The Persecution of India's Finest

India is a strange country. We like our films to show conscientious police officers fighting for just causes, but when this happens in real life, we stand by and watch as they are persecuted by unscrupulous politicians.
The Gujarat government is a case in the point. Narendra Modi and his rabid, Hindutva spewing henchmen shamelessly presided over a government that ignored, and as new evidence suggests, perhaps condoned, brutal acts of communal violence and mob fury that swept across Gujarat in 2002. Subsequently, in 2005, there was the alleged cold blooded murder of Sohrabuddin Shaikh (who was no saint himself, but that does not justify quietly bumping him off without due process of law) and his wife, Kauser Bi (killed to hide evidence of the first illegal killing), and then the alleged 'encounter killing' of Ishrat Jahan, a 19 year Mumbai college student along with her companions. Three outstanding officers of the Indian Police Service have taken courageous stands to expose these criminal acts of the government or officers like DG Vanzara who may have killed people without legal sanction, to independent judicial commissions.
Sanjeev Bhatt, Inspector General of Police was suspended for various 'omissions and commissions' like unauthorised leave and use of official car, after he testified to the Supreme Court that Narendra Modi had asked his Police Officers in 2002 not to intervene when riots broke out in 2002.

Rahul Sharma, DIG, who was SP Bhavnagar in 2002 was one of the few Police officers who honourably discharged their duty and their oath to defend the Constitution and the law of the land by minimising communal violence in that city. This is a man who should be honoured and feted for his commitment to the people under his charge. But no, there are no awards for him. This 34 year old conscientious IPS officer is being charge-sheeted for giving vital call records to the Nanavati Commission probing the Gujarat riots that give evidence of the call traffic between key elements who led the riots, including political leaders and those holding important positions in the state government and police force. The government contends that he should have taken its permission to give this evidence. It is quite clear what the government would have done if he had tried to seek permission. It would have refused permission and promptly destroyed them.

While I earnestly hope that the centre (Mr. Chidambaram, the Union Home Minister, has evinced some interest in the case) and the judicial system, which he was trying to defend, will intervene and stop this blatant abuse of state power, there is no doubt that this young Police officer is having to go through a lot of trouble for doing what he was sworn to do.

The third IPS officer who is suffering because of his principled stand is Rajnish Rai, who had his Annual Confidential Report (ACR) downgraded because of his unbiased investigation into the Sohrabuddin case, which led to the arrest of D G Vanzara.

I wish our Supreme Court, (I am not mentioning the Gujarat High Court here, because it has already rejected Mr. Sharma's plea on the pretext that other forums of appeal exist. Perhaps it is my lack of legal training that I fail to appreciate the importance of procedure over natural justice!) would take suo moto action to quash these baseless cases that the Gujarat government is cooking up, to persecute its finest officers. I wish I could tell my Lordship, the Honourable Justice Kapadia, that the image that ordinary citizens like me have of the Supreme Court is tarnished when I see Police officers who have truthfully deposed before court appointed commisssions being persecuted for doing precisely that. The people expect this of the Court, and the Central Government: that they will not sit mute witness as Modi tries desperately to hide his mis-deeds. As Uncle Ben said to Peter Parker in Spiderman: "with great power, comes great responsibility" .

Also, these cases underline the crying need for a good, central law on Whistle-blowing (applicable all over India) that is being contemplated.

And finally, Churchill had said that it will be the eternal shame of the German people that they accepted a man like Hitler as their leader. I hope my fellow citizens in Gujarat vote Narendra Modi out before history passes a similar verdict on us.

Belling the Fat Tailed Cat

Though a useful statistical tool to simplify things and arrive at broad 'ballpark' conclusions, the normal curve, I believe, has been mistakenly used in contexts where it needs to be 'tempered' or adjusted, or where it should not be used at all. The normal distribution curve is called the bell curve because it looks like a bell (please refer to figure 1).

The 'Gaussian Probability Function' is based on the 'Normal distribution' (which presumes that the mean of a distribution is also its median and its mode)---which in plain English means that the number of values less than the mean of a given set of values (let's say test scores) is exactly equal to the number of values greater than the mean and the highest number of values flock around the mean. It is a tenet of the central limit theorem that any large distribution of variables (e.g. number of children per family, or CAT Test scores) tends to cluster around the mean value.

Applying the curve

To standardize and use the the Normal Distribution in different contexts (heights, stock market returns, test scores, IQ scores, number of stars in a constellation) it is applied to a probability density distribution ( a graph showing the frequency or probability of different values occuring). In this, we ascribe the value of zero a 50% probability, i.e. we now can have a 50% probabilty of values more than this and less than this respectively. Then values are ascribed to different points on the curve, based on the formula z=(x-m)/σ where x is the actual value, m is the mean and σ is the standard deviation. Each value on this normal distribution curve signifies a corresponding percentage.

Using this simple mathematical tool, given the mean (average) , standard deviation and the value of the variable, we can calculate the approximate frequency of its occurence. E.g. if the mean test score is 50, the standard deviation (SD) is 20, and the test score of a student is 80, z=(80-50)/20 = 1.5. Using a normal distribution table or the =NORMDIST function on an Excel, this corresponds to a frequency of 90% cumulative---which means that about 10% of students would get more than this score, and about 90% would have got less.

The assumptions, and the pitfalls

What people often forget while applying this beautiful piece of mathematics is that the real world, unfortunately, does not always have the simple purity of the bell curve. Moreover, the bell curve makes some very simplifying assumptions, which would not always hold true in real life. For example, it is presumed that 68% of the values of a distribution would occur within +/- 1 SD of the mean (please refer to figure 1) and 99.9% of values would occur within 3 SDs of the mean. Which means that we don't expect too many 'outliers', or statistical events at the far end of the curve on either side. The presence of outliers or extreme values, leads to 'fat tails', or in statistical terms, kurtosis values of greater than 3. If the Standard normal bell curve is used ot model these events, it can lead to 'model error' (figure 2 shows a 'fat tailed' curve).

Belling the Cat with the fat tail

When the standard normal curve is simplistically used in risk management, to forecast market returns and accordingly predict capital requirements (i.e. how much own capital do I need to tide over a worst case scenario, also called 'Value-at-Risk), it can lead to disaster, as risk managers have found out as a result of the recent financial crisis. The problem is not with the concept of Value-at-Risk (VaR), but with applying the bell curve to all markets and situations. Using data from bullish markets, mean and SD values were computed. These values were then juxtaposed into the normal bell curve, further aggravating the error factor in the model. The result: many banks were undercapitalized, vis-a-vis possible (but as per their models, improbable) trading losses. Lehman Brothers is a case in the point, which went under, with just USD 6 billion in losses, though it had overall assets of...

Moreover, the bell curve is a probability distribution of independent events (e.g. test scores, where there is no cheating). Real life may create correlated events (e.g. market sentiments across asset classes are often correlated; similarly cheating in an exam can cause one bright pupil to cause the marks of numerous pupils arounf him to get good marks).

Another area where the bell curve is often purportedly applied is employee performance. This application presumes that 70% of the employees will form a category, around the average (roughly +/- 1 SD if one is to apply the normal curve) and that the top 20% of the employees will perform beyond this. It imputes these values to populations of employees. However, what should be understood that in a given 'universe' of employees, there can be plenty of exceptions. Hence, more often than not, this becomes an arbitary, relative ranking---in which case, it is a method loosely based on the bell curve (or the central limit theorem, to be more precise), but by no means is it an application of the curve itself.

Falling out of the Curve

Nassim Nicholas Taleb in his book "The Black Swan" has also written about the pitfalls of using the normal curve to predict market returns, where the actual markets may have 'fatter tails' or more returns that may be considered 'extreme' . Chris Anderson, in his book "The Long Tail" wrote about how internet marketing companies create demand for 'out of the ordinary' products---e.g. retro music. Ian Bremmer and Preston Keat have recently come up with a book called "Fat Tail - The Power of Political Knowledge for Strategic Investing" which refers to the frequency of political instability affecting investment envornments and our tendency to think that they are rare events, whyen actually they may not be that rare.

