Korea and India is not all it's cracked up to be: there are plenty of exceptions and the package will take 10 years to implement. Chung-Ho Kim of South Korean, and I argue here that fully free trade is the best possible way of recovering from the global slump, in this article titled "When free trade means so little", published in the Mint on Aug 6 2009.

India and South Korea are due to sign an agreement on Friday 7 August that they say will cut barriers and boost trade between our two important economies. But behind the political rhetoric, the reality of the Comprehensive Economic Partnership Agreement (CEPA) is in the fine print. By signing a freetrade agreement that does not actually free trade, our governments are denying us the best tools to fight the global recession.

They admit as much by saying it will pave the way for removing more barriers to commerce in the future, even though this agreement has been in the works for at least three years. It is at least a step in the right direction: With the Doha Round in a coma, both governments are right to seek other ways to boost trade.

But both governments are being far too timid in trade agreements that will not boost trade much at all, such as South Korea's recent free-trade agreement with the European Union and the one India is seeking with the Association of Southeast Asian Nations (ASEAN).

Liberating trade between Indians and Koreans would make a lot of sense: India's massive labour force and emerging globally competitive companies, particularly in information management and software, match up well with a relatively capital-intensive South Korea, whose expertise includes information technology, electronics and automobiles. In 2007-08, bilateral trade was about $10 billion--this pact could eventually boost that by one-third, but it does not go far enough.

South Koreans have long understood the value of trade with the rest of the world. In the early 1960s, they suffered living standards similar to those of Ghanaians or Kenyans then. Today, South Korea is at least 30 times more productive per capita than those two successful economies in West Africa and East Africa.

Some 70% of South Korean jobs are now directly related to some form of international trade.
India has taken a lot longer. After a disastrous experiment with self-sufficiency that not even an economy with more than a billion people could sustain, India's liberal reforms, beginning in 1991, have made dramatic improvements. Further liberalization has brought the average import tariff in India down from 32% in 2000 to 15% in 2007, according to the World Trade Organization; in 1991, the average import tariff in India was 115%. India is now the world's 16th largest trading nation overall but sixth largest for trade in services.

In the 1990s, both South Korea and India grew a full 3 percentage points faster than countries that did not open up to trade, according to World Bank economists Aart Kraay and David Dollar.
Trade was the key to growth before the global slump and remains the only sustainable route to recovery.

India's booming automobile sector shows how. After putting up for decades with very few choices in cars--thanks to the government-protected oligopoly, with massive import tariffs on foreign vehicles--keen Indian consumers are buying 9% more cars every year, making India one of the world's fastest-growing markets. Among the many investors that have taken advantage of a more open market is South Korea's Hyundai, now India's second largest car manufacturer.

Through joint ventures with foreign producers and newly gained expertise from trade, Indian manufacturers are becoming globally competitive too.

Despite all this, the flip side to India's booming automobile market is the remaining tariffs on auto components, benefiting a tiny minority who fiercely opposed Cepa and got special protection--at the expense of Indian consumers who pay more for products that could be imported more cheaply or made more cheaply in India with the right investment and with open competition.

The other victim, of course, is the components sector, which will prevent itself from becoming a serious international player.

India has also secured limitations and exceptions in Cepa for other so-called sensitive sectors, such as agriculture and textiles. In other words, India's negotiators are preventing Indians from getting cheaper food, clothes and vehicle parts.

New Delhi continues to insist that coddling India's farmers is the route out of poverty, while constraining their property rights and their freedom to trade even inside India. Opposition to free trade is also deeply rooted among South Korea's rice farmers, who fear competition will erode their 60% grip on their market. Again, it is the consumers who pay higher prices for this favouritism.

Protection for a variety of vested interests means that even the limited terms of this agreement will be implemented slowly, over 10 years. It is great that the two countries have agreed to speed up talks on removing double taxation, on a maritime and aviation agreement, and other stimuli to trade and investment--but why wait to boost two-way trade by (what South Korean negotiators calculate at) $3.3 billion a year?

