“Why are you wearing a suit? !ts not as though you’ve got a job”

He looked and sounded like the prime minister that he was. There was no loss of agility, humour or conviction when David Cameron ran with his old style, bounce and speed up three steps onto the platform of a conference in Delhi this morning. 

cameron-ht-speechWhatever one’s politics, and whatever one thought of his elite toff’s origins and his record when he looked an over-confident prime minister, one could not but admire the style and content of his speech – and regret that such a political talent had been wasted by the unnecessary and disastrous Brexit referendum that he called.

An Indian friend commented later that it was a pity that Indian politicians weren’t able to show similar often self-deprecating humour, while an  American visitor thought that Donald Trump might not have won the US presidential election if he had faced an enthusiastic Cameron as a rival.

Perhaps this praise came because the performance  was such a contrast with Cameron’s successor, Theresa May, who showed no humour or enthusiasm when she made a rather drab visit to New Delhi a month ago, though she relaxed a little when she went on to Bangalore.

The former prime minister was speaking at a Hindustan Times two day conference in Delhi for a  fee rumoured to be around £200,000, well above the £120,000 he is reported to have been paid for a one-hour speech to Blackstone Properties in New York a few weeks ago. This morning his speech lasted just 15 minutes and was followed by 30 minutes answering questions.

It was, he said, his first public speech outside Europe since resigning as prime minister after the Brexit vote in June. He met Narendra Modi, India’s prime minister yesterday, and told the conference he was “bowled away” by the progress he has seen the government making with “bold decisions to try to fast forward” economic reforms and growth.

david-cameron-at-the-14th-edition-of-hindustan-times-leadership-summit

That was an oblique reference to Modi’s current controversial “demonetisation” exercise which has removed 86% of the country’s currency from circulation and caused widespread economic and social disruption.

Cameron, who came to India three times as prime minister and hosted Modi in London a year ago, replied cautiously when asked about this. He said it could help the government’s main targets of tackling corruption, widening use of the banking network and the digital economy, as well as increasing the tax base. The objectives of demonetisation were “worthy”, he added, which was scarcely wholehearted endorsement.

He started his speech as if he was still prime minister extolling India and Britain’s “very modern partnership” co-operating in a range of areas from investment and trade to terrorism and projects such as smart cities and skills training.

Populist upsurge

On his speech’s theme of “the western world in crisis”, Cameron talked about the rise of populist and extremist political forces in Europe and acknowledged he had lost his job because of a “populist upsurge”. While globalisation had benefited people around the world, the belief that “the rising tide will raise all the boats” had not come true, and there were many people who thought they had been left behind while the mass movement of migrants was leading to too many cultural changes, he said.

He still thought the Brexit referendum was the right thing for “a democrat” like him to do and that it was not a dead end for Britain. The country’s attempt to be inside the European Union but outside many of its institutions like the Euro currency would now be replaced he hoped by “being out but in some of its elements”.

He did not comment (and wasn’t asked) about how that hope gelled with Theresa May’s hard-Brexit approach. A victory of Marine Le Pen, the far-right candidate in the French presidential elections, would he said be a “body blow” for the European project.

With Trump “look for the positives”

Optimistic as ever, he said on America’s presidential election that, “as a free trade man, as a NATO man, I am concerned about some of the things Donald Trump has said. Modern leaders have to make most of the circumstances. Let’s start to look for the positives”.

Finally, at a time when England has lost two matches in its current Test series with India he avoided controversy and praised the English team and said its skipper Alastair Cook was one of the best batsman in the world.

With that, the former prime minister left the stage, declaring that his future interests and activities would include writing a book on his time in politics, development issues, a youth-oriented national citizen’s service of which he is president, and promoting research on dementia and Alzheimer’s. 

His son, he said, had asked when he left for the flight to India, “Why are you wearing a suit? It’s not as though you’ve got a job”.

Posted by: John Elliott | December 1, 2016

Judicial activism orders national anthem in India’s cinemas

For more than 30 years India’s courts have issued instructions about how the country should be run, usually filling gaps left by inefficient and indolent governments. Yesterday however the Supreme Court arguably went too far with judicial activism when it unexpectedly said that cinemas should play the national anthem before every film screening. Images of the Indian flag should be shown on the screen and “all present in the hall must stand while it is played” with the doors shut.

The aim was would instil “a sense of committed patriotism and nationalism”, said two Supreme Court judges, displaying a degree of compulsive nationalism that one might expect from some members of Narendra Modi’s governing Bharatiya Janata Party (BJP), not from independent members of the country’s top court. “Be it stated, the time has come, the citizens of the country realise that they live in a nation and are duty bound to show respect to the national anthem,” said the judges.

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“But first, our National Anthem” – The New Yorker

It is of course difficult for Indians, or most other people, to object to standing for the national anthem in any country, but this judgment, which comes into force in ten days’ time, is being widely criticised.

“The order appears to have erred the realm of judicial legislation and gone much beyond the constitutional mandate,” said Soli Sorabjee, a veteran internationally recognised lawyer and former attorney general.

Other commentators wondered about concerts, sports matches and other public events, while some wryly hoped that the courts and parliament would similar play the anthem. The law and practice varies around India, especially on whether it is necessary to stand up whenever the anthem is played – there was a court case on this in Kerala in 2014.

There is concern about how the order could be implemented, and a fear that nationalist extremists linked to the BJP will use it to persecute people and cause havoc inside cinemas. In October, a wheelchair-bound international tennis player was reported to have been kicked in a Goa theatre for not standing while the anthem was played.

Activist petitioners

The Supreme Court ruling was issued in response to a public interest litigation (PIL) petition by Shyam Narayan Chouksey, 78, an activist who 13 years ago complained to the Madhya Pradesh high court that a film depicted the anthem in a poor light and should be banned The judge then was Justice Dipak Misra, one of yesterday’s two supreme court judges. In 2003, Misra ruled in favour of Chouksey, but was overruled by the Supreme Court.

Petitioners like Chouksey have used PILs since the end of the 1970s to develop judicial activism and mobilise the courts to intervene in government. Cases were first accepted and adjudicated by judges to provide people with protection and social justice, irrespective of whether they were brought by aggrieved parties or other plaintiffs.

Such judicial activism is a controversial issue in many countries. In India, judges have radically extended their remit since the 1970s and have taken over the role of government. They frequently reflect public opinion or a national need for action, though yesterday’s national anthem order was issued suddenly without any public demand or debate.

