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    Government

    Anticipating the Unintended

    Frameworks, mental models, and fresh perspectives on Indian public policy and politics. This feed is an audio narration by Ad Auris based on the ‘Anticipating the Unintended’ newsletter, a free weekly publication with 8000+ subscribers.

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    Copyright: © Pranay Kotasthane & RSJ

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    Latest Episodes:
    #143 This Day, That Year, Their Civilisation 🎧 Sep 12, 2021
    Show notes

    Programming Note: We are brewing another writing project. Since it demands some undivided attention (haha, so naïve!) we will not be posting for the next five weeks. We will republish a few of our older posts, maybe a few links and brief notes every week till then. Regular programming resumes on 23rd October 2021. Global Policy Watch #1: 9/11, Toynbee and Civilisations Bringing an Indian perspective to global issues— RSJI write this on the 20th anniversary of 9/11. Like most adults, I have a clear memory of that day. I was in Bombay then. Just about getting my bearings straight in my first job. I left work early that evening (those were the days). Nariman Point, where I worked, to Warden Road, where I lived, was a half an hour commute then. I got into a ‘kaali-peeli’ and went past Marine Drive smoking a B&H. Quite posh. Especially, for someone who grew up in a small industrial township in eastern India and smoked unfiltered Charminar in college. I usually got off at the intersection of Napean Sea Road and Warden Road. The Shemaroo (‘circulating’) library was located right opposite the Jogger’s Park. It was a dingy little place, packed with books, kids borrowing Harry Potters and a familiar musty smell of libraries that mixed with the salty Arabian Sea breeze blowing in from across. The proprietor spoke in a lazy Sindhi drawl (‘helloo, Shemaaarooo’) while keeping his eye all the time on a small TV that was mounted high on the wall on one end. On the other side of the street, further up the Napean Sea Road, was the famous Shemaroo video library. Another landmark of those times in south Bombay. Between these two establishments, my life in Bombay was a pleasant whirl of books and world cinema. And there was the paani-puri waala at the start of the Sophia College lane. Sorry, I digress.Back to that evening. I had picked up a John Updike and was checking out from the library when the man at the counter with his eyes on the TV drawled - “yeh(hh) dekho(oo)”! So, I turned right, looked up and saw the second plane crashing into the South Tower (2 WTC). Things weren’t the same again. A couple of weeks back I saw the forlorn image of the last US soldier leaving Afghanistan. A grainy night picture enveloped in a ghostly, greenish hue. And I couldn’t help thinking of the contrast to that clear, blue fall day when the planes crashed into the Twin Towers. Those two images - one clean but ominous and the other blurry and defeated - bookend perhaps the most significant period of post-Cold War history whose echo will play out through this century. 2001 was a different time though. My life was good. India was shining. The western liberal democratic order had won the battle of superpowers. Nations, long suffering under communist dictatorships, were embracing democracy all around. Free market was in vogue. China was about to enter WTO. Borders were becoming meaningless. The end of history was nigh. We could feel it in our bones.And here we are in 2021. After many meaningless campaigns in Middle East and Afghanistan, the US is on a retreat with no interest in playing the global policeman. The global financial crisis (GFC) and the Covid-19 pandemic have dealt a body blow to globalisation. Borders have become more meaningful than ever as Brexit and the backlash against immigration have shown. The anger against the elite has seen the rise of right-wing nationalism and a retreat into authoritarian setups across the many fledgling democracies in Eastern Europe, Asia and Africa. China turned prosperous but it didn’t turn into a liberal, open society as many had expected. Instead, it is mounting its own threat to the liberal order offering its model of a one-party regime that draws upon its civilisational memory as an alternative. India is not exactly shining now. And for me? Well, I’m writing this newsletter. Who could have imagined this in 2001? There have been epochal events in history that changed its course. But none that lasted fewer than 20 minutes with a mere two buildings collapsing. We didn’t know it then. But they may have brought down a civilisation. In the past few years, I have found greater meaning in the essays of the great 20th-century historian, Arnold Toynbee (1889-1975), while trying to make sense of the change around us. This might seem surprising. Toynbee is hardly read any more in colleges. His last years where he made a distinct turn to the spiritual, his academic style that bypassed the factual for the ‘total human experience’, his rejection of Eurocentrism and his championing of Asian civilisational values made him an academic pariah by the end of his life. Yet, about half a century after his death, I see in his works a useful framework to appreciate the events that have unfolded in the past 20 years. I will take up two elements of this frame in this edition.Cultural Homogenisation versus Plurality of CivilisationThe idea that a dominant culture will impose its hegemony of ideas and beliefs through political will over other cultures seemed incongruous to Toynbee as he studied 19 successful and 9 abortive civilisations. That study yielded his 12-volume masterpiece, A Study of History. The two-volume abridged version by D.C. Somervell is easier to read and more accessible. For Toynbee, the dominant civilisation will export its way of life and cultural artefacts and they might even be accepted by others in a sign of apparent homogenisation. But it will be naïve to believe this acceptance and imitation of another culture signals the subsuming of a civilisation into the other. There’s a great anecdote in Toynbee’s essay Islam, The West, And The Future (as part of his 1948 book Civilisation on Trial) which illuminates this idea (reproduced below):“This state of mind may be illustrated by a conversation which took place in the nineteen-twenties between the Zaydi Imam Yahya of San’a and a British envoy whose mission was to persuade the Imam to restore peacefully a portion of the British Aden Protectorate which he had occupied during the general War of 1914-1918 and had refused to evacuate thereafter, notwithstanding the defeat of his Ottoman overlords. In a final interview with the Imam, after it had become apparent that the mission would not attain its object, the British envoy, wishing to give the conversation another turn, complimented the Imam upon the soldierly appearance of his new-model army. Seeing that the Imam took the compliment in good part, he went on: ‘And I suppose you will be adopting other Western institutions as well?’ ‘I think not,’ said the Imam with a smile. ‘Oh, really? That interests me. And may I venture to ask your reasons?’ ‘Well, I don’t think I should like other Western institutions,’ said the Imam. ‘Indeed? And what institutions, for example?’ ‘Well, there are parliaments,’ said the Imam. ‘I like to be the Government myself. I might find a parliament tiresome. ‘Why, as for that,’ said the Englishman, ‘I can assure you that responsible parliamentary representative government is not an indispensable part of the apparatus of Western civilization. Look at Italy. She has given that up, and she is one of the great Western powers.’ ‘Well, then there is alcohol,’ said the Imam, ‘I don’t want to see that introduced into my country, where at present it is happily almost unknown.’ ‘Very natural,’ said the Englishman; ‘but, if it comes to that, I can assure you that alcohol is not an indispensable adjunct of Western civilization either. Look at America. She has given up that, and she too is one of the great Western powers.’ ‘Well, anyhow,’ said the Imam, with another smile which seemed to intimate that the conversation was at an end, ‘I don’t like parliaments and alcohol and that kind of thing.’ (emphasis mine) It is difficult for the Imam to put his finger on what “kind of thing” of the western civilisation is he dead against. There’s no definition of it. You could learn the western ways, read their great texts, trade with them, watch their films and grow prosperous following their lead; and yet, you would reject ‘that kind of thing’. There’s no logic to this. It is what it is. It’s always been this way. As Toynbee continues: The Englishman could not make out whether there was any suggestion of humour in the parting smile with which the last five words were uttered; but, however that might be, those words went to the heart of the matter and showed that the inquiry about possible further Western innovations at San’a had been more pertinent than the Imam might have cared to admit. Those words indicated, in fact, that the Imam, viewing Western civilization from a great way off, saw it, in that distant perspective, as something one and indivisible and recognized certain features of it, which to a Westerner’s eye would appear to have nothing whatever to do with one another, as being organically related parts of that indivisible whole. This is the Gandhian equivalent of accepting outside influences but on our own terms (“open your windows and let the winds blow in”). And not the isomorphic mimicry of the dominant culture that the elites of weaker nations often end up doing. Eventually, the plurality of civilisation asserts itself to redress the balance. Civilisation isn’t a destination. It is ever-changing and ever assimilating. As Toynbee memorably wrote:“Civilization is a movement and not a condition, a voyage and not a harbour.” This is what the past 20 years have shown us. “Civilizations die from suicide, not by murder.” The other idea that Toynbee spent a great deal of time on was what causes civilisations to decline and fall. For Toynbee, civilisations didn’t break down because of a loss of control over their territory or human environment. Or a decline in military might or technology prowess. These are proximate causes but not the underlying reason. For Toynbee, the real decline is rooted in the social. Civilisations build and grow because of ‘creative response’ of a minority to difficult circumstances. This creative minority that battles the odds is the genesis of all civilisations. Over time, they overcome the external material threats through their military and economic might and build a stable platform for it to flourish. And then begins their focus on challenges that arise from within which require, what Toynbee calls, an inner or spiritual response. This is when a civilisation turns inwards, introspects deeply about itself and creates cultural markers that stand the test of time. The decline comes because the creative minority (the elites as we might call them today) lose their creative power, turn self-obsessed and focus all their energies on self-preservation. The majority loses their trust in them and rebels. This leads to a loss of social cohesion and the civilisation splits into three groups. A ‘dominant minority’, a pale shadow of the creative minority of the past, that’s clinging on to their power; an ‘inner proletariat’ that’s within the civilisation but has no interest anymore in following the lead of the dominant minority and rebels against it; and lastly, an ‘external proletariat’ that’s beyond the boundaries of civilisation which now no longer is in the thrall of the dominant civilisation and resists any attempt by it to dominate any more. A civilisation in decline isn’t a pretty sight. There’s a lack of clarity on which way to steer it or even who will steer it. There’s an aimless drift in its affairs. There’s a longing for the glorious past or some kind of revolution that will usher in a new future. It is a fertile ground for demagogues. Sometime during the Vietnam War, Toynbee wrote:“Of the twenty-two civilizations that have appeared in history, nineteen of them collapsed when they reached the moral state the United States is in now.” I will leave you to draw your inferences as you read the above section and look at the course America has taken over the past two decades. History might not repeat. But it rhymes. I will close with what Toynbee thought was the only way for a civilisation to revive itself:“Schism in the soul, schism in the body social, will not be resolved by any scheme to return to the good old days (archaism), or by programs guaranteed to render an ideal projected future (futurism), or even by the most realistic, hardheaded work to weld together again the deteriorating elements [of civilization]. Only birth can conquer death―the birth, not of the old thing again, but of something new.” There’s a lesson there for the US. And if you read that closely, there’s a lesson in there for India of the present too. Global Policy Watch #2: 9/11 and the Myth of Mindless ViolenceBringing an Indian perspective to global issues— Guest Post by Ameya NaikEven if you’ve never read Elizabeth Kubler-Ross, you’ve probably come across her theories on grief and loss. She proposed that the human mind processes grief in five stages: denial, anger, bargaining, depression, and acceptance. Modern research has built on this model, supporting what may seem intuitive - that the five stages are often not linear, and that grief can be prolonged, impacted, and circular.As a psychiatrist, Kubler-Ross developed her theories (and then applied them) in her work with terminally ill patients in Chicago and California. As anyone who has lost a family member to such a condition will know, these are intensely personal experiences, as the afflicted person and their family grapple with illness, pain, and impending loss.Such experiences can be qualitatively different from instances of societal rupture: events that become a shared experience of loss, pain, trauma, or disruption. Unlike illness, which is ultimately an anticipable part of any personal or family life story, these societal events are like the shock of a traffic accident, magnified many times over. They can be seen as ruptures precisely because those who experience them recall feeling that the world changed -- that life would never be as it was before.It was just such an experience with mass violence and disruption that sparked Kubler-Ross’ own interest in how the human mind processes death, both actual and impending. As a volunteer with the International Voluntary Service for Peace at the end of World War II, she visited the Majdanek concentration camp outside Lublin, Poland. Her biography describes a striking image she found there: on a wall in the camp, prisoners awaiting execution had somehow carved a picture of butterflies in flight. It was an illustration, she said, not only of transformation - the philosophical idea that death is not an end, but a transition - but also of dignity among the dying. That this could be found even amidst the cruelty of a concentration camp is poetic; it cannot change the fact of the deaths that followed, but it does change their meaning.There is a second sense in which violence has meaning: the perpetrators of violence often intend it to convey a specific message to a specific group, often the community to which their victims belong. That message is usually some version of “do not imagine you are safe”. Sometimes it comes with the expectation of surrender - I can hurt you, so you had best not resist my will. In other cases, as with terrorist attacks, fear is an end in itself.Much of the study of political violence is understanding when a group uses violence against another or others, and what message they aim to convey thereby. For instance, Dara Kay Cohen and her colleagues have done exceptional work on understanding the variations in use of sexual violence in conflict - who does it, under what circumstances, and with what motive or desired effect.This is the irony of studying terrorism: it is war, and hence politics, by other means - and politics is all about messaging and influence. The perpetrators of a terrorist attack are well aware of how their actions will be interpreted, and quite deliberate in choosing actions that send such a message. We know this is true, and yet, the survivors and f…