Both governments will proudly announce CEPA today as an historic achievement, but we should be worrying about the details instead of admiring just another photo opportunity. Let us sign a free-trade agreement that does what it says on the tin: Free trade.

Sunday, August 2, 2009

Decriminalising homosexual behaviour

Repealing IPC 377: Recognising diversity and dissent

Delhi High Court has passed a landmark judgment that severely restricts the scope of the section 377 of the Indian Penal Code. The decision noted, “Respect for human rights requires that certain basic rights of individuals should not be capable in any circumstances of being overridden by the majority, even if they think that the public interest so requires. Other rights should be capable of being overridden only in very restricted circumstances. These are rights which belong to individuals simply by virtue of their humanity, independently of any utilitarian calculation.”

In this article titled, "Recognising diversity and dissent", published in Pragati: The National Interest magazine, in August 2009, I discuss the significance of decriminalising Section 377 of the penal code in the wider political and constitutional context.

The Delhi High Court’s ruling decriminalising consensual adult homosexual acts has not only enabled gays to come out of the closet, but has also revealed many other strange bedfellows. Many leaders of different religions – Christians, Hindus, Muslims, find themselves united in expressing their disapproval. Many others who normally prefer to wear their secular credentials on their sleeves, some seem to have suddenly discovered their affinity to tradition and culture and come out strongly against this judgment, others seem to have discovered that ambiguity and silence are the better parts of valour. The communists, hardly the epitome of tolerance, seem to be the only group among the political class to have welcomed this verdict.

The opposition from the conservatives and the ambiguity among the “secular” political class stems from a failure to distinguish between ethical values and legal implications of this judgment. While laws need to stem from moral values, moral values do not necessarily become laws. Not everything that one disagrees with need to be made illegal. One way to look at this is that while the law provides the floor, the basic framework for individual behaviour in a society, moral values represent the high ceiling, which one should aspire to, but which is well beyond the legal norm. Just as we may endorse the right of smokers or drinkers to pursue the freedom to exercise their choices without actually endorsing many of those behaviours, everyone can endorse the right of homosexuals to pursue their lifestyles, regardless of whether they approve or disapprove of homosexuality. In that context, the Delhi High Court’s ruling to decriminalise homosexual behaviour among consenting adults is a very welcome and long awaited step forward. We human beings have the right to make choices – that is what makes us humans. As Voltaire is famously supposed to have said, “I may not agree with what you, but I defend to the death your right to say it.”

The judgment says, “Respect for human rights requires that certain basic rights of individuals should not be capable in any circumstances of being overridden by the majority, even if they think that the public interest so requires. Other rights should be capable of being overridden only in very restricted circumstances. These are rights which belong to individuals simply by virtue of their humanity, independently of any utilitarian calculation.” This is a lofty and noble idea, and if the Indian judiciary lives up to it, it will be an extraordinary step forward.
The judges relied on Articles 14, 15 and 21 of the Constitution to minimize the scope of section 377 of the Indian Penal Code. A logical consequence of this judgment ought to be decriminalisation of prostitution—same-sex and heterosexual. If, a consensual act among adults of the same sex individuals in private is legitimate, then there can hardly be objection to the oldest profession. That would be a truly historic.

It is also interesting to note that the judgment did not invoke Art. 19(1)(a), and expand the scope of “reasonableness”, although that is what the judgment has sought to uphold by sanctioning diverse sexual inclinations.

The socio-political question is that by making the present HC verdict as a symbol of the change, the gay community may have attracted upon themselves unnecessary attention, and now they may have to prepare to face their long dormant, but reactivated vocal critics. Needless to say that society progresses through such churnings, unpleasant ideas come to the fore, and one has to debate and decide to take sides, but one has to be prepared to pay the price that such churning may unfortunately demand at times.