Cases have ranged from protecting bonded labour and enforcing environmental regulations to ordering buses to be powered by compressed natural gas, cancelling telecom and mining contracts, and challenging food distribution systems. In 1996, a judge in Delhi even started her own case against the municipal authority for allowing rubbish to pile up in the streets, which was quickly cleared.

president-pranab-mukherjee-at-the-fourth-retreat-of-supreme-court-judges-in-bhopalIn the past year, the Supreme Court has ordered state government to stop temples encroaching on footpaths, told Delhi state government to use helicopters for emergency air services and to ban new diesel car registrations. It has  asked which airlines would benefit from national aviation agreements with the UAE, has chased the national cricket board (BCCI) to implement reforms, and has tried to intervene in how the country’s disaster management is funded.

In April, Pranab Mukherjee, India’s president and a former top Congress politician, warned against excessive judicial activism. In a speech at the National Judicial Academy (above), he acknowledged that “for the enforcement of fundamental rights, the Supreme Court, through judicial innovation and activism, has expanded the common law principle of ‘locus standi’”. He also said however that, “Each organ of our democracy must function within its own sphere and must not take over what is assigned to the others…Judicial activism should not lead to the dilution of separation of powers, which is a constitutional scheme”.

Arun Jaitley, the finance minister and a top lawyer, went further and said that “step by step, brick by brick, the edifice of India’s legislature is being destroyed”.

These remarks came at a time when the government and courts have been battling over the degree of public influence on top judicial appointments and when there is growing concern about the massive backlog of cases in the judicial system – over 20m cases are pending.

That has led many commentators to wonder today whether the courts, and especially the Supreme Court, wouldn’t serve the country better by processing outstanding cases instead of pandering to the whims of a veteran campaigner with an unnecessary order that will be hard to implement and could cause social problems.

Arun Jaitley says demonetisation will lead to India’s “new normal”

Ministers use post-truths on bank notes crisis and train crash

The publishers of the Oxford English Dictionary last week made post-truth their new word of the year.

A few days later Arun Jaitley, India’s finance minister, produced one when he declared that a cashless “new normal” was being introduced by the demonetisation of Rs500 and Rs1000 bank notes, and brushed aside the severe currency shortages and mass hardship it has caused over the past two weeks.

There was another yesterday (Nov 20) when Suresh Prabhu, the railway minister, tried to obliterate public criticism of a disastrous train crash that killed over 140 people by announcing that “enhanced amount of ex-gratia compensation to the victims of this unfortunate accident: Rs 3.5 lakh in case of death” (about $5,000 or £4,000).

ox-dictThe Oxford Dictionaries website says that post-truth is an adjective (though it also works as a noun). It defines it as “relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief”.

All governments of course rule with such announcements that are intended to fudge reality and stem criticism. In Britain, Theresa May’s “hard Brexit” may turn out to be a post-truth if, as some people suspect and many hope, it eventually emerges as a precursor to something softer.

India however goes further than most supposedly open democracies in the way that the government expects public opinion to be easily diverted from objective facts.

Narendra Modi, the prime minister, who set the tone for Jaitley and Prabhu on both demonetisation and the train crash, excels. “Mr Modi is a master in evoking the emotional reasoning that is the essence of post-truth – as indeed is Donald Trump. Don’t confuse me with facts, what I feel is the reality”, wrote T.N.Ninan, a veteran columnist and publisher, in his Business Standard newspaper over the weekend.

derailment-kanpur-169-copyThe “objective fact”, to use the Oxford Dictionaries words, in the train crash (left) is that India has more disastrous railway disasters than maybe any other country, and seems to do little to stop them. Their appalling frequency was underlined by The Times of India headlining this one as the worst “in 6 years” – not ten or 20 years, just six!

Every time there is a crash, railway ministers rush to the site, as Prabhu and his deputy did, and immediately deal with emotions by announcing large cash hand-outs to the families of those killed and injured. An inquiry is ordered that leads to broad-brush reports of what happened, but no report of any subsequent action being taken.

It is a test of how much Modi has fulfilled his general election promise of changing the way the government operates to see whether the hand-outs and promises of action remain post-truths this time or not.

The “objective fact” on demonetisation is that there has been country-wide disruption of the economy and business, plus widespread personal inconvenience and hardship especially in rural areas, following Modi unexpectedly on the evening of November 8 withdrawing from circulation the Rs500 (about $7.50, £6) and Rs1000 bank notes that accounted for 86% of the currency – as I described on this blog on November 14.

The move has been described as the “most sweeping change in currency policy that has occurred anywhere in the world in decades” by Larry Summers, former US Treasury Secretary and Harvard president, writing in the Financial Times. He is sceptical about the prospects for curbing corruption and says that the “ongoing chaos in India and the resulting loss of trust in government” fortifies his view that the costs of withdrawing notes from circulation exceed the benefits. The last time there was a big withdrawal of high value currency in India was in 1978, but people then were given a week to exchange the notes, which softened the blow.

The Reserve Bank of India said today that banks had received Rs5.45 trillion rupees ($80bn) in the old Rs500 and Rs1000 notes by the end of last week out of $220bn in circulation. Banks have issued $15bn in new Rs2000 notes.

People standing in long queues

Queues of people at ATM and bank – PTI photo Nov 21

The disruption has ranged from farmers’ shortage of money to buy seeds (they can now use the old notes) and markets closing because of lack of cash to families wondering what to do with substantial quantities of cash they routinely keep at home. People have not been able to use old notes to pay for wedding arrangements, doctors’ fees and other routine expenses without using old notes illegally. Those who got new Rs2000 notes have found most shops do not have enough Rs100 notes and smaller currency to give change. People have even been reported dying from heart attacks and other health problems in bank and ATM queues.

While the situation has eased in some areas, there are still long queues at closely guarded banks and at ATMs that have to be mechanically reconfigured for new smaller-sized Rs2000 notes that are in short supply. The ATMs also quickly run out of Rs100 notes that everyone wants. The Supreme Court asked the government why it was not doing more to fend off a crisis.

The post-truth came from Jaitley who talked at an Economic Times conference in Delhi on November 19 (below) about just “initial inconvenience”, claiming without any basis in reality that the money queues were now “extremely small” – see November 1 photo above.

a-fireside-chat-between-arun-jaitley-minister-of-finance-jeff-immelt-chairman-ceo-ge-and-anand-mahindra-chairman-mahindra-group-at-the-india-economic-conclave-in-delhi-on-18th-nov2016

Arun Jaitley with Anand Mahindra of the Mahindra Group (left) and Jeff Immelt of GE (right)

His bigger post-truth was that demonetisation will drastically reduce India’s massive “parallel economy” which has been running outside the banking system for the last 70 years. “Shadow or parallel economy had become a way of life. When you have a large chunk of currency outside banking system, the taxation base is narrow and the shadow economy becomes way of life….Demonetisation will set a new normal for the economy,” he declared.

