Understanding The Indus Water Treaty

Parenting Indian Juveniles Can Involve Repeating Bullshit Sentences.

That’s a mnemonic for you to remember the rivers in the Indus water system. Under the Indus Water Treaty, the water of the western rivers— Indus, Jhelum & Chenab— are allocated to Pakistan. That is P for Pakistan & I_J_C. On the other hand, India has unrestricted access to the three eastern rivers— Ravi, Beas & Satluj. That is I for India & R_B_S.

Those are the bare bones of what may someday lead to a “water war” between two nuclear-armed nations. And it’s important for all of us to understand why.

When Radcliffe divided erstwhile British India into two, the rivers of the Indus water system decided not to give a fuck. “The government officers, clerks with chairs, pens and inkpots were distributed” & so were people with mental illness including Manto’s fictional character Toba Tek Singh. But the Indus & its sidekicks had been flowing the way they did since eternity & they were not going to be perturbed by this newfangled concept called a nation-state.

The six rivers of the Indus basin variously originate in Tibet & Northern India as the hills lie to the northeast of the Indus basin. Pakistan lies downstream & hence by the sheer virtue of geography, India found itself with a dangerous level of control over most of these streams.

In May 1948, the Karachi Dawn, one of Pakistan’s leading newspapers, wrote:

As a blazing sun poured itself over the dry and parched lands of Montgomery and Lahore, anxious and overwrought people of the province asked, “When will the canal water come?”

In April, India had stopped water flows from the Ferozpur headworks to some canals in the Punjabi areas in Pakistan. About a million acres of land in Pakistan faced drought. India later restored the water flow but only after Pakistan paid compensation for the water. With this incident, Pakistan realized its folly. It hadn’t insisted on canal water distribution at the time of the Radcliffe award.

Two Opposing Conception of Territorial Sovereignty

Let’s say you have 20 people packed permanently in a large room. There are 20 water taps installed on an equal distance on the four walls. While everyone can access the water tap whenever they want, the main switch to all the water taps is located on a particular corner of the room. Sixteen of them are fans of John Green & four of them love Rushdie.

The sixteen people thought of the four as intellectual snobs while the Rushdie fans considered the remaining sixteen as lacking in literary taste. They fought a lot over what one should read & sometimes they got into fist fights too. One day, an outsider arrived to “solve” their problems. He built a wall divided the room. About one-fifth of the room was allocated to the four Rushdie fans. They got one-fifth of everything— books, pens, food supplies, etc. They had one water tap for each person too. But soon they realized the main switch to all the water taps was on the side of John Green fans.

Now, what do you think we should do to arrive at a fair arrangement?

The John Green fans could say that they have the right to do whatever they want with the things in their territory & that involves turning the switch on or off whenever they want. This view is called absolute territorial sovereignty or the Harmon Doctrine. According to it, Rushdians have no right to question if the Greenies switch off the water taps forever & leave them the Rushdians to die. In 1895, When the government of Mexico protested against the US diversion of water from the Rio Grande river, the US justified its action by Harmon Doctrine. This is a very uncivilized way of looking at things & It is no longer in use in the International law.

The Rushdians can say that water did not belong to the land but to the people. So, they were entitled to the same amount of water they had enjoyed historically. The party in control of the switches could not do whatever they wanted. There are some internationally accepted rules & the two parties must abide by it. This view is called Limited Territorial Sovereignty or the theory of territorial integrity.

Under the theory of territorial integrity, every lower riparian is entitled to the natural flow of streams entering its territory.


The right to exploit a river to a greater extent than in the past must be denied an upper riparian since it would affect the amount of water, or its quality, flowing downstream.

This is how Pakistan has viewed the Indus problem from its inception. This theory too isn’t applied anywhere in practice yet. These are the two extreme views. The Indus Water Treaty is based on a middle way— the theory of reasonable & equitable utilization.

It follows from (these principles) that the rights of the several units concerned in this dispute must be determined by applying neither the doctrine of sovereignty, nor the doctrine of riparian rights, but the rule of equitable apportionment, each unit being entitled to a fair share of the waters of the Indus and its tributaries.