Law to Legitimacy: Shifting perception of property

The contrast between Section 377 and the right to property could not be starker. Here is a century-old law, part of which had been defunct for all practical purposes. There is hardly a case in recent decades where this section has been invoked to prosecute consenting adults exercising their choice in private. This particular section is largely irrelevant, and could easily be retired. Yet, when the section is read down by the court to achieve precisely that, a fresh debate is ignited around sexual inclinations.

On the other hand, consider the land acquisition act of 1894, another vintage of the colonial era. For decades various governments have been invoking eminent domain, routinely displacing hundreds of thousands of people from their homes, all for the sake of some wider public interest. No court has ruled against the substantive validity of eminent domain so far, upholding acquisition of private property, although increasingly restrained by qualifications. Yet, there is no political authority in the country today that is keen to invoke the law, even as it stands in the statute, to acquire private land any more, increasingly aware of the rising political costs of such endeavours.

The Delhi HC judgment profoundly notes, “The role of the judiciary is to protect the fundamental rights. A modern democracy while based on the principle of majority rule implicitly recognizes the need to protect the fundamental rights of those who may dissent or deviate from the majoritarian view. It is the job of the judiciary to balance the principles ensuring that the government on the basis of number does not override fundamental rights.”

This is an admirable sentiment. For democracy to endure, majorities of the day could not be allowed to degenerate in to mob rule and suppress dissent. The basic feature of democratic functioning is to protect the right of the minority to engage in the debate, and to recognise the prospect that today’s minority opinion may become the majority view of tomorrow if it can peacefully persuade more people.

But how has the judiciary fared amidst constant onslaught on the fundamental right to property? This right is the foundation of all human rights, and there is hardly any right that can manifest without the right to property. The right that the gay community claims is fundamentally a right to use their own body, their most fundamental property, in the way of their own choosing – the right to property, and freedom to express themselves. Why have two pieces of law have generated such diametrically opposite responses? What has changed?

In one there is a ground swell of popular support, in the other, there may be some voyeuristic curiosity, but not much popular support. In one, powerful governments have been brought to its knees. In the other an apparent non-issue has made the powers that be wary of disturbing the status quo. There is a very powerful political lesson in these two contrasting experiences. When the ground shifts, laws either have to reflect the new mood of the public, or become redundant. And without that change in the popular perception, even the most progressive law, may not carry the day. For all these years, the gay community had sought to bring attention to their cause by waving their flag, by standing apart, by claiming to be different. Today, they find themselves largely isolated, the support from the visible and vocal classes not amounting to much politically.

The difference is between legitimacy and legalization. Law is not what is on the statute, but what is perceived to be just. Even in their greatest victory till date, the gay community in India is unfortunately as far from gaining that legitimacy as ever.

The gay community, just like any other minority, need to move away from their sense of collective right as gay, nor flaunt their sense of victimhood. Framing the issue as collective rights invariably leads to pitting one collective against the other, and in such conflict it is not easy to overturn the collective that claims to represent the majority. But the smallest minority in any society is the individual, and his rights need to be protected, so that all minorities may enjoy the same protection, and are treated as equals before the law.

To gain that legitimacy, however, one has to discover the fundamental right, the right to property, which means to recognize and respect that right of every individual human being.
Once society begins to recognise the value of property rights, gays along with the rest of us will find that we can live together respecting each others’ choices and values, even when those values apparently conflict with each other. That would be a victory which all of us would be able to celebrate irrespective of our various identities, status and inclinations. And then the law will not merely be legislation in the statue book, but also legitimate in the popular eye.

Friday, April 24, 2009

India's Big Cats

The tiger is facing extinction. If the present trend continues, there will be no tiger left in the wild. There is no inherent conflict between commerce and conservation. In India, wildlife is nationalised and is not within the marketplace. The restriction of supply has raised prices and increased profitability of illegal sales. The opportunity to profit will increase supply and eliminate all threats of extinction. My article titled "India's Big Cats" was published in The Asia Magazine on 24th April 2009.

