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Turning Up The Heat

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In 2010 India’s Prime Minister Manmohan Singh unveiled the Jawaharlal Nehru Solar Mission with the aim of raising India’s solar power output from 170 megawatts to 20,000MW by 2022. While the project will be a major initiative to help safeguard India’s energy security and international climate commitments, the Solar Mission has been set up to help formulate policy and logistical conditions which will enable the streamlining of renewable technology penetration in India at both the state and local levels.  To this end, the government has mandated that photovoltaic cells and modules must be sourced domestically, and that at least 30% of advanced power systems be made by domestic manufacturers.

This caveat has been received with some disfavor by the present American administration.  In the 1960s and 1970s during the heyday of the state protection Raj India missed out on the global boom in semiconductor manufacturing, which reaped vast rewards for Taiwan, Japan, and South Korea as engines to building a high-skilled domestic manufacturing base.  Yet with forward five year GDP growth forecasted at over 6% per annum, and a national electricity deficit of over 10% of daily demand, there will be vast opportunities for both domestic and foreign solar module makers over the next ten years for projects both covered and not covered by the mission.  India’s latest budget has also encouraged foreign solar companies by lowering customs duty on solar panels by 5% and exempting excise duty on solar photovoltaic panels.

India has available sunlight capacity of over 300 days per year, a significant geographical base for technological deployment, the world’s largest consumer base and one of the world’s largest aggregate growth rates for the perceivable future.  State governments in Gujarat, Karnataka, and Rajasthan are already planning deployment of new energy resources with a mix of conventional and renewable projects in mind, with developers free to source material and technology from wherever they choose.  With prices of photovoltaic panels falling globally, American technology providers should look to India to soak up excess capacity.

India-US Relations Blog

America & India – Political Look Back at 2011 and Ahead to 2012-2020

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This past year has been politically eventful for both and India. Next year promises to be even more so.  While the events might look different, the same macro forces are driving the events in our opinion.

America

As we enter 2012, all eyes are focused on the Iowa Caucus on January 3. This is the first round of the uniquely American game of choosing a nominee to challenge the incumbent for the Presidency of the United States.

Look back to this time last year. The Republican party had won a huge victory in the November 2010 elections and seized political control of the House of Representatives. Their momentum was acknowledged by President Obama who moved to strike a compromise with the Republicans to extend the Bush tax cuts. This mood did not last long.

It was followed by a bruising battle in the summer of 2011 for the extension of the U.S. Debt Ceiling. That process proved so dysfunctional that no one wanted a repeat in the final political battle of 2011, a battle to extend the payroll tax cut for about 160 million Americans.

Unlike a year ago, this time the House Republicans caved in. They had been boxed in by a more confident President who fought and won a tactical battle. The Republican nomination process has been a debacle of sorts, with fatally flawed candidates rising to the top of Republican polls and falling seemingly into political oblivion. With each turn, President Obama looked stronger and more capable.

But all this, we think, is more about optics than reality. The election of 2012 is likely to revolve around the condition of the U.S. economy barring a military conflict between Iran and America. But even the economy and discussion about how to improve it might be more optical and superficial than real. Why?

Because, there is a tectonic shift underway in American society. America used to be a society dominated by taxpayers. Since 1773, taxation and political representation have gone hand in hand in America. American society has been built on the premise of the American Government being responsible and responsive to American citizens about how America’s tax collections are spent. This is the core reason behind the almost uniquely American distrust of big Government.

This America is becoming passe. Today, about 48% of Americans do not pay any income taxes. So about 48% of Americans now take from the American government without contributing to it. Barack Obama is the first American President whose election symbolizes the united efforts of this half of American society. He knows it and that is why his economical policies, right from his inauguration, have been essentially distributive and oriented towards providing government resources to the less advantaged.

The American taxpayers instinctively understood that President Obama was engaged in transferring wealth from taxpayers to non-taxpayers. This realization led to the political explosion we call the Tea Party.  The 1773 Tea Party revolt was against Taxation without Political Representation. The 2010 Tea Party revolt was essentially against Political Representation without Taxation.

