Memorial Lecture 2019

Prof. ML Sondhi Memorial Lecture 2019/Venue: India International Centre/Date: 30 November 2019

India’s Challenges and Responses in the Coming Years
By M. Rasgotra

Trustees of Prof ML Sondhi Trust and members of the ML Sondhi Prize Selection Committee, Smt. Madhuri Sondhi, Ambassador Lalit Mansigh, Professor Harsh Pant and Mr. Vivekananda Sondhi I thank you  for the honour you have done me by this Award.  Dr. Ashwani Kumar it is an honour and pleasure for me to see you here as Chief Guest.

I congratulate you, Madhuri ji and you, Mr. Vivekananda Sondhi for nurturing with admirable care the Institute for Asia-Pacific Affairs established by Manohar Lal Sondhi.  The Institute is a living tribute to Sondhi’s vision and imagination. The Institute’s work has spread knowledge and understanding of the vast panorama of problems and possibilities of peace and harmony in the region where India has important economic, political, cultural and security interests.

Ladies and gentleman,

Sondhi was a dear personal friend of mine from his days in the Indian Foreign Service: I saw something of him as a member of the Lok Sabha, slowly becoming disenchanted with the style and substance of Parliamentary politics of the time. We interacted more often when he was teaching at the JNU where his massive intellectual curiosity found greater satisfaction.  My recollection of Prof ML Sondhi of those days is of a man in ceaseless search for solutions to all manner of problems and challenges facing India and the world.  

In this vast country of a billion plus people there are challenges in all spheres of life, but the government is dealing with them from day-to-day and year-to-year with calm determination and noteworthy success.  The most formidable challenges facing the country are the state of the economy in the domestic domain, and CHINA in India’s external relations. I shall speak to you first about the economic challenge and then about the challenge that is CHINA.

India’s economy has grown since independence, but its growth path has not been one of sustained rise. More importantly, it seems trapped in a very restricted growth of roughly 4½ per cent to 5 per cent per annum - the rate of growth achieved, despite three wars, under Prime Ministers Nehru & Shastri in the first nineteen years of independence.

Subsequently, the economy rose to higher growths under successor Prime Ministers, but its rise and fall were episodic, in reaction or response to events, such as a change of government or some other noteworthy national or international development.  For example, GDP growth shot up from 1.2% in 1974 to the high figure of 9% in 1975 - the year of the Emergency -  and dropped promptly to 1.8% in 1976 when Indira Gandhi’s prospects in the impending election were beginning to appear bleak.  The economy then stumbled along at growth rates varying between 3.5% and 7% till growth fell to 1.1% in the crisis of 1991 when we had to mortgage our gold to escape default.

When Dr. Manmohan Singh, the reformer Finance Minister, became Prime Minister in 2005, the growth rose above 9% for the first 3 years and the annual GDP rose to USD 1.2 trillion.  The US-India civil nuclear agreement, an event of economic and political significance, seems to  have served as an incentive for the economy to rise to 10.3% in 2005 for the first and last time in 70 years since independence. But then, as the mining and telecommunications scams came to light in Dr. Singh’s second term, the growth fell sharply to 6.6% in 2011 and 5.5% in 2012.  It rose to 6.4% in 2013.  All these figures are inclusive of at least 2% to 4% growth due to Black Market activity, the parallel economy, so-called.  The honest, clean economy remained trapped in the 4 to 5% growth of the Nehru-Shastri years.  Economist donot like to mention the role of the black market that thrived in our country for five decades.  But a nation that wants to rise must learn to speak truth to itself.

With Mr. Modi’s assumption of office as Prime Minister the growth rose to 7.4% in 2014 and 8.2% in 2015, but as demonetisation took effect, the annual growth fell to 7.1%, 6.7% and 6.8% successively in 2016, 2017 and 2018. The decline is continuing and will, I think, stop in the coming months at around 4% which is the true level of the country’s clean economy,  which is a solid base to build a fast-growing economy with appropriate inducements and investments, especially in the hitherto neglected rural areas, agriculture and medium and small industries.

The years beginning with the Controls and Licenses in the 1960’s and the scams of the early twentieth century were marked by the ascendancy of the Black Market. This was also the period when the number of Indian millionaires, in US dollar value, grew from 39000 to 3,43,000. The rich grew richer, the poor remained poor.  I am not saying that there was no progress in those decades. For we now have a near 3-Trillion dollar economy.  But it was a 50:50 period – half white, half black money; and in global circles of commerce and industry our country was known as the most-corrupt in the world.