After 1948, when India stopped the flow of water to Pakistan, the two countries with the World Bank as a broker tried to negotiate a more civilized arrangement. At the beginning of the negotiations, India just asked for the water of the river Beas for exclusive Indian use. But till the end, India got unrestricted access two three eastern rivers— Ravi, Beas & Satluj. This was commensurate with India’s needs. About 20% of the watershed of the Indus water system is in Indian territory & India got unrestricted access to about a similar percentage of water. In addition to that, India was also allowed to small storage on the western rivers for cultivation & to generate electricity. This was the Indus Water Treaty signed between the three parties— India, Pakistan & the World Bank— in 1960.

Kadyalwar Sunil Abhinav

Old Acquaintances: India And The OIC

This year, India had been invited for the 46th session as a “guest of honour” as OIC completed its 50th year in 2019. But our relations with OIC are quite old.

The Organization of Islamic Cooperation (OIC) calls itself “the collective voice of the Muslim world” & its stated objective is this:

To safeguard and protect the interests of the Muslim world in the spirit of promoting international peace and harmony among various people of the world.

India has the third largest Muslim population in the world. India is home to about 10% of the world’s Muslims. Any organization genuinely interested in protecting the interests of the world’s Muslims should obviously have India as one of the most important players. All the member countries of the OIC have a majority Muslim population. Russia & Thailand, with a significant Muslim minority, are the observer members of the organization. But, in my opinion, to really “protect the Muslims of the world”, you first need to have countries with significant Muslim minority populations as the members because those are the Muslims who may not have an adequate voice in their country.

So, if India isn’t a member of OIC & it has been invited for the first time in 50 years, we should rather ask, “Why the hell India isn’t a part of OIC yet? Doesn’t this miss the whole point of having an organization to protects the Muslims of the world?”

The preparatory committee that decided the composition of OIC in 1969 led down the following criteria for the countries to be invited for the meeting:

  1. countries having a Muslim majority population; or
  2. those having a Muslim head of state.

Pakistan wanted to paint India as a Hindu country rather than a secular country where Muslims have no place. India’s inclusion in OIC has always been opposed by Pakistan. If India is included in OIC, it means that the government of India actually represents a sizeable number of the world’s Muslims.

Mohammad Ali Jinnah

This is against the very idea of Pakistan. The two nation theory assumes that the Hindus & Muslims are two nations and Pakistan is the only true guardian of Muslims in the territory of Indian Subcontinent once ruled by the British. India’s inclusion in OIC would have created an identity crisis for Pakistan.

India was actually invited to the first OIC conference & in effect, India is one of the founding members of OIC. While Pakistan felt uneasy with India’s inclusion, it couldn’t muster a valid reason why India shouldn’t be included.

Around the same time, communal violence in Gujarat broke out. It was the first major Hindu-Muslim riot after partition. With this, Pakistan had now found a reason to refuse India’s entry into OIC.

This is what Gurbachan Singh, India’s then ambassador to Morocco, has to say about what happened:

The following day, on the 24th morning, Laraki asked me to see him before the conference was to reconvene. He said that news of the Ahmedabad riots was beginning to cause some disquiet amongst the delegations and suggested, on a personal and friendly basis, that I should not participate in the morning session. I readily agreed and asked the other members of the delegation to attend the conference.


During this time members of all the delegations had waited in the conference hall. Rumours were floating around. It transpired that the president of Pakistan was refusing to leave his villa until he received an assurance that the official Indian delegation would not be permitted to participate in the meeting. Many leaders of delegations attempted to telephone him but reportedly he would not even answer the telephone.

Pakistan didn’t want India to be part of OIC. India was asked if it could accept an observer status. The Indian delegation wasn’t happy with the suggestion. The Moroccan delegation asked India if it would voluntarily withdraw from the conference to ensure the success of the first conference of OIC. India was initially “unanimously” invited to OIC & it was not going to give up the membership due to Pakistan’s antics. India refused to withdraw.