The taxpayers won the first battle in November 2010. The next important battle is the Presidential election in November 2012. That may be the last Presidential battle won by taxpayers in this long war. Because, the demographic tide is inexorably moving towards a majority of non-taxpayers in 2020 or perhaps by 2016.

In this setup, we see the Democratic party slowly morphing into a party of the non-taxpayers plus a slice of the very wealthy and the Republican party becoming the voice of the taxpayers who are unwilling to have their earnings taken away from them. The demographic tide, as we said, favors the Democratic party.
So we expect the Republicans, if they win the White House and keep effective control of the Congress, to take steps to build a policy framework for Less Representation for Non-Taxation. These steps might include changing electoral districts, making voting registrations difficult for non-taxpayers and even imposing minimum income tax levels (perhaps like the one already proposed by Congresswoman Michelle Bachman) on all Americans. We might see easier and increased immigration policies for wealthy and highly educated immigrants.

We see this battle shaping up as the central conflict or a civil war within American society during this decade. So any one who pines for a united, ‘can’t- we-all-get-along’ American society may be hoping against hope.

We feel so because we know of a similar battle on the other side of the world, a battle diametrically opposite to the one that will be fought in America. That battle is taking place in India.


India

As 2011 ends, we see Indian society in the grip of its own revolt, a revolt against widespread corruption in the government at all levels. But like in America, this reason is basically optics. The real reason for this revolt is the tectonic shift underway in Indian society, a 180 degree opposite shift to the one occurring in America.

Since its independence in 1947, Indian society has been a society dominated by non-taxpayers. Even today, about 75% of Indians do not pay any income tax at all. As a result, Indian Politics and Indian Government has been dominated by policies that distribute free services and goods, that seek to distribute income and wealth from people who earn to people who need.

The natural result has been corruption, endemic corruption:

  • corruption in the business class that tries to hide much of its income from tax collectors,
  • corruption in the administrative machinery that distributes government goodies to the poor, and
  • above all in the political class that seeks to build great personal wealth while in office after spending a lot to provide free goodies to gain political office.

The patient, quiet sufferers in this machine were and are the helpless middle class – the people who are unable to hide their income, the people who need services from the government – the middle class, especially the salaried middle class. But this hapless middle class has slowly but surely grown in size and confidence.

Today, this group is anywhere between 150-300 million strong, not strong enough to dominate Indian politics electorally but strong enough to create a revolt that can bring the Indian Government to its proverbial knees.  In 2011, this middle class got a leader that it can rally around – a symbol more than an actual leader, a Gandhian figure who lives a simple life and is above personal corruption.

The Congress Party, the party in power, is the leader of traditional Indian politics – giveaway policies and maintenance of vote banks by rural politicians who today are screaming bloody murder of parliamentary democracy by what they term as non-elected civil society.  The opposition parties, especially ones with a more urban political base, are supporting this revolt because it is their best chance to topple the Congress Party from power.

The political players in this war as not as clear cut as the two parties in the battle for political power in America. But the societal shift is the same and the demographic forces are arrayed similarly. The big difference is the direction and relative ascendancy.

There is an inexorable tide in Indian society towards higher income both in the urban and rural segments. Rise in incomes makes people more independent, more demanding of better conditions and prospects for a better future for their children. This is what they called the American Dream for the past century. People who strive for such a dream are willing to contribute to Government as long as their contributions are managed carefully and for the greater good by their chosen Government.

This inexorable tide is also reducing the societal chasm between various social segments or the Portuguese term “castes” imported by the British into India. Read what Lydia Polgreen of the New York Times wrote this week:

  • A recent analysis of government data by economists at the University of British Columbia found that the wage gap between other castes and Dalits has decreased to 21 percent, down from 36 percent in 1983, less than the gap between white male and black male workers in the United States. The education gap has been halved.

The battle we see in the streets of urban India, the battle seemingly against corruption, is really a battle of the rising middle class for greater control of their own tax payments, of greater say in the policies of the  Government elected by the poor rurals. Slowly rising rural incomes will bring in more rural participation in this revolt. So we expect this revolt to broaden out during this decade.

This long battle is the same battle as the one that will rage in America, but one that will look diametrically opposite.


America & India – How will they look in 2020?