While writing this I was reminded of an NGO meeting, on development economics in a western country, where the participants included an Indian (myself) and a Pakistani gentleman who will remain unnamed. When talk turned to India, a prominent western scholar scornfully said that India was the most corrupt country in the world. I rose to protest, but the gentlemen from Pakistan hurriedly grabbed the microphone and addressing the previous speaker said; “Sir, you can’t do this to us, Pakistanis. This is the only thing in which my country is one up on our big neighbour!  
It is wrong to blame Prime Minister Modi, as some critics have done, for “ruining the economy” by demonetization . You cannot blame him for wanting a clean economy in a clean India aspiring for high global status. Hence demonetization “to root out corruption”. Earlier, Prime Minster Morarji Desai had implemented a similar measure precisely with the same objective – to root out corruption; but his government fell due to internal discords and the matter was not pursued.

In his first term Prime Minister Modi’s main concern was to bring some ease and joy in the lives of the common people.  Hence the Swachh Bharat campaign: the construction of millions of toilets, healthcare insurance programme covering 100 million families every year, the Ayushman and Indradhanush immunization programmes, the provision of cooking gas in every household, a vast house-building  project, provision of electricity in every hamlet in the remotest areas in this vast land.  Where do corruption and Black Market fit in this gentle vision of India!  These measures alone could add 1 or 2 per cent to the economy’s annual growth.  

There is much criticism of another major economic reform by the Modi government – the Goods and Services Tax (GST). Fifteen years ago, a wise and thoughtful representative of the European Union in Delhi, Madame Francine Henric, said to me: “Indian economy will not grow to its potential unless your 25 markets – she was referring to our states - are knitted together into one single Indian market.  “Barriers between States”, she had said, “hamper development of the country”.  Of course, each one of our States had its own taxes and its own border checks, tolls and levies etc. In the seventy years of independence, no government ever thought of doing something about it: Well Prime Minister Modi has done it and India is now a huge single market which is bound to speed up development and commercial activity across the country. GST, critics say, was poorly implemented. I thought the implementation of GST had proceeded rather well, adjusting the slabs systematically, step by step, in the light of revenue accruals and public response.  

Solid measures to overcome the economic challenge and the challenges of poverty are now being implemented by government on a broad front. Drastic tax cuts for the corporates – Indian and foreign - have been announced.  Lowering of personal income tax is under consideration.  The banks have been recapitalised.  Far reaching labour reforms have been approved by the Cabinet.  Reform of out-dated land laws will, I hope, be taken up soon.

Prime Minister wants to add two trillion dollars to the economy in 5 years of his second term.  It is a stiff target but not altogether unattainable, if not in 5 then in 7 or 8 years.  A special effort by Government is under way to attract foreign companies – especially the companies exiting China – to invest in India.  Even twenty or thirty big ones will make a difference in the economy and in our exports.

Investment of capital in rural areas, in agriculture, in road building and other infrastructure, such as canals, large water-storage ponds, government schools and colleges, vocational and skill-imparting institutes must receive high priority.  Government’s focus is rightly on the flow of liquidly to rural areas. But I am not sure reliance on the NBFCs for the purpose is the right choice. Government should simply take over the NBFCs.

In addition to a slew of measures being implemented to enhance the flow of liquidity in rural areas I would recommend the following for Government’s consideration:

1. Add 30, or even 50 working days to the present 100 and raise wages by 10 or 15 per cent for NREGA workers.  If necessary amend the Mahatma Gandhi National Rural Employment Guarantee Act suitably.
2. Give strong support to the rising tide of Startups. Already 21000 tech-savvy startups are creating wealth and employment.  All that they want from government is Single Point Clearance facility, which should be granted without further delay.  Every effort to make India the Hub of Startups should be encouraged.
3. Put new vigour and some more funds in the PM Kisan scheme. The scheme was popular and was working well. Why was its implementation allowed to slow down?
4. Why has road building all across the country come to a virtual halt? Roads are an important infrastructural necessity in a developing country. Highways are important, but country roads connecting villages, are also necessary to enhance mobility, and prosperity in rural areas.  
5. High priority attention should be given to improving the roads to manufacturing centres and from there to ports all over India.  These roads should be widened and smooth-surfaced to reduce transport costs of the country’s exports.