It is generally said that the demand for tiger parts is the cause of the tiger’s plight. Consequently, trade in tiger parts has been banned, and hunting prohibited. But prohibition only increases profitability. When trade is outlawed, only outlaws undertake trade. Not surprisingly, over a quarter century of prohibition has failed to secure the future of the tiger.

Clearly, it is time to ask whether commerce and conservation are inherently incompatible, or whether commerce can be harnessed to promote conservation.

Why does Texas have over 40,000 blackbuck when it allows hunting, whereas there are only 25,000 blackbuck in India where hunting is prohibited? And why are there 15,000 tigers in US, where trade in live tigers is permitted, with websites advertising for tiger cubs as pets while in India, there are only 3,500?

The problem is that Indian wildlife is seen as nationalised property and placed outside the discipline of the marketplace. Today these animals are in the uncaring hands of bureaucrats who are more interested in building their own empires and environmentalists who profit even as the crisis deepens. Everyone but the cat has become a fat cat!

The whole conservation theology imported from Western environmentalists over the past four decades has been to focus on stopping supply. So hunting has been banned, tree-felling in forests has been banned, and wildlife sanctuaries have been created where even entry of lesser mortals have been banned.

Such an approach has contributed to two developments. One, the trade in endangered species has become extremely profitable. Secondly, the local population who live close to wildlife has become completely alienated. As any basic economics textbook will make clear, restricting supply only raises the price.

Conservationists estimate that the worldwide illegal trade in forest products and wildlife is between $10-12 billion, over half of it coming from South-east Asia alone.

It is time to permit the creation of tiger parks to breed tigers, to unite conservation with commerce. In a competitive market economy, with respect for property rights, every demand is an opportunity for investors to improve supply, making for an abundance that will blow away any threat of extinction.

The tiger breeds very easily, even in captivity. Zoos in India are constantly advised not to breed tigers because being large carnivorous animals, they are expensive to maintain. But tiger farms do not have such considerations. Such farms would dovetail very well with deer or crocodile farms which would supply low-cost meat to the carnivores, lowering production costs. There is an international market for venison and the skins of many types of herbivores.

Such farm production will ensure reliability and quality of supply of wildlife, at an affordable price, completely taking the incentive away from poachers who seek tigers in the wild. It will also provide an economic stake to forest dwellers to conserve wildlife through commerce.

A growing tiger population in the wild would further boost the local economy, by opening up more revenue sources. Tourists and professional photographers would happily pay to have their pictures taken with the striped stars. Trophy hunters would be willing to pay many times more for the experience of tracking and hunting the tigers in the wild. For instance, in South Africa, trophy hunters pay Rs 15 to 20 lakhs ($33,750 to $45,000) for the experience of shooting a wild elephant or a rhino.

The tiger has great market value. There is a demand for virtually every part of the tiger. The total value of tiger parts from its nose to its tail could easily come to Rs 20 lakhs. There is also a huge demand for its skin and claws for ornamental uses. The Indian experience till a few years ago provides the best illustration of the tragic consequences of dysfunctional economic regulations. The babus wielded the power, smugglers oiled the wheels, blackmarketeers made a killing and the law enforcers took their cut. The poor consumer bore the brunt, as the economy ground to a halt.

However, market economics greatly favour the tiger. If the Indian Prime Minister would base his decision on economics alone, it is possible to return the king to his rightful place and to secure his kingdom.

Wednesday, April 1, 2009

'No vote' is no solution

Months before the general election to the 15th Lok Sabha, there has been a sustained effort by sections of citizens for the 'None of the Above' option in the ballot. At a time, when citizens are to assess the candidates in their own constituencies, and make their choice, this call for the "no vote" seems to be directed at negating the whole democratic process. In this article, "Vote! Because ‘No Vote’ is no solution" published in Pragoti: The National Interest, the monthly magazine in April 2009, I give my reasons against this "No Vote".