Pakistan’s volte-face, it is evident, was not because of the Ahmedabad riots or a governmental delegation or a Sikh acting leader of the Indian delegation, though all, in turn, were presented as reasons. It is also on record that Pakistan was part of the consensus when an invitation had been extended to the Government of India. The real reason was that, when word got back to Pakistan of the invitation to India, there was a spate of protests in the country including, significantly, by many political opponents of the regime such as Asghar Khan, Bhutto, Mumtaz Daultana and others.

The Indian delegation at OIC was labelled as the “the Muslim community of India” instead of “the government of India” in the final declaration.

India could not accept anything lesser than the member status because it was “unanimously” invited as so. Pakistan, on the other hand, ensured that India wasn’t invited to any subsequent conferences. Pakistan has used OIC to garner support for its Kashmir cause. In the 1990s, it doubled down on the particular issue. So, India wanted to be part of the OIC to present its side of the story. But Pakistan thwarted all such efforts.

Now, that the major countries like Saudi Arabia & UAE want to be on India’s good books due to India’s economic rise, they have been trying to rethink India’s position in the OIC.

That’s why we had this “guest of honour” invitation. The anti-India days of OIC are gone & we shouldn’t be worried too much about our inclusion. So, if we are to participate in OIC, it should only be as a member, nothing less than that.

Kadyalwar Sunil Abhinav

IMF & World Bank: How do they differ?

The IMF and World Bank are called the ‘Bretton Woods Twins’. John Maynard Keynes labelled IMF & World Bank as “Master Fund” and “Miss Bank” respectively. This assignment of gender reveals the functions of the two Institutions quite well.

(Note: This characterisation plays to the gender stereotypes. Apologies for that but it does serve the purpose well.)

International Monetary Fund, called the “Master Fund” by Keynes is narrowly focused on macroeconomic imperatives like stabilizing currency exchange rates, financing balance of payment deficits and advising borrowing governments to make the requisite changes in its economy. It is seen as a meaner of the two twins. In 1991, as India battled with its balance of payment crisis, India had to knock on the doors of IMF. The Indian economy, which had been a closed one till that time was forced to liberalize itself. They call it ‘structural adjustment’ measures.

IMF’s help is conditioned on the country’s promise to change itself. That does have an overtone of a tight-fisted gentleman (or not-so-gentle man). If you want to be more generous in your perception of IMF, think of it as your father who tries to discipline you once in a while when you go off the road. If your finances are not in shape, he will lend you but only if you promise to mend your ways of handling your finances. And yes, like all fathers, he too thinks that he knows what’s best for you: Free Market.

At IMF, you’ll find mostly professional economists and financial experts. IMF publishes reports which sound pretty highfalutin like Global Financial Stability Report & World Economic Outlook.

World Bank, or officially the International Bank for Reconstruction and Development (IBRD), is primarily aimed at financing economic development. ‘Development’ is a softer word that the more muscular term “economic growth” & thus the label “Miss. Bank”, a nourishing institution looking at development as just as sound economic fundamentals but as quality healthcare, education, water, infrastructure, etc. It is seen as more benign than IMF.

World Bank’s current projects in India can help you understand its purpose. It collaborates with Government of India on a project called ‘Atal Bhujal Yojana’ which is a plan for managing groundwater. Similarly Tejaswini project is for Socio-economic empowerment of Young women and adolescent girls. Its contribution to schemes like National Nutrition Mission, Projects on Climate resilient agriculture, etc gives you an idea that World Bank is focused on a broader definition of development.

World Bank comprises of IBRD and International Development Association (IDA) which gives loans at concessional rates to poor countries. At World Bank, you’ll find a whole range of people like economists, engineers, urban planners, agronomists, statisticians, lawyers, portfolio managers, loan officers, project appraisers, as well as experts in telecommunications, water supply and sewerage, transportation, education, energy, rural development, population and health care, and other disciplines. World Bank’s report do not sound as intimidating as that of the IMF’s. They are Ease of Living Index Report, Universal Health Coverage Index, Remittance Report, etc.

IMF and World Bank have different purposes, Size and Structure (World Bank is about three times the size of IMF), Sources of Funding and recipients of funding (IMF only lends to countries in distress). This is a very simplistic way to look at the two institutions but it helps.