Because of the availability of electricity in villages in remote areas, an enterprising private bank, INDUSIND, has come up with a novel idea of carrying banking to villages in such areas.  Every Indian village or a cluster of villages has a shop of some kind, a KIRANA store, a Cloth shop, or a Pakoda & Sweets shop.  INDUSIND converts the shop into a Banking facility by locating one of its own trained personnel with a computer there with the shopkeeper’s agreement on negotiated terms. Villagers can deposit and borrow money at this facility, as in a normal bank, and transaction are properly recorded.  Some other private banks are also engaging in this activity but INDUSIND seems to be in the lead in this important movement, which can help the growth of business activity in remote areas of the country.  Public sector banks should be encouraged to emulate this laudable private initiative.

I come now to the challenges in India’s external relations.  Overall, these have been handled well with untiring energy, great wisdom, and patience to India’s best advantage, mostly in the last six years at the summit level by Prime Minister Modi himself.  He has now added to his team as Minister of External Affairs a wise, experienced and energetic retired IFS officer to assist him which, I hope, will become the practice in future also.

Foreign policy begins with neighbours, but in the world beyond neighbours, the actions and policies of great powers can also pose serious challenges for an aspiring country like India.  The Classical Indian wisdom on neighborhood relations is summoned up in Kautilya’s maxim which says “your neighbour is your enemy; the neighbour’s neighbour is your friend”.  In today’s world this maxim is not strictly applicable, and Nehru had rejected it and adopted the “good neighbour policy”.  Virtually all successor governments have maintained a friendly, cooperative and helpful attitude towards neighbours despite occasional, unwelcome pinpricks from them.

Kathmandu, for example, enjoys irritating, sometimes even challenging India by playing its worn-out China-versus-India card.  Recently when a violent movement in the Tarai led to a partial blockage in the flow of goods from India to Nepal, Prime Minister Oli rushed to Beijing to sign a Transit Treaty with China identical to the India-Nepal Transit arrangements. We should encourage Nepal to use the China transit route as much as possible.  We should also insist that China, which is always ready to incite Nepal, share with us the burden of Nepal’s requirement of transit facilities 50:50.  That will expose the hollowness of President Xi’s declaration during his recent visit to Kathmandu: “Nepal is India-locked, it is China opened”.  Not a tonne of goods has entered Nepal in the two years since the signing of the China-Nepal Transit Treaty.  The Nepalese are now privately saying that the northern transit route is not workable; but India should do more for Nepal!

Kathmandu’s discriminatory treatment of the people of Nepal Tarai may at sometime in future become a serious issue between our two countries.  The Tarai was transferred to Nepal by the British as a reward for Nepal army’s role in helping Britain to suppress the rebellion of 1857.  Ever since, Kathmandu has treated the Tarai as a colony.  The Taraians are people of Indian origin with deep familial and other links with our people in North India: they donot enjoy equal citizenship rights in Nepal, and that discrimination has been given constitutional sanction by the Oli government. The Taraians’ struggle for equal citizenship rights can erupt into wide-spread violence leading to serious difficulties and misunderstandings between Nepal and India.

Pakistan, after suffering defeats in its 4 wars with India, adopted Jehadi terrorism as state policy to inflict wounds on our country.  The challenge was finally extinguished by India’s retaliatory air strike on Balakot, a jehad promoting centre deep inside Pakistan.  While China’s ever louder political support to Pakistan continues to nurture the Pakistan government’s hostility towards India, New Delhi has finally found a way to end Pakistan’s incitement and support for violence in Kashmir. While for the present India may not wish to engage in talks with Pakistan, we must remember that despite the hostility of Pakistan’s Military and the governments installed by it in Islamabad, a huge number of Pakistani’s want friendly relations with India: Many want to visit India for pilgrimage, for medical treatment, for tourism or simply to watch cricket matches and meet friends and relatives. Therefore we should keep our doors open for people to people contacts.

From among the Great Powers a few challenges have came to us from the United States of America with whose leaders Prime Minister Modi has succeeded in cultivating close personal relationships. India-US relations were never better in our shared history of the last 73 years.  Nevertheless, Washington’s sanctions against Iran have resulted in a ban on our oil imports causing economic stress and other constraints on our traditional friendly relations with that country.  Washington’s sanctions on Moscow not only push that country closer to China, they are an obstacle to our acquisition of S-400 missiles. However, there is a constant dialogue between the two countries on these as well as matters pertaining to trade and tariffs.  It is to be hoped that the difficulties will be resolved to mutual satisfaction through patient and persevering negotiations.