Taking 86% of currency out of circulation obviously cuts away at the parallel, heavily black, economy. It is also true that many people and businesses are opening bank accounts and switching to credit and debit cards and other forms of e-money. But cash will build up again as new Rs2000 and Rs500 notes come into circulation if for no other reason than that corruption is endemic in India and relies on cash.

Accommodation entries

What the government is not talking about are the corrupt methods that political parties and their leaders, real estate developers and construction companies, traders and market operators, gangsters, lawyers and many others are using to clear at least some of their often massive hordes of old notes without falling foul of official inquiries and tax demands.

I have heard that there has been a surge in accountants and bank managers colluding with clients in a system know as accommodation entries where false loans, names, book entries and accounts are used to launder large quantities of black money. There are also stories of people in bank queues seeing suitcases being carried into banks while everyone else is kept outside. These and other methods will, reports suggest, involve the beneficiary losing perhaps 25- 40% of the notes’ value. Trading is also still taking place using old notes, albeit at a discount.

Despite all this however, there does appear to be widespread support for what Modi and Jaitley are trying to do, even though there is growing criticism and impatience over how it is being done and of insufficient advance preparations. There is also concern that economic growth, and in particular agricultural output, could be hit. Opposition political parties are disrupting parliament in protest.

Modi won the general election 30 months ago partly on the promise of cleaning up the economy and that is why there is a surprising willingness to give him and Jaitley the benefit of the doubt.

The big post-truth questions now are whether Modi will manage to introduce enough further anti-corruption measures to turn all this into Jaitley’s “new normal” reality and, in the shorter term, whether he can make his claim that people’s inconvenience will last no more than 50 days become an objective fact.

When Indians elected Narendra Modi as their ultra-nationalist prime minister two and a half years ago, they were voting for change in the way that the country is run, just as American voters did last week when Donald Trump was elected president (albeit by a minority popular vote).

But they did not vote for the countrywide chaos and misery that has hit them since November 8 when, late in the evening, Modi suddenly went on television to announce that, as part of a drive against corruption, Rs500 and Rs1000 bank notes ($7.5 and $15) would not be useable from midnight.

rs-2000-note

That decision – curiously called demonetisation – stole the headlines from the over-night election count in America. It immediately took some 22 billion bank notes – 86% of the Rs16.4 trillion rupees ($245bn) of currency – out of circulation, leaving only Rs100 ($1.50) and smaller value notes and coins as legal tender until small quantities of new Rs2000 notes (above) began to be introduced three days later.

Modi departed a day after his announcement for Japan (where he agreed an historic nuclear power deal), leaving his finance minister, Arun Jaitley, to announce that it would take “two to three weeks” for adequate notes to be put into circulation.

Modi returned over the weekend when the upset that he had caused – dubbed “minor inconveniences” by Jaitley – had reached such a crisis point that he choked back tears during one of three theatrically emotional speeches.

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Crowds queued in Old Delhi on Saturday – photo Altaf Qadri, AP

He appealed (photo below) for people to bear the “pain” till December 30, not just two or three weeks. “After that, I’m ready to face any punishment meted out by the people,” he declared. He said he “shared the pain” which of course he hasn’t because prime ministers don’t queue at ATMs and bank branches, nor do they run cashless small shops, nor do they have to feed a family without ready money. (Rahul Gandhi of the Congress Party did pop up at an ATM queue for media photographs).

Rarely if ever can a country’s leader have caused such immediate disruption impacting an entire population. It was an example of how Modi likes to spring surprises and hit headlines, but it also led to days of muddle and deprivation as banks closed, ATMs stopped functioning, shops pulled down shutters, families ran out of small change for daily necessities, and armed police controlled massive queues and crowds when banks and ATMs began functioning again.

The banks and ATMs exchanged old notes for small quantities of new Rs2000 ones, though not quickly enough to deal with even a fraction of people who queued for long hours. Some 200,000 ATMs have had to be reconfigured because the new notes are smaller than the old ones.

PM Modi in GoaThere are reports of income tax raids on shops and businesses, and officials have warned that people depositing large sums of old notes would be penalised if they could not explain where the cash came from.

Various concessions were introduced, allowing old bank notes to be used for urgent purchases such as medical supplies, milk, air and railway (uncancellable) tickets, petrol and other fuels, cremations and burials, and highway tolls.

There is general public support for Modi’s drive against overall corruption, and Indians have for generations tolerated scarcity and discomfort along with muddled and inefficient government.

But the inevitable lack of warning and preparedness for a move of such massive proportions has tested both the support and the tolerance – hence Modi’s impassioned speeches yesterday. There has also been widespread criticism of the lack of preparedeness and the extent of the disruption.

Although it had been known for several months that the government planned to introduce new Rs2000 notes, only about ten people in government are believed to have known in advance about the plan to demonetise the old notes. Cabinet ministers were not even allowed to leave a confidential briefing on the 8th evening till after the prime minister had spoken to the nation.

Modi’s aim was to wipe out masses of undeclared black money hoarded by the rich and famous, by crooks and gangsters, by traders and many if not most businesses (especially real estate and construction), and by political parties.

Many people believe, given the timing, that his main target was to hit the funding of regional parties in the state of Uttar Pradesh (UP), which would now be starting to use their stashes of Rs1000 and Rs500 bank notes in preparation for assembly elections due early next year. In a country where little is ever straightforward, it is widely assumed that his Bharatiya Janata Party leaders in UP had somehow been warned to deploy their money before last week.

old-notes

the old notes

Modi has taken a gamble that the UP voters will not resent the misery that they have had to suffer, and will not vote against such an insensitive political party as the BJP

Modi is also gambling that the misery will have been forgotten by the time of the next general election in 2019, and that voters will come to see that he did what had to be done to speed up moves against corrupt business and political dealings.

The government also hopes that people and small businesses will move to credit cards and other forms of electronic money, in line with its plans for rapidly spread ng financial inclusion.

When I went to local shops last week, I used a debit card for some purchases, paid with Rs500 notes for petrol, and got credit from my fruit and veg seller who said he would be installing a credit card machine, though he would then have the problem of finding enough cash to pay his suppliers. These supply chains for food have broken down because of the lack of acceptable bank notes in the past week.

A young manager, who came to Delhi from a provincial city along with his brother and sister to build careers, told me that they only had enough cash between them for two days’ food. He had queued that day for five hours at an ATM which ran out of bank notes.

There have been stories of people rushing to turn their hidden wealth into gold and other jewelry, and of others burning or burying bank notes to avoid penalties for unexplainable wealth.

Worst hit however are innocent poorer people without access to banking, plus various levels of the middle class who keep cash at home for special events and emergencies and will probably lose some of the money.