    Full show notes at the publisher

    #142 The Games We Play 🎧 Sep 05, 2021
    Show notes

    Matsyanyaaya: Not So Great Game Theory in AfghanistanBig fish eating small fish = Foreign Policy in action— Guest Post by Ameya NaikUS intelligence agencies considered it likely that the Taliban would retake control of all or most of Afghanistan following US withdrawal. Their estimate, however, was that this would take weeks or even months; the idea that Kabul would fall in a matter of days was considered a worst-case scenario. Now that the worst case has played out, analysts are scrambling to explain why. One narrative thus has it that ANA was so poorly-trained - and its leadership so corrupt - that once U.S. military contractors left the field, Afghan forces had neither the motivation nor the acumen to resist the Taliban advance. As President Biden himself put it "...we could not provide them... the will to fight."To test that claim, we can turn to Game Theory.Game Theory stylises any decision involving two or more players as a "game". * Each player can receive some "payoff" (or outcome) from the game. * Payoffs are "contingent", i.e. the payoff a player receives depends partly on their own decisions, partly on the decisions of the other player or players. * One assumes players will act rationally, making choices that maximise their payoffs. * Thus, if we know the payoffs each player can receive, we can predict their choices, and thereby also the outcome of the game.The most famous example of this is the Prisoner’s Dilemma: a game in which two people suspected of committing a crime are being questioned independently. If both deny committing any crime, the authorities will only be able to convict them of a minor offence (slightly bad outcome). However, if one of them bears witness against the other, the authority will let the snitch go free (best outcome) while convicting the other of a major offence (worst outcome). The textbook prediction is that both suspects will crack, and wind up with the worst combination of outcomes. However, the classical Prisoner's Dilemma is limited in one important way: it is a single-turn game. The players only make a choice once, at the same time, without knowledge of each others' choices - and then the game ends. A more realistic scenario is what is known as a repeated game. A repeated game has multiple turns: the same players interact, under the same rules, with knowledge of the choice made by the other players in the previous turn. Imagine that the suspects are schoolchildren and the authority is the Principal of the school. No one is going to jail; even if neither child knows what the other is saying to the Principal, they do know they will both interact on multiple occasions thereafter, both in class and outside it. Even with the same payoff structure, the outcome starts to look different: knowing that we have to meet the other person every day makes us far less likely to crack - or "defect", in game theory jargon - because they could punish our defection on the next turn. In a repeated game, players make decisions "in the shadow of the future".The political scientist Robert Axelrod modelled a repeated game in The Evolution of Cooperation. He demonstrates that the optimal strategy for such games is what he calls "Nice Tit-for-Tat".* Start by complying (being nice to the other player)* If they comply, continue complying (happily ever after)* If they defect, punish them by defecting on your next turn.* If they respond to your defection by complying, they have accepted the punishment, so go back to complying again.* If they defect again, you should also defect again (Tit-for-Tat) - a downward spiral until and unless they switch to complying.A key insight from Axelrod's work is that this strategy only works if the total number of turns is unknown. Why? * If the number of turns is known, we can try to pull a fast one - complying until the penultimate turn, but then defecting on the very last one (turn N), when there is no possibility of punishment thereafter.* The other player is not a fool. They know we are likely to defect on the final turn, so they will take precautions: they will defect preemptively, on the penultimate turn (N-1). * Since we know they will do this, we will defect on the turn before that (N-2). * They know we will do this, so they will defect on the turn before that one (N-3) - and so on till the whole chain unravels.The deterrence of future punishment only works if the number of turns is unknown. We can think of this as an infinite game or at least an indefinite one.What does all this have to do with Afghanistan? When President Trump committed to pulling out U.S. troops by a specific date, and then when President Biden made clear he would uphold that commitment (even with a different date), they converted an infinite game into a finite one. An open-ended U.S. presence was a signal of potentially unending US involvement, complete with punishment for behaviour the US considered unacceptable - for instance, overthrowing the US-supported government in Kabul.Afghan leaders broadly shared the assessment of the U.S. intelligence agencies: the Afghan government could not survive if US support was withdrawn. (Whether this is objectively true is beside the point; it seems to have been the mental model of the Afghan provincial governors, military leaders, and in all likelihood Afghan soldiers themselves.) With withdrawal confirmed, why bother resisting - especially given the Taliban's inhuman tactics, including targeting family members of soldiers, and threatening reprisal killings once they take power?Once the average Afghan believed that a Taliban victory was inevitable, the finite game unravelled. Players chose to defect (surrender / retreat / literally defect to the Taliban) at every step, and the timeline towards the fall of Kabul accelerated dramatically.Biden is precisely wrong. The US was providing Afghan leaders and forces with the will to fight, not by training and equipping them, but by making the prospect of a Taliban victory impossible. Given U.S. domestic sentiment favoured withdrawal, a better question might have been: even without a U.S. military presence on the ground, could the US establish deterrence against the Taliban?India Policy Watch #1: NMP, Another Gamechanger? Insights on burning policy issues in India— RSJThe Union government this week announced a National Monetisation Pipeline (NMP) with the aim to unlock value in existing infrastructure projects. The idea is simple and draws from the pioneering “Asset Recycling Initiative” done in Australia between 2013-16. Select assets that are already generating revenues (like roads, railway stations, power plants), lease them out to private sector bidders for a defined period, transfer the revenue rights to them, take an upfront payment for the lease, work out some revenue share arrangement on an ongoing basis, and have a few checks and balances to ensure the private sector doesn’t gouge the consumers on pricing or runs the asset to the ground over the years. That’s it. The government expects to raise ₹6 lakh crores in the next four years from this which it will use to fund greenfield infrastructure projects. To make sense of this number, the Union budget size this year was around ₹35 lakh crores. In the speech, the FM had reiterated the intent to spend ₹110 lakh crores over the next 4 years to create a National Infrastructure Pipeline. About 85% of that amount was to be raised through the traditional sources of capital (government borrowings) and the balance was to be taken up through innovative mechanisms. One such mechanism was the creation of a new Development Finance Institution (DFI) which would build a lending portfolio of ₹5 lakh crores in three years. The other mechanism is the NMP announced this week. So, what do I think of this? Let’s look at the reasons for doing this. * Our economic engine was slowing down even before the pandemic. Things have gotten worse since. The government can manage to keep its base in thrall with its favourite social and cultural issues for a while but the hard economic realities will eventually bite. This is true even for this government regardless of their narrative building skills. We have a yawning infrastructure deficit in the country. It is a prerequisite for growth. Investment in infrastructure has a tremendous multiplier effect and it has the potential to generate new jobs. * The government has to take the lead in starting the Capex cycle. The private sector has burnt its fingers in the last decade and huge NPAs in the banking system are proof of it. The private sector, for all its vociferous support to all government initiatives, has barely contributed to the gross capital formation in the last decade. * The interest rates globally are at an all-time low and there’s a capital glut everywhere. China is no longer a safe option with its crackdown on private capital. There’s no better time for India to raise capital. The government has limited fiscal space given the impact of the pandemic on its revenues. It is looking for ways to raise funds without widening the deficit further. India isn’t considered a great destination for launching greenfield projects. The state is capricious and the ease of doing business isn’t great. So, the best option is to offer brownfield projects for monetisation. They are less risky because they are already ‘live’ and, possibly under-utilised. The idea is to have the private sector come in with better quality resources and efficiencies to generate an incremental return over what these projects were already doing. The government receives its ‘fair share’ and the private sector ‘sweats’ the asset more efficiently to make its returns. Win-win for all. * An outright sale of these assets is out of the question. It will be politically untenable even within the BJP. A long term lease might be as good as a sale considering many of these assets won’t have that kind of a lifetime. But lease sounds politically more palatable than sale in a country that’s reflexively socialist. It is difficult to argue with the rationale above. This is not one of those instances in public policy where everyone is clamouring let’s do something; this looks like something; so, let’s do this. The solution arrived at fits the problem statement. That is not a bad start when you look at the history of ‘gamechanger’ moves of this government. But the usual arguments against it have been made in the past few days. Let me run through them: * “We are handing over our core national assets to the private sector or foreigners.” This is quite bizarre. This is a lease and the state, like we have repeated many times over, holds unbelievable powers in India to change the rules of the game midway. In fact, this is one of the reasons why we might have few takers for this programme. The history of raising the foreigner or private sector bogey has done us no good over the years. But this never goes out of fashion. * “This will lead to the monopoly of two industrial houses who are already entrenched in this ecosystem.” There is a real danger of this happening. It is likely that we won’t have too many bidders for these assets or the game is rigged to favour a few industrial houses. The nature of assets being monetised is such that monopolies are natural in them. You have only one 4 lane road to take between two cities, for instance. So, a couple of companies controlling many of these assets could mean exploitative pricing. My counter to this is a bit cynical. We have a problem with monopolies in many sectors regardless of NMP. This has to be countered through anti-trust laws, debates in parliament, litigation and public awareness. Scuppering NMP won’t change this truth. In fact, a well designed, transparent NMP auction process might allow better funded and more credible options to emerge. That should be the focus here. * “This is well-intentioned but implementation will be key.” This is true for everything. Of course, we will need to have more specific details of the assets and their current revenue streams, we will need to provide clarity on how regulatory actions in future don’t impact the financial projections of these assets, we will need safeguards on maintenance and development of these assets when they are under lease and on future pricing of the consumers. The track record of this government isn’t great on implementation after making a big announcement. But that doesn’t mean there should be no attempt to do anything new. My hope is they learn from the past and put a plan that works. * “There should have been consultations and debates in parliament on this.” This is a necessary condition for any initiative of this kind. The private sector bidders are looking for stability in their revenue stream for a long duration (25 years or more). They will be reassured if they were to see a broader consensus across the political spectrum on this. The ability of the state governments led by those in opposition to throw legal or regulatory spanners in the works in the future shouldn’t be underestimated. The Union government would have made it easier for everyone by at least making an effort to have a discussion with the states and other political parties. But that ship has unfortunately sailed a long time back. This isn’t a government that believes in such niceties and any attempt to start now isn’t going to take it anywhere. This is the great tragedy of our current times. We cannot agree on a good idea in good faith. The Union government holds the can on this one. The pessimist in me expects this ‘big idea’ to follow the same course as other such ideas of this government in the past. Demonetisation, GST, Make In India, Aatmanirbhar Bharat etc. We will have sporadic successes and we will soon forget it and get started on another new thing. That will be a pity. Because we really need a multi-year Capex cycle to get going for our future.India Policy Watch #2: Shivshankar Menon on India And Asian Geopolitics Insights on burning policy issues in India— RSJWhat should be the primary objective of India’s foreign policy? I often ask this question to people who are well-read and have a view on world affairs and India’s place in it. The answers often disappoint me. This isn’t because they are wrong. I mean who can say what’s the right answer for such questions. It is because they don’t give an answer that I think is right. Heh! So, imagine my happiness in reading a book where the author and I are on the same page on this vital question. That the author happens to have been a Foreign Secretary and a National Security Advisor of India in the past makes this the newsletter equivalent of “chhota munh, badi baat” on my part. Anyway, I had written a couple of weeks on The Long Game by Vijay Gokhale and I had mentioned in passing about Shivshankar Menon’s India And Asian Geopolitics: The Past, Present. Menon’s book is a broader analysis of India’s choices in a century where Asia will play a bigger role in the world with the inevitable rise of China. It is a deeply insightful and richly argued book. Menon is an old school liberal with a keen intellect, a comprehensive understanding of geopolitics and a believer in the values on which the modern Indian state was founded. I have taken a few extracts from his book where he discusses the central objective that should guide India’s policy towards the world. To begin with – what should be the task of our foreign and security policy apparatus and how have we seen ourselves in the global order? Menon writes: “Since Indian independence, the primary function of Indian policy has been the great national task of transforming India into a prosperous, strong, and modern country. The task of the foreign and security policy apparatus is to identify, deter, and defeat threats to national security that could prevent that transformation and to create an enabling environm…

    Full show notes at the publisher

    #141 Pakistan, Afghanistan....Hindustan: The Akhanda Bharat Edition 🎧 Aug 29, 2021
    Show notes