In the aftermath of the terrorist strike in Mumbai in November 2008, many people expressed their anger and frustration at the political leadership. An idea that has gained new currency has been the decade-old proposal to introduce a negative option in the ballot – “None of the Above”, or simply the ‘No Vote’, to express lack of confidence in politicians as such. Even the Supreme Court has called for a larger bench to decide on a recent public interest litigation (PIL) filed by the People’s Union for Civil Liberties (PUCL), asking for the introduction of the ‘No Vote’ in the ballot. The Election Commission of India has endorsed the idea too.

But the road to hell is often paved with good intentions. Thus, despite feeling disfranchised and frustrated by politics as usual, we must say ‘No’ to the idea of the ‘No Vote’. This is an idea that is actually anti-democratic in principle. It is based on a gross misunderstanding of our democratic institutions and electoral politics. Moreover, the implications of the ‘No Vote’ have hardly been thought through.

Democracy is not a system where the majority rules. Rather, democracy is a system where minority views need to be protected so that they have the opportunity and freedom to persuade people and peacefully win others to their side, so that today’s minority viewpoint has the potential to become the dominant opinion of tomorrow.

First, we need to take a look at the rationale for representative democracy. In large countries, and with increasingly sophisticated rules of governance, direct democracy as seen in ancient Greece is hardly the appropriate mode of politics. In a referendum, voters can decide for or against a specific motion; however, when laws are set in a legislative chamber, based on debate and voting by elected representatives, the voter’s voice can only be represented, indirectly, by the legislator. By refusing to vote for a legislator, the eligible voter is, in effect, abstaining from participation in the entire political process.

We saw in the last few years, how people in different countries of the European Union, repeatedly voted ‘No’ on the question of the proposed European constitution. But that ‘No Vote’ was not against the idea of the representative democracy, but a vote against the proposed continental constitution. This gave a clear signal to the elected representatives of the climate of opinion prevailing in many parts of Europe.

A ‘No Vote’ on the ballot aimed at electing the representatives themselves, however, will only undermine the legitimacy of the process of representative democracy itself. Let us extend the argument further. What would be the implications of such a ‘No Vote’ against the candidates contesting in the election in a constituency? Firstly, should the election be cancelled if the ‘No’ wins more vote than the candidates on the ballot? Or should re-polling be ordered only if 51 percent or more of the voters express lack of confidence in the existing slate of candidates?

Suppose a fresh vote is ordered, should the previous set of candidates be allowed to stand again? In case the ‘No Vote’ turns out to be the dominant sentiment of the citizens in a constituency or a country, who would actually bear the responsibility for governance? Should the existing set of politicians just continue in office till the political deadlock over ‘No Vote’ is broken? Or should an unelected bureaucracy or nominated technocracy be asked to take over the reins of political

These are not rhetorical questions. Recently, Bangladesh held its election for the national parliament after a two year stint by a military-backed technocratic government. (The Bangladeshi constitution requires an interim nonpolitical government to oversee the national election within a span of three months.) Both in the media and at polling stations, there were official advertisements and posters, informing people about the new choice on the ballot, the ‘No Vote’. On the day of the ballot, the voters gave a decisive verdict. Over 80 percent of the electorate turned out to vote. The ‘No Vote’, however, totaled a fraction of one percent of the votes polled. The highest tally for the ‘No Vote’, ranging between five and ten percent came in some individual polling booths—not even entire constituencies—in areas where the elite and educated of Dhaka reside.

This was a telling lesson for the Bangladeshi intelligentsia, many of whom had advocated the ‘No Vote’. The verdict of the people only exposed the wide divide between them and the ordinary voters who turned up in large numbers on polling day, in the hope of a better democratic future.
The Indian intelligentsia might not have the capacity to win the confidence of our fellow citizens and win at the ballot. But that is no reason to try and delegitimise representative democracy, or worse, seek to depoliticise political democracy.