“Ordinary salaried people, retirees and small farmers who store their legitimate incomes in cash for future durable and rainy-day purchases, will not be able to change all their money for fear of harassment [by officials] and not being able to explain how they got it,” Kaushik Basu, a senior World Bank official and former chief economic adviser in the finance ministry, told the Financial Times.

bank-queues-inex

Bank queues on Friday – Express photo Gajendra Yadav

He tweeted that the move was not “good economics” because the damage it would cause – including slowing down the economy – would be greater than its benefits. “This can be very disruptive, increasing the costs of small business and trade and causing a drop in aggregate demand in the economy, thereby slowing growth.”

Critics also say that the short-term disruption is out of proportion to what can be achieved, and that the move only tackles past corruption and current hordes of black money, but does nothing to stop fresh hordes being accumulated when new notes are fully in circulation. That of course is correct, but Modi has tried to paint a broader picture, saying that his next targets will be real estate and other transactions carried out in “benami” (false) names.

In the past year, the government has tried to flush out undeclared wealth horded in India and abroad with amnesty-style schemes and the prospect of heavy penalties. Dealing with corruption was one of the main planks of Modi’s election campaign.

That is not far removed from Trump’s emotive “draining the swamp”, and Modi can be expected to do more in the next two years.

Posted by: John Elliott | November 8, 2016

Theresa May runs into EU-style blockages in New Delhi

India warns Britain that free trade includes movement of labour

Theresa May has discovered in India during her first bilateral visit outside Europe that she runs into the same blockages over free trade and movement of labour internationally as she does in her post-Brexit discussions with the European Union.

The lesson, which is highly significant for Britain as it prepares to leave the EU, is that she can’t run a strict visa regime at the same time as expecting open doors for goods and services.

She has been told this repeatedly in the EU, and now she has heard it in Asia from a country with which the UK has strong though complicated ties – a book published at the weekend An Era of Darkness (below) recounts how, as a colonial ruler, Britain crippled the Indian economy and self esteem.

img_6641

May arrived in unhealthily smog-ridden New Delhi late on Sunday night and began yesterday morning with a speech at the opening (above) of an India-UK “tech summit”, followed by meetings with Narendra Modi, the prime minister. Later there was a press conference (below), with no questions, and an almost embarrassingly brief appearance at an evening reception hosted by the British high commissioner.

It rapidly became clear that May still behaves as if she had her old job as Home Secretary, making visas difficult for students and for professionals such as information technology workers. She is prepared to make some (inadequate) improvements in the visa process, but not to the substance of regulations, and especially not to do anything that might be interpreted in the UK or the EU as softening her tough line in immigration

She did not show charm or personal touch in her rigid Brexit persona on what was, she said, her “first ever trade mission”, so totally failed to win support for the pitch that Britain is “open for trade” but not for immigrants, as she is also doing in Europe.

Modi was no doubt pleased that May had chosen India for her first visit outside Europe and talked about the two countries’ “truly special” relationship. But he will have realised that there was not much competition since the US is embroiled in its presidential election, and May would not have wanted to be seen to be following her predecessor David Cameron’s kow-towing by choosing China.

img_6663Cameron made three visits to India as prime minister and charmed people to a degree that May did not even attempt, though he overplayed his hand and achieved little.

He said after he became prime minister in 2010 that he would double bilateral trade with India within five years, but it actually fell in dollar terms from $15.7bn in 2011-2012 to $14bn in 2015-2016, despite India’s strong economic growth.

He promised to ease student and business visas, but was thwarted by May at the Home Office. The number of Indian students going to UK universities halved from 39,090 in 2010/11 to 19,750 in 2013/14 as regulations were tightened, notably restrictions that prevented graduates staying on in the UK for two years.

May said that she had as Home Secretary eased visa processes for Indians, and she announced concessions on businessmen’s visas including one under a “Registered Traveller Scheme”. This will ease passage for a lucky few through the EU immigration queues at British airports.

Britain's Prime Minister Theresa May visits the Someshwara Swamy temple in Bengaluru

Theresa May at the Someshwara Swamy temple in Bengaluru today – Reuters photo

The day before she flew to India however, her government announced new restrictions on professionals’ visas, raising the minimum salaries required for company transfers from £20,000 a year to £30,000, which will restrict technology staff transfers by companies such as Infosys and Tata.

She also took a tough line saying, “The UK will consider further improvements to our visa offer if, at the same time, we can step up the speed and volume of returns of Indians with no right to remain.” Indian officials responded saying they could take those who had rights to live in India, but not everyone on the British list.

May didn’t even mention students or education in her opening speech, but Modi made it clear inn his opening speech a few minutes later that this was essential.

“Education is vital for our students and will define our engagement in a shared future,” he said . “We must therefore encourage greater mobility and participation of young people in education and research opportunities.”

Sir Keith Burnett, vice chancellor of  Sheffield University, who is visiting Delhi, put his profession’s view in a Reuters article. “How can we say ‘free trade’ and not be willing to teach their children even as they help make our universities economically viable? What has led us to this madness?”, he asked.

img_6662May’s main pitch was quickly to negotiate a free trade deal with India once Britain is clear of the EU, and to boost trade and investment in the meantime. A “working group” is being set up to handle such issues, and investments totalling over £1bn were announced, though only a few results have materialised from previous billions announced on Cameron’s visits and when Modi was in London last November.

The need for free movement of labour as well as trade dominates debate however. Amitabh Kant, a close Modi adviser and chief executive of the government’s Niti Aayog economic think tank, told the conference that, while India was opening up its manufacturing and defence sectors to foreign investors, its professionals faced restrictions on working in Britain and other Western countries.

“There is no such thing as selective free trade,” he said. There was a need for free trade in cross-border movement of manpower as well and the UK should allow meritorious people from India to work in the UK.

On other issues there was more of a meeting of minds. Talks between the two sides ran on for three hours instead of the planned two, and reports said that Modi and May had a 90 minute meeting without officials. No doubt they recognised each other’s political limitations, and they agreed on a range of issues such as combating terror, investments (both are major investors in each other’s businesses), energy, and successful cooperation on science and technology.

May has travelled on today to Bengaluru (see photo above) to see a British tech investment and meet more people. She flies back to the UK this evening after a visit of just under two days.

Officials are making the best of what was achieved. At a media briefing, I asked a senior Indian diplomat if his positive presentation of what had been achieved meant that May had changed from when she was Home Secretary, and whether enough had been offered by the U.K.

“Changes in life are always incremental’, he replied with a smile, quickly moving on to details.

The problem with Britain’s new stubborn prime minister however is that she doesn’t show much inclination to change, even incrementally, whether she’s in London, Brussels or New Delhi.