    Matsyanyaaya #1: What Does Pakistan’s Cadmean Victory in Afghanistan Mean for IndiaBig fish eating small fish = Foreign Policy in action— Pranay Kotasthane(This is a draft of my article which appeared first in Times of India’s Tuesday, August 23rd edition.)Taliban's takeover of Kabul is forcing India to reassess its aims and objectives concerning Afghanistan. Of primary interest is the impact of this development on Pakistan. On this question, two views have come to light over the last few days.The first view cautions against the increase in terrorism from Pakistan. The recommendation arising from this view is that India needs to coalesce anti-Pakistan factions in Afghanistan. The counter-view focuses on the inevitability of a split between the Taliban and Pakistan. The assumption being that once the Taliban assumes political control over Afghanistan, it is bound to take some stances that will go against the interests of its sponsor. The recommendation arising from this view is that India should sit back. It should let things unfold because Pakistan's victory is a Cadmean one — it comes with massive costs for Pakistan's economy, society, and politics.Which of these two divergent views is likely to play out? To understand what the Taliban's victory means for Pakistan — and hence India — it is useful to model Pakistan as two geopolitical entities, not one. The first entity is a seemingly normal Pakistani state, presumably concerned first and foremost with the peace and prosperity of its citizens. The second entity is what my colleague Nitin Pai has named the Pakistani military-jihadi complex (MJC). Comprising the military, militant, radical Islamist and political-economic nodes, the MJC pursues domestic and foreign policies to ensure its survival and dominance. For the MJC, positioning and defeating the existential enemy — India — is key to ensure its hold over the other Pakistan.Taliban's takeover of Afghanistan will be perceived differently by these two Pakistani entities. The non-MJC Pakistan would be worried about the Taliban's march to power. It would fear the spillover of terrorism inside its borders, orchestrated by groups such as the Tehrik-e-Taliban Pakistan. Politically, a powerful Taliban would pose the threat of breathing new life in the Durand Line question. On the economic front, the prospect of a dependent Taliban government further draining Pakistan's dwindling resources would be another cause of concern. In short, if this entity were in charge of Pakistan's foreign policy, it wouldn't have doggedly invested in the Taliban.That's quite clearly not the case. Taliban's takeover, on the other hand, is a strategic victory for the MJC. Over the last two decades, it has played a risky game sheltering and guiding the Taliban's actions while also supporting the US in its Afghanistan campaign. When things went wrong, the MJC was able to pass the blame to the other, weaker Pakistan. Recently, it played a role in steering the Afghan Taliban to sign the Doha agreement. It worked over the last two decades to reduce the Indian economic and political footprint in Afghanistan. Given the efforts it has put in, the MJC is sure to perceive the Taliban's comeback as an indisputable victory. This success would bolster the MJC's strategy of long-term commitment to terrorist groups. More importantly, it consolidates its relative dominance over the other Pakistan. How does this affect India?As the MJC's domestic position strengthens, its anti-India aims will grow stronger. There is a possibility of the MJC moving its terror outfits to Loya Paktika in eastern Afghanistan, a hotbed of anti-India activities in the past. This scenario would allow the MJC to use terrorism against India while claiming it has no control over these elements.Many commentators have argued that the world in 2021 will not let off perpetrators of terrorism easily. But they seem to forget that the return of the Taliban illustrates that the opposite is true. As long as terrorism is portrayed as an instrument of a domestic insurgency, the world will continue to look away. For instance, the Taliban continued terrorist attacks inside Afghanistan even as it was negotiating with the US at Doha. And yet, the US, UK, Russia, and China chose to bring the group back in power. Second, to see the MJC threat from the issue of terrorism alone is to miss the bigger picture. By demonstrating the success of its policies in Afghanistan, the MJC would be energised to use other methods of asymmetric warfare against India. More than the means, the Taliban's victory is the reaffirmation of its objectives. What should India do?First and foremost, India must prepare for a reduced economic and diplomatic footprint in Afghanistan. Given the positive role India has played there over the last two decades, a sunk cost fallacy might drive India to make overtures to the Taliban. Such a policy is unlikely to pay dividends. The MJC will ensure that India's presence is severely restricted. In Afghanistan, it would be better to wait for the tide to change. Second, India would need to raise its guard on the Pakistan border. With the perceived threat of Indian presence close to Balochistan going away, the MJC is likely to be more adventurous in using conventional and non-conventional warfare against India. Domestically, it means returning Jammu & Kashmir to near-normalcy becomes all the more urgent. More the discontent there, the easier it would be for the MJC to exploit the situation. Third, strengthen the partnership with the US. The MJC has always been dependent on external benefactors for its survival. While China is playing that role today, it alone is insufficient to bear the burden. The MJC will be desperate to get the US to finance its ambitions based on its credentials to influence outcomes in Afghanistan. Hence, it's vital that India's relationship with the US must remain stronger than the relationship that MJC has with the US. Finally, amidst the current focus on US failures in Afghanistan, it shouldn't be forgotten that both India and the US need each other to confront the bigger strategic challenge: China.Regardless of the turn that Taliban-Pakistan relations take, an ideological victory for the MJC is bound to have repercussions in India. India must prepare to face the renewed challenge. (This is a draft of my article which appeared first in Times of India’s Tuesday, August 23rd edition.)India Policy Watch: Our Past, Our FutureInsights on burning policy issues in India- RSJA topic we often like to explore here is the history of thought. We cover a fair amount of western philosophy and we have tried gamely to include Indic thought while writing about current issues. In fact, a recurring section on international relations in this newsletter is called ‘matsyanyaya’. I’m no expert but I suspect writing here has helped me with a point of view on the Indian state and its relation to the history of Indian thought. Broadly, I have made three points on this over multiple editions:* A nation is an imagined community and any newly independent State had to work on constructing this imagination. This meant they had to make three moves. One, they had to have a modern conception of themselves which was distinct from their past. Two, to make this ‘modernity’ acceptable, they had to present this conception as a ‘reawakening’ of their community. This gave them a link to their past. This past was a living truth for the members of this community and it couldn’t simply be erased. Three, historians were then called in to rewrite the past which served this narrative. This is the classic Benedict Anderson recipe and India is a fine example of using it in 1947. (Edition # 62)* The Indian state formed post-independence was based on a radical act of forgetting the past. The Indian constitution wasn’t merely a legal framework to run the state. It was also a tool for social revolution. Society wasn’t trusted to reform itself with the speed that was necessary for India to modernise. It had to be induced from the outside by the state. (Edition #28)* The hope was the liberal state would change the society before it could catch up. This hasn’t turned out to be true. Now the society looks likely to change the state in its image. And what’s the society like today? Like Hazari Prasad Dwivedi, once put it: ‘jab dil bhara ho aur dimaag khali hai’. Its heart is full of emotional torment but its mind is devoid of imagination. The society has somewhat vague notions of its ancient glory and civilisational sense of superiority because of it. But it’s not sure of what to make of it in today’s world. (Edition # 118 and Edition #128)So, I was happy to pick up Pavan K. Varma’s new book The Great Hindu Civilisation: Achievement, Neglect, Bias and the Way Forwardwhich as the name suggests covers these grounds. Varma is a former civil servant and a prolific writer whose works I have found tremendously engaging. Over the years he has written on a wide range of subjects - the great Indian epics, Ghalib and Gulzar, the Indian middle class, Kamasutra, Krishna and Draupadi. His last book was a well-researched biography of Adi Shankaracharya that also doubled up as a short introduction to various schools of Hindu philosophy with a special emphasis on Vedanta. Suppressing A Great CivilisationIn The Great Hindu Civilisation (‘TGHC’), Varma makes three arguments based on his deep understanding of ancient Indian texts and his scholarship on Indian history:Argument 1: India is a civilisational state. The achievements of ancient India in philosophy, metaphysics, arts, statecraft and science are unparalleled. These have been lost to us. We must reclaim their wisdom and apply it to our lives. Varma writes:Above all, it is my premise that this Hindu civilisation has few parallels in terms of the cerebral energy invested in it…. It was sustained by the unrelenting application of mind, in every field—metaphysics, philosophy, art, creativity, polity, society, science and economics. Nothing in it was random or happenstance. … When people are ruptured from their heritage, they are essentially rootless, not always lacking proficiency in their specific area of work, but essentially deracinated, mimic people, inured to another’s culture more than their own. Hindu civilisation was based on moulik soch or original thought, where each aspect of creativity was studied, examined, interrogated, discussed and experimented upon in the search for excellence. But when this great legacy was summarily devalued and looked upon as a liability to modernity, it left an entire people adrift from their cultural moorings, lacking authenticity and becoming a derivative people.Argument 2: Marxist historians, western Hinduphobic intellectuals, deracinated Indians and a self-serving Indian elite have long played a charade that there’s hardly anything real as a Hindu civilisation. This has given us a distorted picture of our past, about the impact of Islamic invaders and British colonialism on our culture and has prevented any honest inquiry into the real achievements of our civilisation. A false fear of Hindu aggrandisement is repeatedly stoked up at any such pursuit. The usual cast of deracinated suspects is named - Macaulay, Raja Ram Mohan Roy, Amartya Sen, Romila Thapar, Irfan Habib, Wendy Doniger and, of course, Nehru. Though Varma cushions the jabs on Nehru a bit by blaming it on his associates or his naiveté. As he argues:Marxist historians devalue the civilisational tag of ancient India by analysing it exclusively in class and economic terms. Certainly, this is also one way of studying the past, but the problem is twofold. Firstly, this approach excludes all other dimensions, and insists that this is the only way to evaluate history. Secondly, the tools used are highly derivative, an almost complete transplant of Marx’s outdated, uninformed and stereotypical analytical framework in the Indian context.There is, of course, a basic irony in Hinduism’s derogation by some ‘liberals’. One would have thought that liberal opinion would be appreciative of a religion that relies less on dogma and more on debate. It would make a virtue of the fact that Hinduism enables diversity to thrive when many other faiths are prescriptive and rely on diktat. However, instead of lauding this eclecticism, they conclude that Hinduism is only about diversity ad infinitum. Argument 3: Since the Hindu society has been systematically denied its real history, reactionary and lumpen elements have appropriated the task of peddling their version of history. This is the price to pay for distorting history instead of facing up to the truth. If we have to counter the thugs who have political and state patronage today, we have to make the ordinary Indians truly aware of their real Hindu heritage. This knowledge of the liberal, encompassing nature of Hindu philosophy is the best antidote to any fundamentalist ideology. He writes:The prescriptive element that the new, so-called evangelists of Hinduism are bringing in is anathema for most Hindus. Hinduism has always been a way of life. Hindus don’t like to be told what to do and what not to do, what to eat and what to drink, what to wear and how to behave, what to watch and what to read, who to meet and who not to, how to practise their religion and how to be good Hindus.The real danger is that we are witnessing the emergence of a lumpen leadership that believes that it has a monopoly to interpret Hinduism and Hindu civilisation. Since time immemorial, Hindus have faced many travails and setbacks but have survived them by drawing upon the great strengths of their culture: tradition and faith. Even in the greatest adversity, Hinduism have never allowed its core cerebration and idealism to be compromised. So What?My reaction while reading the book ranged from vigorous nods of approval to what is colloquially referred to as ‘abey yaar’. I will elaborate further here.Firstly, I agree with Varma about India being a civilisational state and Hinduism or sanatanadharma being a common cultural thread that runs through the length and breadth of this land. This is a lived experience for all of us and Varma quotes many examples of common rituals and practices that have been around for centuries to back this assertion. Denying this is an exercise in futility and serves no useful purpose except alienating a large section of Indians. Secondly, I’m happy to concede Varma’s contention that ancient Hindu civilisation was the pinnacle of human achievement during its time. “There was a holistic interconnectedness that informed it, and this unified vision permeated all aspects of its highly complex intellectual construct.” Fair enough. A bit over the top but that’s fine. My question is what do we do with such an ancient but highly complex intellectual construct now? Almost every text Varma refers to was written hundreds of years before CE. Many of these are metatexts unmoored from their context or what formed the basis for such scholarship. One could read the hymns of Rig Veda on the conception of the universe today but what does that do to our understanding of science. To merely say it is similar to what quantum physics postulates today has limited meaning. It is the equivalent of saying Da Vinci designed all sorts of futuristic machines so let’s study him for scientific insights today. Even Arthashastra can be read to appreciate the philosophy of statecraft and economics of ancient India but beyond a concept or two that might be relevant today, what purpose will it serve? The problem here is there has been no reinterpretation or updates on these texts over two thousand years. I come from a town that houses one of the four mathas (seats) of Shankaracharya. I always wondered what stopped the scholars of the matha to do more to make their knowledge ac…

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    #140 We Do Need Education 🎧 Aug 22, 2021
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    India Policy Watch: Chinese CheckersInsights on burning policy issues in India- RSJWe often write about China here. And we make three points:* China is a model of authoritarian state-driven capitalism. There should be no illusion anymore it will turn into a liberal democracy as its citizens gain greater economic freedom. The Party will find new market demons to slay to send out a convincing message to the people that only it can usher in a stable and prosperous society. It will continue to undermine liberal democracy and it is ready to mount an ideological and economic challenge to G7. (Edition #132) * Most analysts often overestimate China’s long-term thinking or strategic acumen. Pranay has written about this in a few editions. People tend to get taken in by civilisational mumbo-jumbo and Confucianism that China spouts about their national objectives. This has given rise to a cottage industry of experts who scour through Chinese history to (over)interpret the words and actions of its current regime. We believe this is unnecessary. China makes its usual quota of strategic errors in geopolitics. There is too much made about it being a rational actor of the highest order. (Edition #136)* China is a very different kind of threat to the western liberal order. It is deeply enmeshed in global trade and economy. Decoupling from it is easier said than done. It has grown at the expense of Europe in the past three decades and now Europe cannot imagine its economy without the Chinese supply base or its markets. It is open to learning from the West (it sends the most students to western universities) while it selectively blocks global information platforms at home to ‘manage’ its society. This asymmetry lets it have the best of both worlds. It has the Soviet-style disdain for liberal democracy without the shortage of resources or paranoia about the West. In short, as I have written in the past, if this were to be seen as a new cold war then China is USSR on steroids. (Edition #47) and (Edition #44)Chinese Books Are Flooding The MarketI’m no expert on China. So I like to read books on China to update my priors. Surprisingly (in a good way), the last nine months have seen a never before supply of books on China by Indian authors. These include books by China scholars and academics - India Versus China: Why They Are Not Friends by Kanti Bajpai, Smokeless War: China's Quest for Geopolitical Dominance by Manoj Kewalramani and India's China Challenge: A Journey through China's Rise and What It Means for India by Ananth Krishnan. These apart, the past few months have seen two of our former Foreign Secretaries come out with their books on China or the broader Asian geopolitics - India and Asian Geopolitics: The Past, Present by Shivshankar Menon and The Long Game: How the Chinese Negotiate with India by Vijay Gokhale. I ended up reading three of these books in the past couple of months. They are slim and very readable. Among them, I will pick Vijay Gokhale’s book in this edition to discuss his perspectives on how China negotiates. Gokhale’s focus is on understanding the strategy and tools China deploys in its negotiations with India and what India can learn from the 70 years of dealing with them. He takes six key negotiations between India and China to draw his conclusions. These include recognition of the PRC in 1950, the negotiations on the status of Tibet in 1954, Pokhran and India’s nuclear status, the question of Sikkim, the US-India 123 nuclear agreement in 2007 and the listing of Masood Azhar as a terrorist by the UN in 2019 after a decade-long effort. Gokhale’s credentials on the topic are second to none. He has served as our top diplomat for over three decades in China, Taiwan and Hong Kong. His personal involvement in four of these negotiations offers a ringside view to us on diplomatic jabs that were exchanged over the years on these issues. Even in the two negotiations that predate him (recognition of PRC and Tibet), Gokhale is meticulous in his research of available official documents, notes, letters and press reports of the time to offer us a concurrent view of how the two sides were thinking about the issues and planning their negotiations. The book is a tremendous addition to the literature on China and I hope it spurs more former diplomats to write about their experiences. The Original SinI have picked up a few excerpts from the first diplomatic negotiation between the two over the recognition of PRC to give you a sense of how differently the two newly independent nations thought about geopolitical issues. I will run through the context briefly before doing so. India, in 1949, was a free country in the process of establishing itself as a Republic. The horrors of partition were fresh and its leadership was still finding its feet after the assassination of Mahatma Gandhi. Yet, it was seen globally as the voice of the ‘third world’ largely on account of the Constitution it had drafted, its leadership that had international credibility and its commitment to liberal democratic principles. China, on the other hand, had emerged from its ‘century of humiliation’ with a civil war between Mao’s Communists and the Nationalists led by Chiang Kai-shek. By 1949 the Communists had driven the Nationalists away to Taiwan and were looking for global recognition while being aware that America being on the side of the Nationalists made this a difficult task. To put it simply, Communist China would have been grateful if India recognised it early. But through a strange mix of naivety, diplomatic blunders, confused thinking and narcissism on India’s part and some astute planning by China, the tables were turned. In some ways, this set the tone for all future negotiations between them. As Gokhale writes:The Chinese also planned the negotiations with India with great care, seeing it as a template for future negotiations with other non-socialist countries, including the West. Their strategy consisted of three elements: 1) to make India recognise the People's Republic of China as the sole, legitimate government. Mao was determined not to allow Two Chinas to legally exist at the same time, and this was a core objective; 2) to ensure that India did not join the American-led anti-China camp. Since the Americans were backing Chiang Kai-shek, it stood to reason that India should be asked to prove that it was not an American camp-follower by making a clean break with Chiang Kai-shek and the Nationalist regime; and 3) to utilise India's international influence to gain diplomatic space. The Soviet Ambassador N.V. Roshchin recorded his conversation with Mao thus: 'During the past few days he (Mao Zedong) had received the report from Beijing that the governments of Burma and India expressed their readiness to recognise the government of the People's Republic of China. The position of the Chinese government on this matter is as follows: to informs the governments of Burma and India that if they are sincere in their wishes to mend diplomatic relations with the PRC, first, they must completely break all tie with Chiang Kai-shek, unconditionally any kind of support and assistance to this regime, making it into an official declaration. Under the condition that the governments of these countries accept the aforementioned proposals of the Chinese government, the Indian and Burmese government may send their representatives to Beijing for negotiations.’This, then, was the Chinese strategy, and the tactics were determined accordingly.It is interesting to note how despite having the weaker hand, it appears from above like the Communist China is offering a privilege to others. There are multiple things at play here. China’s clarity on what’s non-negotiable (there cannot be two Chinas), its ability to play on the guilt or ego of the other party for its interests (India has to show it is not a camp follower of America) and its chutzpah in setting the terms of its own recognition; including asking India to send its representatives to Beijing and not the other way around. Now contrast this with how Gokhale describes the Indian approach.The lapses on India's part - the absence of wider political consultations within the Indian leadership, the overlooking of its national interest in its anxiety over the timing, and the erroneous assumption that the act of officially recognising the People's Republic of China was tantamount to the automatic establishment of formal diplomatic relations - led the Government of India to see the act of recognition as its only objective. In the process, India unilaterally gave up some crucial negotiating cards.First, India severed ties with the Nationalistic government in Taiwan.….the cutting off of ties with Nationalist government in Taiwan was inevitable, but it should have been part of the give-and-take during the negotiations. Instead, India squandered a bargaining point as a concession to Communist China even before the negotiations commenced. Likewise, India made efforts to reassure the Chinese side that it would not harm them by aligning with the Americans. This mean that India gave up any leverage that was to be gained by allowing the Chinese side to believe that it had the option of leaning to the side of the Americans in case China did not accommodate its interests in the process of diplomatic recognition. Thus, India lost another tactical advantage that might have allowed it to extract assurances from the Chinese communists.Thirdly, and most significantly , India did not lay out substantial 'asks' for the Chinese side to fulfil as a counter-response to their demands, even though they were aware of Chinese preconditions. The Government of India felt that making recognition dependent upon fulfillment of conditions by the new Chinese regime may be seen as hard or humiliating.…..India's approach to the whole idea of recognition was a mixture of emotionalism and conjecture. There was no strategy. The timing became the central point of the exercise. This too was determined by international calendar rather than by India's national interests. The Commonwealth Foreign Ministers Conference was to be held in Colombo in mid-January 1950. Nehru decided that India should recognise the People's Republic of China before the other members of the Commonwealth. It was accordingly decided to do so on 30 December 1949. Getting It Wrong Again?I believe Nehru gets a bad rap in today’s India. He had his flaws. But he was a great man by every definition of the term. I don’t think we will see someone like him in our polity anytime again. And I defend him stoutly on most issues including his economic thinking. I’m no statist and I have no time for central planning but I’m not sure I’d have been a free marketer at the time of independence. So, I give him a wide berth there too. But on foreign policy, I think Nehru has no excuses. He had strange notions of India being some kind of a vishwaguru, he personalised diplomatic decisions without considering the diverse set of views from his experts, he put himself at the centre of negotiations which undercut the negotiating options of his diplomats and he had a vague, narcissistic self-image of a global statesman that eclipsed India’s interests often. The above extract on the recognition of PRC and India’s handling of the Tibet issue soon after was a result of this approach to diplomacy. When I read these lines again, I wonder how much, if, at all, things have changed since then. Gokhale ends his book with a chapter on ‘Lessons for India’ where he outlines his experience of how China negotiates and what the Indian side should look out for. There are reams of practical advice here. The Chinese attention to details at the pre-negotiation stage: everything from the setting of the agenda, laying the benchmarks for the other side to meet prior to the negotiations and to push for unilateral gestures as a show of goodwill. Then the tricks and tactics used during the negotiations. The insistence on agreeing on principles that will act as the framework, the incremental nibbling technique (the salami-slicing equivalent of diplomacy), the playing on the guilt of another party, the random usage of old Chinese proverbs, the sense of their relative position in the hierarchy of global powers and their ability to manipulate the other side are all discussed at length with specific instances. And finally the post-negotiation setting of the narrative. The Chinese focus on getting everything just right is relentless. Reading this chapter and going by the book title ‘The Long Game’, you almost place Gokhale in the camp of those who believe in the extraordinary powers of China to think really long term. Like we have written before, we think this to be a gross exaggeration. But Gokhale makes a strong case for us to update our priors. China might not always be playing a long game. But it surely does have a game. If the content in this newsletter interests you, consider taking up the Takshashila GCPP. The certificate course is customised for working professionals. The course begins on 4th September.This slide from the Fundamentals of Public Policy module, co-anchored by Pranay Kotasthane and Ameya Naik gives a good idea of what the course has to offer.PolicyWTF: Market Pricing with Government CharacteristicsThis section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?— Pranay KotasthaneDid you know that the price of a paracetamol tablet is capped at approximately Rs 2 by the government? Apparently, over 200 companies produce paracetamol under different brand names. Such levels of competition should’ve kept the price of paracetamol low in any case. Why the price cap then? Turns out that not just paracetamol, nearly 14 per cent of drugs by value, and 25 per cent by volume in India fall under price controls. Not only are their prices capped, but the mechanism used for capping is disingenuously labelled ‘market-based pricing’. I find this label fascinating because this is the second instance I know where the government actively distorts market prices and yet is successful in passing the blame on markets for the resultant price rise. Consider the case of pharmaceuticals first. Market-based pricing here obviously doesn’t mean that a drug can be priced on the basis of demand and supply alone. Instead, it just means that the price cap will be calculated by averaging prices of brands that held at least a 1 per cent share of the market for the formulation.Anticipating the unintended consequences of such a policy is not difficult. One, price caps ‘disincentivise’ differentiation and innovation. Why would any new company invest in creating a new formulation when it cannot reap the benefits by charging higher? Two, price caps foster collusion and rent-seeking. With new entrants impeded from disrupting the sector, incumbents can benefit by colluding with each other. By collectively and incrementally increasing the price of their brand, the price cap threshold can be pushed up. And three, the engineered market-based pricing deepens the scepticism Indian consumers have with the price system. No wonder that an ordinary Indian intuits that market-based price is just a euphemism for unreasonable price hikes. Another sector where the government passes off its active price distortion as a market-based mechanism is in fuel pricing. Since 2010 and 2014, the price of petrol and diesel have been deregulated respectively. If the market were truly allowed to operate, petrol and diesel prices should’ve hit an all-time low over the last few years because of the excess supply. More recently, the COVID-19 pandemic even depressed the demand. And yet, petrol prices hit a century because the government more than compensated for the drop in market prices by increasing the tax rate on the two fuels. We have covered this chicanery in many previ…