Finally, it has been repeatedly said that our democracy has become unrepresentative and unresponsive, our politics devalued and debased. There is a much more than a grain of truth in those accusations. As Winston Churchill is quoted as saying, “It has been said that democracy is the worst form of government—except all the others that have been tried.”

The problems of democracy can only be dealt with even more democracy, and not by short-circuiting it.

Take the argument that Indian democracy is unrepresentative, because a typical representative can get elected with about 35 percent of the vote, in the winner take all first-past-the-post electoral system that we have inherited from the British and made it our own. Indeed, there are instances, when a winning candidate gets less than even 25 percent of the total votes polled. If we assume that in a typical election about the half of those registered to vote actually do cast their ballot, this means it is possible to enter parliament with the support of barely 12 percent of the voters in the constituency.

But is this low threshold a problem or strength of our democracy? Well, it is a strength, and is perhaps the single biggest one. The low threshold gives almost every candidate who wants to contest a hope that electoral success is not an impossible dream. This is perhaps one of the reasons why an increasing number of people contest the elections, and so many parties vie for a place. And this is perhaps also the reason why it is so difficult for sitting legislators to get re-elected. At just over a third, India has among the lowest re-election rate among established democracies anywhere in the world.

If we, the intelligentsia, fail to win the support of even so few or our fellow citizens in our own constituencies, should we blame the electoral process, should we blame the voters for their follies, or should we ask ourselves why are we so disconnected from our own people? Is it really fair to expect our fellow citizens who may spend a few hours to cast their ballot, to actually go to the polling station and cast his vote for the “No”? Do we really understand why so many poor people vote?

Another criticism we hear is that none of the candidates in a constituency may be suitable, because some of them may be tainted by charges of corruption and crime. So a ‘No Vote’ would be an expression of collective lack of confidence about the choices on offer. However, in a typical constituency these days, there are more than 10-12 candidates from different political parties and many independents. It should be eminently possible to support some of these against the tainted ones.

New political parties, and concerned citizens, are free to enter the fray and offer themselves as possible alternatives. With such low entry barriers, it is reasonable to think that if real alternatives are offered to the voters, and imagination of the voters captured, then voters are likely to make an informed choice. So an attempt to reject all the choices on offer is not so much of a lack of confidence in the slate of candidates on offer, but a lack of our own confidence in ourselves to enter the fray, and lack of confidence in our fellow citizens’ capacity to make a better choice.

The citizens of the world’s largest democracy might be much better off pondering why people who vote in such large numbers do take the trouble of voting at all. Why do they hold their cards so close to their chest that even professional pollsters and politicians find it so difficult to decipher the public mood till after the election?

As we head in to the fifteenth general election, rather than calling for the ‘No Vote’, we will do much better if we spend a little effort at understanding the fundamental basis of the largest democracy in the world. We may yet discover the secret of connecting to our people, of ways of reaching out to our fellow citizens with a new political message of revival. If we succeed, then rather than the “No”, we may suddenly find ourselves saying “Yes” to the democratic miracle that is India, and take the political plunge to wash away the ills that affect our system.

Tuesday, March 31, 2009

India:Urgent Steps Are Needed To Ensure Quality Medicines

The WHO is trying to fight the huge international trade in counterfeits but faces opposition from India and others, driven by a strange coalition ranging from the far Left to business organisations: this author blows away some of the straw men these people have built up. Barun Mitra says robust trademark protection will give Indian companies a stake in quality and give Indian, and worldwide, patients the guarantees that they need.

My article titled India: Urgent steps are needed to ensure quality medicines was published in The Pioneer on March 31, 2009

Indian pharmaceutical companies are supplying sub-standard drugs in Maharashtra. While the home-grown nature of the problem at least means that a solution lies in our own hands, the Government is sending a worrying signal by blocking the World Health Organisation's efforts to improve drug quality around the world.