In line with Mr Tata’s personal style of dealing with executives

Ratan Tata, the veteran patriarch of India’s revered Tata empire, personally instigated and forced the sacking on October 24 of his successor, Cyrus Mistry, as chairman of Tata Sons, the group’s holding company. This is clear from the way the coup was done, which is in line with Mr Tata’s personal style of dealing with executives that fell out with him when he was the Tata Sons chairman for 21 years.

It was also characteristic that, as soon as Mr Mistry had gone, an internal interview he gave last month for staff was removed from the company website (Oct 26: It has been reinstated). There he talked about realising Tata was “a unique institution with a rich and glorious history” and said “we now needed to build the capabilities that would allow us to succeed for the next 150 years”.

Mr Tata has a complex character. In an article on this blog when he retired in 2012, I wrote: “Watching him as a reporter since I first met him in the mid-1980s, when he was working his way towards becoming Tata Sons chairman, I’ve learned that he feels personal hurt deeply. This has made him ultra-sensitive and unforgiving over what he considers unfair media coverage, and also unforgiving to senior executives who have displeased him”.

From reports, it seems that Mr Tata’s main complaint is that Mr Mistry’s decisions and management style were doing harm to the group’s traditions and image – despite what Mr Mistry had said in that interview.

The way in which Mr Mistry has been shunted out has arguably however done more damage to the group’s strong image of trust, stability and good governance than he himself could have done. It will also make it extremely difficult to find a new chairman to succeed Mr Tata who has taken over temporarily.

“The halo that once surrounded the Tata name has gone. The group looks like just one more conglomerate that has lost its way,” says Swaminathan S Anklesaria Aiyar, a respected veteran writer on economic affairs, in The Economic Times. “Most group companies have long been underperformers. And the manner of Mistry’s ouster falls short of the high standards the group boasts of”.

There could also be long-term damage to the group’s stability because Mr Mistry’s family is the largest single shareholder and will be around long after Mr Tata, 78, has finally finally stopped work. Mr Mistry, 48, was the group’s sixth chairman since it was founded in 1968 and was the first not to be from the Tata family, though he shares the Tata’s Parsi religion and there are also links by marriage.

When Mr Tata retired in December 2012 as chairman of Tata Sons, which is India’s biggest and most respected group, he was succeeded by Mr Mistry but remained chairman of Tata trusts that hold a controlling 66% stake in the group. This means that Mr Tata has continued to wield authority, rather like a supervisory board chairman. He also had enough personal pull to whip other Tata Sons board members into line and secure a six-out-of-nine majority yesterday for his coup.

I first heard suggestions in 2012 that Mr Tata was not happy with the choice of his successor but realised that, having himself failed over several years to choose and groom a successor, he had to accept him because of the Mistry family’s shareholding. Mr Tata did not however show any signs of his unhappiness from the time in November 2011 that Mr Mistry was selected, nor after the handover.

mistryPublicly, Mr Tata has occupied himself with a series of personal and Tata trust investments in new mostly high technology ventures, leaving Mr Mistry to run Tata Sons – but behind the scenes, tensions were building up.

This was inevitable because Mr Mistry’s job was to sort out the baggage and legacy left to him by Mr Tata. No-one bestraddled Indian business in the way that Mr Tata did, presiding over $100bn-plus revenues, more than half from 80 countries overseas, with over 450,000 employees in 100 operating companies and interests ranging from tea to telecoms, software to hotels, wrist watches to defence rockets, and coffee (Starbucks) to power and steel.

But he left big problems for Mr Mistry to sort out. They included a debt-ridden £11bn Tata Steel investment in the UK’s loss-making Corus, poor performance and a dismal new product line at Tata Motors’ India business, unsatisfactory results at the group’s Taj hotels, plus other problem areas including telecoms.

Ironically, the big company that was performing worst and needed most basic change was Tata Motors, in which Mr Tata had taken most personal interest, saddling it with the disastrous Nano mini car that has made losses since it was launched in 2009. Offsetting that was Mr Tata’s highly successful $2.3bn takeover in 2008 of the UK’s Jaguar Land Rover (JLR) that has supplied Tata Motors with its profits.

Contradictory criticisms

Criticisms being leaked yesterday and today by Mr Tata’s supporters focus contradictorily on how Mr Mistry did not grapple enough with these problems, and how he brought in too many changes.

Similarly, on the Indian television channels tonight, a representative of the Tata trusts said they were motivated to sack Mr Mistry because of worries about profits to fund charitable works, while Mr Harish Salve, a senior lawyer and Ratan Tata confidante, said that Mr Mistry had been too profit-oriented for Tata as a broader-based institution.

Lord Kumar Bhattacharyya of the UK’s Warwick University, who is a Ratan Tata loyalist and was involved in the choice of Mr Mistry, told the Financial Times that he had been replaced as a result of a “lack of performance”. That echoed a critical article in The Economist on September 24 that contained a very detailed analysis of the group’s finances but arguably did not give Mr Mistry enough credit for trying to balance what it called being “socially responsible but financially disappointing”.

Tackling problems

Mr Mistry was trying to sort out the problems. Last year he began to close or sell the UK steel interests, a move that now seems to have been put on hold, partly because of the impact of Brexit on investments. There were changes in the Taj hotel group which sold at least one big investment, and Tata Power plans to sell stakes in Indonesian coal mines. There has also been an increasingly bitter legal dispute with Japan’s NTT DoCoMo over a $1.2bn arbitration award.

Possibly the most contentious were the plan to sell or close Corus and the DoCoMo clash, neither of which really fit with the Tata gradualist ethos. There have been some criticisms of the way that the Corus affairs was handled, but there were substantial talks with the UK government before the initial decision was announced. The DoCoMo row certainly worried the Indian government, which feared it would put off potential Japanese investors.

Profits actually improved under Mr Mistry. Total net profit in 16 listed companies where Tata Sons is a shareholder amounted to $5bn in the financial year ending in March, according to S&P Capital IQ data. This was 21% higher than in Mr Tata’s last year in charge, reported the FT. But this relied heavily on Tata Consultancy Services (TCS), the group’s information technology cash cow, which accounted for 69% of total earnings. Excluding TCS, net profit for the 16 companies fell 42 per cent, reflecting Tata Steel’s heavy UK losses and a sharp decline in earnings for Tata Motors’ core Indian business. The rest of the companies included many bad performers

Beyond all that there have been suggestions that Mr Mistry was leading the group into his own Pallonji family’s main investment area of infrastructure projects. Tata has little or no experience in this area, where bribes and other corruption could cause problems for its “clean” image.

Mr Tata is also known to have been unhappy about a group executive council of new recruits that was set up by Mr MIstry in 2013, introducing a new tier of authority below the Tata board. That council was significantly closed down yesterday.