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    #139 A Question Of Sports Aug 08, 2021
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    Programming Note: We will be taking off next week. We will return on Aug 22.Not(PolicyWTF): Retrospective Admission Of A MistakeThis section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?- RSJOn Thursday, the Finance Minister tabled the Taxation Laws (Amendment) Bill, 2021 which sought to scrap the tax claims raised on the back of an amendment to the Income Tax Act brought about by the UPA-2 government in May 2012. The 2012 amendment was meant to prevent business entities incorporated in offshore locations but deriving most of their value from the Indian market to merge or acquire control in one another without paying capital gains taxes. This was seen as a loophole in the tax laws and the amendment was meant to plug it. All good with that. Except there was a small clause in there. The amendment was to be applied to past transactions too. The tax was to be retrospective in nature.Why Retrospective Taxes Are BadWe have written about the problem with retrospective taxation in a previous edition. We made three key points then.One, retrospective taxation is unfair and goes against what Adam Smith called the ‘canon of uncertainty’. I wrote earlier:The Canon of Certainty as set out by Smith states:“The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor and to every other person.”Retrospective taxation goes against this principle of fairness. It taxes a transaction that’s happened prior to law being framed. In the bigger picture, it is a human right violation since the state cannot remove a right without a transitional period. Two, there’s a legitimate reason to tax retrospectively. It is to avoid what’s called ‘forestalling’ – the practice of taxpayers acting to avoid the impact of a change in tax laws before it can take effect. Now, it is possible to nip this practice by making the tax changes applicable almost immediately upon their announcement. But this isn’t practical all the time. There are laws that need Parliamentary approval or change in systems and processes that could take time. Therefore, in most cases, there is always a lag between a tax change announcement and its effective date of implementation. This is what gives rise to forestalling. And that’s the reason lawmakers opt for retrospective tax laws.But there’s a fair way to do this. In the UK, the ‘Rees Rules’ are a set of four conditions that must be satisfied for any retrospective tax legislation to be considered fair:* “A warning in the House of Commons by some recognised method – either by an answer to a Parliamentary Question or by some statement with plans to legislate in the subsequent Finance Bill back to the date of that warning. The warning must be precise in form. A mere suggestion that there are vague schemes of tax avoidance that must be counted should not suffice.”* Secondly, the problem at which the warning has been directed should immediately be referred to a committee to devise the precise legislative measures which should then be introduced in the parliament.* Thirdly, if the committee can hit on appropriate legislative provision, the draft clause ... should immediately be published in advance of the Finance Bill so that those who are likely to be in the field of fire will have a second clear intimation of what to expect.* Fourthly, such a clause must, without fail, be introduced in the following Finance Bill to formalise it into lawIn the Vodafone case, it is clear there wasn’t a semblance of Rees Rules that was followed. This is what made it perverse. That the law had a loophole that allowed Vodafone and Hutchison to avoid taxes wasn’t their fault. They can’t be blamed for it. Had they known of the tax, the contours of the deal or the deal itself could come into question? Three, I had predicted in that edition that the Indian government will continue to battle these cases till it starts getting adverse judgments. The rationale was simple. It had come this far with a terrible piece of legislation. What’s there more to lose? Why not see how far it goes and then decide?Well, things went from bad to worse since then. Cairn Energy, which was also sent a retrospective tax demand of over Rs. 10,000 crores in March 2015 went to an international arbitration tribunal over the issue. In December last year, the tribunal overturned the retrospective tax and asked India to refund Rs. 8800 crores that the government had expropriated from Cairn’s entity in India plus interest and legal costs to Cairn Energy. The company since then has been busy. It got the tribunal award registered in multiple jurisdictions and threatened the seizure of Indian assets overseas. This had gone being beyond embarrassing.Don’t Hold Your Breath On ChangeChurchill had once said: “You can always count on the Americans to do the right thing after they have tried everything else.” He might have been speaking about India too. We have finally scrapped an amendment that brought us no additional net tax revenues and a lot of infamy as an investment destination low on rule of law. Of course, we have seen an inflow of foreign capital through FPIs and investments in digital startups over the past decade. But we haven’t had investments in sectors where we truly needed long-term capital like infrastructure, energy and industrial goods because of a lack of faith in the Indian regulatory environment. This has been a self-goal like no other. We could have gotten rid of this a long time back. There are two questions now. Is this enough to dispel the misgivings about the arbitrary nature of the Indian state on taxation? Have we learnt the right lessons from the retrospective tax episode? I’m not sanguine about either for a few reasons.Firstly, the political class in India loves painting the MNC as the enemy of India. We are forever paranoid about another ‘East India Company’ colonising us. The reactions from the opposition parties to this amendment has been predictable. We have ceded our sovereign rights to tax retrospectively apparently. This shouldn’t come as a surprise to the government. They have been using the sovereign rights and ‘digital colonialism’ arguments for the past few months on the Big Tech companies. The shoe is on the other foot now. So, this is not any philosophical change of course for India. It is a mere face-saving retreat. Secondly, our growth that has stalled since demonetisation has a direct bearing on the revenues of the state. Since the expenditure continues to grow and we aren’t too keen on widening the deficit or monetising it, the state will continue to find innovative ways to raise revenues. The pandemic has only queered the pitch further. This almost always means more arbitrary tax demands to raise revenues. There are already early signs of this with various states and the union sending GST notices and raking up ancient cases with companies across the board. Both Indian and global capital have learnt to live with this and have calibrated their exposure to India based on this risk. The scrapping of retrospective taxation alone will not move the needle for them. We will continue to hear paeans from global industry leaders about our markets, enterprising spirit and our reform-oriented government. But words are cheap. Lastly, as they often say, in India the legal process is the punishment itself. The Vodafone Hutchison deal was done in 2007. The tax dispute started soon after and after the SC ruled in favour of Vodafone, the retrospective tax amendment was passed in the Lok Sabha in 2012. The Cairn Energy deal was done in 2006. It has taken 15 years to achieve some kind of closure after years of litigations and appeals in India and across global tribunals. Cairn has since sold its interests in India and left it for good. Vodafone (Vodafone Idea now) is on the edge in India with debts of over Rs. 2 lakh crores and multiple demands of revenue share from the DoT under litigation. With neither of the promoters interested in supporting it with further capital, it is quite likely it will go under making the Indian telecom market a duopoly.So, while the government has done well to bite the bullet and scrapped the retrospective tax amendment, I’m not holding my breath on a change in our approach to taxation. The state is all-powerful and capricious. So long as that remains true, we will see this kind of saga play over and over again. If the content in this newsletter interests you, consider taking up the Takshashila GCPP. The certificate course is customised for working professionals. Intake for the 30th cohort ends on 22nd August.The cartoon strip below, made by a GCPP student and ace cartoonist Khyati (@ohthescribblebee) captures the key insights from the course.India Policy Watch:Sports and Societism Insights on burning policy issues in India— Pranay KotasthaneThere's something inexplicably uplifting about sporting success. Not only does it inspire — even if fleetingly — at an individual level, it fosters national pride, a feeling rarely experienced in our networked world of partisan sniping. India’s best-ever performance at the Tokyo Olympics gave me, you, and millions of other Indians a reason to chin up in these challenging times.Our Olympians will deservedly get a lot of attention and adulation over the next few days. Their stories of grit, determination, and perseverance are sure to inspire more young Indians to pursue their sporting dreams. But this is a public policy newsletter, and I want to turn your attention to the portrayal of our governments in sports narratives.Observe how governments often get portrayed as the second-most important protagonist in these narratives. The most common narrative arc is one of apathy — the government provided no facilities, the sportsperson doggedly persevered — and eventually won — not because of the government but despite it. A second, less common narrative arc, by contrast, highlights the positive role that governments can play in nurturing sportspersons. In the Tokyo Olympics, Odisha government’s contribution to both the hockey teams is a case in point. The two seemingly divergent narrative arcs are actually deriving a similar conclusion — governments should pay more attention to sports; the more that our governments invest in sports, the more Olympic medals India will win. While there is a lot of truth about both these narrative arcs, it is this conclusion that needs deeper thought. There's no doubt that India — its lakhs of villages and thousands of urban centres — need far better sporting hardware and software. But to depend on governments for producing world-class athletes because that’s how it is done in the more prosperous countries would be to fall into the ‘isomorphic mimicry’ trap. I say this because a low-income, democratic setting must impose certain constraints on governments, and for good reasons. A low-income setting implies that the government would have low enforcement, monetary, and intellectual capacities. Hence, it would be in our collective interest to have governments do fewer things and do them well. Moreover, unlike authoritarian regimes which can sponsor projects of national pride at the cost of other expenditure items, democratic governments are elected to prioritise areas that benefit a majority of the electorate. Taken together, governments — regardless of their intentions — will not (and probably should not) prioritise sporting excellence.And that’s perfectly okay. Since governments cannot be at the forefront in this area, we need to unleash the power of the two agents of change — markets and society. In a previous essay on societism, I had written that:Institutionally, there are three major actors in any sovereign community— the market, the State, and the society. They are complementary—each of them is better at some tasks and is worse at others. For example, the state is very adept at employing force, but efficient usage of resources is not its forte. A market is efficient, but is oblivious to inequality. And a society has several self-correcting mechanisms, but is susceptible to majoritarianism.For sporting excellence, the complementary strengths of markets and societies are far more vital than government attention. Consider the role of markets first. Not too long ago, cricket would be criticised by players of other sports for hogging all the popularity, attention, and resources. And then a commercial, entertainment-focused enterprise such as the IPL turned this argument on its head. The city-based league format pioneered in India though IPL proved to be a positive-sum game for other sports. It spawned similar leagues in several sports, even managing to bring back Kabbadi to primetime TV screens. This commercial model energised many sports in ways that no government medals could have done. At the amateur level, reforms in India's FDI policy finally brought world-class sporting retailers such as Decathlon to India. Earlier, the sports retailing scene was stagnant, with few old-style shops only catering to demands of select, mass-market sports. By getting out of the way, the government helped change the sports equipment landscape for millions of budding sportspersons in the country. In short, markets are critical to lasting sporting success. Now consider the role of the third agent: the society. This is by far the most underappreciated agent of positive change. In the essay, I had posited that:..once the State failed in providing basic public services, even well-meaning civil society initiatives were directed towards plugging the government’s leaky bucket. Instead of complementing the state, civil society initiatives started substituting the state. So, we do have philanthropy, but a lot of it is for providing basic amenities, which fall squarely in the domain of the State. Philanthropy for the big, bold tasks that governments can’t do, like Carnegie’s public library network, is yet to come of age.Sports is definitely one such big, bold task that is ideally suited for philanthropy. Take the role that the MRF Pace Foundation has played in producing fast bowlers in India. Or the contribution of the Tata Group in improving hockey facilities in Odisha. We need many more philanthropic initiatives of this nature.Besides the well-established corporates, there are smaller non-profit organisations such as the GoSports Foundation and Olympic Gold Quest. These organisations sponsor and support talented Indian sportspersons so that they can become world-class. Perhaps, we need hundreds of such societal initiatives outside the government to achieve sporting excellence. In short, just like it takes sacrifices from many friends and family members to create one champion, it takes contributions from the government, markets and societies to create a sporting culture. PS: You can play a small role too. Instead of ruing the lack of governmental support for our athletes, consider contributing to organisations that are dedicated to sports. For that would be a perfect tribute to the Indian contingent of Tokyo Olympics 2020. Addendum- RSJIf coming up with theories for why a country doesn’t win more medals at international events were a sport, we’d have won a few more golds in Olympics over the years. This is an evergreen topic of discussion. Theories abound. Government apathy, poor diet, weather, lack of corporate sponsorship, absence of world class infrastructure, limited international exposure, world class coaching, mental fortitude, genes - the list is long. There’s always an example quoted picking up any one of these reasons and showing how it is done in some other country for some sport or the other. But here’s the thing. Almost every one of these reasons for failure can be falsified by examples of multiple other countries who are worse off on them and yet win medals consistently. There are countries that rank higher than India despite being poorer (sub Saharan Africa),…

