Indian Army attack across LoC using surgical strikes meant to probe Pakistan’s threshold for escalation

By publicly owning up to having carried out surgical strikes across the LoC — the Indian Army has called the adversary’s bluff.

 Indian Army,LoC,MEA,Pakistan,surgical strike
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In a dramatic turn of events, the Indian Army on Thursday confirmed that it had carried out surgical strikes against “terrorist launch pads” across the LoC last night. The Director General of Military Operation (DGMO) Lt. Gen Ranbir Singh revealed that these strikes were to neutralise imminent infiltration into Indian territory. The targets of this infiltration bid, according to Lt. Gen. Singh, were in Kashmir as well as other Indian cities. While the details of this operation are unknown at this time, the DGMO has suggested that the surgical strikes were extremely successful in neutralising a significant number of infiltrators and their supporters. It is likely that the strikes were also aimed at forward positions of the Pakistani Army along the LoC that has provided cover fire — and other support — to infiltrators in the past.

While this may not be the first time Indian armed forces have carried out surgical strikes across the LoC, a few details stand out in the manner they were disclosed.

First, by publicly disclosing the strikes, India has signalled that it is not afraid to neutralise terrorists from across the border even in the face of escalation. The conventional argument behind keeping such operations plausibly deniable in the past has been that such deniability robs the other side of the initiative to draw international attention to a violation of its territory, and escalate by claiming that their retaliation was purely defensive in nature. By publicly owning up to having carried out surgical strikes across the LoC, the Indian Army has called the adversary’s bluff that any cross-LoC/cross-border action will inexorably go out of hand — and therefore deter India from carrying out any such action in the first place.

This successful operation against terrorists and their backers in the Pakistan army will serve as an important probe to test Pakistan’s threshold for escalation. Having been unable to respond to Indian action significantly weakens the image of the Pakistani state’s praetorian guards and shows what a section of analysts had suspected all along — that surgical strikes carried out with precision, and with an element of surprise will not cross the adversary’s red-lines to expand its retaliation. Simply put, these strikes, and their public announcement, have called Pakistan’s bluff.

Second, the optics of the press conference itself were interesting. The side-by-side appearance of the DGMO and the MEA spokesperson Vikas Swarup was to signal to Pakistan — and the rest of the world — that India’s action was a response to what it perceives as Pakistan’s attempt to imperil the Indian state through proxy warfare. And that, military action is now an integral part of India’s foreign policy towards Pakistan. After a week-long — and rather sterile debate — on what role ‘strategic restraint’ plays in Indian foreign policy, the Modi government seems to have chosen to send a message to the other side that such a posture cannot indeed be taken as granted. Furthermore, the presence of the MEA spokesperson alongside the DGMO signals that the decision to strike at targets across Pakistan was the result of unanimity across the strategic-policy community that it is no longer ‘business-as-usual’ when it comes to Pakistan, and that these strikes should be viewed as a part of a larger Indian cohesive offensive against Pakistan which now includes military as well as diplomatic components.

As we wait further details, a few questions remain open. As the news of successful Indian surgical strikes reaches the Pakistani public, there would almost invariably be calls to avenge this perceived Indian intransigence. Would Pakistani public opinion be such that Rawalpindi and Islamabad would be forced to double down on Kashmir, and perhaps prepare to militarily respond to this affront? While this is unlikely — the Pakistani army is not exactly a public-opinion driven entity — India will have to carefully watch out for a counter-response, both along the LoC and the international border. Pakistan is about to carry out a major military exercise with its strike corps along latter in the coming days and, at this stage, Indian authorities should not entirely discount the possibility of Pakistani adventurism in face of a public backlash.

Then there is the larger question of whether such strikes — at the end of the day — can indeed deter Pakistan from pursuing its Kashmir programme with help from proxies. As American analysts Geroge Perkovich and Toby Dalton in their recent book on India’s options to end Pakistan’s support for cross-border terrorism point out, while such strikes may have immediate tactical effects — such as neutralising imminent cross-over of Pakistan-backed terrorists to Indian territory — these strikes may be of limited value in forcing a fundamental rethink among Pakistan’s military elite regarding the use of proxies to prosecute its Kashmir policies.