By far the greatest challenge in India’s international relations is China.  For China, its own adversarial attitude towards India apart, also keeps inciting our neighbours against us.  The heavy debt burdens of commercially unviable projects it has built in Pakistan, Sri Lanka and Maldives are destabilizing their economies, spelling future troubles for them and for us.  

China’s most serious challenge to India’s security is in the Indian Ocean, where it seeks to become a dominant power.  It has established naval bases in Gwadar and Djibouti and has acquired a permanent presence close to India through a 99 year lease on the huge port it had built at Hambantota. Sri Lanka must ensure that the port is not used for military purposes.  Beijing’s scouting  for places in India’s neighbourhood to berth its submarines is disconcerting to say the least.

For India the Indian Ocean is a projection of its peninsular landmass and the primary area of India’s security concerns. So, why are China’s submarines patrolling close to our shores?  So far, peace has prevailed in the Indian Ocean, and China would be welcome in the Indian Ocean as a peaceful and friendly Asian power, not as a threatening challenge to India’s security. Establishment of China’s naval bases in Gwadar and Djibouti is a matter of concern not only to us but also to other Indian Ocean powers, Australia and France, Britain and the United States, and of course the Littoral countries.

After the military standoff at Doklam, the Modi-Xi summits in Whuhan and Mamallapuram have helped reduce tensions to an extent; but the unsettled northern border,  where Chinese forces continue to nibble at territories on Indian side of the Line of Actual Control and Chinese patrols often penetrate deep into our territory, remains a problem. But I donot see a danger of war in the north, such activities create an environment of uncertainty and deepen mistrust.  Therefore, it is necessary to mark the LAC on the ground or, at least, trace it roughly on a map. While a proper border settlement is not on the near horizon, a practical definition of the Line of Control will help generate confidence and trust between the two countries.  And it will enable them to draw down their forces and withdraw troops farther behind the Line of Actual Control from their present locations. That will rule out all possibility of even minor scuffles between opposing troops and will be a major confidence and trust building step.

According to Dr. Sui Zongji, Advisor to the government of China on Indian and South Asian Affairs, China keenly wants India in the BRI “not only because of India’s population, labour resources and a huge market but also because of India’s political influence over the South Asian and Indian Ocean countries”.  If this is China’s considered view then it should put an end to offensive moves detrimental to India’s interests both in the North & in the Indian Ocean.  In particular, if China agrees to plot the LAC, avenues could open up for India-China cooperation in a joint rail or road connectivity project.  

I donot much care for the name BRI: there is a strong hint of imperial-colonial odour to it.  Besides we have an equal interest in connectivity in the Indo-Pacific region and in the Asia-Africa growth corridor.  But if China agrees to clearly define the LAC’s course, India might be persuaded to consider a China-India Friendship Railway Corridor to be implemented in India somewhat on the following lines:

1. If China does bring the railway line from Lhasa, or some other place in Tibet, to Kathmandu, the same could come down to Raxaul on India-Nepal border and from there advance to places of pilgrimage interest to Chinese Buddhist – Sarnath and Gaya.
2. The railway line could then head to areas of developmental / commercial interest viz. Raipur (Chhattisgarh), Hyderabad (Telangana), Bengaluru (Karnataka) and Chennai (Tamil Nadu). Alternatively, access from Hyderabad / Bengaluru to a port on India’s West Coast might be considered.
3. For transit of Chinese trade with third countries, designated wagons would be sealed at Raxaul and at the designated port by Indian customs.
4. China will provide the funds for the project on easy negotiated terms.
5. Such a project, if agreed, will use Indian labour to the maximum extent possible, as also machinery and equipment available in India.  Chinese equipment and machinery considered indispensable could be imported from China.
6. Details of supervisory staff (Chinese / Indian) will be settled by negotiations.
7. The project will conform to the Indian Railways’ broad-gage specifications.
8. Some manufacturing centres might be established along the route by agreement between the governments of India and China.  Use of the railway for military activity, of any kind whatsoever, will not be allowed.
9. I believe a joint project of this kind would be the best way to convert China’s adversiality into an attitude of cooperative friendliness.

I thank you ladies and gentlemen.