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    #138 Empire Of The Clouds (And Beyond) 🎧 Aug 01, 2021
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    Global Policy Watch: Ud Jayega Bezos Akela*Bringing an Indian perspective to burning global issues- RSJHomo sapiens first went to space in 1961. 60 years later, a new species, decidedly less superior than Homo sapiens, has succeeded in going to space.Billionaires. Remarkable. So, what should we make of it?A Race To NowhereThere are three arguments against the space race among billionaires. And these arguments play into the wider debate about capitalism and inequality that’s roiling the developed world. I will take a stab at rearticulating them.To start with we have the old charge against capitalism of being self-obsessed, indifferent and out of touch with the reality of the world around them. In a time when a global pandemic has destroyed lives and livelihoods and the poor still don’t have access to vaccines, the spectacle of billionaires spending hundreds of millions on their toys isn’t appetising. Our moral intuition says it is wrong. Surely, it is their wealth and they have the freedom to pursue whatever they fancy. But that wealth could have more productive uses that make the world better. And it isn’t just a prayer to the goodness within the hearts of the billionaires that we need. There’s a right that the society has over some of that wealth they have accrued through dodging taxes (or at least not paying their fair share), keeping employee wages low and using sharp elbow tactics to monopolise the markets. Taking off into space during these times is like showing a giant middle finger to the rest of humanity. The second argument offered against the space fantasies of billionaires is that it will amount to nothing. The science of sending a shuttle to orbit the earth and come back is more than 60 years old. So, no new ground in science is being broken here. Also, any talk of space travel or living on Mars underestimates the difficulty of a person being in space for any amount of time. Sim Kern has a good piece on this in the Salon: “Around half a dozen astronauts live up there (International Space Station) at any given time, bouncing around a narrow tube with roommates they didn't choose and who can't properly bathe for months on end. The wifi is slow. The food is not Michelin starred, to say the least. Their sleeping situation is akin to a floating coffin. And pooping involves a complicated procedure in a port-o-potty where the door is a plastic curtain and everything floats.Astronauts' time is micromanaged by a team of experts on the ground. Unlike future space-tourists' imagined itineraries, much of their time is spent working on actual science, but a great deal is dedicated to mere survival as well. Space-dwellers must exercise at least two hours a day to keep their bones from turning to goo. They spend a ton of time studying systems and conducting repairs on equipment that frequently breaks because space wants to kill you.”That’s just orbiting the Earth. She also dashes any pipe dreams about colonising Mars:“And what about Musk's dream of a colony on Mars, or at least the Moon? Those are astronomically less feasible. The farther away from Earth you're trying to sustain life in space, the harder it gets. And while they have the benefit of gravity, the surface of the Moon and Mars are covered with a powdery regolith that gums up mechanisms. ….So despite Musk's lofty claims of making humanity "a multi-planetary species," that's way, way beyond the realm of current technical possibility. And his claim is especially absurd, considering that in order to generate the wealth that sustains billionaires like Musk, we're rapidly destroying the one planet we can live on — Earth.” No matter how tough things get at Earth, it will still be infinitely more livable than Mars for a long, long time. It might be better to spend money to continue keeping Earth viable than to plan a human settlement on Mars.The whole thing does sound like a billionaire pissing contest.The third argument made is about how all great scientific and technological advancement is funded by the government using public money and then exploited for private benefits by venture funds, family offices and shrewd entrepreneurs. All in the name of enterprise and capitalism. This is another case where the heavy lifting is done by the state taxing everyone while the benefits are concentrated among the very few. Anand Giridharadas in his newsletter The Inkhas a sarcastic take on this:“I have an idea for a reality show. It’s called “Billionaires Solve Problems the Government Solved a Long Time Ago and Then Explain How Much More Efficient They Are Than Government.” I may ask Richard Branson to produce. In the pilot episode, Elon Musk will “invent” something he calls the Digital Method of Verification. He will pioneer a whole system whereby people can take a driving test and receive a plastic card that I’m told Musk will refer to as a “license” and thus gain permission to drive on public roads.In the second episode, Jeff Bezos will “innovate” a new kind of bookstore that buys books but then gives them out to people for free, so long as those books are returned. He will fund it with some of the money he doesn’t pay in taxes. He will call it the Lending Interesting Books to Raise Aspirations for Reading Youths, or LIBRARY, program.”.. you get the drift. Good In Theory, Bad in PracticeI have limited sympathy for these arguments, compelling and strong on rhetoric though they may be. I will add here I find nothing heroic about Branson or Bezos going to space. It may not be as inane as them buying a yacht or a mansion. But it is close. My differences are on the principles used to criticise them. Let me start with the criticism about the timing of these missions. Is there any reason to believe had these space flights happened a year down the line, we wouldn’t have seen a similar criticism? The world is an unequal place as it has been for most of human history. There’s data to show it has become less unequal in the past two centuries. There’s a problem of judging any spending by billionaires by what else it could have achieved for society. Because why should this moral matrix stop at the billionaire? Surely someone spending money on an icecream could have used that money to buy food for the hungry. I could go on. Stretched to its absurd logic this argument would mean we should stop every ‘unnecessary’ spend till we have redistributed wealth to the extent that everyone in the world has food. But it won’t stop there. Because human wants increase. Once everyone has food, there will be some who will desire a house (or, maybe an iPhone?). And the same cycle of redistribution will start till everyone has a house or a phone. You can see where this is going.Any patterned distribution programme will never stop till everyone gets exactly what the other has. And that can never be achieved naturally. It will need state coercion. This is the lesson learnt from 20th-century history. Worse, like I have written in previous editions, anytime we arrive at the final equilibrium of a patterned distribution programme, the next transaction shatters it. This is natural. Human beings are all different and unique. They will have different time preferences (current vs future), risk appetites and utility functions for every transaction. To preserve some kind of fragile, equally distributed pattern in society will require every transaction to be approved by a central authority lest the pattern fails. This is the Hayekian road to serfdom. We must stay away from it. I also have a minor issue with the argument Kern makes that this doesn’t really take science further. To many of us, science seems to work in episodes of breakthrough advances. The reality is otherwise. There’s a gradual build-up of knowledge that leads to bigger questions and more fundamental inquiries. This is what’s needed in space science. Private space exploration has been real for the past two decades. There are networks of private satellites that track weather patterns, pollution, green cover depletion, nuclear proliferation in rogue states and help in navigation. Others are trying to provide broadband access to millions whom local telecom companies cannot serve. Manned space exploration hasn’t been a huge priority for national space programmes for a long time. Governments don’t have the capital and the end of the cold war reduced any further incentive for it. The billionaires might be in a pissing contest right now but there is a frontier here. And it needs to be explored. If private capital is happy doing it, we shouldn’t complain. There might be future entrepreneurs out there who might benefit from this democratisation of space. We might not yet know in which way. But the beauty of science is things don’t change in a linear fashion. The human capacity to challenge a new frontier and go beyond what’s imaginable is the basis for our civilisation. Lastly, I come to the sarcastic piece by Anand Giridharadas about billionaires only discovering now what the government has already done many years back. This is perhaps the most illogical of the arguments. But it appears to have a strong currency among the woke left. Let me make three counterarguments. One, barring the period between the end of WW2 and the early 80s, there isn’t a great state-sponsored track record of supporting innovation anywhere, anytime in history. And let’s be clear that the period of exception wasn’t because the state loved science and technology. It was the cold war that was driving its investment. The central idea, to put it simply, was to annihilate the human race. So to look back at that period with some sense of pride about the achievements of the state is delusional. We had pursued science for wrong ends and handed enormous powers to a few who controlled these weapons of mass destruction. That we didn’t end the world in that period is providence. God knows we tried. The billionaires today can use their enormous wealth and science in many ways detrimental to our race. That they don’t isn’t providence. They are interested in other things than modelling themselves on villains from the Bond franchise. Two, there is a market failure in basic science and research. Research has positive externalities and the likelihood of any kind of commercial success is low. There is a reason why it has to be supported through state funds, grants and philanthropy as it has happened over the ages. Beyond that, there’s enterprise and risk capital that’s needed to transform basic research into commercially viable products. These aren’t mutually exclusive. There’s no disconnect here. To keep harping on how all the basic research for, say, an mRNA Covid vaccine was done using government grant misses this point. Reading Walter Isaacson’s The Code Breaker you realise how important a patent is for those in basic science. There is love for science, for sure. But claiming intellectual property for future gains is as critical. And the road from a scientific breakthrough to a commercially viable product is arduous. Entrepreneurs aren’t just picking up ideas from the lab for free and turning into billionaires.Three, if state sponsorship, and not entrepreneurial flair (or greed), was the only thing needed for scientific innovation and commercial success, we should have seen tremendous breakthroughs coming from the erstwhile USSR, India, Cuba and Venezuela. But you know the score there. One of the features of the youth today is how much of history seems to be lost on them. The way the discourse is going we might just reinvent the French and the Russian revolutions all over. And pay for all the benefits and the consequences. There’s an air of inevitability to this happening. This was what Nietzsche probably meant when he spoke of eternal recurrence in human affairs. We are doomed to it. I will end this piece with the one argument I agree with against billionaires in space. There’s one use of the money spent that’s better than trying to make Mars livable. It is to continue making Earth more livable. It is the best home we can ever have. Hannah Arendt in her 1958 classic, The Human Condition, starts her prologue with the deep desire that humans have to escape the world the way it is to a world that we can create from scratch. Arendt starts off by describing the launch of the Sputnik, the first-ever satellite launched into space by us. She writes:The immediate reaction, expressed on the spur of the moment, was relief about the first “step toward escape from men’s imprisonment to the earth”. … Should the emancipation and secularisation of the modern age, which began with a turning away, not necessarily from God, but from a god who was the Father of men in heaven, end with an even more fateful repudiation of an Earth who was the Mother of all living creatures under the sky?” And her conclusion on this is what I can get behind:The earth is the very quintessence of the human condition, and earthly nature, for all we know, maybe unique in the universe in providing human beings with a habitat in which they can move and breathe without effort and without artifice. .. For some time now, a great many scientific endeavours have been directed towards making life also “artificial”, toward cutting the last tie through which even man belongs among the children of nature. It is the same desire to escape from imprisonment to the earth that is manifest in the attempt to create life in the test tube, in the desire to mix “frozen germ plasm from people of demonstrated ability under the microscope to produce superior human beings” and to “alter their size, shape and function”; and the wish to escape human condition, I suspect, also underlies the hope to extend man’s life-span far beyond the hundred-year limit. * Kumar Gandharv singing Kabir on the futility of it allIf the content in this newsletter interests you, consider taking up the Takshashila GCPP. The certificate course is customised for working professionals. Intake for the 30th cohort ends on 22nd August.This slide from the Fundamentals of Public Policy module, co-anchored by Pranay Kotasthane and Ameya Naik gives a good idea of what the course has to offer.PolicyWTF: Clipping our WingsThis section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?— Pranay KotasthaneHave you tried booking domestic flights recently? If yes, the unreasonably high prices would have made you pause. It’s likely that you would’ve shrugged it off by blaming the government for raising taxes on fuel, and shelled out the money anyway. Well, you are partly correct. Indeed a government policyWTF underlies the high ticket prices but it’s not the one you think. I realised the reason while trying to book a flight ticket myself. I noticed a strange coincidence — not only were the prices high, but all airlines were also charging the exact same high price. A representative price chart is given below.Turns out, a few restrictions that the Ministry of Civil Aviation had imposed last year during the first wave, are still in place. And that explains this weird price chart.Specifically, the government has restricted airlines in not one but three different ways.One, it put a cap on the total capacity that airlines can deploy. Note, this doesn’t mean a restriction on the number of passengers in a flight but a restriction in terms of the total number of flights that an airline can operate. Two, it also put a ceiling on the ticket price depending on the sector and travel time. And three, it put a floor on the ticket price meaning that tickets couldn’t be sold below a particular price even if the airlines wished to do so. The stated intent for each of these measures was equally baffling. The capacity restriction is apparently to discourage discretionary travel, the price cap is to protect the consumer, and the price floor is to protect the financially weaker airlines.Let’s give this bizarre…