Ratan Tata was chairman of Tata Trusts and Sons

None of this however is very exceptional, and in fact is very similar to what Mr Tata did when he became the group chairman in 1991. He centralised power in the group’s Mumbai headquarters and, one by one, removed satraps who were running key parts of the business including Tata Steel, Tata Chemicals and the Taj hotels.

No-one interfered with him because he was the chairman of the Tata trusts as well as of Tata Sons, as had always happened till Mr Mistry was appointed. That was a luxury that Mr Mistry did not have, and he did not have time to prove that he could perform long-term as well, if not better, than Mr Tata had done.

It is not yet clear what finally led Mr Tata to decide his successor had to go. Mohan Parasaran, a senior lawyer and Tata adviser, said on NDTV television today that he had been consulted a month ago by Mr Tata about the legality of removing Mr Mistry, who declined an invitation to resign.

Even those who think it was right for Mr Mistry to go however, criticise Mr Tata’s way of handling it “I am not at all happy about the development which looks very ugly to say the least,” V.R.Mehta, one of the Tata trustees, told NDTV.

That just about sums up the problem that Mr Tata has created for himself and for the group by deciding it would be better to sack Mr Mistry than to try to work with him and his new ideas.

NEWS UPDATES Oct 26 and 27: In an email to the company, leaked in the media,Cyrus Mistry warned it may face $18 billion in writedowns because of five unprofitable businesses he inherited from Ratan Tata. He describes Indian Hotels, Tata Motors’ passenger-vehicle operations, Tata Steel’s European business, as well as part of the group’s power unit and its telecommunications subsidiary as “legacy hotspots,” – plus Mr Tata’s favourite Nano car. The email says that despite deploying  Rs 1,96,000 crore – more than the net worth of the group – the businesses still face challenges and could result in writing down about 1.18 trillion rupees over time.

Tata responded with a long statement that says Mr Mistry’s allegations were “unwarranted”and begins, “It is a matter of deep regret that a communication marked confidential to Tata Sons board members has been made public in an unseemly and undignified manner. The correspondence makes unsubstantiated claims and malicious allegations, casting aspersions on the Tata group, the Tata Sons board and several Tata companies and some respected individuals. These will be responded to in an appropriate manner.”

 

Souza depiction of Christ’s burial fetches 80 times 1998 price 

LONDON: Sotheby’s yesterday dispelled some of the gloom and uncertainty emanating from a poor Christie’s $3.8m auction of South Asian art in New York last month when its annual London auction yielded sales totalling £4.02m – $4.90m at the depleted pound’s current post-Brexit level.

souza-win-bid-2-img_6540The top lot was a memorable depiction of Christ’s burial by Francis Newton Souza titled The Deposition that sold for a hammer price (left) of £1.30m – £1.57m ($1.92m, Rs12.78 core) including buyer’s premium. The hammer price was just over two to three times a surprisingly low estimate of £400,000-£600,000 for the 54in x 67in oil on canvas

The tragic but colourful painting – of Christ’s body being moved by his followers (below) – was last sold in 1998 for £12,000 by London’s Grosvenor Gallery. In a demonstration of the surge in top prices since then, its value has risen 80 times in the intervening 18 years (after adjusting for inflation). 

Souza was one of India’s leading 20th century artists and he died in 2002. Many of his works show the tortured legacy of a strict Roman Catholic upbringing under Portuguese colonial rule in the Indian state of Goa, before he left to live in London and New York.

souza-the-deposition-sothebys-lndn-oct-16

The successful sale of this and other paintings in the Sotheby’s and other recent auctions underlines one of the key points about the current uncertain state of the South Asian modern art market, which is being swamped by a surfeit of auctions: works generally do best if they have a strong provenance and are new to the market. 

Even The Deposition might have stuck at around £700,000, when early bidders dropped out, if two potential buyers represented in the auction room by Yamini Mehta, Sotheby’s department head, and Conor Macklin of the Grosvenor Gallery, had not fought it out. They raised the price by some £600,000 and Mehta won – for what Sotheby’s describe as a “European Trade buyer” and not for Kiran Nadar, India’s most prolific collector, who was thought to be interested.

vsgaitonde-untitled-sothebys-lndn-oct-16The next highest sale was achieved for a brightly coloured untitled 60in x 39in oil on canvas by Vasudeo S. Gaitonde (left) that went to a private Indian buyer.

Estimated at more than twice the Souza price, it sold for far less – an £800,000 hammer price that was under the £900,000 low estimate. The total figure of £965,000 ($1.18m, Rs7.88 crore) including buyer’s premium was however more than twice the $507,000 it sold for in September 2013 at Christie’s in New York, so it bucked the trend.

By contrast, the most prominent failure at the Christie’s New York sale last month was a rather dark and gloomy similar-sized Gaitonde (below) that was estimated at what proved to be an unrealistically high $1.8m-$2.2m. 

Gaitonde has been doing well in recent years and he currently holds the record for the highest auction price achieved by an Indian modern artist.

vsgaitonde-christies-ny-sept-16It could be that the number of potential Gaitonde buyers with over a million dollars to spend is fading out, though another of his works sold successfully, albeit only just above its low estimate, for Rs 10.12 crore ($1.53m) at a live auction staged in New Delhi on September 8 by Mumbai-based Saffronart.

With sales at that auction totalling Rs68.55 core ($10.39m) including buyer’s’ premium, Saffronart, whose main business is on-line auctions, did amazing well overall in striking contrast to Christie’s $3.8m – but none of my art market sources have been able to explain why that was. 

It was the top end of the Christie’s sale that was worst hit. Below that, many works sold well including an acrylic on canvas by Syed Haider Raza, who died a few months ago, going for a hammer price of $245,000. That was well above the $100,000-150,000 estimate, while one of his early works failed to reach the low estimate of $1m and did not sell..

akbar-padamsee-greek-landscape-saffnat-sept-16

Saffronart’s top work was a remarkable large 52in x 144in plastic emulsion on canvasGreek Landscape,(above)  by Akbar Padamsee that had not been in the market since 1960. It sold for Rs19.19 crores ($2.91m), more than double the high estimate.

husain-girl-with-flower-27500-img_6543

Reproduction pictures of this work do not do it justice, say people who saw it hanging in the New Delhi home of the veteran artist Krishen Khanna. He bought it in 1960, the year it was painted. Khanna was originally a banker, and the reverse side of the work is inscribed “owned by K Khanna / National & Grindlays Bank Ltd / Kanpur UP’. 

Commenting on yesterday’s Sotheby’s auction, Yamini Mehta underlined the point that it included a large number of works that were “new to market”, and said that she had intentionally aimed at works in lower prices ranges that would attract new and younger buyers.

The auction started with 21 works from the estate of Dolf Amacker, a Swiss air-conditioning engineer who amassed a collection when he was working in India between 1947 and 1961.

husain-family-42500-img_6546These were the years when now famous Indian moderns were beginning to attract attention and the works have not been seen on the market for 60 or more years.