India has always had a large, seemingly permanent underclass that dragged down the entire country. India has always seemed a hopeless cause, a society that would one day become great but never does. The precipitous fall in the Indian Rupee has united all the Indo-pessimists and perhaps rightly so. No country in the world seems so utterly dumb and incompetent as India does from time to time.

But we see clear evidence that, underneath the stupidity, the chaotic surface, the utter failure of all Indian Institutions, there is a major shift towards a stronger, richer, smarter and more confident society. And luck favors the diligent. The current collapse of the Indian Rupee may actually be just the medicine India needs to make Indian labor, Indian products, India’s services more competitive. The collapse of the Indian Rupee might be the medicine that forces Indian importers, including the Government, to become more efficient.

Sometimes, we think Chairman Bernanke & Secretary Tim Geithner might be looking at the fall in the Rupee and asking “why can’t the U.S. Dollar fall by 10%”? Not so precipitously of course, but slowly and inexorably. Because a weaker U.S. Dollar is a consummation they devoutly wish for. Because that is the medicine to make America’s underclass competitive in low level manufacturing.

Over the past 20 years, America has built up its own large and seemingly permanent underclass. This was ignored and glossed over in the technology bubble of the 1990s and during the credit bubble in the last decade. Now it cannot be ignored because it is on the verge of gaining long term political power.

In other words, America will begin to deal with the problem India has dealt with for the past 60 years. This may be a tougher problem for America. It never expected to have this problem. And this is a problem that has come about partly due to the best intentions of the American people.

But America will, after much loud and sometimes vitriolic debate, get around to finding solutions to its financial and societal problems. We feel confident that all segments of American society will take steps to get control of America’s debt, to cut down on wanton government spending. As American society again becomes financially lean by the middle of this decade, America, we believe, will once again welcome highly educated immigrants, the type that will tempt companies to move jobs to America.

So we see both America and India taking different looking steps to become stronger politically and economically in this decade. They can learn a great deal from each other. We think they already are and they will continue to do so.

Therefore, we are willing to bet, here and now, that despite their vividly obvious differences today, America and India will look a lot similar in 2020.

 

(This post originally appeared on Macro Viewpoints and has been republished with the approval of the author).

India-US Relations Blog

America & India – Economy & Finance – Look Back at 2011 & Ahead to 2012

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2011 began well for both America and India. The American stock market had closed 2010 with a 20%  rally from the lows of August 2010. The American economy was expected to deliver reasonably good growth of about 3% in 2011. India was, of course, was riding the wave. The Indian Government forecast a growth of 9% in 2011 with a reasonable chance of double digit growth. The Indian stock market was enjoying a boom. Capital around the world was flowing into India and Indian companies were seen looking at or buying corporate assets in Europe & America. Prosperity was all around and Indian society was ebullient.

How did the year end? America still seems fine. The third quarter GDP came in around 2% and the fourth quarter look OK. The stock market closed unchanged for the year despite the massive crisis emanating from Europe. American corporations are in as good a shape as they have ever been. America’s Banking Sector, hard hit in 2008, is now the strongest in the world.

In contrast, India seems to have fallen off a cliff. The Indian stock market is down about 26% this year, one of the worst performances of any country in the world. India saw persistent high inflation all year. This forced the Reserve Bank of India to raise interest rates several times. The Indian economy has already slowed demonstrably.

India’s seemingly sudden fall from grace is evidenced by the precipitous drop in the Indian Rupee against the U.S. Dollar. The Rupee which traded around 43-44 fell in less than two months to 52-53, a 20% drop. This makes the Indian people about 20% poorer than they were just two months ago. This severely damages India’s fiscal condition because India virtually imports all the oil it needs and oil is priced in U.S. Dollars. It also creates severe problems for the Indian Corporations who purchased western assets or borrowed cheaply in U.S. Dollars. In turn, that causes real stress for India’s Banks, the principal lender to these foolhardy Indian corporations.

As 2011 ends, the financial conditions and economic outlook for America & India seem vastly different. America seems to have come out of its 2008 financial crisis and regained its primacy in the world. In contrast, India seems to have entered its own financial crisis, one potentially worse than America’s 2008 crisis.

What happened? Why did it happen? What does this say about the two societies? What lied ahead? In this article, we lay out our views.