So though the bell curve is a useful tool, it must be carefully 'stress tested' to verify if the variable being 'fitted' to the curve indeed matches it. The variable must also be tested for 'trending' or external correlations which may affect it, before proper models can be drawn up. Otherwise, it may actually be better to simply chart out historical data and draw inferences on that basis, presuming everething else remains the same (as with most other things, the Romans had a pithy latin phrase for this too--- ceteris paribus).

The Issues and non-issues in this election

In these 'General' elections, unfortunately, both the 'national' parties in India have not highlighted the real issues that blight milions of people in India. One party (the BJP) has been parroting the 'terrorism threat' ad nauseam and has propped up a doddering octagenerian as India;s 'Iron Man' (लौहपुरूष ). Now, with young Mr. Varun Gandhi ( rising star of the saffron brigade and of 'यह गाँधी नहीं, आंधी है' fame) making vitriolic and unabashed communal statements, they find themselves with a lot of dust in their mouths. With push coming to shove, the communal and sectarian fangs of the BJP have been bared.

The Congress is stuck to its 'One family rule'. It would be laughable---if the joke wasn't on us, the Indian people--- that India's largest, oldest and most secular party, the 'crucible of the idea of India', cannot find or groom leaders outside the 'Nehru-Gandhi' familyin the world's largest parliamentary democracy. This fact stands testament to our feudal psyche (which has been Pakistan's undoing too). Mr Rahul Gandhi is young, earnest and fairly charismatic. But he has not said, let alone done, anything of note as yet that would mark him out as a candidate for high office, other than the fact that he was born to Sonia and Rajiv Gandhi. Moreover, the BJP and the Congress have of late been locked in an unseemly personality battle between Mr. Advani and Dr. Manmohan Singh.

The regional parties have not been able to build a credible third front, primarily because of the very poor quality of people that most of them throw up. While many of them have a relatively high representation from marginalised or 'non-elite' groups, and in that sense are a toast to India's thriving democracy, it takes a very high level of competence to run a country as large and complex as India, and I am not very confident of how well uneducated local rabble rousers would be able to do the job. In any case, most of them stand on thin foundations of local caste, communal and linguistic equations.

I think the biggest tragedy with India's polity is the fact that we are unable to generate the right kind of leaders. The reason is that in the last two post independence generations, the educated, the most competent people in India have somehow looked upon politics as something obnoxious and unfashionable. They have concentrated on studying hard to crack competition, land 'respectable jobs' (the Civil Services or in the private sector) and then retire quietly to do their gardening and reading. When I told my wife that I aspired to join politics some day, she recoiled at the idea--- "How will I say that I am married to a politician?" she asked in horror. It was almost as if I was planning a career in drug peddling. This has been the bane; the apathy of the educated middle class. My own example is a case in the point - I could not even find time to register myself for voting in Mumbai. I am still registered in Kolkata.

The Real Issues

Politicians have been raking up issues relating to language and religion that have assailed the multi-ethnic fabric of India and sometimes, torn it to shreds to create a constituency for themselves. They have polarised people and distracted them from the real issues---like hunger, poverty, education, healthcare and infrastructure - roads, power and storage facilities for agricultural products. While the BJP is giving disproportionate importance to the issue of security (it is an issue, but I think Naxalism is a greater threat); people like Mr. Narendra Modi, Mr. Raj Thackeray and Mr. Varun Gandhi have been perniciously trying to divide the populace to create constituencies for themselves. And in feudal UP, Ms. Mayawati has been playing her old caste card and using the government as a personal fiefdom and a source of illegal patronage for her cronies (all as per local tradition). The alternative---a Mulayam Singh---is even worse; not only is he corrupt, he is also avowedly anti-development.

The Return of the Jedi

It is heartening to see a resurgence of interest among the educated middle class in political affairs. Groups like AGNI and Jaago Re (launched by Tata Tea) in Mumbai and Janaagraha in Bangalore have been creating awareness and have launched voter registration dirves and 'know your candidate' campaigns. People like Capt. Gopinath, Meera Sanyal and Mallika Sarabhai have jumped into the fray. If not anything else, they keep a Syed Shahabuddin or a Varun Gandhi out of Parliament. However, the Prime Minister (Dr. Manmohan Singh's) contention that independent candidates like Ms Sanyal tend to divide up the vote and do not really make a difference is partly right. It makes sense to join a party. Just making it to Parliament is not very effective in the curent reality, where government formation and even voting in Parliament tends to be driven by party lines. It should be the same Mantra that drives the private sector: optimum utilisation of scarce resources.
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The Glacier Moves

I think I had read in the Economist once that "The Indian Government was like a glacier---you know it is moving, but you can never see it move". However, perhaps partly because this is election year, and given the seriousness of the issues, the governemnt has moved quickly and fairly effectively on a number of issues.


6th Pay Commission Anomalies
The Ministerial committee has made some welcome recommendations on the anomalies in relation to members of the Armed forces, vis-a-vis their civilian counterparts: Lt. Cols and equivalents have been moved to PB 4; the pensions of other ranks (Jawans) have also been rationalised; and it has been announced that the Armed Forces will have a separate pay commission from now onwards. Whether this will be of any use or not, is left to be seen. I would rather have more representation from the Armed Forces in the existing Pay Commission so that such anomalies do not creep up in the future. However, the government made no commitment on pay parity between the Armed Forces and their civilian counterparts for all grades between Lt and Brigadier and placement of Lieutenant Generals in Higher Administrative Grade Plus pay scales. The Armed Forces must remain under civilian control in a democracy, but they should definitely be paid the same at the same level of government. Few bureaucrats have to face bullets in another day at the office.

Economic Stimulus - "We are all Keynesians now"
As would be expected from a Prime Minister who was the chief architect of India's economic liberalisation in the early 1990s, and a Finance Minister who has presented a budget widely touted by the press as the 'Dream Budget', the government has taken both preventive and curative action to stave off, or at least reduce the effect of recessionary pressures looming over the economy. As Richard Nixon once said, "We are all Keynesians" now. Lord Keynes showed that in a pessimistic economic environment, where there is a 'crisis of confidence', monetary policies are less effective, as banks are less inclined to lend (there is enhanced risk aversion) and consumption-led demand falls as businesses fail, creating a self-reinforcing cycle of depression. The way out seems to be for governments to spend on creation of infrastructure and other real goods, thereby creating value and at the same time, providing a stimulus to domestic demand in by job creation.

A Difficult Time

This has been a difficult time. The USA, India's largest trading partner, is officially in recession and is seeing the largest number of job losses since 1945. Effectively, we are witnessing the biggest slowdown in the US economy since the Great Depression of 1929-33. The Credit markets have seized up and the great giants of Wall Street---the venerable big 4 investment banks, have either gone belly up (Lehman Brothers) , or sold out (Merrill Lynch, Bear Stearns) or copped out to become plain vanilla commercial banks (Morgan Stanley and Goldman Sachs), protected by the FDIC and the Fed. For the first time since WWII, Euroe and America are slowing down at the same time. India, with 35% of its economy dependent on external trade, can obviously not remain immune to this meltdown. There was contraction in our manufacturing growth for the first time since 1983---in October 2008.

The government and RBI have fired on all directions---both monetary and fiscal to prevent this crisis from getting worse. The RBI has coinsiderably loosened its monetary strings, with phased reductions in the cash reserve ratio---the CRR--- (from 9% in September 2008) to 5 % in January 2009. The repo rate at hich the RBI lends to banks, has been reduced to 5.5%, reducing the cost of funds, and the reverse repo rate which the RBI pays for deposits, has been reduced to 4%, again creating incentives for low interest loans by reducing the rate of risk free investments. It has been estimated each percentage cut in CRR releases about Rs. 40,000 Crore in the system. However, as the good ol' Lord (Keynes) had predicted, this is not necessarily leading to banks going out into the streets with sacks of money , asking people to borrow. A lot of banks have been parking the extra funds in government securities driving down the yield of the 10-year government bond to an all-time low of 4.86% . Yields and bond prices have an inverse relationship. So demand for these instruments was obviously quite manic.