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    #137 Opening Up And Closing Down 🎧 Jul 25, 2021
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    India Policy Watch #1: A Winged Horse And A Prison Insights on burning policy issues in India- RSJHeh! Let’s start in the most unoriginal way possible:Behind Winston’s back the voice from the telescreen was still babbling away…..The telescreen received and transmitted simultaneously. Any sound that Winston made, above the level of a very low whisper, would be picked up by it, moreover, so long as he remained within the field of vision which the metal plaque commanded, he could be seen as well as heard. There was of course no way of knowing whether you were being watched at any given moment. How often, or on what system, the Thought Police plugged in on any individual wire was guesswork. It was even conceivable that they watched everybody all the time…..You had to live—did live, from habit that became instinct—in the assumption that every sound you made was overheard, and, except in darkness, every movement scrutinized. —- 1`984, George OrwellThe Pegasus spyware story broke this week. Coordinated investigations by 17 media organisations revealed governments, mostly authoritarian, used Pegasus, a product sold by Israeli surveillance company NSO, and hacked into over 50,000 phones to read messages, access mails and photos, record calls, activate microphones or even plant incriminating data into them. The NSO continues to maintain it sells Pegasus exclusively to governments for the sole intention of tracking criminals and terrorists. The analysis of the phone numbers so far suggests governments of Saudi Arabia, Hungary, Mexico, Rwanda, Azerbaijan, Bahrain, Kazakhstan, Morocco, UAE and India have been users of Pegasus. The list has over 300 Indian names and counting. NSO has denied the story in its own way. It claimed it “does not operate the systems that it sells to vetted government customers, and does not have access to the data of its customers’ targets”. Further it “does not operate its technology, does not collect, nor possesses, nor has any access to any kind of data of its customers. Due to contractual and national security considerations, NSO cannot confirm or deny the identity of our government customers, as well as identity of customers of which we have shut down systems.” There’s a nice boilerplate ring to that response. The government of India’s response has been a mixed bag. The IT minister took shelter in the official statement of NSO to rubbish the claims. He told the Parliament there’s been no unauthorised surveillance because India has time-tested processes for lawful interception of electronic communication. There wasn’t a clear, unambiguous statement made about not being a customer of NSO and Pegasus. Or, if there indeed was any authorised surveillance on any of these numbers. We soon moved into the familiar narrative terrain of anti-national forces destabilising India and stopping its inevitable rise as a global superpower. This is a fairly routine manoeuvre by now. There was also the bizarre defence mounted by the former Union IT minister who suggested this to be some kind of a global conspiracy to cut India to size after its spectacular success in managing Covid second wave. This was one of those logical sentence puzzles. You couldn’t decide which factually inaccurate part should you challenge without making it appear you are accepting the other. The Genie Is OutI think there are a few truths that one can take away so far from this episode:* There’s a spyware (cyberweapon) like Pegasus that can enter undetected into any phone, stay there and relay back information to a central monitoring unit. This is true for iPhones too. Apple confirmed it (don’t believe those ads). If you remember following the San Bernardino attack in 2015, the US security agencies had recovered the iPhone of one of the terrorists. They couldn’t unlock it and Apple claimed there was no way they could create a ‘backdoor’ into the iPhone. The matter went to court before FBI (or NSA) withdrew from the case because they had unlocked the phone. The rumour then was an Israeli company had helped them. It shouldn’t take a lot of imagination to put two and two together. Also, so far nobody has denied that there’s a tool called Pegasus and it has these capabilities. And that NSO sells them to governments.* One only has NSO’s word that it sells exclusively to national governments. There’s no guarantee the software hasn’t fallen into private hands. Also, who decides which kinds of governments will be eligible to buy from NSO? There are rogue regimes around the world. There are regimes that are at war with one another. A security threat of one client country could be an asset for another client and vice versa. What control does NSO have on the end use for their software? My guess is very little. Like we have mentioned in an earlier edition, we mix up anti-government, anti-state and anti-nation in India (and elsewhere) quite often. So, the potential targets for authorised surveillance can be a wide, open field in any country.* Lastly, it is difficult to believe there’s only a single Pegasus-like software in the world. Technology talent and capital are both available with others to build an equivalent product. If it isn’t built so far, it will be in works after this investigation. In any case, the secretive nature of NSO’s work precludes any patents or IP rights for their products. So, this genie is now out of the bottle.It is a bit of a surprise how lukewarm the response in India media, political circles and public to this has been so far. The ‘anti-India’ and ‘chronology’ remarks from the Home Minister have been adequate for the partisans to dismiss the investigation and its significance. The opposition lacks the voice and the strength to make this a public debate. And surprisingly the Indian right and the conservatives who should champion individual rights and privacy have been quiet, The spectre of a surveillance state in the long-run when someone else could be in power and abuse this capability doesn’t seem to exercise them.Surveillance And DemocracyThere are the usual arguments to dismiss surveillance concerns these days. It is all pervasive in current times. That privacy is chimera in this connected world. I will make four points on how this time it is different and why a liberal democratic setup should think more deeply about this. Firstly, the tired defence about any government snooping is that it has been happening for ages. Everyone did it in the past. And the governments will continue doing so when they see perceived national security threats or for political reasons. There are two key differences now. One, the size and scale of digital footprint that we leave unknowingly or in the belief we are secure makes snooping easy and deeply intrusive. This is not the open postcard or ‘search your garbage bin’ era where your data in public was limited. Two, a Pegasus like spyware goes beyond the third-party doctrine which itself was an encroachment of individual privacy. The government now doesn’t even have to depend on a third-party to ask for information legally that’s been voluntarily handed over by users to them. They can eliminate the intermediary and directly source the information from the phones. This takes out even the iota of a check or restrain that was inbuilt into the third-party doctrine.Secondly, there’s the dumb argument that if you have nothing to hide, you have nothing to worry about any kind of surveillance. This is what is expected from the citizens. On the flips side, the governments expect less transparency about their conduct. There’s an ever increasing trove of government work that’s categorised as secret or confidential which makes it inaccessible to citizens as part of any of their rights. This is an inversion of one of the fundamental principles of a democratic setup. That the elected must work under the spotlight while the electorate has the privilege of anonymity. There is a reason why we have a secret ballot. The fundamental act of voting in a democracy is done in secrecy. Shine a light on the choices of electorate, knowingly or otherwise, and you begin your descent into totalitarian state. The elected though should have no such privilege. Their actions cannot seek the cover of darkness barring a few exceptions. This is what the Washington Post masthead means when it screams out ‘Democracy dies in darkness’. Thirdly, we are caught in a pincer move in our battle for privacy. On one hand we have private companies (big tech) harvesting our data, with or without permission, to sell advertising slots or offer targeted news on our feed. On the other, we have the government conducting sophisticated surveillance on its citizens in the name of national security. We are often asked by those supporting government snooping if we can give away our data to a Google or a Facebook or to the thousands of CCTV cameras all around us so easily, why do we agitate when we hear of government keeping an eye on us? This isn’t an equally weighed argument. We choose to be on the platforms of private companies and we give a voluntary consent to their terms. We outrage when we find they are abusing our information. There is both a free market and a regulatory solution that can be expected on how our private data will be used by these companies. The GDPR regulation in EU is an instance of this. But these options aren’t true for government tracking its citizens and using its data. There’s no consent sought and beyond a point it is difficult to have checks and controls imposed on state which has created those in the first place. This is a key reason why we should be careful about any proposed regulation of Big Tech that places the responsibility of user data with the state. The state is all powerful. And history has shown it can be more vindictive. For users, it will be like jumping from frying pan to fire. Lastly, and to end this piece on another cliché, let me invoke Foucault and panopticism. In his 1975 work Discipline & Punish: The Birth of the Prison, Foucault used the panopticon (a prison system designed by Jeremy Bentham in late 18th century) to show how surveillance or the mere intuition of someone watching us changes something fundamental in us. Like he wrote:“Hence the major effect of the Panopticon: to induce in the inmate a state of conscious and permanent visibility that assures the automatic functioning of power. So to arrange things that the surveillance is permanent in its effects, even if it is discontinuous in its action; that the perfection of power should tend to render its actual exercise unnecessary; that this architectural apparatus should be a machine for creating and sustaining a power relation independent of the person who exercises it; in short, that the inmates should be caught up in a power situation of which they are themselves the bearers. To achieve this, it is at once too much and too little that the prisoner should be constantly observed by an inspector: too little, for what matters is that he knows himself to be observed; too much, because he has no need in fact of being so. Faoucault establishes the moral challenge of this asymmetry between the observer and the observed using Bentham’s language for the original design.“Bentham laid down the principle that power should be visible and unverifiable. Visible: the inmate will constantly have before his eyes the tall outline of the central tower from which he is spied upon. Unverifiable: the inmate must never know whether he is being looked at at any one moment; but he must be sure that he may always be so….The Panopticon is a machine for dissociating the see/being seen dyad: in the peripheric ring, one is totally seen, without ever seeing; in the central tower, one sees everything without ever being seen.” Like Foucault concludes the one who is in the field of visibility, knowing he is always being observed, places the onus of following the norms of power on himself. He surrenders himself to the power of the observer without any additional coercion. He becomes “the principle of his own subjection.”Seeing through Foucault’s lens, the fact that we now know there could be a Pegasus like spyware that governments could use on us actually plays into the hand of a surveillance state. The knowledge of being observed will change us. We will place constrains on ourselves and we will follow norms that’s expected from us mechanically till we turn into what the state wants us to become. That we are being watched is the truth. And this isn’t the kind of truth that will set us free. If the content in this newsletter interests you, consider taking up the Takshashila GCPP. The certificate course is customised for working professionals. Intake for the 30th cohort ends on 22nd August. India Policy Watch #2: Thirty Years of Economic ReformsInsights on burning policy issues in India— Pranay KotasthaneWe look back at transformative moments in the past either to cajole ourselves into believing that the future can get better or to escape the cynicism that pervades the present. This week marks thirty years of one such transformative moment — the 1991 economic liberalisation reforms. These reforms got nearly 300 million Indians out of poverty and propelled the lives of people at the margin of poverty. The importance of economic growth in transforming people’s lives got internalised to such an extent that we started taking it for granted. Within fifteen years after the reforms, India seemed to have moved on from economic growth. Ideas such as ‘inclusive’ growth became mainstream, indicating that it was okay to sacrifice some growth as long as it lifted everyone’s boats equally. And in 2021, after a full decade of tardy economic policies, growth and inclusion both, are imperilled. Given that more than half of India hasn’t even experienced what life was like in an economy strangulated by governments, this is a good week to reflect on economic reforms. Thankfully, some terrific articles and anecdotes have already been written on how the Indian economy transformed. In this post, I’ll link to those I found useful.Launched five years ago, Centre for Civil Society’s IndiaBefore91.inportalhas an excellent set of stories on lives in an overwhelmingly controlled economy. Mercatus Center’s the1991projecthas an interactive timeline of events that happened close to the reforms. The portal also has some key government speeches and documents that formed the basis of these reforms. My favourite reading on the topic is Jairam Ramesh’s To the Brink and Back because it provides a ringside view of government decision-making in a crisis situation. Such accounts are rare in the oversensitive Indian political discourse. Moreover, the book captures several key political debates of the time, some of which continue to be relevant today. For example, Manmohan Singh’s response in the Rajya Sabha addressing the fears of devaluation of the rupee needs to be read and re-read even today:Let me say that in this country there seems to be a strange conspiracy between the extreme left and extreme right that there is something immoral or dishonourable about changing the exchange rate. But that is not the tradition. If you look at the whole history of India’s independence struggle before 1947 all our national leaders were fighting against the British against keeping the exchange rate of the Rupee unduly high. Why did the British keep the exchange rate of the Rupee unduly high? It was because they wanted this country to remain backward and they did not want this country to industrialise. They wanted the country to be an exporter of primary products against which all Indian economists protested. If you look at Indian history right from 1900 onwards to 1947, this was a recurrent plea of all Indian economists—not to have an exchange rate which is so high that Indian cannot export, that India cannot industrialise. But I am really surprised that something which is meant to increase the country’s export…

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    #136 Xi Is Unfriending Big Tech Jul 18, 2021
    Show notes