So Similar, Yet So Different?

Most people think America and India are very different economies. Financial lingo places America in the DM or Developed Markets category and India in the EM or Emerging Markets category.

But the Indian economy is more akin to the American economy than to the other emerging market economies. The emerging market economies in Asia and in Latin America are primarily export machines that have built fiscal surpluses and large foreign exchange reserves.

In contrast, both American and Indian economy are driven by domestic consumer spending rather than exports. Both economies benefit from free movement of labor within the respective countries from less prosperous states to more prosperous states. Both economies run fiscal and current account deficits. Both therefore are dependent on import of foreign capital to sustain their growth. Both countries have competent Central Banks that operate semi-independently under twin mandates of price stability and economic growth.

If this is the case, why do financial markets treat America and India so differently? Or to put it simply:

  • Why does money run out of India in every crisis and why does money run into America in every crisis?

Look back at America in 2008. At that time, it was a purely American crisis. The entire world recognized it as such. Lehman Brothers, a top tier U.S. Investment Bank, filed for Chapter 11 bankruptcy. The world’s largest insurance company, AIG, had to be bailed out with injection of over $80 billion in capital. The American banking system was in a deep and sorry mess.

Yet, even at the nadir of this American financial crisis, capital from all over the World ran, nay flooded into America. The U.S. Dollar rose in value against the Euro and the Emerging Market Currencies. And yes, the Indian Rupee fell to about 52 against the Dollar in 2008 even though India had no financial or banking problems.

In contrast, today’s Indian financial crisis is seemingly smaller and more contained than the American crisis of 2008. Yet, the Indian Rupee has fallen precipitously, fallen harder and lower than just about any other currency in the world, fallen below the 2008 low of about 52. Chartists now forecast a further fall to the 57-58 level against the U.S. Dollar.

So if the two economies are so similar, why do financial markets treat them so differently?

Difference Between Economics & Finance

This is not just nomenclature. These two disciplines are related but very different. Economics is a science while Finance is a technology. Every country in the world understands economics. It is taught in every university in the world. India has excellent economists. The Prime Minister of India, Dr. Manmohan Singh, is a noted economist. And so is Montek Singh Ahluwalia, the foremost economic bureaucrat in India. These two were the brain trust behind the Indian economic reforms launched in 1990.

Yet, these two noted economists and all their colleagues in India proved inadequate in preventing the recent collapse of the Indian Rupee. It seems that they didn’t even see the approach of this recent crisis. That may be because they completely misunderstood the true nature of America’s 2008 financial crisis.

Think back to the proud proclamation of Sonia Gandhi in 2008 & 2009:

  • “It was my Mother-in-law Indira Gandhi who nationalized India’s Banks. That is what protected India from the global economic crisis”.

This was not just her boast. Every single economist in India and the entire Indian ‘elite’ believed that the American financial crisis of 2008 had demonstrated that the Indian economy was based on sounder economic footing and free of excesses evident in America’s freewheeling financial system.

So the Indian ‘elite’ concurred with Sonia Gandhi and the Indian Government poured economic stimulus into the Indian economy. This runaway spending together with large capital inflows triggered partly by  U.S. Quantitative Easing (engineered by the U.S. Federal Reserve in the Autumn of 2010) created a credit bubble in India in 2011.

This bubble has now burst and we all see the result – massive flight of capital out of India, widening of fiscal and current account deficits, a weak, leveraged corporate sector and India’s nationalized banking sector clogged with poor quality loans.

The American crisis of 2008 was only a banking & financial crisis. The state of the U.S. Government and its Debt market was very sound. That is why the world’s capital rushed into America, to the safety of the U.S. Government Debt. This is why the U.S. Dollar strengthened despite the crisis in America’s banking sector.

In contrast, the Indian crisis of 2011 is much worse. It is a Government-Banking-Corporate crisis all rolled into one. Would you keep your risk capital in India during such a crisis? Of course not. This is why global capital rushed out of India in a financial stampede in November 2011.