To salvage this situation, the government has come out with strong fiscal measures in order to inject liquidity into the system and create jobs and demand. The corruption-ridden National Rural Employment Guarantee Scheme, which aims to provide 100 days of employment to BPL (below poverty level) families is, forever whatever it is worth, already on. Moreover, the government also announced a slightly cavalier Rs. 70,000 crore farm loan waiver scheme at the time of the last budget in 2008. However, on top of these measures, the government also unvelied two stimulus packages in December 2008 and January 2009. In December 2008, the government unveiled a package of measures worth about Rs. 30700 crore including across the board excise duty reductions and increased spending on infrastructure (Rs. 20,000 crore). In Jan 2009, a further suite of measures was announced: rates on external commercial borrowings (ECB) were decontrolled, Non-banking finance companies (NBFCs) were allowed access to ECBs for infrastructure projects and government controlled IIFCL was allowed to raise Rs. 30,000 crore in tax free bonds for infrastructure spending.

The glacier, finally, has moved. Now let's hope we get to see the fresh water flow in the form of additional liquidity and demand in the economy.

Terror strikes, brazenly

After the terrible attacks in the last week of November in Mumbai, where 10 heavily armed militants who came in from the sea virtually held the city to ransom for almost 3 days, and in which more than 180 civilians and a few of the best Police Officers in Mumbai were killed, I was dismayed that the top leadership of the country is thinking of setting up one more intelligence / security organization - this one apparently to fight terrorism. We should move away from such knee-jerk reactions. Having more organizations will only add to the overall confusion. The fact is that India has enough institutions to gather intelligence and thwart organised attacks on our people and our way of life. There is RAW for external intelligence, there is the Intelligence Bureau for internal intelligence, and then there is the local Police force in each state. Even within the Police, cities like Mumbai which are prone to terrorist attacks have anti-terrorist squads (ATS). But now we know just how effective this squad was, with its top cop laying down his life bravely defending the city. For us to protect ourselves effectively, the following steps need to be taken –

• As one correspondent in the Mint has pointed out, we need something like a SWAT (Special Weapons And Tactics) team within the Police. This could either be done by keeping resident NSG commandoes in India’s big cities or, alternatively, the ATS can be split into two parts – one should be an intelligence wing, which will carry out investigations and intelligence; the other should be a group of trained anti-terrorist commandoes who are suitably trained and equipped to act in situations like this so that we do not have to rely on mobilizing Naval commandoes / central forces wherein precious time and lives are lost.

• Police reforms are imperative. The service conditions, equipment and training given to our Policemen in most of the states in India is abysmal. Political meddling further demoralises the Police Force, and what we are left with are corrupt, ill-equipped and brutal police forces which are feared by ordinary citizens and derided, or even worse, patronised, by organised criminals, many of them having politcal connections. As a society, we need to train our Policemen (especially the 'men'; the officers are of fairly high mettle, thanks to the tough competition that they have to crack just to get into their uniforms), arm them properly with weapons and communication equipment and ensure that they are paid well enough to hold their heads high and live with dignity without begging from traffic violators. This would also mean better facilties, like housing, medical facilities, life and health insurance and English Medium schools for their children. At the officer level, this would translate into freedom from political interference in the matter of postings and appointments. As Police reform Commission after Commission has recommended, we cannot have a professional Police force which can enforce the rule of law impartially, unless there is fixity of tenure; and postings of Officers of, and above, the SP level, are decided by a professional committee. This committee should have representatives from all the key stakeholders - the State Home Ministry, the Police force (like the DGP of the state) and a retired Judge of the High Court or Supreme Court to preside over the deliberations. Decisions can be taken by majority. Junior appointments at the city / District level can be made by the Police Commissioner / SP with appeals (which should rarely be entertained) lying with the DGP of the state. It was heart rending to hear how our Policemen rushed at the terrorists with sticks (Lathis) when the latter were armed with automatic weapons. Today we have managed to catch a live terrorist because of the tremendous bravery shown by ASI Tukram G. Omble in holding to an AK47 pointed at him even as bullets riddled his body.

• Actionable Intelligence: One point that has often been mentioned recently, is 'actionable intelligence'. For far too long, we have ignored the importance of an intelligence network. It appears that RAW had even intercepted messages that referred to an attack on Mumbai, but these did not reach the Mumbai Police. The way I see it, this is a failure of the IB and the National Security Advisor (NSA). Having a doddering old NSA, however competent a Police officer he might have been, definitely didn't help.
• Stop the infighting - we fell once to the British and lived through close to 200 years of slavery, because we could not come together as one; let us not repeat that folly again. We must reject political leaders who attempt to divide us on linguistic, caste or religious lines, trying to keep us from focusing on the critical issues and powerful external threats, and creating a false constituency for themselves.
• Good people in government - finally, for all the shrieking by News anchors, all the candle light vigils, all the furious typing in blogs like this, nothing is going to be really achieved, unless there are good, competent people in government who do something to change things. Whether it be setting up of SWAT teams or equipping forces with better bullet proof jackets, it is the government that will do it. And we have to ensure that good, sensible people make it to the government, by entering the political process or by entering the bureaucracy. The least we can do is to participate in the political process by voting for the right people.
• Jettison the soft state image - We should declare that we will refuse to negotiate; whether with Pirates in Somalian waters, or with terrorists holding people hostage. We should take the stance of 'shoot first and then talk'. A country that aspires to be a world power cannot be held to ransom by Pirates and small bands of armed militants. And the next time China stakes claim on Arunachal Pradesh, India's foreign Minister shouldn't just say that Arunachal Pradesh is an integral part of India. He should first challenge China to come and take it from us if they dare to. Moreover, we should declare that if China lays claim on Arunachal Pradesh again, then India would like to stake its claim on Shanghai !

The Significance Of Barack Obama

So Barack Obama finally managed to become the first Black President of the United States. And convincingly so, thereby demonstrating the disillusionment of the American people with the muddle of aggression and complete lack of respect for justice that the George W Bush regime had come to represent. The fact is, more than a rejection of Mr. John Mccain, this was a vote for Obama, against the policies of the Republicans and against an unnecessary war in Iraq that has cost hundreds of thousands of lives. As one correspondent wrote - it had almost become shameful for Americans to say where they belonged to, such was the loathing that greeted them in foreign shores. They have almost redeemed themselves and hope to regain their pride by this collective action.
However, the election campaign clearly brought out the fault lines in American society, in a world integrated by 24X7 Live TV. The questions of race, and whether Mr. Obama was a practising Christian or Muslim should not have been relevant in a society that holds all men to be equal. But that is an ideal---people, with their petty prejudices, are often less than perfect. Hence, there were worries that the 'Bradley effect' (where people are embarrassed to accept that they would rather vote for a white man purely for the reason that they are white, named apparently after a black Gubernatorial aspirant in the 1970s who led in opinion polls and ultimately lost in the hustings) would rob Mr. Obama of crucial votes on D-Day. Thankfully, that did not happen. America voted with its heart. It voted not for expedience, not for skin tone, not for experience, but for the man who stood for change. A change from fear, divisiveness and 'stuff happens' to hope and optimism.
The Bush years, were marked by Bushisms (which were funny) and by a shameful contempt for all norms of justice, international law and human rights---that was not-so-funny. Institutions like Abu Ghraib and Guantanamo Bay don't sit well with the Declaration of Indepedence and the Gettysburg Address. Martin Luther King's prophetic words " Injustice anywhere is a threat to justice everywhere" were drowned out by the aggressive rhetoric belted out by the Bush Administration. In an environment permeated by fear and insecurity in the wake of the 9/11 terrorist attacks, the Bush Administration created further paranoia by citing the looming threat of 'Al-Qaeda' and linking them to the 'Weapons of Mass Destruction (WMD) with the rogue military regime of Saddam Hussein in Iraq. Whereas American intervention in Afghanistan against a regressive, fanatical and cruel regime is welcome, and perhaps even justified (even though it creates a dangerous precedent in international law and peacekeeping), the same cannot be said of its invasion of Iraq. Whether it was for oil contracts or to teach a dictator who thumbed his nose at America a lesson, it was an invasion launched on a foundation of falsehood.
Mr. Obama, hopefully, will take America away from this path by first, closing down the illegal and repressive Guantanamo Bay prison where foreigners are being held without trial and then either bringing them to justice or letting them go; and then concentrate on the really important issues like healthcare and the domestic economy.
People have been debating about whether Barrack Obama's election will be good for India in terms of his views on outsourcing (he has promised tax benefits for American companies which keep jobs in America), his ambivalent stand on Kashmir and the traditional Democratic leaning towards protectionism. However, these people are missing the significance of this event: Mr Obama represents---as his own book so succintly says---'The Audacity of Hope'. He represents the victory of a decent, educated man in politics----which often attracts, well, not exactly the kind of people you would like to marry your daughter to. And like Abraham Lincoln, his is an unlikely victory---as men of Finance like me would put it, a statistically 'tail event', an 'outlier'. The product of a brief union between a Kenyan student and a white young lady; abandoned by his natural father, Barack Obama Jr lived a fairly Bohemian and nomadic life that brought him to Asia for a considerable period of time. He then managed to educate himself in Columbia University and topped it off with a Masters in Law from Harvard. Even his political career started rather unremarkably---apparently he failed to even gain entry in to the Democrat convention in 2004.
But then, there he is---the first black President of the United States. I have heard him, and yes, he speaks well. After long years, here is a man in public life who seems to be saying more than rhetoric---whose earnesty seems to come through. Let us wish him well. He is an ideal for every voice of reason, every patriot who wants to, in the words of Theodore Roosevelt, "Dare mighty things" , anywhere in the world. Like a slightly odd-looking, tall, top hatted gentleman born about 200 years ago.