Having said this, Wednesday night’s strikes do signal a new phase in the India-Pakistan dynamic where India is no longer only at the receiving end of Pakistan’s provocation. Such strikes — carried out at will by Indian army as and when it receives actionable intelligence — will most definitely signal Pakistan that India is not afraid to up the ante as and when it sees fit.

This commentary originally appeared in FirstPost.


Modernising of the Indian Army: Future challenges

Indian and Chinese Army

The Indian Army is the third largest army in the world in terms of the sheer number of personnel. However, this description obfuscates the fact that it is not as powerful as one of the world’s largest armies. Its capacity to undertake military operations optimally in the multi-domain, technology-dominated battlefield of the future is questionable. The Indian Army essentially remains a force largely organised, equipped and trained to fight wars of the past. Having said that, it is not as if the Army cannot carry out its role and tasks successfully if it is provided the requisite means to do so. And so, it seems almost imperative that the Army be modernised expeditiously if it has to be prepared to take on the security challenges of the future.

As India rises in stature, economically and technologically, towards a more eminent position in the region and the world, it has to concurrently build on its military power, in the modern context, to thwart the threats and challenges that it is likely to face along the way from our potential adversaries. However, for India, building military power is not easy, given the budgetary constraints, especially when the country needs to meet the requirements of economic development to provide human security and a better quality of life to its people.

The inadequacy of funds is compounded by bureaucratic prevarication, risk averseness, frequent changes in qualitative requirements by the Army, and occasional corruption charges, which result in blacklisting of vendors in an unplanned manner. Hence, not only is there a need to efficiently identify the future orientation and equipment needs of the Army—in its role as the largest and most powerful component of the Indian military—but it is also important to find a way forward to build capacity and speed up the procurement process while addressing the problems that may prove to be a barrier for the force.

Future Security Scenarios

India’s threats and challenges in the military realm primarily emanate from the historically inherited territorial disputes involving its two nuclear armed neighbours, over which five wars have already been fought. The growing nexus on military and nuclear matters between our potential adversaries suggests that, unlike in the past, India may face a ‘two-front threat’ the next time round. Meanwhile, the fact that the existing territorial disputes are ‘land-centric’ highlights the pre-dominant role of the Army in the Indian security context.

Further, Pakistan has been running a sub-conventional campaign against India since the early 1990s, which essentially involves stoking militancy in Muslim-majority areas of Jammu & Kashmir (J&K), where it has been pushing terror modules across the border under cover of nuclear coercion to cause casualties among civilians and security personnel in an effort to keep the Kashmir issue alive. Nuclear ‘sabre-rattling’ is used in conjunction with the cross-border terror strikes to prevent India from “raising the ante” and retaliating with a punitive conventional response. The last war fought in this backdrop was the Kargil War in 1999, limited in scope and duration, which was launched by the Indian Army with support from the Air Force to evict an ‘hybrid’ intrusion by the Pakistan Army across the Line of Control in the Ladakh sector of J&K.

Changing Nature of Conflicts

In the aftermath of the Afghanistan and Iraq wars of the first decade of this century, the world has witnessed a reduction in full fledged ‘State vs State’ wars. Hybrid wars appear to be the new norm, involving a combination of two or more of the following:

  • Conventional/Regular warfare: State vs State wars, primarily waged by conventional forces or regular troops on both/all sides. In case of India, all such wars will be fought under a nuclear overhang, implying that escalation to the level of nuclear exchanges is possible, and must be planned for.
  • Irregular warfare: Conflict against a State by employing trained combatants who are not regular military soldiers. Pakistan has launched such ‘irregulars’ in all its wars against India.
  • Asymmetric warfare: War between sides whose military power differs greatly, waged by the weaker side using non-traditional means like terrorism. Wars waged by insurgents/terrorists against nation states, its government or people fall in this category. For example, 9/11 by al-Qaeda and the Afghanistan war by the Taliban, among others.
  • Unconventional warfare: War waged by a country using means other than established forms of armed conflict to make the adversary capitulate even without a classical war. Economic wars, water wars and legal wars are some examples.
  • Technological/Informational warfare: Wars fought in the areas of cyber, space, electronic, propaganda, psychological, media or social media.