Coke Studio as Pakistan’s Soft Power

Alexa, Play “Pak Sarzameen” by Coke Studio.

For the uninitiated, let’s first understand what “Soft Power” exactly means. Military & Economic might are considered as “Hard Power”. With a strong military, you can intimidate your enemies & defeat them in battles. That is one way to get what you want. Then, you have the economic power. Why does the US impose sanctions on countries it doesn’t like? Because it can. Economic power gives you various tools like aid, sanctions, or the age-old trick of bribing the officials. These are coercive methods.

But then there is “Soft Power” too. This term was coined by Joseph Nye, an American Political Scientist. Soft Power creates a favourable image of a country in the minds of foreigners. Soft Power influences the behavior of others to make them want the outcomes you want. Like, in South Asia, Indian democracy is a benchmark. Among many things like Bollywood or Yoga, India’s democracy itself is its soft power. If the people of Bhutan are attracted towards Indian democracy, they may as well start demanding outcomes similar to what India wants. The outcome, in this case, can be staying away from authoritarian China. That is an example of soft power. The essential thing about soft power is that it is non-coercive as against the coercive hard power. There is a lot of disagreement if Soft Power is of any real use but It will be very difficult to bomb the people who your countrymen truly love.

An example of Soft Power that I want to discuss is Coke Studio Pakistan.

Chaap Tilak, one of my favourite songs from Coke Studio

What image conjures up in your mind when I say the word Pakistan? Terrorism? Military Dictatorship? Islamic Fundamentalism? Poor Citizens in Burqa and Pathani Salwar? The rich elite epitomised by the likes of Hina Rabbani Khar? For some of us, it isn’t an image but a sound, the soulful sound of Coke Studio Pakistan.

Pakistan always had an image problem. It had tried to project itself as a protector of Islam. A slogan popularized by the dictatorial regime of Zia-ul-Haq went like this:

Pakistan ka matlab kya hai? La illah illallah

(What is the meaning of Pakistan? There is no God but the God.)

There was always an effort towards uniformity. The distribution of political & economic power is Pakistan is highly skewed even today. In 1971, Bangladesh said, “Dude, I am done with you. We can’t hold this together anymore.” Pakistan has been harbouring terrorists in its territory. Osma Bin Laden was found chilling near its military garrison in Abbottabad. Then you have the Pakistani Support for Taliban, the nuclear weapons & growing intolerance & sectarian violence. This is surely not a good resume.

Coke Studio Pakistan is a show where singers & musicians perform together on the same platform in a kind of “Jugaldandi”. I have talked about the political & economic distribution in Pakistan but Coke Studio gives you a feeling that Pakistan is inclusive at least in a cultural sense. The songs are a fusion of various musical influence— eastern classical, folk, rock & contemporary popular music. The songs are easily available on YouTube & the provided translations in Urdu & English makes them reach a wide audience all over the world. It gives an impression contrary to what we have— a diverse & inclusive Pakistan where all cultures all equally respected. This is what the Coke Studio website says:

Coke Studio prides itself on providing a musical platform, which bridges barriers, celebrates diversity, encourages unity & instils a sense of Pakistani pride.

Most importantly though, the first season essentially put on the map the Coke Studio philosophy of peace & harmony and celebrating life.

This promotion of Pakistani music when the country felt truly lost is similar to the projection of French culture, its language & literature through the Alliance Francaise, which was created in 1883. This helped France repair its shattered prestige.

The songs in Coke Studio are sung in various languages— Brahui, Seraiki, Hindi, Punjabi, Urdu, Farsi, Poorvi, Marvari, Balochi, Brahui, Persian, etc. Listen to the song called “Daanah Pah Daanah” written and composed by Akhtar Chanal Zahri. Just in one single song, about five languages are used. It is about a shepherd telling a story & introducing us to the beautiful land, rivers & mountains of Balochistan.

A new song in Season 11 called “Baalkada” features two transgender singers.

It is also a confluence of tradition & modernity. It takes both Western influences & indigenous classical & folk influences. Adrian Malik, the Video Producer at Coke Studio says:

The music is an honest representation of where we are today, it’s both timely & timeless; both purely Pakistani & palatably global. Coke Studio is all about unity— the collaboration of a big-hearted, open-minded Pakistanis to create something unique, beautiful & truly our own.