Yesterday Amacker’s collection fetched prices mostly between £5,000 and just over £40,000 (including buyer’s premium). They  included colourful early M.F.Husains (above and right), originally bought direct from the artist, that fetched up to £42,500. A Ganesh Pyne went for £77,500.

There are four or five South Asian art auctions in the next few months, but the main test of the market will come on December 18 when Christie’s holds its annual India Sale in Mumbai. This is its prestige event for this market, so it is determined not to repeat the New York experience.

Posted by: John Elliott | October 11, 2016

Happy Dussehra!

img_6485It’s the festival of Dussehra and I’ve just watched an effigy of Ravana going up in flames in the park in front of my Golf Links flat in New Delhi – here are some pictures.

This is the start of a festive season that  leads on to Diwali, the festival of lights, which this year is on October 30. 

Tonight, there have been fireworks displays, ending with a ceremonial burning of effigies celebrating img_6493Ravana’s defeat by King Rama.

Ravana was a rival king, who had abducted Rama’s wife Sita to what is now Sri Lanka – signifying victory over hubris and ego, as I explained  in a post a few years ago for some foreign visitors to Delhi when this blog appeared on the Fortune magazine website.

img_6495

Another terror attack today by militants at government institute

A 12-year old boy died on Saturday in the Kashmir state capital of Srinagar after being hit in the head by pellets fired by para-military forces at crowds of youngsters protesting against the Indian government. Junaid Ahmad’s death sparked clashes during his funeral later in the day, with thousands of protesters chanting “Go India, go back” and “We want freedom”, as they marched to the city’s “martyr’s graveyard” with the boy’s body.

The security forces claim Junaid was playing an active part in the protests, throwing stones, but his parents and friends said he was hit in the garden outside his home.

The boy’s death sparked little apparent interest or concern in New Delhi, where politicians are engrossed in point scoring following the government announcing on September 29 that it had conducted “surgical strikes” against alleged terrorist “launching pads” in Pakistan  across Kashmir’s disputed Line of Control (LoC) border.

Despite the “surgical strikes”, terror attacks are continuing. This morning militants stormed the Jammu & Kashmir state government’s Entrepreneurship Development Institute (EDI) at Pampore near Srinagar and engaged in a gunfight with security forces. There was a three-day battle with militants in the same building in February after a militant attack, but the authorities had not strengthened the security – tenders for bunkers were only floated last week.

funeral-procession-of-13-yr-old-ht-photo

Junaid Ahmad’s funeral procession – HT photo

September 29 was the first time for many years that India has publicly announced such strikes, and it presented them as evidence of the strong approach of Narendra Modi, India’s Bharatiya Janata Party prime minister, against alleged Pakistan-sponsored terrorism. BJP politicians have been boasting politically about the strikes (even though Modi has said they shouldn’t), and Congress politicians have tried to recover ground by revealing that their government  conducted similar strikes secretly in earlier years.

Meanwhile in Islamabad, Pakistan government spokesman described Junaid’s death as the “worst example of state terrorism” and said the incident was part of “continued Indian atrocities” in Kashmir. And in Washington, Pakistan government emissaries continued to lobby the US government and other politicians about India’s alleged human rights abuses in Kashmir and the rightness of the Pakistan cause, but were reportedly given little time and were told to stop encouraging terrorist activities in India.

Such is the seemingly never-ending often deadly international theatre over Kashmir that basically stems from the Pakistan army and government failing to accept the inevitability of the Line of Control being recognised one day as the permanent border. Instead, Pakistan encourages and facilitates militants’ terror attacks in Kashmir, and sometimes also elsewhere in India. That leads to heightened tensions in Kashmir, which it also encourages.

For most of the time, the political leaders and military involved are content to let the overall situation simmer, providing Pakistan’s terror attacks are not too outrageous and successful, and providing unrest in the Kashmir valley does not get out of hand. 

security-forces-fired-tear-gas-shells-on-the-funeral-procession-waseem-andrabiht-photo

Tear gas shells being fired at Junaid’s funeral procession – photo Waseem Andrabi/HT

Since early summer however, the situation has become more volatile than Delhi wants. There was unrest earlier in the year, and Junaid’s death was the latest tragedy in three months of large-scale violent protests and clashes that began on July 8 after a prominent Kashmiri militant, Burhan Wani, was killed by Indian forces. 

Life in Srinagar and the surrounding Kashmir valley has been crippled with curfews, bandhs (political strikes), and confrontations between demonstrators and the police and paramilitary forces. At least 90 people, most of them young protesters, have been killed and more than 12,000 injured in the clashes. Reports suggest that as many as 7,000 people have been arrested, nearly 450 in a crack-down during the past week.

Indian governments rarely take a pro-active interest in Kashmir, even when their own party is also in power in the state of Jammu and Kashmir as is the case now with the BJP being a partner in the state administration. On this occasion however it reacted and sent Rajnath Singh, the home minister (below), and other politicians to Srinagar a month ago to try to talk to local leaders, including separatist groups, and calm the protests. That failed, so New Delhi now sees the situation as one that needs to be quelled by force.

While the domestic situation has got out of hand in Kashmir, so has cross-border terrorism. Pakistan-based militants have capitalised on India’s appallingly poor defence security by attacking a military air base last January near the border at Pathankot, south of Kashmir in Punjab, and then last month entering an army camp at Uri in Kashmir and killing 18 soldiers.

rajnath-singh-kashmir-photo-waseem-andrabihtEmbarrassed by not defending its bases, Modi ordered the publicly-declared army paratrooper strikes against the terror “launching pads”. He has also effectively isolated Pakistan internationally, even getting all neighbouring South Asian countries for the first time to condemn the terrorism.

Although this is never formally admitted, there is virtually no chance of a permanent solution in the foreseeable future. As Shyam Saran, a former Indian foreign secretary, put it during an NDTV television discussion last night, “we have to recognise that India Pakistan relations are essentially adversarial relations, and are likely to remain adversarial for a considerable period of time”.

Although Saran did not spell it out, an Indian government cannot come to a settlement with disgruntled Kashmiris without Pakistan making peace over the disputed border, and that will not happen for two reasons. First, Pakistan’s army, which dominates the country’s politics, needs a disputed border to keep itself in business. Secondly, its main ally China wants India’s western border to be destabilised, providing that does not get out of hand and lead to war between the two nuclear neighbours. Nothing can be permanently settled without China’s agreement, and there is no sign of that happening.

Saran added  that India’s policy objective therefore had to be to “manage the adversarial relationship in a manner that it does not lead to the escalation of conflict”. He also said, significantly, that India could not become a global power unless it learned to manage relationships in its own region, as it has now begun to do.