    Matsyanyaaya: The Rational Actor TrapBig fish eating small fish = Foreign Policy in action— Pranay KotasthaneNothing succeeds like success. Once you are perceived as being successful, new narratives emerge that trace a neat path explaining how success was attained through grit, foresight, and determination. The role of chance fades in the background. All stories show how the hero withstood the odds, took the right decisions, and defeated a world that was stacked against it. Sometimes, nation-states craft stories with such narrative arcs. The State as the all-knowing decision-maker is imagined as a consistent, value-maximising agent, which chooses each policy as a calculated solution to a strategic problem. This model is what Graham Allison and Philip Zellikow call the rational actor model of decision-making in their classic Essence of Decision: Explaining the Cuban Missile Crisis.The book goes on to show the inadequacy of the rational actor model in explaining foreign policy decisions. It proposes two other decision-making models that take into account bureaucratic resistance, individual initiative, turf battles, and a struggle for power, to better explain government decisions. The key takeaway is that when we don’t understand the internal politics of a nation-state, we instinctively assume it as a black box that churns out decisions based on well-defined goals, well-understood alternatives, and well-projected calculations of costs and benefits of all the available alternatives. Precisely this is how the thinking about China is today on the streets and WhatsApp groups of New York, Delhi, or Lagos. Every act by China is imagined as a calculated move made with a larger long-term goal in mind; a juggernaut that makes no mistakes; an Arjuna that never misses the fish’s eye.A common way in which this narrative commonly plays out is as follows: someone will quote a Chinese leader in the past to show how prudent and far-sighted he was. Virtually, no discussion on China goes by without quotes such as “Cross the river by feeling the stones” or “The supreme art of war is to subdue the enemy without fighting” being used to conjure the image of China as a successful rational actor. So much so that some of these quotes weren’t even said by Chinese leaders and yet continue to circulate in opinion pieces, textbooks, and seminars. Take this quote attributed to Zhou Enlai for example. The story goes that he was asked by French visitors in 1972 about the impact of the French Revolution of 1789, and he sagely replied “It’s too early to say”. This is often cited to prove how the Chinese political system produces master strategists who take the long view. Turns out, he was only talking about the French student protests of 1968 which continued for many years thereafter. And yet, this story has endured.Another quote ninja is Deng Xiaoping, of course. His famous words “to get rich is glorious” is cited in support of how quickly the Chinese leadership was able to adroitly put behind the socialist excesses of the Mao era. The only problem is that it’s not known whether Deng ever said so. In fact, this phrase comes from Oliver Schell’s 1984 book by the same title on Deng era reforms. Then on, this quote has assumed a life of its own.These misattributed quotes are not mere trivia but symptomatic of a larger problem — our inability to deeply understand China. Because we don’t know what’s inside the box, we assume the Chinese system as a rational actor that succeeds because of the foresight of its leaders alone. This view, of course, is incorrect. In edition #44, I discussed four myths emanating from this line of thinking that the party-state is always efficient, always meritocratic, always a military aggressor, and always a sound strategist. To counter the China challenge, a superficial rational-actor model understanding of China is not just insufficient but harmful. It makes the adversary seem far more powerful than it is in reality. We need better models to understand our adversary. If the content in this newsletter interests you, consider taking up the Takshashila GCPP. The certificate course is customised for working professionals. Intake for the 30th cohort ends on 22nd August. Global Policy Watch: China’s Big Tech Crackdown Bringing an Indian perspective to burning global issues- RSJWe often write here about how regulating big tech will need a different framework from the typical antitrust lens that's been used in the past to protect consumers from predatory business practices. The big tech companies pose risk to consumers not through predatory pricing or restriction of choices because of their marketshare. Instead, they abuse their market power in new and different ways. They track usage data without consent in deeply intrusive ways that should spook the average consumer. Their platforms often enable spread of disinformation and creation of echo chambers by directing consumers to content based on algorithms that optimise for engagement. Engagement is different from enlightenment. Never was this more clear in our lives as we see fake news, unscientific notions and rumours scourge our societies. Big tech poses social and political risks that are beyond the ambit of any competition laws. You cannot solve new problems with old solutions. While the west is figuring out the way ahead and making unusual executive choices, China in the past few months seems to be keen to show the world its own way of dealing with big tech. Like many regulations in the past, these are meant to reinforce the only truth in the Chinese policy sphere - the party is the boss. It can do and will do as it pleases. You may call it antitrust regulations with Chinese characteristics. This op-ed in the Chinese state run daily the Global Times gives a view on the line of thinking:“More importantly, the government will not allow internet giants to become rules-makers of data collection and usage. The standards must be in the hands of the government to ensure that giant companies are restrained when they collect personal data and stick to the principle of minimization. No internet giant is allowed to become a super data base that has more personal data about the Chinese people than the country does, not to mention using the data at its own will.For companies like Didi which have gotten listed in the US market and whose largest and second-largest shareholders are foreign companies, China should more strictly supervise their information security to protect both personal data security and national security.”I will let the irony of the Chinese state talking about privacy and on the principle of minimization when it comes to personal data of its citizens wash over all of us for a bit. Over the years there was a ‘nudge and wink’ approach between Chinese regulators and its domestic digital champions on many vexing regulatory issues. None more than the variable interest entity arrangement to list overseas that was a well established way to circumvent Chinese laws. All that is history now. The Story So FarAnyway, a quick recap of the steps China has taken in the past year or so will be helpful to set the context here.* In Sep 2020, China issued a new set of rules for regulating financial holding companies with a view to regulate the enormous clout and reach of the shadow banking sector that could threaten the stability of the financial system if left unchecked. On cue, in October 2020, the Financial Stability and Development Committee headed by the Vice Premier raised concerns about the growth of fintechs and their microlending practices. * In Nov 2020, Chinese regulators suspended the much anticipated $34 billion IPO of the Ant Financial Group. A record fine and the ‘disappearance’ of its founder, Jack Ma, followed.* In the first quarter of 2021, Meituan (the Amazon of services in China) was fined by multiple municipal regulators and it shut down its health insurance service after facing regulatory scrutiny. Its founder, Wang Xing, a classical literature enthusiast, posted a few verses from an ancient Chinese poem about an arrogant emperor and his misguided attempts at stifling dissent. He later deleted the post. I’m not sure if there is an ancient Chinese parable about a dog with its tail between its legs that he knew.* Last week, ByteDance (the owner of TikTok) postponed its US listing plans after meeting the Chinese cyberspace regulators. The official line was that ByteDance will take some more time to comply with the new regulations proposed by the Cyber Security Review Office (CSRO).* ByteDance didn’t have much of a choice really. Didi, the world’s largest ride-hailing firm with about 500 million users across 15 countries, went public with $4 billion IPO on NYSE on June 30. This despite some public reservations from the CSRO on its data security practices. Didi thought it was still the old world and ignored it. The stock soared on debut and Didi’s valuation rose to $80 billion within a day. Two days later the Chinese state cracked down. It barred it from adding any new users. A few days later it found serious violations in the collection and usage of personal information of its users and ordered all app stores to remove Didi’s main app and its 25 linked apps. * By the end of the last week, the cyber security regulator had announced probe into two other US listed Chinese companies - Full Track Alliance and Kanzhun. In the same week, the cyber security regulations were tightened, the overseas listings process was made tougher and variable interest entity arrangement loophole plugged. The world for Chinese digital companies had changed in a matter of weeks.There are two things that interest me in this sequence of events. What’s driving this big tech crackdown in China? And what does it mean for the world and India? I will put my initial thoughts here and I will welcome views from readers with greater knowledge of the subject.This Far And No FurtherThere are two lens to use on the reasons for the crackdown.DomesticThe CPC (Communist Party of China) created the ‘walled’ digital ecosystem that didn’t permit US tech giants to enter China. This led to the emergence of the home-grown champions across sectors that copied business models from the Silicon Valley and supplanted them in China. Over the years these champions built large businesses, innovated on the back of strong technology capabilities and laissez-faire regulations on privacy and data usage and expanded to foreign markets to create virtual monopolies in China. This has meant multi-billion dollar valuations and enormous rise in personal wealth of founders and the management teams. The CPC is now sending out a reminder to these firms on who enabled their rise. This is driven by three fears. One, the growing wealth inequality in the society because of these firms and the sense of anger at their long and tough working environments (9-9-6 is fetishised among them). Two, the CPC is worried about the enormous power and clout these founders wield which left uncontrolled can be a potential risk in future. Three, the rise of unchecked lending through fintech apps and the almost total control of the consumers’ information and choices by these digital monopolies can create rival power centres for the CPC. The CPC which had deliberately enabled a loose regulatory ecosystem to facilitate growth of their big tech companies is reining them back now. All the big tech monopoly issues that the US is wrestling with apply to China too. But with the added flavour of a paranoid state apparatus. The state is now wresting control back. And it has a convenient ideological big stick for beating them with. Big tech is threatening one of CPC’s core objectives - building a harmonious society. Expect more of this.US-China RelationsThe Biden administration has repeatedly made the point that America is in competition with China to win the 21st century. And this competition is going to be technology led. In June, President Biden signed an executive order banning investments in 59 Chinese companies that included some of the largest Chinese digital apps and telecom equipment manufacturers. On June 22, the US Senate passed Accelerating Holding Foreign Companies Accountable Act. This Act prohibits foreign companies from listing their securities on any of the U.S. exchanges if the company has failed to comply with the Public Company Accounting Oversight Board’s (PCAOB) audits for two years in a row. Currently, China’s regulators do not allow the PCAOB to inspect audits of companies registered in China and Hong Kong. This act is meant for getting Chinese companies to fall in line. Simply put, US regulators do not want American investors money to go into Chinese companies whose books they cannot audit. Chinese regulators, on the other hand, are wary of US government agencies seeking access to their homegrown champions who have enormous information about their Chinese customer base. The US regulators have given a timeline for Chinese companies to comply or delist. China went a step further. It asked existing Chinese companies with overseas listing to first undergo a thorough cyber security review with them before complying to any US regulations. This is classic one-upmanshipI wouldn’t go as far as saying this is the start of a decoupling phase between the financial markets of US and China. But the signs are ominous. China wants the domestic companies to go for a Hong Kong listing. This allows them to access foreign capital on their own terms. Plus, it keeps the wheel of finance moving in Hong Kong after the fears of it losing its status as a global financial hub in light of China’s actions there in the past year. China doesn’t want US to dictate terms to it. The recent actions suggest it won’t back down from setting the agenda. US also will not have any more of China using its state capacity to build global companies who then snoop for it. This is a deadlock. What Does This Mean?So, what are the implications of these actions? It is a bit early to arrive at any definite conclusions. But if one were to extrapolate and speculate a bit, I will draw a few conclusions.Firstly, this is trade war by another name. This mutual suspicion of intents, the charade of cyber reviews of its companies by China, the further banning of the apps by the Biden administration and the ‘new cold war’ kind of language suggests we could be in for more tit-for-tat responses between the two countries. There will be slowing down of flow of capital between them and it will have an impact on global capital markets and trade flows. Secondly, China’s clampdown on its big tech will provide ammunition to those who want to regulate big tech elsewhere in the world in a more direct way. China might not be the best model to emulate on regulations. Agreed. But the other way to frame this is - if the Chinese state is now being paranoid about the power of its big tech, how badly do we need big tech regulations in a democracy?Thirdly, there will be a slowdown in investments going into Chinese startup and digital ecosystem. Investors don’t like unpredictability and the last year has shown Chinese state can be whimsical in stopping IPOs, slapping fines, changing regulations and clamping down on companies that have huge foreign investments riding on them. This isn’t music for global investors. Expect India and other ‘open’ digital markets to rake in foreign direct investments in their startup ecosystems. Some of this is already seen in India in terms of deal flow in the past two quarters. More will follow. Lastly, there has been a clamour in India for us to emulate the ‘Chinese model’ of creating domestic champions by restricting US big tech companies to build their base in India. There’s a spectre of ‘digital colonialism’ that’s often raised by the sundry ‘Aatmanirbhar’ advocates, the local startup founders (though they are funded by foreign capital themselves), domestic VCs and other…

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    #135 The Nehruvian Ideal 🎧 Jul 11, 2021
    Show notes

    While excellent newsletters on specific themes within public policy already exist, this thought letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways.Audio narration by Ad-Auris. Pranay was on this week’s The Seen and the Unseen discussing all things public policy with ace podcaster, writer and thinker, Amit Varma. India Policy Watch: Dilip Kumar And India Insights on burning policy issues in India- RSJDilip Kumar passed away this week. You might wonder why should that matter to a public policy newsletter. Well, there are reasons. For one, he has featured more than once in our past editions where we have used his films to clumsily make broader points about the choices we have made as a nation. The other reason is great artists shape our collective identity and contribute to national consciousness. It is no surprise a lot of what has been written about Dilip Kumar this week has touched on this part of his legacy. I guess it will be in fitness of things for me to write one last piece on his legacy and how intertwined it is with our post-independent history. I’m not going to tread new ground here. If you go past the usual hyperbole about his ‘method acting’ ways and how he had to seek medical support to get over his ‘tragedy king’ persona, you will find the more serious commentators usually hold forth on three aspects of his career. First, how he was the embodiment of the Nehruvian ideal of India. Some went all the way to call him Nehru’s hero. Second, how his film ‘Naya Daur’ marked the high noon of India’s tryst with Nehruvian socialism. And third, how in his death we have lost the last link with an era that was marked by idealism and innocence. I think these are all relevant themes that should be brought up while discussing his legacy. But my reasons are a tad different from the popular narrative.Nehruvian IdealWhat did it mean to be the Nehruvian ideal of India in the years after independence? Nehru, Ambedkar and other members of the Constituent Assembly drafted the Indian constitution as a project of radical forgetting of our past. This, to them, was necessary to build a new India. But a radical forgetting of the past for a land as old as ours isn’t really an option. So, it was paired with the notion ‘reawakening from slumber’ which Nehru used in his tryst with destiny address. Nehru set the template for the reimagining of a new nation-state. Benedict Anderson reached a similar conclusion in his book Imagined Communities. Like we wrote in edition #62:Benedict Anderson defined the nation as a social community that’s imagined by people who believe they belong to it while being different from other such communities. Every newly formed nation has to define this imagination. And at that stage, it faces a choice. Or, as Anderson puts it, a paradox:“The objective modernity of nations to the historians' eyes vs. their subjective antiquity in the eyes of nationalists.”This is a tough ask especially for nations that are formed after a period of struggle. There’s a strong desire to start from a clean constitutional slate while paying homage to ‘subjective antiquity’ in areas outside the bounds of law and statecraft. We concluded the following about the reimagination project of a newly formed nation:* Newly independent nations like to make a new start that represents a break from the continuum of their history.* Nations or communities that have a long history which can’t be wished away so easily use the trope of slumber and reawakening to represent the departure from the past.* Historians are pressed into service to reframe history that shows the past events to be serving the nation-building or myth-making objectives of the present. To me Dilip Kumar was a Nehruvian ideal because he contributed significantly in mainstreaming this project of reimagination through cinema. His ‘natural’ style of acting, specifically his enunciation and dialogue delivery, were a marked departure from the theatrical or the singing style that was popular till then. Though Ashok Kumar and Motilal before him had started the trend, Dilip Kumar was a class apart. His style marked a break from how we watched and assessed a performance. Secondly, as much as he represented a new beginning, he also fitted the trope of reawakening. He was well read, he spoke on a wide-range of issues with acuity and he could quote from Indian, Persian or English literature with equal felicity. Lastly, as an artist, he contributed to the reframing of history and serving the myth-making objectives. His film persona of a sacrificing lover or son, his popularity among the masses who could see past his religion in the years right after partition violence and his social contributions (charities, supporting the troops etc) - they all contributed to the strengthening of the syncretic culture or the Ganga-Jamuni tehzeeb which was part of the reimagination project of Nehru. He was indeed the Nehruvian ideal. On Naya DaurI have written in edition #28 how Naya Daur is a fascinating film about the choice we made between the Gandhian ideal of a self-sufficient village economy that would reform itself organically versus the Nehruvian vision of a state-led modernisation programme that was inherently suspicious of a society rife with deep prejudices and discrimination. But many claim it to be a great example of Nehruvian vision. They have either not seen the film or have no idea what Nehruvian economics was all about. As I wrote then:……Naya Daur is, in fact, a stinging riposte to the Nehruvian state. It asks a fundamental question that had split even the Constituent Assembly – who should be the primary agent of change to modernise India? The state, the society, or the market? In siding with the society, Naya Daur seeks a rethink on the role of the state intervening in the lives of its people. We had a choice to make on how to modernise our society. Change from within or induce it from outside?….The enlightenment values of liberty, freedom and equality that philosophically underpinned the western democracies were difficult to root in the Indian intellectual or social context. Democracy, with equal rights to all citizens, was, therefore, an audacious gamble. But we chose that radical end.All that remained was what means should we adopt to change India?The market was quickly dumped as an option. The imperialist plunder that was seen as the handiwork of markets, the influence of Fabian socialism and the apparent miracle of central planning in the Soviet Union were enough to silence the pro-market voices. One would have assumed that the Gandhian vision centred on the society would have seen the market — that emphasises the merits of voluntary exchange between individuals — in more favourable terms. But that was not to be either.The society and the state, therefore, were the two poles around which the debates coalesced. We chose a top-down approach to change. Change will have to be driven as a programme of the state. That was Nehru’s central planning mantra.The statists won. Our constitution was to be more than a legal construct. It was to be a tool for social revolution engineered by the state. And, so began a schism in the Indian polity. The state was run by liberal-minded modernists who viewed the customs and traditions of the Indian society as impediments to progress. The common citizenry, on the other hand, viewed the rootless elite presiding over the state as a substitute of the colonial power who would ‘rule’ over them with, possibly, greater benevolence. At the heart of Naya Daur is a battle between human toil and the efficiency of the machine. Should a village accept a motorised bus or should it continue with horse-driven tongas?…..The usual last act drama ensues with man winning the race against machine. Dilip Kumar sums it up at the end when he claims the villagers aren’t against machines but want them in their lives on their terms. Let the society decide how it wants to change. Naya Daur was a film against the intervention of the state who would like to change the society from the outside. It was an anti-Nehru film in that sense.The role of the state has remained a principal axis of divergence in the Indian political discourse. These faultlines have greater salience today as the society questions the shibboleths on which the constitution and the modern India project was built. That favourite question of Amit Varma in his superb podcast The Seen and The Unseen – whether a liberal constitution was imposed on an illiberal society – is timely as the democratic mandate seems to offer legitimacy to the efforts of diluting the constitution. Naya Daur was a huge commercial success. Not merely because the underdog won. Rather, it showed a mirror to the foundation of Indian society. The reflection we saw confirmed our biases. We weren’t as bad as the state made us out to be. Naya Daur has a message for the liberals who wring their hands in despair about the path India is going down today.The society isn’t the problem. Within it, possibly, lies the solution. End Of An EraIt will be hard to argue with the passing away of Dilip Kumar we have lost something precious that linked us back to the years of hope and idealism post independence. But I would suggest that era had begun its decline from the 80s and was well and truly forgotten in the past decade. What remained was buried this week.So, what was this era about and what ended this week? I wrote about this and the notion of farz in edition #30:In his later years, Dilip Kumar often played an agent of the state (judge, police commissioner etc.) who would place his farz above everything else. In these roles, where he effortlessly blurred the lines between method acting and sky-high racks of piled up ham, Dilip Kumar would often shoot to kill or sentence to untold misery his own kin. Shakti, directed by Ramesh Sippy, is the prime example of this genre. But I have always argued that the farz of agents of the state stems from their incentives. It often used to be at odds with their personal values.The state drove the agenda for change in society through the right set of incentives. Classic public choice theory at work.The foundational premise of modern India is that the state is ontologically prior to the society. The state should create legislation and structures that shape and change the society. Its agents who emerge from that society itself have the incentives to adhere to the philosophy of the state regardless of whether it aligns to their personal convictions.This created an unstable, yet desirable, equilibrium in India. The state was founded on values of equality, redistribution, secularism, fairness and social welfare. The society from where agents were drawn hadn’t fully accepted and internalised these values. So, you had free-market economists drafting socialist policies or an enlightened district magistrate who preached social equality at work but practised discrimination at home.But as the economy liberalised, the state lost its overbearing grip as the primary provider of employment and its ability to set the societal agenda. This had an unintended consequence.The liberalisation in the 90s led to the creation of a large middle class that didn’t depend on the state for its livelihood. This freed them from the incentives designed by the Indian state. The free-market incentives aren’t the same as that of the state. It rewards efficiency and value creation. For the middle class now, there was no need to live the dichotomous life their parents led – of having a professional code that was different personal code. Liberals are often surprised how well-educated professionals working for MNCs turn out to be bigots. The answer is simple. The state couldn’t change the society as it had expected. And, once the incentives from the state stopped mattering to the citizens, the mask dropped. You didn’t need the state for anything. So what use the code that it set?There’s no farz to adhere to because there’s no incentive. Further, the nature of the government running the state has also changed.You can argue the democratic mandate now is for the idea that the society is ontologically prior to the state. This changes the incentives for the agents of the state too. No longer do they have to align their ethics to that of the state. The state itself is being made to align its incentives to that of society. So, you have a scenario where both, those who depend on state and those outside it, have no conflict between their professional and personal codes. So, what has ended with Dilip Kumar? For new India, a great actor of the past whose films were slow and sad is no more. That’s about it. Life goes on.But what about for a generation and more who grew up believing the ideals of the Indian state as it was founded on? Those who invested in the idea of India that was shaped by Nehru? For them, the death of Dilip Kumar is a painful reminder of how things were, how they could have been and how far we are now from those ideals. Their loss is palpable. Like Shakeel Badayuni wrote in the Dilip Kumar sci-fi starrer Uran Khatola (1955):चले आज तुम जहाँ से, हुई ज़िन्दगी परायीतुम्हे मिल गया ठिकाना, हमें मौत भी न आयीTranslation:You have left this world today and we are bereft. You found your destination while we continue living in despair.If the content in this newsletter interests you, consider taking up the Takshashila GCPP. The certificate course is customised for working professionals. Intake for the 30th cohort ends on 22nd August. A Framework a Week: One Instrument, One TargetTools for thinking public policy— Pranay KotasthaneIn edition #9, I had identified multi-objective optimisation as the bane of policymaking in India. The key claim was that policies and institutions fail when they are laden with several objectives, resulting in a system that fulfils none. I had given three examples of instruments that fail this test in India —tax policy, traffic police, and MGNREGS.Turns out, a more elegant way to formulate this intuition is the Tinbergen Rule. It states that to successfully achieve 𝑛 independent policy targets at least the same number of independent policy instruments are required. A corollary of the Tinbergen rule is the assignment principle. Once a policy instrument has been mapped to a policy target, it becomes unavailable for pursuing other targets. The idea is simple in theory but tough to execute in practice. Forget governments, even smaller organisations burden one project with several targets. As Kelkar & Shah write in In Service of the Republic:Clarity of purpose is efficient for the principal and not the agent. It is our job, as policy thinkers, to hold the metaphoric feet of every agency to the fire, and hold it accountable for a narrow set of goals associated with a narrow set of powers. This principle results in a three-rule heuristic:* Reduce the number of targets that the State is held accountable for.* If #1 is not possible, increase the number of instruments or organisations, each responsible for a narrow set of targets.* If #2 is not possible, coordinate policy instruments within the same organisation to achieve more than one target. The default mode of operation in India is jugaad i.e. #3. #2 requires increasing state capacity. #1 requires a radical reimagination of the State's role, which seems distant given how the welfare state continues to increase in scope across the world.PS: This is an excellent short paper on the need for administrative coordination even if the assignment principle is followed. HomeWorkReading and listening recommendations on public policy matters* [Article] Nirpal Dhaliwal in the Guardian on Dilip Kumar: “The actor, who has died at 98, gave expression to the intense cultural complexities raised as independence met modernity – with respect, depth and subtlety”. * [Video] From Prasar Bharti archives…