Pakistani music as a whole is a soft power for Pakistan. Geniuses like Abida Parveen, Nusrat Fateh Ali Khan, Rahat Fateh Ali Khan have been Pakistan’s cultural representatives. Coke Studio is just its culmination.

But does it work?

To an extent, yes. Open a Coke Studio song on youtube & scroll down to the comment section. The comment section brims with Indians and people all over the world praising how beautiful Pakistani music is. You will find Indians professing their love for the Pakistani neighbors like you won’t find anywhere else.

As CSP’s tagline goes, it truly is the “Sound of the Nation”.

Understanding Kesavanda Bharti

In the initial days of our Republic, the Supreme Court was of the view that any part of the Constitution can be amended by the Parliament by using Article 368. By this logic, things can go really awry.

So, imagine this.

In one Parliament session, the legislators bring hundreds of Constitution Amendment bills each attempting to amend an Article.

Won’t this essentially result in a new constitution? Should Parliament be allowed to amend whatever portion of the Constitution it wants to change? When does the amended constitution stops being our constitution?

This is where Kesavananda Bharati Case comes into the picture. I have divided the answer into three phases to bring out how the case came about. It is important to look at the case in its historical context.

Phase I : Nothing is Sacred

Just as I mentioned before,  the Supreme Court was of the view that the Legislature can change any part of the Constitution including the Fundamental Rights. Let’s look at a case which brings out the tussle between the Parliament & Judiciary quite clearly.

Just after Independence, one of the primary concerns of the government were land reforms. But a few Court decisions made it practically impossible for the government to carry out land reforms as the acquisition of Zamindari land was violative of the Right to Property. Frustrated that the Supreme Court doesn’t see the government’s obligations under the Directive Principles of State Policy as well as for general interest,  the government felt somewhat like this:

You know what! If our laws violate the constitution, we are just going to effing change the constitution.

So, the Legislature passed the First Amendment Act that let it carry out the land reforms.

Then, A few people thought:

“Are Fundamental Rights of any use if they can be so easily taken away through a Constitutional Amendment? Let’s go to the Supreme Court.”

 This case is called “Shankari Prasad v. Union of India”.

The ball was now in the Supreme Court. (Eh, Pun!) It said that Parliament has all the rights to do what it did.

The law in Article 13(2) does not include the Constitutional Amendment Acts. “Nothing is Sacred. Go home & Chill.”

Phase II: Fundamental Rights are sacred

Until 1967, Supreme Court was very clear in its opinion that Amendment Acts were not ordinary laws & they cannot be struck down by the application of Article 13(2) i.e. they can not be struck down for infringing the fundamental rights.

  • In 1967, in Golak Nath v. the State of Punjab, SC changed its stance. It ruled that the Parliament had no right to take away people’s Fundamental Rights. They are fundamental for a purpose.
  • Amendments are also laws within Article 13(2). So, a Constitutional Amendment too should be reviews if it violated fundamental rights.

This made Fundamental Rights sacred.

Now, The government was upset with Judiciary. And the government was like:

“Oh, Judiciary! How can you do this do me? It is our joint responsibility to look after the development of our country. Now, you are just being an A-hole by limiting my amendment powers. You are a stumbling block to the progress of this nation.”

Phase III: Nothing is Sacred but……

Until now, we have seen how the Supreme Court and Parliament were trying to one-up each other— Parliament by passing new Constitutional Amendment & Courts by its Judgements limiting the amending powers. To reverse the judgement that limited the amending power, Parliament came up with the 24th Amendment. This curtailed the power of Judicial review.

The Supreme Court said: 

“This is enough. Enough of your playing with the book. Let me put some ground rules now.”

This is our case of the century: The Kesavanda Bharti case.

The Supreme Court declared that the Parliament can amend the Fundamental Rights. Fundamental Rights were are not exempted from Article 368 which gives the power to amend the Constitution. But it realized how the Parliament cannot be given a free hand to amend the constitution left, right & center— the way it had been doing so far.