The reality is that India’s financial ‘elite’ has never understood the difference between the science of Economics and the technology of Finance. An example might illustrate our meaning:

  • Think back to a comment by an Indian General just before the 1991 Gulf War.  The Iraqi Army of Saddam Hussein was trained by officers of the Indian Army. This General was quoted as saying that the Iraqis would give “a good account of themselves” in the war.  We all know what happened. The Iraqi Army, the fourth largest in the world, was destroyed in a week. The “Shock & Awe” of American military technology converted the huge Iraqi Army into a helpless flock of sitting ducks.

The Indian economy was geared by and towards the science of Economics. The Indian Government, the Indian Banking Sector, the Indian corporate sector had never bothered to build up the financial infrastructure necessary to protect the Indian economy from a financial stampede. The result is what happened in November 2011, what usually happens to a system, a country that does not understand or use modern technology.


Finance as a Central Technology – Difference between America & India

Look at the Indian Government, the Indian Finance Ministry, Indian Financial Markets, Indian Academic Institutions. They are all staffed by Economists, Bureaucrats or Politicians. And none of these have any first hand knowledge, any real experience with financial markets.

In contrast, look at the American Government and its Treasury Department. These are staffed by veteran financial market players who have first hand experience in dealing with financial market panics and liquidations. America was very lucky to have Hank Paulson, ex-CEO of Goldman Sachs, as the Treasury Secretary in 2008. It was he who contained the fallout and rammed the massive TARP program through a Congress that had no clue about the scale or ramifications of the crisis. Today, America has Tim Geithner who managed the 1998 financial crisis and worked with Hank Paulson in October 2008 from his vantage position at the New York Fed.

There is a deep reservoir of financial technology expertise in America’s Wall Street and America’s Academic Institutions. Talent from this reservoir moves to and fro between America’s Government Institutions and Wall Street.

So America and India may have similar economies but their financial markets, their financial technologies are vastly different. This is true of military technologies as well. India’s military generals were stunned by the collapse of the Indian-trained Iraqi military in 1990. It was an important lesson and the Indian military used it to begin a slow but steady modernization drive that continues to this day.

We know that India’s financial generals are stunned by the sudden collapse of the Indian Rupee. We hope they learn the real lesson of this collapse. We hope they begin a slow and steady drive to modernize India’s credit and commodity markets with modern financial ‘technology’.

The United States of America is the world’s foremost leader in the Technology of Finance. This is why America’s Financial Markets are the deepest, most transparent, most liquid and most innovative in the world. This is why the world’s capital runs into America in every financial crisis.

Until India embraces and implements this technology, India’s financial markets will remain puny, illiquid and essentially powerless to protect India’s economy from any financial crisis.  Until this changes, the world’s capital will continue to run out of India in every financial crisis.


A Silver Lining and Pure Luck?

Given the discussion above, our next statement might surprise readers. We suspect America’s financial leaders, Tim Geithner, Ben Bernanke and perhaps even President Obama, might be looking at India with a touch of envy. We believe they would just love it if the U.S. Dollar fell by about 10% from current levels. Instead, they watch with a degree of trepidation as the U.S. Dollar rises against other currencies.

They realize that India, all of a sudden, is far more competitive as a nation. The services of Indian information technology staff, the core of India’s technology exports, are now 20% cheaper than they were just two months ago. The Indian Rupee has not just fallen against the U.S. Dollar, it has also fallen against other emerging market currencies. As a result, India’s manufacturing products are now 10%-20% cheaper than Chinese, Malaysian, Indonesian and Vietnamese products than they were two months ago.

Since India is primarily a domestic consumption economy, the average Indian is relatively unaffected by the fall of the Rupee against foreign currencies. And if the price of Oil falls because of a global slowdown, then India’s inflation might go down and its balance of payments might improve despite the fall in the Rupee.

Indian economy has one advantage that most developed or EM economies don’t – huge, secular, unmet consumer demand for just about every product known to mankind. So once the world economy stabilizes, India will again become a magnet for foreign capital flows, an India that will be 20% cheaper to enter than it was in October 2011.

We see a world in which every major country will try to lower its currency to make itself more competitive. India will not have to try. By sheer dumb luck, India has already achieved in a free market manner what others will try to achieve via government policies. And so India might have the pole position when the race begins for the new growth phase.

This is the silver lining we see in today’s dark cloud that dominates India’s economic sky.

 

(This post originally appeared on Macro Viewpoints and has been republished with the approval of the author).