For India that means strengthening its military bases’ notoriously weak defences, and those at other sensitive sites like the Pampore institute that was attacked this morning. There were reports last week that another such attack had been thwarted.

It also means guarding against a major terror attack elsewhere in India because attacks on high profile targets, and those causing fatalities, are more likely to lead to an escalation in conflict between the two countries. It also means spotting terror “launch pads” across the LoC and dealing with them, sometimes announcing what has been done, plus maintaining the diplomatic isolation of Pakistan.

India also needs for the first time to take a pro-active role in the economic development of Kashmir, hard though that may be to achieve in the present mood. Modi said on August 9 that Kashmir’s young people, who should have laptops, cricket bats or books in their hands, “were being given stones” (to throw).

Two months have now elapsed. I wonder what has done since then to deliver the economic and educational development that he symbolised with laptops, bats and books. Probably nothing, and that is the tragedy of India’s rule in Kashmir.  

Narendra Modi plans measures to isolate and hurt Pakistan 

India has launched a series of moves against Pakistan in the past few days that culminated this morning in an announcement that the Indian army conducted “surgical strikes” last night against alleged terrorist locations across the disputed Line of Control (LoC) border in Kashmir.

This is the first time that India has publicly declared such military action inside Pakistan for many years. Previous governments have followed what is called “strategic restraint” and rejected such a response to terror attacks, or kept those that did happen secret (like these in 2011), because of the risks of escalating military retaliation between the two nuclear-armed neighbours.

The attacks were based on “very specific and credible information” that “some terrorist teams” had positioned themselves to infiltrate into India, the director general of military operations, Lt. Gen Ranbir Singh (below) said today. “Significant casualties have been caused to the terrorists and those who were trying to support them”. No further details have been released, but media reports suggest that the attacks involved ground troops operating one to two kilometres inside Pakistan territory in up to seven locations where “launch pads” were located.

DGMO Ranbir Singh briefs media

Pakistan has however played down the significance and denied heavy casualties, apparently to avoid the need for immediate escalation. Its army denied that there had been “surgical strikes”, and said there had only been heavy Indian firing.

A stronger line was taken yesterday by Pakistan’s defence minister, Khawaja Muhammad. He warned that, if attacked, Pakistan  would respond with nuclear weapons “to annihilate India”. That was interpreted in India not so much as a real threat, but as an attempt to ratchet up international concerns about a nuclear war so that the US and other countries increased pressure on Modi not to escalate anti-Pakistan initiatives.

India’s action was a direct response to an attack on an army base at Uri in Kashmir on September 18 that killed 18 Indian soldiers and led to intense media and public pressure for retaliation. Pakistan has denied responsibility and accused India of organising the attack for internal reasons and

This afternoon, the government has briefed opposition politicians and international diplomats about the situation, including an escalation of tension on the border where villagers have been evacuated. Its line is that it is targetting terrorist preparing to attack India, not the country of Pakistan, and that it will do so again if and when it finds terrorists gathering in “launch pads” close to the LoC.

Isolating Pakistan

Narendra Modi, the prime minister, has also taken other initiatives in the past few days that over-turn decades of India’s regional diplomatic policy, and could change the alignment of countries in South Asia.“We will leave no stone unturned to isolate Pakistan in the world,” he said last weekend, responding to public demand that has been fuelled by intense media coverage for some form of retaliation..

His mostly co-operative approach to Pakistan since he was elected in April 2014, and especially personal approaches to the prime minister Nawaz Sharif,  have failed to stop the attacks. He has been widely criticised for lacking focus and consistency. The aim now, which fits with his hard-line image, is to weaken Pakistan to such an extent that it stops the militancy, say well-informed diplomatic observers.

Declaring that “blood and water cannot flow together,” the prime minister held a meeting on September 26 with senior officials of the water resources and external affairs ministries to discuss limiting the flow of rivers from India under a 1960 India-Pakistan Indus Waters Treaty. It was decided at this stage only to increase India’s take-off from rivers flowing through Jammu & Kashmir to the maximum allowed under the World Bank-brokered agreement. That would reduce what is available to Pakistan without breaching the treaty.

India has also pulled out of a big South Asia co-operation (SAARC) summit that was due to be held in the Pakistan capital of Islamabad in November. Bangladesh, Afghanistan and Bhutan have also withdrawn (Oct 2 insert: now  joined by Sri Lanka and the Maldives), citing terrorist activity. This unanimity is significant because it shows an unusual alliance with India over Pakistan. Next week these and other countries belonging to a regional grouping called BIMSTEC, which excludes Pakistan, will be meeting in India to push trade and other ties that have been largely stymied by Pakistan since SAARC was set up in 1985.

Today Modi was to have considered taking action over Most Favoured Nation (MFN) trading status that India gave to Pakistan in 1996. India could possibly cancel the status on the grounds that it has not been matched by Pakistan, but this would only have a limited effect because indirect informal trade via countries such as the UAE far exceed some $2.6bn annual formal trade. Discussion on this was deferred, maybe to next week, because of Modi’s preoccupation with the army strikes.

Balochistan stir

India has also opened up a new pressure point with Pakistan over the country’s south-western province of Balochistan, which borders Afghanistan, Iran and the Arabian Sea. In response to Pakistan alleging Indian army human rights violations in Kashmir, Modi has publicly lined up with Balochistan separatists to accuse Islamabad of atrocities in the impoverished province that has been crippled by tribal wars as well as an independence movement for decades. Sushma Swaraj, India’s foreign minister, told the UN General Assembly on September 26 that Pakistan’s action in Balochistan was the “worst, form of state oppression”.

India has for many years been accused by Pakistan of fomenting trouble in the province, and it is widely believed that its RAW secret service is active there. Now the area is specially sensitive because of disruption to China’s planned Pakistan economic corridor (CPEC), which runs from the two countries border at the northern end of the Karakoram Highway in the Himalayas down through Balochistan to the port of Gwadar that it is building.

China’s reaction to last night’s attack will be significant. While it backs its close ally Pakistan causing disruption on the LoC, it has never wanted that to escalate into a border war. There were reports today that it is appealing to both countries to tone down the confrontation. Last week officials said it was concerned about the risks of an economic spin-off from the Uri attack. It has its own separate differences with India over their Himalayan border and also over other issues including the South China Sea.

Modi’s new aggressive stance ends the pattern under previous governments where a terrorist attack would lead to a heightening of border tension and empty Indian threats against Pakistan that would be replaced with US-encouraged bids for fresh co-operation after a few months or a year or so. Modi criticised such an approach before he became prime minister and has now taken the tough military line he promised. Internationally there will be critics of such a line but domestically Modi will have widespread support. How Pakistan responds has yet to be seen.

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