The Indian Army, as the largest component of the military, should be prepared to deal with asymmetric, informational and/or conventional threats in the backdrop of a nuclear coercion from across our Western border in the short to middle term, and additionally, from the Northern border in the long term. The Indian Army must therefore aim to achieve cross-spectrum (nuclear, conventional, counter sub-conventional) war-fighting capability to achieve a favourable outcome even in a ‘wo-front war scenario, which would concurrently achieve credible or punitive deterrence, as required, against our potential adversaries.

Capability Building in the Indian Army

India is not a member of any traditional military alliance and thus has to maintain an independent military capability as a critical need to retain its strategic autonomy while protecting its unity and integrity against possible threats.

The primary role of the Indian Army is to ensure the territorial integrity of the nation by deterrence or by waging a war. The secondary role of the Army is to provide assistance to civil authorities, when requisitioned. In keeping with its mandated roles, the Army has to ensure multi-dimensional capability to deal with external threats from our potential adversaries and also be prepared to assist in dealing with internal security threats of a heightened nature, especially those involving secessionist uprisings against the state or disaster management.

Accordingly, as most of our current threats pertain to conventional conflicts over disputed land borders and sub-conventional challenges like insurgencies and cross-border terrorism, the Indian Army has been structured as a ‘two-and-a-half front’ force, whereby, not only has the Army built conventional capabilities to deal with threats along the Western and Northern Fronts, but it has also built the capacity to deal with the lesser ‘sub-conventional front’—by employment of the Rashtriya Rifles independently or in combination with regular, paramilitary or police forces.

Capability building of the Army is a continuous process, where budget, especially capital funds, are requested annually based on the projected needs for implementing a 15-year long-term perspective plan. However, it has been the experience for many years now that adequate capital funds for modernisation are not allotted, and consequently, there are major shortfalls in acquiring new equipment and other war-fighting capability in a time bound manner.

Modernisation Needs of the Army

The Army of the future will have to be technologically oriented, with many more specialists on its rolls as compared to generalists. It will have to be equipped progressively with modern weapons and weapon systems, supported by technology-based processes and automation to meet the needs and challenges of the future battlefields. Accordingly,  the Army will need to replace or upgrade its ageing inventory of weapons and equipment while also restructuring in a transformational way. However, considering that the modernisation plans of the Army are lagging far behind already, budgetary constraints will play an important part in formulating and executing plans for the future.

As far as weapons and equipment are concerned, the Army needs the following on priority to replace or rejuvenate vintage equipment as part of the capability development programme:

  • Infantry: The infantry, which is continuously being employed in counter-terrorist or counter-insurgency operations, needs to be empowered immediately by provisioning of new generation lightweight assault rifles, bulletproof jackets and helmets, hand-held thermal imagers (HHTIs) as well as a host of other modern weapons like carbines, machine guns, rocket launchers, anti-tank guided missiles (ATGMs), mortars, night-vision devices, radio sets and better back packs to replace outdated weapons and equipment. Further, the infantry needs to reduce the number of general duty (GD) soldiers and replace them with specialists. To that extent, it is worth serious consideration that many more infantry battalions be converted into Special Forces battalions. Further, the fourth company of each infantry battalion needs to be converted into a Special Operations company.
  • Artillery: Adequate quantities of new 155 mm artillery guns, including indigenously manufactured Dhanush systems, as well as more lethal precision artillery systems like BrahMos cruise missiles, Smerch and Pinaka rocket systems need to be inducted immediately to replace its earlier vintage 105 mm and 130 mm guns and vintage rocket systems. Also, the procurement of M-777 light howitzers must be expedited for early deployment along the mountainous terrain of the northern borders.
  • UAVs: More quantities of Unmanned Aerial Vehicles (UAVs) of latest technology must be inducted in adequate numbers for surveillance and precision attack operations in both peace and war.
  • Mechanised Forces: Additional quantities of contemporary technology such as night-enabled T-90 tanks and ICVs, equipped with long-range ATGMs, need to be inducted on priority. Older generation T-72 tanks and ICVs must be refurbished and technologically upgraded at the earliest. Future Ready Combat Vehicle (FRCV) and Future Infantry Combat Vehicle (FICV) projects must be pursued with vigour so that the next generation of state-of-the-art replacements are inducted within the next 10 years.
  • Army Aviation: Acquisition of three squadrons worth of new generation Apache attack helicopters into the Army Aviation has been reportedly sanctioned, as a follow up of the Air Force order. Further, the Kamov replacement helicopters, indigenous Light Utility Helicopter (LUH) and Light Combat Helicopter (LCH) projects must be pursued aggresively so that reliable helicopters are delivered to the Army at the earliest.
  • Air Defence (AD): The Army AD equipment is undergoing a total revamp. The various Army AD weapon acquisition projects—for all types of surface to air missile systems—as well as the process of upgrading old generation systems must be provided fresh impetus so that these materialise at the earliest.
  • Engineers: Combat engineers need to be provided new generation bridging equipment, mine-laying equipment as well as mine clearance equipment. Where possible, old equipment must be upgraded indigenously.
  • Night Vision Devices: All arms of the Army have to be night enabled by fulfilling the remaining requirement of light-weight, long-range and easily usable night vision devices.

Challenges in Capability Building

There are huge ongoing challenges in the process of capacity building of the Indian Army. The more important of these are discussed  as follows:

  • At present, military planning is hamstrung by lack of a clearly articulated and integrated military strategy. In such a situation, the three wings of the military are left to devise their own strategies and military philosophies, which could end up being at cross purposes with each other. The reasons that can be ascribed to this state of affairs is the absence of military expertise at the apex level of national security and defence matters, exacerbated by non-institution of the appointment of Chief of Defence Staff to coordinate defence policy and strategy more meaningfully.

Vice President releases Indian Army Vision 2020

Indian Army Vision 2020, the new publication of Observer Research Foundation, was released in Delhi on Tuesday (April 29, 2008) by the Vice President of India, Mr. Mohammed Hamid Ansari.


Indian Army Vision 2020, the new publication of Observer Research Foundation, was released in Delhi on Tuesday (April 29, 2008) by the Vice President of India, Mr. Mohammed Hamid Ansari.

The concise and comprehensive book on the Indian Army has been written by Brig. Gurmeet Kanwal (Retd.) and published by HarperCollins India.

The Vice President lauded the author for his efforts in coming up with this useful piece of work in the arena of strategic thinking and planning and said underlined the need for more such books.

Speaking at the book release function held at the residential complex of the Vice President, Mr. Ansari stressed upon the importance of good strategic thinking coupled with thoughtful planning in today’s unimaginatively fast changing world.

rigadier Kanwal said the Army must modernize its weapons and equipment and upgrade its combat potential by an order of magnitude in order to successfully face the new challenges.

He further said that in future, 80 to 90 percent chances are that wars would be fought in high altitude and mountainous terrains.

Earlier, General V.P. Malik, former chief of army staff and now president of the Institute of Security Studies, ORF, gave a brief description of the book.

Indian Army Vision 2020 gives an overview of the changing nature of warfare, the emerging geo-strategic environment, the existential threat from India’s nuclear armed military adversaries and the danger from terrorism which require a quantum jump in the army’s operational capabilities.

In focus — Union Budget 2017

Budget, Union Budget, Budget 2017, Parliament
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10A good beginning to cleanse political funding

Following the sudden demonetisation decision, the Union Budget 2017 was keenly watched for possible reform roadmap to curb black money and illicit political funding — that lay at the roots of big scams and scandals. Read more >

9A widely dispersed Budget

There were no doles given to those who had lost their jobs and were badly hit due to demonetisation. Resuscitation of the rural economy was given high priority. Read more >

8Budget shows Modi’s ‘War On Cash’ is a serious one

It may not be perfect and meet every parameter of every analyst — no budget ever can — but is remarkable in its unwillingness to resort to gimmickry and political populism even as the polity enters a near non-stop election season. Read more >

7Budget shows Modi has found his narrative for 2019

The budget was probably written on 8 November when PM Modi announced demonetisation. Read more >

6Agriculture: Is government’s optimism realistic?