Maharashtra's Medical, Education and Drugs Secretary Bhushan Gagrani said that 547 samples of Indian-produced sub-standard drugs were seized there during 2007 and 'we have initiated proceedings against 13 companies in Maharashtra and 97 firms outside the State'. The authorities are having to accept evidence contradicting the Centre's 2003 claims that only half a per cent of drugs in India were counterfeit and less than 10 per cent substandard ó especially as these figures were based on unverified data and small sample sizes, and some States provided no data at all.

Recent figures are far less optimistic. Last year a survey by the Associated Chambers of Commerce and Industry estimated that counterfeit drugs account for between 20 and 25 per cent of the market in the National Capital Region. In 2004, the Delhi Medical Association sampled drugs from the medicines bazaar at Bhagirath Palace and found 92.5 per cent were fakes. News reporters found exporters who sell the fakes to Sub-Saharan Africa.

It is of course difficult to trace the true origin of drugs in fake packages but the Organisation for Economic Co-operation and Development has estimated that 75 per cent of the world's counterfeit drugs originate in India.

It seems clear that substandard and counterfeit drugs are a huge problem, within India and beyond. India, however, has been opposing the work of the WHO's International Medical Products Anti-Counterfeiting Taskforce.

IMPACT needs to define the problem in order to fight it. Yet the group's new definition of the term 'counterfeit' is opposed by an unholy coalition ranging from anti-market activists to business associations and officials, claiming it would impose stricter patent protection and block the export of cheap Indian generic drugs to Africa. IMPACT is a front for Western ëBig Pharma', they cry.

But IMPACT is mainly run by national drug-regulatory authorities. Moreover, its proposed new definition states that 'patents must not be confused with counterfeiting'. The European Generic-medicines Association supports the definition precisely because it 'puts an end to any confusion with alleged patent infringement products which have nothing to do with counterfeiting'. The International Generic Pharmaceutical Alliance, of which the Indian Pharmaceutical Alliance is a member, was a founder of IMPACT. Where, then, is the ëBig Pharma' patent-enforcing conspiracy?

Whatever happens to IMPACT, however, it will not solve India's problem alone ó IMPACT's remit is primarily to guide countries on how they might protect their citizens from counterfeit drugs. It is a collaborative advice centre. The real action is down to us.

The plan for an India-wide Federal Drugs Authority seems permanently stalled but in any case we should question the instinctive assumption that greater regulation results in better products. There are some 20,000 pharmaceutical manufacturers in India, producing literally millions of drugs ó can a regulator really check every item, or even a reasonable sample?

The US has some of the highest standards of drugs in the world, in spite of vast numbers of packages continually crossing its borders and being traded by thousands of wholesalers. Meanwhile China's authorities continually announce clampdowns, introducing layer upon layer of regulation ó yet China continues to suffer from fakes and from lethally substandard foods and medicines.

An observable difference between the two countries is the existence in the US of trademark laws, upheld by independent courts. Manufacturers and patients can take legal action against the makers of substandard or counterfeit products. Sadly, the Confederation of Indian Industry describes the inadequacy of civil jurisprudence' in India as a reason why counterfeiting is so rife.

Brands are even more important to generics than to patented medicines. Free trade and fierce competition are the most effective measures for increasing quality ó and this relies on trademarks and copyrights being protected, so that authentic generic manufacturers are not undercut by spurious imitations.

New technologies are helping brands guard against counterfeiters. Soon Indian patients will be able to send an SMS text to check if their medicine is genuine. Meanwhile, the Indian unit of an MNC drug-manufacturer is introducing a new tracking system for its products.
These technologies offer great hope but the fundamental problem remains.

Counterfeit and substandard drugs harm the reputation of India's pharmaceutical industry, threatening people's health and even their lives. Competent and honest manufacturers must help cut through the unfounded conspiracy theories in order to defend themselves, the public and the rest of the world.