Defence And Strategic Affairs Blog

Strategic Uncertainty: Managing Emerging Threats and Challenges

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Though the year gone by was relatively peaceful for India, the security environment in India’s regional neighbourhood has been steadily deteriorating. The greatest causes of regional instability are the strident march of Islamist fundamentalism across the Af-Pak border and the unresolved conflict in Afghanistan. In fact, the scourge of Talibanisation is creeping forward gradually and threatens to cross the Radcliff Line into India if it goes unchecked.

The unstable security situation in Afghanistan continues to be worrisome. The US-led NATO-ISAF troops will soon begin their planned withdrawal even though the Afghan National Security Forces (ANSF) are as yet incapable of taking over independent charge of security, particularly in the districts which are strongholds of the Taliban. The ANSF are too few in number – only 200,000 army and police personnel have been trained so far. They are inadequately trained and ill-equipped and lack the standards of junior leadership that are critical for success in intense counter-insurgency operations.

Since the elimination of Osama bin Laden, the precarious relationship between the Pakistan army and the ISI and their U.S. counterparts – ostensibly major allies in the war against terrorism – has weakened further. The killing of 24 Pakistani soldiers during the bombardment of a border post by NATO-ISAF aircraft in November outraged Pakistan and led to the decision to stop the flow of logistics convoys through Quetta and Peshawar, deny base facilities at Shamsi and demand re-negotiation of the rules of engagement. The worst fallout has been the politico-military standoff within Pakistan that threatens the continuation in office of the fledgling civilian government.

Marked reduction in the levels of infiltration across the LoC into Kashmir over the last few years and the fact that no major terrorist strike has been initiated by ISI-backed organisations like the LeT and JeM since 26/11, convinced India to resume the stalled rapprochement process. However, the two armies continue to face off eyeball-to-eyeball on the LoC and at the Saltoro Ridge west of Siachen Glacier and a small incident could bring the informal cease-fire to an abrupt end. Toning down of the anti-India rhetoric and terrorist strikes is a tactical ploy to tide over internal difficulties, rather than a long-term change in the military strategy designed to bleed India through a thousand cuts. The Pakistan army and the ISI are keeping the machinery for terrorist strikes well oiled so that they can raise the ante in a short time frame whenever they choose to do so.

The Chinese have been aggressively opposing even a non-military Indian presence aimed at prospecting for oil and gas in the South China Sea while themselves seeking naval bases in the Indian Ocean. Chinese scholars have expressed strong reservations against India’s quest to reach out strategically to democracies in East Asia. They have denounced multilateral (Australia, India, Japan and US) naval exercises aimed at enhancing maritime cooperation in the Asia Pacific and the Indian Ocean as being aimed at the strategic encirclement of China.

The Chinese abruptly postponed the 15th round of boundary talks between the special representatives in November 2011 as India refused to relent on the Dalai Lama’s participation in a private conference on Buddhism. Chinese diplomatic, political and military assertiveness at the tactical level is likely to continue into 2012 and beyond. However, at the strategic level the relationship will remain stable.

The government of Sheikh Hasina in Bangladesh has reversed decades old anti-India policies and has begun to cooperate with India in rooting out insurgent groups operating against from its soil. The resolution of the boundary dispute is now being addressed in a friendly manner. Iran’s continuing quest to obtain nuclear weapons may lead to a standoff with the U.S. in the Strait of Hormuz if Iran blocks the flow of oil. India’s relations with Myanmar’s relatively more open Thein Sein regime have been improving steadily, resulting in better security cooperation. However, the Myanmarese government is struggling to bring the Kachin, Karen and Shan insurgencies under control.

Despite many extensions in the deadline, Nepal has failed to frame a new constitution or find an amicable solution to the integration of former Maoist cadres in the army. With the increasingly pervasive Chinese presence in Nepal, resentment against India is growing. Even though the Sri Lankan government has made little effort to successfully address the decades old aspiration of the Tamil people for ‘eelam’, the country has remained free of violent conflict.

The internal security situation in India has shown significant improvement. The army and other security forces have gained ascendancy in Kashmir and the number of incidents of violence has declined sharply. Insurgencies in north-east India have begun to recede and negotiations to resolve the crises are making progress. The areas worst affected by Naxalite or left wing extremism have been fairly quiet and the central police organisations are gradually gaining ground.