Defending those who defend India

The 6th Pay Commission, led by Justice Srikrishna, was appointed to review and revise the salaries of close to 4 million civilian central government employees and about 1.5 million members of the defence forces.
Whereas the government's decision to revise the salaries of government employees to ensure parity of standard of living in a regime of rising inflation and some kind of benchmarking to the market is commendable, it is unfortunate that it has done a great injustice to the members of the armed forces, the men and women who have promised to lay down their lives in the defence of India. It is perhaps another sign of the lack of vision both among our political masters and among the mandarins who would have assisted Justice Srikrishna, that in the same scale of service, a member of the defence forces, putting his or her life and limb on the line to defend the country, would get paid less than a Civilian Babu fattenening himself in some government department.

The whole issue was exacerbated because the Armed Forces were not given any representation in the 6th Pay Commission. It just shows the shameful manner in which a myopic, complacent and arrogant administration has treated its most powerful wing - which thankfully, has not given in to the temptation of seizing power from the Civilian Administration, a phenomenon fairly common in our neighbour, Pakistan. However, when the 6th Pay Commission recommendations came out, the top brass of the Armed Forces thankfully took a stand against the glaring anomalies and refused to implement the report's recommendations till these were resolved. They are not beggars; they are people who have promised to lay down their lives defending us, and are often called upon to do exactly that; if we treat them shabbily, it hits their morale and would weaken India's whole defence mechanism. One of these glaring anomalies: Lt-Colonel rank officers have been relatively lowered by retaining them in Pay Band-3 (Rs 15,600-39,100), while the civilians and paramilitary officers at the same level have been raised to level PB-4 (Rs 37,400-67,000).
Some nitwits in the print media have been calling this a mutiny of sorts. However, it is far from the truth. This was a very restrained, very just demand by the Armed forces. And the reason was not just money---it was, as Gen Deepak Kapoor, the Chief of Army Staff, rightly described it--- a question of honor. At a time when the Indian Army is some 13,000 short of offficers because young people, with 'Officer-like qualities' are going in for other career options, this could not have been more poorly timed.
The government thankfully, saw sense. A Committee of senior Ministers including the external affairs minister, Mr. Pranab Mukherjee, the Defence Minister Mr. AK Antony and Mr P Chidambaram, the Finance Minister, was formed to look into the grievances / anomalies. Hopefully, this august committee will do justice and help to stave off a bigger crisis in the Armed Forces, which are already cronically short of officers at the critical, operational levels.
In the end, soldiers and their families agree to make the 'supreme sacifice' not because they are paid x sum of money at the end of the month (it never really is enough to miss growing old with the man / woman you love and seeing your children grow up and go to college; or miss the thousand other little experiences that bring joy to our lives). It is because they think that it is honourable and glorious to do so. The least we can do, as a nation, is not to dishonour them.

The Battle for India's Soul

The 2009 elections are going to be important. In all the media circus around the American elections, middle class India has almost forgotten that India too is scheduled to elect a new Parliament in 2009. This time, thanks to the short-sightedness of our people and the unchecked venality of our 'leaders', there will be issues, unfortunately, more fundamental than the 'BiPaSa' (बिजली पानी, सड़क)---power, water and roads--- issues discussed during the last General Elections in 2004.

Cry, Beloved Country

Empirical evidence shows that more often than not, a people really get the government that they deserve, and by extension, the political leaders that they deserve. If people are wise, if they are really humane and civilized (not every one in a large collection of people can be, but at least if the large majority of them are), then they would elect the right kind of people. People who stand for truth and justice. People who focus on the real issues---livelihoods, law and order, education, health, infrastructural development. However, we have political leaders around the country who are creating constituencies by projecting themselves as representatives of a particular caste or community and by polarising society along these lines. These politicians are seeking to create an unhealthy 'us-vs-them' mentality, tearing India's rich multi-cultural and multi-ethnic fabic to shreds in order to achieve narrow short-term political gains.

They Lead and We Follow

Whether it be marauding, sectarian mobs in Orissa or the Maharashtra Navanirman Sena's army of goons in Maharashtra, or Narendra Modi's wild popularity in Gujarat, there is ample evidence to show that shameless, Nazi-style parochialism is supported by at least a certain segment of society. Some of them have, again, cold efficiency to support them (like Narendra Modi); some like Naveen Patnaik in Orisa don't even have that.

The Price of Freedom

In the recently concluded National Development Council, there was a lively debate on which was the bigger threat – Islamic Terrorism, which typically followed guerilla tactics or Hindu Nationalism. I see both these as two sides of the same coin---the willingness of intolerant people to threaten or use violence against those whom they perceive to be different or who do not toe their line. As a citizen, I would very much like the state to act---decisively and justly---but I am wary of the state taking on draconion powers like POTA or TADA ostensibly to 'protect' us---the fact is that there are enough laws to take action against terrorists who have been proved to be so; if at all the state hopes to break the back of terrorism, it is through better surveillance, by being seen as acting equally tough with Hindu Nationalist mobs and by better communication with high-risk groups like Madrassa graduates---not by taking on powers to arrest people on suspicion and doing away with 'legal niceties' which actually seek to protect vital individual human rights against the organised might of the state. In fact, the irony is that we again let the terrorist win, when we sacrifice the rights of the individual to ensure the protection of the masses. The price of freedom is eternal vigilance; and sometimes a little blood. I would rather die in a bomb blast triggered by a maniac who keeps an explosive in a plastic bag and then scurries away into the darkness, than in a torture cell funded by my own tax payments. In fact, I appreciate that the government--- if it is serious about protecting individual life and liberty--- cannot always prevent a terrorist attack. A sinister mind can create explosives and then keep them in a public place and then disappear among evening shoppers and office goers and shop-keepers; he only needs to get it right once---the government, in contrast, has to get it right every time if it is to avert a disaster. I think the most compelling answer to the terrorist is what Mumbai did after the train bombs---it is stoic resistance; it tells the terrorist that he has not succeeded in breaking us; that our government will not resort to indiscriminate killing to avenge the killing of innocents; that we will thumb our noses at them and continue to live our daily lives.