The latest data from the government’s agricultural ministry shows that demonetisation did not have an adverse impact on agricultural production. The year’s Rabi crop seems to have got the highest acreage in five years.  Read more >

5Red flags that Finance Minister must not ignore

The investment red flag must be raised if targeted investment in 2017-18 is below two percent of GDP. Read more >

4Questions on the Union Budget and Make in India

A much sought after, rule of the game is the Make in India initiative. The question: why Make in India is sought after? Read more >

2Advancing budget a wise move?

The Election Commission had kicked the “postpone the budget” ball — rolled out by the opposition — to the government for comments by 10 January. Read more >

1Union Budget should put more focus on poor elderly

There were 100.3 million senior citizens (60 and above) in 2011 which is 8.6 percent of the population. In 2050, there will be 324 million elderly. Read more >

Union Budget: A good beginning to cleanse political funding

Budget,Political funding

Following the sudden demonetisation decision, the Union Budget for 2017-18 was keenly watched for possible reform roadmap to curb black money and illicit political funding — that lay at the roots of big scams and scandals. During the course of demonetisation, Prime Minister Narendra Modi had sought cooperation of opposition parties to debate on key electoral reforms, particularly the election funding laws. Expectedly, Finance Minister Arun Jaitley devoted a complete section on electoral finance and ways and means to curb illicit political donation. The Budget package seems to have an imprint of Prime Minister Narendra Modi.

In an effort to limit anonymous donations and illegal funding, the Finance Minister proposed to reduce cash donation from the current Rs. 20000 to just Rs. 2000 per person. According to Section 29C of the Representation of the People Act (RPA), 1951, registered political parties are allowed to receive contribution up to Rs. 20,000 from individuals and for which parties need not have to submit documentary proofs. While the present measure that reduces cash donation by one-tenth is a welcome move, it still leaves a lot of loopholes for possible misuse. While the new measure would be laborious and cause inconvenience for political parties to multiply the number of fictitious donors, if past records are an indicator, they would still opt for this mode which is considered “safe”. It is common knowledge that a mammoth 75% of donations to parties are sourced through this clause and these are mostly hawala money.

Notwithstanding the fact that it is a half-hearted measure which appears to keep political parties happy, the Finance Minister has done well to tighten the noose on the books of accounts of political parties by linking tax exemption to timely compliance of the Income Tax provisions. From now on, all political parties will have to file returns as per the I-T Act and tax exemption from income tax will be extended to political parties only on compliance with the I-T Act. If Revenue Secretary Hashmukh Adhia’s subsequent announcement has to be believed, the government would make it mandatory for the political parties to file tax return by December every year.

Read Also | Will Modi utilise demonetisation to clean up corrupt political funding?

This was something that the Election Commission of India (ECI) has been pressing for years before successive governments at the Centre. This would certainly bring political parties under the scrutiny of tax officials and the ECI and this may prompt more transparency and accountability among political parties. The fact of the matter is that the existing I-T Act has no strict deadline for the political parties to submit their accounts and file I-T returns. No wonder, out of 51 regional parties, an alarming 45 parties did not submit their donation statements to the ECI in the last financial year. According to Association for Democratic Reforms (ADR), there are at least 12 regional parties who have never filed their contribution reports. Given this, making I-T return filing a mandatory exercise for the parties would force them to be careful about their books of accounts and sources of donations.

Electoral bond is the way to go!