Concerted political, diplomatic and military efforts must continue to resolve outstanding disputes and better manage the manifold threats and challenges to national security. The armed forces and the central police and para-military forces must keep their chins up and their powder dry.

Defence And Strategic Affairs Blog

Systemic Weaknesses in India’s Counter-terrorism Policy

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While the year gone by has not seen a major terrorist attack, systemic weaknesses in India’s counter-terrorism policy are continuing to hamper its successful execution. Though recent terrorist strikes have been sporadic and have been spaced out in time, the overall impression that has been created is that of an unstable internal security environment in which the initiative lies with the terrorist organisations and they are able to strike at will. The government needs to review its largely reactive policies and adopt pro-active measures to fight terrorism, particularly the variety that emanates from the soil of inimical neighbouring countries.

A democratically elected government ultimately has to reflect the will of the people in its policies. However, the “Panipat Syndrome” appears to have been deeply ingrained into the Indian psyche, in that the leaders and the bureaucracy react only when the tiger is already at the doorstep. What is needed is a coordinated approach, with all organs of the state coming together to formulate and implement a national-level counter-terrorism strategy to fight terrorism. The government must draw up a comprehensive strategy that is inter-ministerial, inter-agency and inter-departmental in character. Such a strategy must also balance the interests of the Central and the State governments.

India’s response to the Mumbai terror attacks in November 2008 was slow and laborious and poorly coordinated among the Central and the State governments and their various agencies. Coastal security was virtually non-existent; the Marine Police were too few in number to effectively patrol the vast area entrusted to them; they were ill-equipped and inadequately trained; and, there was poor coordination between the Coast Guard and the Marine Police. It took far too long to begin flushing out operations and then to eliminate the nine terrorists who were holed up at three separate locations.

Counter-terrorism policy must hinge around strong laws to fight terrorism. India’s experiments with POTA, TADA and UAPA have failed to deliver the desired results. Laws must be just and humane, but must not be designed to either be vindictive towards or shield any particular community or religious denomination. The experience of many other countries has proved that it is possible to formulate strong yet egalitarian counter-terrorism laws. The U.S. established a strong Department of Homeland Security and there has not been a major terrorist attack since 9/11.

One major source of the lack of a coordinated approach is the gross disconnect between how the Central and the State governments view counter-terrorism. The Constitution must be amended to move “law and order” from the State List to the Concurrent List so that the Central Government can act on its own initiative when necessary, particularly in the case of externally-sponsored terrorism. And, it is time the government bifurcated the internal security function of the Ministry of Home Affairs into a separate ministry headed by a cabinet minister.

Besides prevention through accurate ‘humint’ and ‘techint’ intelligence gathering, successful counter-terrorism requires the effective intelligence penetration of terrorist groups so that their leadership can be systematically neutralised by an empowered anti-terrorism agency. More comprehensive planning and better stage management are necessary for the quick elimination of a group of terrorists while they are on a killing spree. Post-incident investigation is aimed at unraveling the identities of the planners and the plotters and bringing to justice the perpetrators of the incident of terrorism. The National Investigation Agency (NIA) should have been modeled on the U.S. FBI to give it both preventive and investigative powers. The NIA needs to be reconstituted as it lacks teeth in its present form.

India’s intelligence coordination and assessment apparatus at the national level remains mired in the days of innocence. The NATGRID (National Intelligence Grid) and the NCTC (National Counter-terrorism Centre), which were announced by Home Minister Chidambaram with so much fanfare over two years ago, are yet to take off. It was reported recently that the three-member committee headed by the NSA and appointed to deliberate upon the organisation and the executive powers of the NCTC and its links with the NATGRID and the existing Multi-Agency Centre (MAC) has submitted its recommendations. These must be taken up on priority by the Cabinet Committee on Security.

Finally, the government must seriously consider enlarging the scope of its counter-terrorism policy to covertly eliminate the leaders of terrorist organisations abroad who are sponsoring terrorism in India. Unless the problem is addressed at its roots, the solution will remain beyond the grasp of the government.