The Bigger Threat

I see forces like the Bajrang Dal, the Maoists, the MNS and the Salwa Judum as a greater threat to me as an individual citizen and collectively to us as a country because they don't keep bombs in plastic packets and surreptitiously disappear; under the garb of being popular movements (pandering usually to certain disgruntled elements in society in the same manner as terrorist organizations do), they openly challenge the supremacy of the Constitution, and the Rule of Law, that is the hallmark of any civilised society.

Defending the Constitution

So right-thinking Indians have to first defend the idea of India by speaking up; by standing up and being counted. We need to expose leaders who are playing the divide and rule game, creating false constituencies, since they have nothing constructive to offer us. One very effective way to do this is obviously to elect the right kind of people. Are we a parochial , uncivilized people who were led by a generation of Western-educated liberals and were bestowed a Constitution that we neither deserved, nor can we defend ? Unfortunately, the electoral choices for India are rather limited: though the Congress still plays lip service to a multi-cultural India, their failure to act time and again when the Constitution was openly challenged (as by sectarian forces in Orissa, and by the MNS in Mumbai) calls their willingness and competence to question. There are hardly any hopes one can harbour from the BJP, since it has openly aligned with Hindu Nationalist forces, in a blatant and shameless show of majoritism.
So finally, it is a bit of a chicken and egg question – the right kind of people need to stand for elections to be voted in. I believe we still have a few (though not enough by far ) sane, civilized people entering the fray; those of us who believe that we need to defend India’s soul, need to sound the trumpet that will rally the forces---by casting our votes for these people, so that at least some of the good people who want to enter Parliament / the State Legislatures get to do that.

Buldge-bracket Wall Street I-banks lose their 'I'

So finally, the last two I-banks left standing after the dust settled down on Wall Street have also bitten the dust. Not being able to garner enough funds from the equity market, and not having access to the cheap current and savings deposits that their more 'plain-Jane' commercial banking cousins have access to, Goldman Sachs and Morgan Stanley have also decided to become commercial banks. The turn of events brought about by the Glass Stegal Act in the 1930s has finally turned full circle.

As my last blog on the fall of Lehman Brothers has said, the basic problem was three-fold: poor lending practices by commercial banks, including NINJA loans (loans to people with no jobs, no income and no assets)---these were packaged off into murky colateralised pools by I-banks and securitized debt issued backed by these pools, often inadequately rated and tracked by the credit rating agencies; poor judgement shown by sophisticated financial intermediaries in investing in assets which had little or no value if house prices fell (as they started doing from the latter half of 2007) and there were foreclosures; and inadequate risk management i.e. over-leverage, in a bid to shore up profits, but not leaving enough capital if there were Mark to Market (MTM) losses (underestiating of VaR and Economic capital).

Of course, as soon as these annoncements were made, both thse banks saw some investor interest: the venerable Warren Buffet decided to buy a substantial equity stake in Goldman Sachs, a firm he had aparently once visited as a starry-eyed child. Morgan Stanley too got an offer for much-needed equity infusion from MUFJ Japan.

America's most respected stand-alone I-Bank was being bailed out by a largely individual investor; It's second greatest I-Bank was being kept afloat by a Japanese bank; and its third great I-Bank, perhaps the cockiest of 'em all--- Lehman Brothers, had gone belly up. Merrill had already sold out to Bank of America.

The Cookie Crumbles
I had been fascinated by the glamorous world of I-bankers - complex financial structuring, fat bonuses, credit spreads, derivatives trading and apparently sophisicated risk management. Now I see that for all the fancy talk, it was plain old greed, allowed to go reckless in the pursuit of quarterly targets. And like children hurt in a melee, the fat cats of Wall Street are now lamely standing by, expecting big brother Henry Paulson and Fed Chairman Unca' Ben to bail them out and tend to their injuries.

The Fall of Lehman Brothers

Lehman Brothers, one of the world’s most respected investment banks and America’s fourth largest, with a history that dates back more than 150 years, has filed for bankruptcy. To put things in perspective, this mighty financial institution arranged for funding of the American Railroad company in the 1860s, rode out the Great Depression and funded the oil rush of the 1930s; even in 2007, it was ranked the most ‘Most admired Financial Securities Firm’ by Fortune magazine.

The sub-prime crisis has had a bigger impact than what the global financial services industry had dared to imagine. After 5 years of low interest rates and heady growth, it seemed unlikely that suddenly everything would come to a crunching halt. But business cycles, consumer demand and investor confidence are far more fickle than what the Big Daddies of Finance had foreseen. Investment in sub-prime real estate loans and repackaged debt has pulled some of the world’s biggest and most respected financial firms into terminal tailspins. Let us talk about the three things that people talk about in any unfortunate situation: what caused it, what can we learn from it and the possible future outcomes.

Causes

Though I am not completely aware of Lehman’s trading positions (and probably we never will know), there is a strong chance that Lehman had taken leveraged positions in financial markets, i.e. borrowed (at low rates of interest) and used the borrowings to purchase huge positions in financial assets like securitized bonds. So, say with an own capital of $8, they bought risky assets of $100 (roughly 11 times leverage). The borrowings usually would have low interest payouts, so Lehman had the chance to make disproportionate profits on own capital when markets moved in their favour. Taking the given example forward, let us say they borrowed $92 at 4%. Now, their open position of $100 moves favourably to $120. They will get to keep the balance ($16.32) after paying out interest of $3.68 (4% of $92). Return on investment (ROI): 16.32 on an investment of 8, which works out to be a heartbeat-skipping 204%.

But all this happens if the market moves in their favour. The situation becomes disproportionately risky when the market moves against them. If the market moves to 90, not only is their own capital wiped out by the mark-to-market (MTM) losses, they will either have to sell their positions or borrow a further $3.68 to pay out the lenders. Unfortunately, Lehman was stuck with illiquid positions that it could not sell in a hurry and nor did it find any suitors or lenders to bail it out.

The problem was three-fold: As part of its market-leading debt repackaging business, for the last couple of years, Lehman underwrote or bought large tracts of mortgage-backed securities. These bets would turn sour in 2007, but at the time they were bought, this would have been difficult to predict, so no one can blame them for it. In any case, everybody and his brother-in-law was into mortgaged backed securitized debt in the early years of this century, so they just followed the Wall Street herd. As is common knowledge now, the cataclysmic downturn in the American realty sector in the latter half of 2007 led to higher than expected defaults in mortgages and these securitized bonds lost value quickly, thereby making them illiquid and hitting Wall Street’s big boys with massive mark-to-market (MTM) losses. To make matters worse, Lehman would have taken highly leveraged risky positions to maximise return on invested capital, so when MTM losses hit, they would have virtually wiped out Lehman’s liquid reserves and perhaps even their owned capital. The second, related problem would have been that Lehman’s risk managers could not correctly predict the probability of extreme downward market movements, thereby undercapitalizing the firm’s positions.

The situation still might not have been so bad, had Lehman got funding when the losses became imminent. Its attempts to shore up capital in the last month and find a buyer in the last week before bankruptcy was a case of too little, too late. It is unlikely that the top management of a mighty financial services behemoth that hires some of the brightest human beings in the planet was not aware or did not understand the magnitude of their misfortune; probably they went into denial, as all human beings tend to do, when they were hit with bad news, or perhaps, as some news reports have speculated, Lehman’s CEO Richard Fuld was too arrogant to admit that they had screwed up big time and go around begging for money. As some correspondents have indicated, half-humourously, schadenfreude might have played a role in Lehman not getting any suitors within the Wall Street community.

What We Can Learn From It

The lesson is simple: more effective risk management. Investment banking is a high-risk, high-return business, because firms take on leveraged positions; sometimes the size of the leverage is multiplied manifold by margin trading in derivative markets, where the nominal could run into mind-boggling billion dollar figures, whereas actual capital invested may be a couple of million. So investment banks need good risk managers who can temper the greed with fear. People should be moved between trading and risk management, so that there is better understanding between these units; for this to happen, rewards have to be shared generously with the ‘spoilsports who say no to everything’, as the risk managers are often branded. In any case, rewards, even for traders, should be based on risk-adjusted returns (which take into account the relative risk of the position in terms of variance or Value at Risk) rather than absolute return on capital.