The most surprising reform proposal in the Budget is the issuance of electoral bonds. Possibly, this could be a game changer as it promises to expand clean political finance options. Taking cues from Barack Obama’s inspiring grassroots fund raising campaign in 2008 (that largely avoided the established public funding system), the Finance Minister has unveiled a proposal to float bonds for political parties so as to help them tap clean donations from the open market. According to this proposal, potential donors can buy bonds from the central bank and donate the same to a political party which then can redeem the same within a specified time. Importantly, the bond has to be bought through cheque or digital payments.  This could discourage shady fund raising techniques routinely adopted by parties and candidates to fight elections. Importantly, bond scheme would spur political start ups and popular parties and charismatic leaders can use this opportunity to raise the required fund in a cleaner and transparent fashion. A major shortcoming of the bond proposal is the non-disclosure of donor identity. This would greatly defeat the cause of disclosure and transparency in the campaign finance system.  Yet, the bond scheme with its anonymity clause is far superior a scheme than the existing anonymous cash donation clause. Given the transactions will be in the form of cheques and digital modes, anonymous donors would stay in the hooks.

Time to push for more enabling measures

While critics are up in arms against the budgetary announcements on electoral reforms, some calling them “half measures” and “political gimmicks”, one has to evaluate these measures in their totality. While these may not be very bold and radical in nature, these are definitely positive steps and may propel more initiatives in the future. Remember, in India’s 68 years of budget making, this is the first Union Budget to have devoted a distinct section on electoral reforms. Let us not forget the fact that it has taken more than a decade and plentiful of struggles by hundreds of civil society organisations, election watchdogs, dozens of public interest litigations and a proactive judiciary to push a handful electoral reforms to curb the growing role of criminal and illicit money in elections.

Read Also | A widely dispersed Budget

It was after years of activism, persuasion and constant litigations that political parties finally agreed to enact The Election and Other Related Laws Bill in 2003. And not long ago, all political parties, including the Left, fought tooth and nail to keep parties out of the Right to Information Act. In other words, this is probably the most difficult arena to push any reforms, let alone radical reforms. Therefore, by unveiling a sets of reforms, no matter how “half hearted” these may be, the government of the day has chosen to walk the tough road. Time now is to push for other enabling measures, especially strong disclosure laws and a regulatory body, that would go after each and every penny that parties and candidates raise to run political offices in the country.

Budget shows Modi’s ‘War On Cash’ is a serious one


 Modi, Raisina, Digital Payments

Finance Minister Arun Jaitley’s fourth budget is a solid, stolid and entirely consistent effort. It may not be perfect and meet every parameter of every analyst – no budget ever can – but is remarkable in its unwillingness to resort to gimmickry and political populism even as the polity enters a near non-stop election season.

This follows a pattern. The fiscal deficit target has been a Lakshman Rekha for the Narendra Modi government from its first year itself, when Jaitley ambitiously adopted the number left to him in the vote-on-account presented by the outgoing UPA government. Now, after three years of fiscal consolidation, the NDA government has just that much more room to spend. Even here, Jaitley has been judicious.

He has refrained from going overboard, promised a fiscal deficit of 3.2 per cent of GDP this year and 3 per cent in the following year, but given concessions and bigger outlays to infrastructure and housing in the hope of promoting private investment. Politically, he has also given himself the space to spend intelligently in his final year – when the slow jog to the general election will commence.

Jaitley was right in offering a budget with continuity and few shocks. He has assessed that the economy is in for a major disruption this year when the Goods and Services Tax is implemented, and is just coming out of a period of pain following demonetisation. The budget needed to be a balm, especially because, as the Finance minister pointed out, “In several parts of the world, there are signs of increasing retreat from globalisation of goods, services and people, as pressures for protectionism are building up. These developments have the potential to affect exports from a number of emerging markets, including India.”

The impact of Donald Trump’s economic policies is a concern. These have the potential to trigger a United States trade war with China and a global slowdown. India will not be unaffected which means the room for adventurism and risk-taking was just not there for the Indian Finance Minister. It also suggests why the Economic Survey, while such a remarkable document this year, remains an aspiration, as it tends to each year, irrespective of the government in question. Political realities and now global conditions make it difficult to embrace bold and daring ideas.