The Basic Structure Doctrine

The Supreme Court said that there are some basic principles that any constitutional amendment should be consistent with. It accepted that there are some core principles that can’t be taken away. Taking them away would essentially mean destroying the constitution. The court hasn’t exhaustively put down what the Basic Structure contains but it has given us an idea of what it is. Some components of the Basic Structure as put down by Supreme Court are:

  1. The Supremacy of the Constitution
  2. The Sovereignty of India
  3. The integrity of India
  4. The Republican form of the government
  5. ……

This was undoubtedly the most important Supreme Court case in the history of Independent India. Now, any constitutional amendment is looked at by the SC if it violates the Basic Structure. The SC has used that power too

For Example, by 99th Constitutional Amendment bill, National Judicial Appointment Commission or NJAC was formed to create a new way to select judges to the higher judiciary. The Supreme Court found that this violated the basic structure of the Constitution & the Act was Struck down as it destroyed the balance between the three arms of government.

Yay, that’s it. That’s all of it.

Kadyalwar Sunil Abhinav

Ease Of Doing Business Rankings: A Critique

Reports that assess the business environment by speaking to experts or government officials capture the de jure processes of compliances and regulations. But there can be differences between de jure processes and de facto reality due to issues of implementation and understanding of systems by user enterprises. Hallward-Driermeier and Pritchett find that for comparable questions such as time taken to start a business or time taken to get construction permits, the results of the Doing Business reports of the World Bank and the Enterprise Survey globally are poorly correlated.

The above excerpt is not from the Wire, Scroll, Quint or NDTV. It is from NITI Aayog’s report on Ease of Doing Business published in 2016 which the Government of India later disowned. India jumped 23 places to occupy 77th position in the World Bank’s ‘Ease of Doing Business Rankings’. I hate to be a party pooper, but we should first understand what the World Bank’s Doing Business rankings really mean before we pop the cork.

World Bank’s Doing Business rankings are based on responses from experts, chartered accountants & lawyers. They are not based on how the entrepreneurs & businessmen look at the regulatory environment. Why should this matter at all?

Take the example of the Single Window System that the government brought to facilitate ease of doing business. This allows the companies to submit all their regulatory documents to a single entity or at a single place. This is a great move because it brings down the time businesses spend on paperwork. It also cuts down the corruption associated with multiple entities. So, if you ask experts, they will tell you that India has improved a lot in ease of doing business with this single move. But the NITI Aayog Report I discussed above suggests that businesses are not even aware of the Single Window System.

Only 20% of enterprises that started operations during or after 2014 said that they had used a single window system to set-up their business.

So, this rank shows you what reforms the government has taken but it doesn’t tell you if businesses are actually benefiting from them. There is a vast gap between what the enterprises know and what the government officials say they have done to improve procedures relating to various permits and clearances.

Another big flaw in World Bank’s EODB ranking is that its data source is limited to just two cities— Mumbai and Delhi.

One can argue that examples set by these two cities will be replicated in other cities. While a large proportion of India’s business takes place in these two cities, this cannot be representative of the entire country.

The Rankings take into account 10 parameters and rate countries based on it. India’s ranking improved mainly due to two factors:

  1. Improvement in dealing with construction permits (from a rank of 181 to 52) due to the new online building permit approval system in Mumbai that helped streamline and centralize the construction-permitting process.
  2. Improvement in “trading across borders” (from a rank of 146 to 80) as the government let the exporters seal their containers electronically at their own facilities, limiting physical inspections to 5% of shipments helped in trade facilitation.

This looks like a very thin thread to base the whole of India’s ease of doing business rank. India’s “paying taxes” ranking declined due to glitches in GST filing system and the associated time loss. The Insolvency & Bankruptcy code has been taken into account for resolving insolvency but It had no effect on the ranking.

So, what are the ground realities?