Possible Future Outcomes

Though there might still be bombs waiting to detonate in Lehman’s books, I believe that it would still make a fantastic buy for any financial services firm. Lehman has brilliant people. It is known for its financial innovations, perhaps a tad ironically, in the debt capital space. It also has a good corporate finance practice (Equities, M&A) and it is a globally renowned player in derivatives trading. It would propel a general banking and financial services firm like Barclays or HSBC into the top league in the prestigious, high margin, investment banking space and bring into its fold some very smart traders, at a ‘never-before-and-never-again’ price. But liquidity is tight all around, and we still do not know the size of ‘toxic assets’ in Lehman’s books, so perhaps potential suitors have stayed away. If the court appointed receiver does not sell off the firm piecemeal to buyers, Lehman might still come back to life from this near-death experience; in fact, in my view, it can become a supremely profitable firm again. At some point in time, the housing sector will pick up; the foreclosed assets that are behind Lehman’s mortgaged-backed securities will turn profitable and Lehman’s traders will once again be able to demonstrate their virtuosity in the world’s leading fixed income and derivative markets bringing back the multi-million dollar bonuses. Following the maxim ‘That which does not kill you makes you stronger’, Lehman will, additionally, have better risk control mechanisms, having learnt a lesson from this traumatic event.

We Are Like This Only

Though it affects only a small proportion of people, I believe that Apple, in a blatant example of profiteering, has priced the Iphone in India at almost 4 times the current market price in the US, its home country. Partly this is about 'skimming the market', i.e. taking advantage of the initial craze that surrounds a new product (and that too from the stables of a so-called 'iconic' and aspirational brand like Apple; but that apart, I think it points to a deeper malaise: the apathy, the callous smugness and self-obsession of the urban upper and upper middle class in India. It is perhaps ironical that around the same time as the Iphone was launched in India at its ridiculous price, statistics from the World Bank tumbled out: an estimated 42% of Indians live in proverty, i.e., as the World Bank defines it, on less than $1.25 per day. In other words, in one year they earn less than half of what a new Iphone costs in India.

It is not my case that the rich should not live well, or that we should all live frugal lives and give away the rest. But it is shameful and symptomatic that a country where there are so many poor people (some people say the world's largest collection of the poor), is seen as a market that can absorb higher, and not just higher---but 4 times higher---prices than the prevailing market price in the world's most developed economy. The rich play here, like the rich every where; but perhaps like in Russia, they play here with an extravagance that is as schizophrenic as it is ugly, given the ground reality of millions of our countrymen.
If you are one of those incredibly lucky people whose hard work has been rewarded by pecuniary gain (or you've won the 'Ovarian Lottery' in terms of a good inheritance) and have cash to burn, then by all means you can, and should, live it up. But don't hand over your extra cash to a profiteering and greedy US company which is making a fool out of you, while millions of our countrymen starve.
Parting note: some people have been saying in the press that apparently, the revenue per user is less in India so the cell phone companies cannot bear part of the Iphone's cost, hence jacking it up for the consumer. This is nothing but false propoganda that the press has been parroting ad nauseam. If revenues are less in India, so are costs. And nothing prevents the two service providers from entering into lock-in arrangements with their users. In any case, the whole argument is specious because as any first year CA Student will tell you, by now the Iphone should have costed a lot less, because most of its fixed costs and initial development costs have already been recovered from the US market.

Reservations

Some say on the basis of an outdated census, when Mr. BP Mandal gave in his recommendations on enhanced caste-based reservations for Other Backward Castes (OBCs) in 1980---over and above the existing caste-based reservations for Scheduled Castes (SCs) and Scheduled Tribes (STs)---in government jobs and institutions of higher learning supported by the government, little did he realise that it would become one of the most frought and hotly debated issues of independent India. The report recommended, among other things, that reservations for OBCs should be proportionate to their proportion in the population (i.e. about 52%). For almost 10 years, in fact, the document gathered dust in the Union Home Ministry, and then VP Singh, smarting against his political ostracization by the Congress, let the genie out of the bag by promising to implement it. In a single shot, the proportion of reserved seats would shoot up from 22% to 50%---just fitting the legal limit of 50% permitted by the Supreme Court of India.



The Bone Crushing Competition

An estimated 300,000 people take the Civil Services examination every year, to get into India's elite civil services cadre. Out of that just about 100 make it to the elite Indian Administrative Service (IAS) and close to a 1000 manage to make it to any service at all. The success rate ? 0.03% if you take just the IAS and 0.3% if you take all the 12-odd services that recruit through this examination. For the IITs, only 3500 odd make it from the 300,000 odd who take the exam. In comparison, the 10% chances of getting into a Harvard Business School or the LSE makes them look like a walk in the park.


Injustice Everywhere

"Injustice anywhere is a threat to justice everywhere" The Rev Martin Luther King had said. Though VP Singh implemented the enhanced reservations for OBCs in government jobs, he did not extend it to educational istitutions funded by government, which still reserved seats only for SCs and STs, and not for OBCs. So the quantum of reservation was only 22%. The rest were selected on merit, though the brutal competition kept out many meritorious students who could, given the resources, get into the top institutions for education in science and technology in the world without too much effort. The examination system has another flaw: people have to take the exam on a given day,which subjects the whole process to chance. If that day you had a headache or a stomach upset, you have to try again next year. Youngsters who don't get into the IITs usually get into other elite government engineering colleges (like the National Institutes of Technology, earlier known as Regional Engineering Colleges or RECs) or VJTI or the DCE.

But alas, what do venal politicians know about working hard and getting something on the basis of merit. Especially when the Minister in question is from an erstwhile 'royal' family. In the name of social welfare, the old coot has implemented caste-Ccentrally funded universities and autonomus institutions also. What is a little injustice if it yields votes though the intended beneficiaries may never even make it to the minimal criteria, given the abysmal state of most of India's state-run schools ? Some who gain entry through this route find it difficult to complete the course. This is a short-cut to demonstrate ' social inclusiveness' rather than fix the problem where it is really broken: access to quality primary education for the poorest, whereby they can compete for the best educational institutions; instead we have the government denying this right to other meritorious students, because they are born in the 'wrong' caste. Moreover, the government has not implemented the SC judgement properly - the SC categorically said that the 'creamy layer'---the proprtion of SCs, STs and OBCs who had benefited from reservations / social advantages in the past should be identified and excluded.

Not only will this unfair system dilute the quality and reputation of our institutions of higher learning, it is also a wider matter of concern for all public minded citizens - no society can hope to become great if it is unjust; if it chooses patronage over merit.

Making it Worse

Before I finish---what makes it worse is the paucity of institutions of higher learning in India. That is why there is this insane and brutal competition for a few seats, where again the government has imposed reservations. We simply need more institutions of higher learning, imparting globally recognised quality education. However, this cannot happen unless the government liberalizes the sector from the tyranny of the incompetent and, if media reports are to be believed, corrupt AICTE. Criteria for the entry of foreign universities has to be fixed and they should be allowed. The system should have a robust and independent accredition mechanism so that students can judge on their own. And most importantly, the existing IITs and IIMs need to be given more autonomy in the areas of fixing pay-scales and deciding their admission procedures and criteria. As they said in the stories of my childhood, "that, my friend, is another story that I shall tell you at a diferent time !"