Both Modi and Jaitley have a habit of sticking to points and promises made and sometimes even obsessing over them. When demonetisation was announced, the two men had spoken of it being the first of a series of steps against black money and corruption, as well as a trigger to promote digital payments. Inattentive critics had scoffed at such reasoning and ascribed it to an afterthought following the cash shortage in the early weeks after November 8.

Today, not only is the bulk of that cash shortage behind us, both the endeavours – fighting corruption and promoting digital payments – are being pursued. The honest citizen and tax-payer is being rewarded or at least being told that she is not a fool for being honest and those who act dishonestly will be put to inconvenience.

Tax incentives for Point of Sales (POS) machines, announced a month after demonetisation, have been broadened and institutionalised. Payments to the government, by way of taxes for instance, will mandatorily follow the digital route beyond a certain (and to-be-announced limit). Cash transactions above 3 lakhs have been plain abolished. One suspects that ceiling will be lowered still further in the years to come. Mr Modi’s “war on cash” is a serious one.

An important aspect of the battle against corruption is cleaning up campaign finance and election funding. In this the reduction of individual cash donations to a political party to a limit of Rs. 2,000 – from the earlier Rs. 20,000 – is a strong move. True, parties will try and work around this, and at some point, cash donations will have to go altogether, but it is still a good first measure.

The mechanism of “electoral bonds”, to allow donors to buy bonds from banks and leave it to chosen political parties to redeem these, is also a welcome innovation. It will allow white-collar folk to donate to a political cause or party, without necessarily interacting directly with the party and its politicians.

Overall, this budget has stuck to this government’s key themes – infrastructure, including in agriculture; entrepreneurship at the grassroots; an energy revolution – the availability of and access to power will certainly be among the BJP’s calling cards in the campaign of 2019; and tackling corruption. The phrase “Swacch Bharat” has been expanded from physical cleanliness to a moral and systemic cleansing.

In that, with its appeal as well as warning to those Indians still avoiding taxes – “The number of people showing income more than Rs. 50 lakh in the entire country is only 1.72 lakh. We can contrast this with the fact that in the last five years, more than 1.25 crore cars have been sold, and number of Indian citizens who flew abroad, either for business or tourism, is 2 crore in the year 2015” – the budget persists with a Modi-Jaitley resolve: the willingness to sacrifice short-term popularity, even among those who may be BJP voters, to effect a longer-term transformation.

That mission continues. Of course, it will require 2019 to be won. The BJP cannot afford to, once more, repair a wounded economy, nurse it back to health – and, as in 2004, leave it to a successor that can’t believe its luck.

This commentary originally appeared in NDTV.

Questions on the Union Budget and Make in India

There is more room than imagined for reform in the Union Budget for Make in India. Political willingness will provide the answers.

Union Budget, policy objectives, Make in India, blueprint, India, rank, Ease of Doing Business, FDI inflows, FDI, Mumbai

As the 2017-18 Union Budget gets in sight, the question asked very often is: how will the budget redefine the rules of the game, so it is able to achieve its policy objectives? One such — much sought after — rule of the game is for the Make in India initiative. The question, however is, why Make in India is sought after?

With the objective of transforming India into a global design and manufacturing hub, the Government of India launched the Make in India initiative in September 2014. Focusing on twenty five sectors, it lays down a blueprint of how it envisions India as a manufacturing hub. Ever since its launch, the government appears to be making consistent efforts in giving meat to its blueprint. The government has not only provided financial incentives through its Union Budget, but has also engaged in regular sector development through ongoing policy announcements. It has also engaged with stakeholders outside sectoral focus to ensure fruitful developments of the initiative — improving India’s rank in the World Bank’s Ease of Doing Business indicator — or setting up of the Investor Facilitation Cell. Whether such sectoral policies are compliant to international rules defined through India’s membership to multilateral organisations like the WTO; whether developments in improving India’s rank on Ease of Doing Business indicator, is a matter of debate. The question on the success of Make in India’s success still remains up for debate.

The government is quick in suggesting that after the launch of Make in India, there has been an unprecedented increase in FDI inflows in the country.