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    #134 "Phir Bhi Dil Hai Hindustani" Or "तथापि हृदय भारतीय अस्ति"? 🎧 Jul 04, 2021
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    While excellent newsletters on specific themes within public policy already exist, this thought letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways.Audio narration by Ad-Auris. India Policy Watch: प Se Pew. प Se Pluralism Insights on burning policy issues in India- RSJI’m sure by now most of you would have seen the findings of the new Pew survey on religion in India. The report is here and the methodology is outlined here. The size of the sample chosen, the extensive field work done, the questionnaire used and the index devised to measure religious segregation are rigorous and thorough. This is a solid survey that should be basis for further academic work. It will be useful for Pew to publish the raw data soon for further research. What The Survey Says About UsMy first reaction reading the findings was here’s a giant Rorschach test for all political commentators in India. What you might conclude from the report will reveal more about you than about India. But I’m getting ahead of myself. Here’s a short summary of the findings if you found the report TL;DR:* Indians believe they have religious freedom. Respecting all religions to them is an important marker to being truly Indian. It is also core to their own religious identity. Further they don’t see widespread religious discrimination around them.* Indians value religious diversity. However, Indians of a religion see themselves as very different from others of a different religion. A few things therefore follow from here: * Stopping religious intermarriages is a high priority for everyone.* Substantial proportion of Indians (upwards of 30 percent) won’t like to have followers of other religions as neighbours.* A majority of Indians have almost all their close friends from within their religious groups * A majority of Hindus conflate their religious identity with their national identity. They believe it is important to be a Hindu to be a true Indian (64 percent).* Caste is still an important factor for cultural reasons. People don’t prefer caste intermarriages as much as religious intermarriages. But a surprisingly low proportion of Indians (below 20 percent) feel there is a lot of discrimination against SCs, STs and other backward classes. Even those in the ‘lower’ castes don’t feel so. Yet, most Indians don’t make close friends outside of their caste.* There’s almost a universal belief in God. Religion is central to the lives of Indians. There’s limited evidence of ‘secularisation’ of the society with economic progress in the last 30 years.* South is quite different from the rest of the country especially Central (UP, Uttarakhand, MP) and North in almost every parameter. Interestingly, more people from South feel there is caste based discrimination in society than Indians from any other region. The 16-page report is rich on insights. Yet at its heart is that old feature about India that confounds those who study it. A paradox. Indians are tolerant of other religions but will have nothing to do with people belonging to them. Our affairs are our affairs. Your affairs are yours. Never the twain shall meet and we all live happily ever after. That’s pretty much it. Predictably people have used this paradox in the findings to push what they believe is their truth. To some the report is a vindication of their belief that India continues to be an open, tolerant society. To others the report is a proof Indians are intolerant in practice while preaching otherwise. And it is getting worse.Confirming My PriorsSo, why should I be left behind? Why shouldn’t I use the survey to reinforce my priors? Let me do that before I write about the political frame to use to interpret the survey. Here’s my list of truths that will from here on be served by the findings of this survey* The central paradox the survey reports has been true for the Indian society for centuries. I don’t want to lapse into romanticism but this is why people of diverse ethnic and religious groups settled here over time while retaining their identities. And this is why large parts of India could be under non-Hindu rulers (Buddhist, Jain or Muslim) for long periods in history while still remaining a Hindu majority land. This idea of ‘our religious affairs are ours, yours are yours” became the credo of the rulers too. This is not to say there wasn’t any religious persecution or proselytising in India. There was. But it never lasted long or spread wide to change the composition of its society. As they say, this paradox is a feature, not a bug. We might have a Ganga-Jamuni tehzeebbut the two rivers don’t end up merging into one. We live together, separately. This is the secret of our longevity. Allama Iqbal, once wrote“Yunan-o-Misr-o-Roma sab mit gaye jahan se ab tak magarHai baki naam-o-nishan hamara,Kuchh baat hai ke hasti mit’ti nahin hamariSadiyon raha hai dushman daur-e-zaman hamara”Translation: The cultures of ancient Greeks, Egyptians and Romans have disappeared from the face of this Earth. But we still draw our tradition from the civilisation that flourished around Indus. We weathered many assaults from invaders, yet we didn’t lose our essence. There must be something unique in us.To me, the ability to live with this paradox is the uniqueness that Iqbal was looking for. I quote Iqbal here on purpose. I think he was one among the few original political thinkers to have emerged from the East in the last many centuries.* We are a conservative society with streaks of liberalism. Not the other way around as we are often led to believe in certain sections of media and commentariat. I use conservative and liberal in the classical sense. We like to conserve what we think is good in us. The overwhelming belief in the religious rituals at key life events that shows up in survey is an indication of this. As is the aversion to intermarriages of any kind. If it has lasted so long it must be good, is a core belief. Surely, economic progress and urbanisation are changing our behaviour in public sphere. But we remain steadfastly conservative in private. * We spoke about pluralism in the edition last week. I’m sorry to be quoting myself but it is appropriate here: The construct (value pluralism), popularised by Isaiah Berlin, allows for two or more incommensurable values to be held at the same time by a polity each of which may be true and still be at odds with one another. For Berlin, these differences are unlike a titanic battle between the right and the wrong; instead they are about accepting contradictions and differences in values which then deliver diversity and strength to a society. In the sense that Berlin thought of pluralism, I’d argue, we are truly plural. We can hold the two seemingly conflicting ideas of religious tolerance and communal separation of identities at the same time and live with the contradictions. Those looking to change this pluralism instead of trying to understand it are toying with something precious. The survey is a valuable aid in understanding what constitutes the identity of an Indian. This is important for politics in India. After all, identity and ideology are the two axes on which Indian politics operates (Chhibber & Verma). The role of the state in recognising and advancing the rights of the minorities and the marginalised is an ideological dividing line. Some parties want a proactive role of the state. Others like the society to solve its issues. Electoral studies have shown a clear divide among voters on this which dictate their choices at the polls. The Constituent Assembly debated this vigorously and the Indian constitution leaned towards state taking a more proactive role on this. But the lurking suspicion all along was that the society wasn’t in favour of this. The survey results confirm those suspicions to some extent. Framework For Classifying Societies Over the past year, I have spent some time reading up on authoritarianism and the rise of majoritarian instinct in societies. I have come to develop a crude classification of a diverse society with one dominant identity group. There are a total of five positions a society could be in at a point in time:* Tinderbox: This is the scenario just short of ethnic cleansing or civil war. There is visceral hatred for other communities in the society and there are historical grievances, real or imagined, that won’t permit even an uneasy truce. Things are on the brink and a mere spark is enough to engulf the society in flames either through state sponsored cleansing or riots.* Under the thumb: There’s a simmering hate for the other in private but it is mostly couched in public. The other communities are seen as inferior and undeserving of an equal status. There is an institutionalised effort to suppress them or to show them their place. If this is achieved, there’s peace and stability but on the terms of majority community. Others will need to make peace with it. If they resist, it will take the society into the ‘tinderbox’ zone.* Living together, separately: There’s a strongly held belief in equality of all communities. This is accepted by all and the public behaviour of people is consistent with this. But there’s a deeply held belief about the other communities being different from you. Therefore, there is no coming together of identities in the personal domain. There’s also an understanding that the dominant identity is the ‘true’ identity of the society and this is manifested in everyday practices though not enforced. We have discussed this scenario. This is what the survey tells about India of the present.* Syncretism (later multiculturalism): The multiple identities blend into one another through kinship and social relationships to create a super identity that people hold dear over other identities. This is the American myth of being a melting pot blending immigrants and their cultures into one that originated from a play of the same name. Syncretism is the dominant cultural strand of such societies with willing efforts by everyone to forget, or diminish, collective histories, religion and culture. Over the last two decades, this idea has lost steam. It has given way to cultural pluralism or multiculturalism where the coming together of identities is achieved without the radical act of forgetting your past. Easier said than done.* Global village: This is John Lennon’s Imagine territory. All the people sharing the world together as one happy family.If I were to generalise (further), I’d suggest through human history ‘tinderbox’ or ‘under the thumb’ have been the predominant positions of societies. The advent of liberal democracies in the west nudged these societies gradually into the ‘living together, separately’ position till around 1960s. The civil rights movement and the strengthening of the ‘left liberal’ platform meant a move towards syncretism. Further deepening of identity politics brought in multiculturalism to the fore. This is the ongoing tussle between conservative and liberal positions. Where should a society be? I’d say the natural state of a society is ‘tinderbox’ or ‘under the thumb’ positions. This is the Hobbesian view. The desire among liberals would be to edge it closer to ‘multiculturalism’ while the conservatives would like to be in the ‘living together, separately’ state. There’s some evidence to suggest India possibly has a longer history of being in the ‘living together, separately’ position than western nations. I say this despite caste oppression and violence being a stark reality in Indian society. Like the Pew survey shows even the members of the ‘lower’ caste don’t believe this discrimination exists as much as outsiders do. It is something I cannot get my head around. But like Naipaul wrote at the beginning of The Bend In The River: “The world is what it is” .The Constitution nudges India towards syncretism or multiculturalism but as the survey shows it is a bridge too far. It is easier to lapse to the ‘under the thumb’ position from where India is today than to transition into a syncretic society. In that sense, the political right has it easy. It can exploit the current position or dog-whistle for the less liberal position without losing electoral strength. The political left or the liberals have the more onerous task of not letting the society slide while nudging it forward towards a more liberal position. This is fraught with electoral risks. On identity, therefore, the right will hold sway. Of course, elections aren’t won only on identity. But it will help the right to keep it at the front and centre of all political debates. And we have seen they are good at it. Matsyanyaaya: AfghanistanBig fish eating small fish = Foreign Policy in action— Pranay KotasthaneMatsyanyaaya accurately describes what Afghanistan is heading towards. With the Resolute Support Mission (RSM) — a US-dominated support force — planning to complete the withdrawal process by September 11, another chapter in Afghanistan’s political journey is set to begin. How did we get Here?It’s easy to point out many mistakes with the benefit of hindsight but equally difficult to pinpoint the main cause behind a tragedy. The US military withdrawal too can be explained by multiple causes. Let’s trace the points of failure in reverse chronological order. Failure point 1: The Doha DebacleThe US signing an uncharacteristically submissive ‘peace’ agreement with the Taliban only brought more violence to Afghanistan. While the agreement went to great lengths to refer to the Taliban as ‘the Islamic Emirate of Afghanistan which is not recognized by the United States as a state and is known as the Taliban’, the semantic acrobatics fooled none. It left the state of Afghanistan demoralised and gave a boost to the Taliban and its backers in the Pakistani military-jihadi complex. Even back then, this newsletter argued that:“Essentially, the US has committed to a full-withdrawal over 14 months. But the Taliban has not conceded much at all. I do appreciate that a withdrawal was inevitable but the way in which this has happened, it seems to be another humiliating moment for the US.”And:“To give any serious consideration to guarantees by a terrorist group that it would not support other terrorist groups indicates incompetence, short-sightedness, or both.”— Misguided Talks With the Taliban Won’t Bring Peace to Afghanistan, TheWire.inThese fears have come true. The agreement has only increased Taliban’s preference for violence. The lesson they took away was that violence delivers more than negotiations. Failure point 2: The premature withdrawal of ISAF in 2014The withdrawal of foreign presence in Afghanistan, in fact, started way back, in 2010. By 2014, the International Security Assistance Force (ISAF) had transferred security provision at the district-level to an underprepared Afghanistan National Defence and Security Forces (ANDSF). Apart from the obvious problem of corruption, the ANDSF was hobbled not by financial resources, but by a lack of human capital, poor leadership, and lack of training. Meanwhile, a recent paper by Fetzer et al. shows that the Taliban took advantage of the vacuum created by this change of guard:“We find a significant, sharp, and timely decline of insurgent violence in the initial phase – the security transfer to Afghan forces; we find that this is followed by a significant surge in violence in the second phase – the actual physical withdrawal of foreign troops. We argue that this pattern is consistent with a signaling model, in which the insurgents reduce violence strategically to facilitate the foreign military withdrawal to capitalize on the reduced foreign military presence afterwards.”In other words, this is not the first time that a withdrawal is being bungled up in Afghanistan.Failure point 3: The Inability to See Through Pakistan’s Double-GameTo get to the original sin of the US strategy, one has to go back even f…

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