The Little Blue Book

Published in the Hindu Businessline:
http://www.thehindubusinessline.com/2006/01/05/stories/2006010501971000.htm

The Little Blue Book

Raghuvir Mukherji

RECENTLY, on a trip to London, I overheard a Bengali colleague saying he had to go to India House to get his son's visa for India. Intrigued, I asked my friend what nationality his son carried. "Australian," he replied, without batting an eyelid. "How come?" I asked, since I knew he had spent a major part of his childhood in Delhi, and had presumed he was an Indian citizen, as also his three-year-old son.
"Well, I am an Australian citizen, so junior is Aussie too," he said with a shrug, adding: "I had gone to Australia to do my MBA," he replied, "and after that I started to work in Australia, and then I got the opportunity to take citizenship, so I just took it." "Anyway," he explained further, "What difference does it make? It is just a travel document. An Australian passport makes it easier to gain access to European countries and the US. At heart, I remain an Indian... I support India on the cricket field," he added, a bit defensively.
Travel document? I always thought the ticket is the travel document. A passport is a proof of identity. A document certifying who you are, and where you belong. As one writer had put it, "a nation is a covenant between a land and its people." When you let go of your passport, whether for pecuniary gain or ease of travel, you break that covenant.
This may sound politically incorrect in the age of globalisation, when the government is bending over backwards to attract investments and money from the Indian Diaspora.
And why is the country now offering these people a sort of secondary identity for them to escape the rules that govern foreigners in India, when, for all practical purposes, they are foreign citizens who have sworn allegiance to another nation?
India is, barring the occasional communal conflict, an example of a working multi-cultural, multi-religious and multi-lingual society. An Indian identity cannot be defined by one racial type, one language or one religion. So what remains is that tiny blue book, with the `Republic of India' printed in clumsy gold lettering on top and our names in it.
A vast majority of Indians do not have that little book. But they proudly share that identity and carry the burden of all the trials, tribulations and hopes that come with it. Those of us who do have it should cherish it, because it binds us to this identity and represents our common hopes and dreams for a better future, for a better India, free of poverty, ignorance, corruption and communalism.

Balance

My wife and I have often discussed the 'troubles' that the working population faces in taking the old and the young with us in our journey through life. In an increasingly individualistic society, it is becoming too much for some of us to take care of aging parents or have children. The only things that matter are self-aggrandizement and material prosperity.

There is no doubt that material prosperity is rewarding, and fulfilling. I just bought myself a new set of clothes, a new wallet and a new pair of glasses. I was quite pleased with my new purchases. But the question is, how long will they last, before they become old; before I want to buy something else to make me feel good. There is also no doubt that the pursuit of prosperity is a great incentive to better things. The relentless pursuit of prosperity has given the west the lifestyles that people are enjoying there, even as many of the cradles of civilization: Africa, Mesopotamia (Iran and Iraq) and India languish in poverty, and more often than not, are plagued by poor government delivery mechanisms. Individualism has also given people a sense of liberty, a greater amount of choice and the responsibility to take charge of their lives. In a society where everyone is free to make their choices, and treated equally before the law, each person has a greater opportunity to fulfil his / her full potential and rise up the social strata.

But as Mark Tully, the legendary BBC correspondent for India points out in his thought-provoking book India’s Unending Journey, a soul-less meritocracy creates a Darwinian society where the ‘losers’ are treated with contempt and made to feel inferior. He refers to his own school, where a great premium was placed on academic excellence; I see this phenomenon playing out in most modern corporations, and I find it very inhuman. Can we really call ourselves civilized if we go back to ‘Survival of the fittest’ ? By no means am I saying that rewarding on the basis of merit is bad; anything else is definitely worse. Neither am I advocating a socialistic society---we’ve tried implementing that, and we know it doesn’t work. So the question is what is the best way forward ? I think individual choice is paramount. The choice to be what I would like to be, and to a large extent, to say what I would like to say, as long as I don’t hurt others or denigrate or ridicule them. But so is training to ensure that at least the majority of us use this choice responsibly. To give an example, a friend recently told me that he preferred to use a hand-dryer and not paper tissue since it was more eco-friendly. To wipe a wet face, I would still prefer to use paper tissue (hot air can’t be too comfortable for the eyes, and moreover, will entail some expert gymnastic manoeuvres with the hand dryer), but at least to dry my hands, I have started to use the dryer. So we need the paper, but let us use it responsibly. Again to go back to Tully’s book, the trick is to find the right balance. The balance between a meritocratic market-driven economy on the one hand and looking after those whom the market ignores (i.e. people who cannot avail those choices because of their limited abilities or resources). In most cases, the state should chip in; but it cannot only be the responsibility of the state. Each of us, in our daily lives, have to strive to maintain this balance, because without it, we will become dehumanised. In a meeting that I had attended, His Holiness the Dalai Lama said that contrary to popular perception, he did not consider superior intelligence to be man’s defining characteristic; it was just an additional gift. What made us human was compassion. Animals do show compassion at times, but rarely. We have been blessed with a much bigger sensibility and the ability to show compassion. Though he defined it as how we treat strangers, I say even that isn’t necessary – how we treat our own, the weak in our own family – our aged parents and our children, can define our compassion. And this is where I will go back to the point about balance: whereas I cannot advocate returning to repressive, Orwellian or feudalistic social systems where decisions affecting our lives are taken by a Samaaj (समाज) or Panchayat or ‘wise men of the village’ (as is still the case in most of rural India), I do advocate a balance between the individualism of Western societies and the cohesiveness and social obligations of Oriental societies. This should be voluntary and not mandatory, like the use of paper towels in the toilets. We need to take care of our parents, physically, economically and emotionally; likewise our children, especially in countries like India, where social security systems are poor or non-existent. But even in Western societies, where better social security systems exist, I feel this is an area which would gain from the adoption of ‘best practices’ from the East. Old people are often opiniated and inflexible. But we are where we are today, because they chose to bring us up. Many of our values are imbibed from them. How can we forsake them when they are old and helpless ? And they pass on their greatest inheritance - the wealth of their experience, the lessons that they have learnt in life’s hard classrooms, to those that need them the most: their grandchildren, and our children, providing a line of tradition and thought that we may not have the time to pass on, or the knowledge, given the mad rush to keep body and soul together.

What is Wrong with the Indian State

At the risk of this sounding like one of those ‘If I were Prime Minister for a day’ essays that we were made to write in school, let me expound on what I think is wrong with the Indian state, how it affects our lives, and how we, as citizens can go about remedying it.

The Economist in one of its recent issues has pointed out that one of the main factors that are ‘holding India back’ is its poorly functioning and largely unaccountable bureaucracy. However, I think that is going after the easy prey. Painting those face-less, apparently emotion-less, rule-obsessed Babus as the villains of the piece is so much easier and politically correct than holding a mirror to ourselves and asking ‘So where did we go wrong?’.

The first question that might be asked is ‘Have we gone wrong at all’ ? From 18% literacy, a 1% growth rate and virtually no industrialization, we have, today, achieved 65% literacy (though it’s a lot worse among the rural populace, especially women) and we are one of the fastest growing economies in the world (being referred to as an ‘engine of global growth’ along with China) with an average growth rate of more than 8% in the last 4 years. That works out to be about 6% per annum in terms of per capita. And we did all this, even as our population trebled from 300 million in 1947 to 1.1 billion in 2007. From 1994 to 2005, we have brought down the number of people below the poverty line from 36% in 1993-94 to about 26% in 2005. There has been a small change in the basis of calculation now, which makes the current official figure about 22% of the population, roughly 240 million people. That implies that we brought food security to an incredible 100 million people. The government’s public distribution system, warts and all, has worked somewhere.

To exist with a reasonable degree of happiness, people need four things: basic necessities (food, clothing and shelter—which includes access to potable water and sanitation); universal primary education which creates opportunities for skill-development and further education (to those who are willing); thirdly, access to healthcare and fourthly, law and order. The reason why I give law and order such importance is that a country is not just an economy. It is about people, about civilization. And no civilization can exist, let alone prosper, without justice and fairness. By these measures, we could have done a lot better, especially when compared with other countries who started like us and at the same stage of development, like South Korea, Vietnam and Malaysia. Conceded, that we have a much larger population, but then we had larger resources too---both natural and intellectual.
To cite some figures - as per the World Bank, in 2007, 80% of India’s population lived on less than $2 a day, i.e. less than Rs. 2,400 per month, considering, with typical Indian apathy, that the poor can’t afford a holiday. Rs. 2,400 per month is good enough to pay for food for a family of 4 in a city. That is all. We aren’t even talking about clothing and shelter here. Even going by the government’s literacy figures (and literacy, by no means, is the end-state of education) we still have 35% of the population who are totally illiterate (that adds up to a mind-boggling 385 million people). As per the UN, in 2004, even though we had an impressive 96% enrolment ratio, only 73% reached grade 5. Compare that with 97% in S.Korea and 85% in Indonesia. The good news is that at least we have data; there is no data on this for China since 1991 (when they hit 86%). Gross tertiary enrolment ratio in India was only 12%.