During the period, October 2014 to September 2016, total FDI equity inflows of USD 77.86 billion was recorded as against USD 48.57 billion received during the preceding twenty four months with an increase of 60 percent (Nirmala Sitharaman’s address in Lok Sabha). Given that there is no counterfactual evidence of whether this would not have been the case — if the Make in India initiative did not exist — reasons behind the success of Make in India remains disputable. Ms. Sitharaman, in her response, states:

Data regard to the domestic and multinational companies which have invested or have shown interest to invest in the country under the Make in India initiative is not centrally maintained. Export data with specific reference to Make in India initiative is not maintained.

While the debate on the success or failure of Make in India continues to make headlines, I argue that it suffers from an identity crisis, nullifying the efforts taken by the government to achieve the desired objective. The crisis is only magnified, thanks to an intricate web of international production network, which is increasingly organised within the global value chains (GVCs) — where the different stages of the production process are located across different countries; where goods cross several borders before it reaches to the final consumer; where the rules of international trade are now being redefined from trade in comparative goods to trade in competitive goods.

This leads to the main question: where does it identify India to be in this global value chain?

How does it envision for the goods to be manufactured and traded through this global supply chain? Does it envision India to be that manufacturing hub where companies are encouraged to process intermediates and sell the finished products in the domestic or international market or both, processing and assembling hubs? Or does it envision India to be that manufacturing hub where companies are encouraged to process from scratch, i.e. from raw-materials and sell the finish products in the domestic or international market or both?

Does it want to encourage domestic manufacturing or does it want to encourage foreign manufacturing? For foreign manufacturing, does it want to encourage Greenfield or Brownfield investments?

Does it want to encourage foreign manufacturing through a equity or contractual joint venture between an Indian and a foreign manufacturing or does it want to encourage the establishment of wholly foreign owned manufacturing? Does it want foreign manufacturing to serve the Indian market or the international market, or both?

What does it want to achieve by transforming India into a manufacturing hub? Does it just want to generate jobs or absorb the displacement of jobs or is the vision bolder to include transfer of technology and consequent technological and skill up gradation? Where does it envision SMEs in the global value chain? Does it want to encourage SME participation in the global chain through direct or indirect participation?

To what extent can India relate its initiative to various trade agreements it is signatory to? These questions crossover and cannot be answered in silos.

Identifying the position in the global value chain is crucial in defining both trade and FDI policies of India, which go beyond the existing state of affairs.

To put this in perspective, let’s take the example of India’s FDI policies which has not only seen sectoral limits off the previously defined limits, but also greater encouragement through automatic route, rather than government approval route. The question, however, is: do liberalising FDI sectoral caps encourage its inflow without government approval amount to all the FDI?

I argue that it may be the first step. However, identification of India’s position in the global chain would help determine the various other aspects to FDI policies. For instance, if India wants to be identified as the processing and assembling hub wanting to serve the global market in the aforementioned global value chain, then it can lay greater emphasis on encouraging, in what I refer to as, export-oriented processing FDI, i.e. FDI for processing of intermediates to finished products.

Once the position on the global value chain is identified, concentration can be laid on defining other policies accordingly, which I like to call “supportive policies” to facilitate FDI reforms, in some sense also form a part of the comprehensive FDI reforms. For instance, by investing in building necessary absorptive capacity like investments in skill development or human capital policies, India not only stands in a better position to attract greater levels of FDI, but also stands in a better position to realise the potential of FDI through knowledge absorption, directly and indirectly, via various spillover mechanisms. This would also help in reducing the unemployment shock which the displacement to the manufacturing sector will release.

Identification in the global value chain will also help in defining India’s trade policies by correcting anomalies such as inverted duty structure, correcting trade barriers, and secure a better deal through trade agreements. Besides, with only three countries to ratify the Trade Facilitation Agreement, India has all the more reasons to incorporate a wider range of policies under the umbrella of Make in India.

There is more room than imagined for reform in the Union Budget for the Make in Indiainitiative. It is the political willingness that will provide the answers.

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