As this data proves, we could have done a lot better. Here is my humble two-penny bit on what we could do better:

It’s someone else’s problem - Excessive Reliance on the State

I think the first battle that we have to fight is the mindset of most middle and upper class Indians, where they presume that it is somebody else’s problem. Children begging at crossings ? Bad roads ? Corrupt officials ? Poor standards in municipal / government run schools ? No water ? No sanitation ? We don’t care, because we drink bottled water, send our children to private schools, and drive air-conditioned cars to air-conditioned offices. I drive one myself, and I can’t find fault with that, but it is the apathy that is killing, in the case of farmers, quite literally. We, as private citizens, have to take up causes. We have to start getting involved. If not to bring about change directly, then at least to make those who are responsible, accountable for their actions. Do you know who your municipal councillor is ? Have you visited a local municipal school ? I have not, but I intend to. Many of us can ‘adopt’ a municipal school to make it better; to ensure that children get their mid-day meals; to ensure that they have uniforms and books and pencils.

Politics is Dirty

This is the second mind-set issue. Most people, especially young, educated urban Indians find it fashionable to bad-mouth politicians and politics like it were some kind of scourge. Agreed, that politicians, largely, have been venal and self-serving; but negating or wishing away the political class is hardly going to solve the problem. Before we become a failed state, we need to act. And the tragedy is that we have a lot of bright resources, in fact, the second largest pool of resources in humanity to draw on. Some of us have to volunteer to do public service, that is genuinely public service, and not running a kleptocracy in the guise of public service. And this will create a self-propogating circle of virtuousness - as more good people join, people will take pride in their identity as politicians (like joining the Civil Service).

Ineffective Bureaucracy

A poorly paid, poorly trained and demotivated bureaucracy can hardly be expected to deliver good governance. Most bureaucrats live in a strange Alice In Wonderland environment, where they have hundreds, sometimes thousands of fawning sycophants, and often an inept, rude and arrogant politician on top of them who holds the key to their career. I have experienced the lot of the honest bureaucrat first hand---my father was one. After retirement, he kept resolving every summer that he would buy an AC to make the uncomfortable Kolkata summer more bearable; but he never got around to do it. He has passed away now.
We need bureaucrats to be well-motivated. They have to be more than comfortable with their monetary compensation. We cannot hope for world class infrastructure and governance if we deny the people who will deliver this, a fair world class wage. The same goes for primary school teachers, and especially professors at elite government aided institutions (like the IITs and IIMs) where the problem has reached critical and ridiculous proportions, with most students getting paid more than the professors on their first jobs !

Higher Education
This brings me to the next aspect that needs urgent fixing: higher education. As I see it, though our savings rate has progessively increased as a % of GDP, as a nation we have been eating out of our savings as far as our intellectual resources are concerned. Though the government has done a stupendous job with institutions of higher learning (the IITs, IIMs, the elite law schools like NLSUI Bangalore and NSUJS Kolkata), its vice like grip on higher education is befuddling and counter-productive. While countries like Singapore and Dubai are welcoming foreign universities of repute , we are doing everything we can to keep them out. This is the same 'Keep them in poverty, so they'll be grateful for the crumbs' philosophy that plagued our official establishment till the early 90s when finally even the government went broke.
So the result is that while China produces more than 3000 Phds in Computer Science, we produce about 40. And more often than not, those pursuing Phds in India are those who couldn't get good jobs earlier in their career, barring the few radicals who are really passionate about teaching, or pursuing the subject. Under the false pretext of 'ensuring social justice' (a phrase that politicians like Arjun Singh mouth a lot) the government refuses to give autonomy to these institutions, to either manage their funding or decide what to pursue and how (actually that is linked to funding). Institutions like CSIR, which have made great contributions to scientific and industrial research in India, are in need of urgent attention and repair. There is a strong case for continuing public funding of research institutions. Private funding tends to skew research in particular areas. However, these institutions should be able to fund themselves from both sources: company sponsored research within earmarked areas (for example where private funding is invited for a particular project) and general funding of the administration / budget shortfall by the government. This will ensure that pure research in areas that do not hold current private sector interest can be carried out. Addionally, faculty and students who come out with new inventions should be able to share in the benefits of their commercialization to incentivise results. There was some talk about this last year, but I am not sure what became of that proposal. Additionally, if the government cannot do anything about the abysmal pays in these institutions, consulting assignments should be allowed for faculty members. Some institutions have already started this. Research publications in international journals of repute also need to encouraged with handsome monetary rewards, since this is a key determinant of 'quality of instruction' in international surveys and adds to the brand equity of the institutions.

Leadership
To repeat a cliche, it all boils down to leadership. And to restate the axiom, leadership is more than efficient management, though that is perhaps a sin-qua-non. India's government needs to be manned by our best and brightest. Not just in the bureacracy, where this is still often the case (thanks to the crushing competition that these ladies and gentlemen crack to just get there), but also in the political class. A sycophantic, venal, opportunistic political class (and they come in all colours - from Raj Thackaray rustling up parochial sentiments against 'migrants' from other states in Mumbai, to a Narendra Modi presiding over sectarian violence in Gujarat, to a Mayawati who is acquiring prime real estate all around the country even as she portrays herself as a champion of the Dalits and an Arjun Singh increasing reservations on the basis of birth in educational institutions to steal her thunder). Well-educated, liberal, secular people need to enter politics. If I am sounding elitist, I am. 'Repesentation of the poor' in India has become a cruel travesty, where people like Laloo Yadav and Mayawati have become like feudal lords cultivating criminals and coteries, doling out illegal benefits to them.
But the party I blame the most is the Congress, perhaps because I have the highest expectations of it. As Mr. Tarun Tejpal wrote in Tehelka, "The Congress, in whose crucible the idea of India was once born and delivered, is today a poltergeist — its shape amorphous, its intentions shadowy, its substance insubstantial. People may occasionally fear the sectarian animal and its ugly snarl, but they dread the untethered ghost more — for it scares you periodically, and is never there to be cornered for any kind of reckoning". http://www.tehelka.com/story_main37.asp?filename=Ne120108to_kill.asp

The Congress, and hence, the Government of India, today is a toothless animal. It does not stand for anything other than short term opportunism to stick to power. We do not take any pricipled stands, whether in domestic or foreign affairs. When monks are shot in Mynamar, or Tibet is burnt; when people throw things at Taslima Nasreen, a guest of India, who came to us asking for refuge; when a Doctor who is internationally acclaimed for his good work (Dr. Binayak Sen) is incarcerated by a state government on unsubstantiated, perhaps false charges, when women are raped by the Indian Army in Manipur (where it has draconian powers thanks to the Armed Forces (Special Powers) Act) , the Government of India stands a mute witness. The top leadership of the world's largest democracy, the men and women who hold the reins of a 5000 year old civilization, are paralyzed, because they are too scared to react, should it have any deleterious impact on their political prospects.
This hardly augurs well for us as a nation. A country is about geographical boundaries; but a nation is about pride, about principles. And the men and women who gave shape to the idea of India were mostly people who could die for a principle. We need that fire in our public affairs again. Not the fire that opportunistic politicians have been lighting to divide us on communal or caste lines and thereby create a consituency for themsevles.

Disclaimers And Pleas

That's the problem with Lawyers and Accountants- they begin everything with a disclaimer. Well, as a good Accountant, I shall stand true to my stripes; so here goes:

This is to clarify that all material that I put up on this blog is in my personal capacity, and not as an employee of the bank that I work for. Hence, the views that I put in here are my personal views and not necessarily the views of my employer.

Whereas I shall endeavour to put in data only from credible sources here, there might be inaccuracies. I will not accept any liability for decisions taken on the basis of this data, if it is later proved to be incorrect.

I also plead readers to avoid using expressions that are racist, or communal or vulgar when they respond to my blogs.