  1. Labour laws are still one of the biggest impediments to ease of doing business in India. Companies in labour-intensive sectors find the labour laws in India quite onerous. If India wants to avoid jobless growth, the government needs to reform the labour laws.
  2. Most States have made it easier to obtain land for business but ensuring clear property rights can make the land market more transparent & efficient. In many states like Rajasthan, obtaining land for commercial purposes is quite difficult. Registering property is a time-consuming process with registration fees that can go as high as 1% of property value.
  3. India got a score of 8.75 out of 35 in a global intellectual property index. This is published by the US Chamber of Commerce. The reason cited for the poor score is a “fundamental weakness” in India’s Intellectual Property laws. India ranks 44 out of 50 nations.
  4. There is a vast difference in the ease of doing business across various states. In poorer states, the compliance burden is large while in richer states, it is easy to do business.
  5. Similarly, companies with a low number of workers (upto 10 employees) face less difficulty in doing business while companies with a larger number of employees are burdened with regulatory burden. This prevents India from coming up with larger companies.
  6. Enterprises are not aware of the improvements in ease of doing business. Hence, they cannot leverage the steps taken by the government to smoothen the regulatory processes.
  7. In low-growth states, power shortage is still a problem. Addressing this will enhance the productivity & efficiency of the businesses.
  8. The GST filing system hasn’t stabilized yet. There are glitches in the filing process that can lead to huge time losses.

And finally, do the Ease of Doing Business ranking actually translate into foreign direct investment & GDP growth?

A research has shown a negative correlation between EODB rankings and GDP growth rates. It argues that a country with a bad economic ranking can perform better economically than a country that has a better EODB ranking. I am skeptical about this research and I do believe that EODB ranking matter when a company decides to invest in a country. But just the ranking cannot tell you if the business environment in the country has really improved. There are miles to go before we sleep.

And if we are flaunting this report, we should equally embrace all International reports about India, even the ones that show us in a bad light. When the same World Bank published its human capital index, the government cited “major methodological weakness” & rejected it. Similar “methodological weaknesses” are applicable to EODB rankings as well.

Kadyalwar Sunil Abhinav

The Myth Of RBI’s Autonomy

The autonomy of the Reserve Bank of India has been more of a fiction than a reality. The RBI was born on the All Fools Day in 1935 & its autonomy, for most of its history, has been a joke.

The issue of RBI’s autonomy had been in news about some months ago when the government used the Section 7 of the RBI Act for the first time in its history. For the uninitiated, Section 7 of the RBI Act gives the Government of India powers to issue directives to the RBI to carry out certain policies in the public interest. This undermines the autonomy of the RBI as the veto power is always with the government. It had been reported that section 7 had been used to issue certain directives to RBI regarding several issues of contentions like a separate regulator for payment systems, a liquidity crunch in NBFCs, transfer of RBI profits to government coffers & RBI’s PCA framework.

In 1956, T.T. Krishnamachari was India’s Finance Minister & who, in the words of T.C.A. Srinivas Raghavan, “thought that he knew everything but also that no one else knew anything.” Then, the governor of RBI was Sir Benegal Rama Rau. He complained thrice to the Prime Minister about TTK’s ‘rudeness’, ‘rude language’ & ‘rude behavior’.

Once Krishnamachari announced the monetary policy in the presence of the RBI governor, which was very different from what the RBI was going to announce.

Who needs section 7 when the finance minister could practically decide the monetary policy? According to B.K. Nehru, “TT. Krishnamachari let fly in no uncertain terms and in the loudest of voices that RBI was a ‘department’ or ‘section’ of the finance ministry.”

Image: T.T. Krishnamachari & Jawaharlal Nehru | Image Source: OPEN Magazine

Prime Minister Jawaharlal Nehru too sided with the finance minister & wrote to Rama Rau that the RBI was ‘obviously a part of activities of the government and has to be kept in line’. When Rama Rau threatened to resign, Nehru said, “If you wish, you can send your formal resignation to the Finance Ministry”. Talk about autonomy. The entire thing sounds funnier when I tell you that just a little earlier, Nehru had written to Vaikunth Lal Mehta, the cooperative leader that the RBI had to have its autonomy.

After Rama Rau, Sir H.V.R. Iyengar took the position of the governor of RBI. This is what TCA Srinivas Raghavan writes about the subsequent terms in his book “Dialogue of the Deaf: The Government & the RBI”.

Under him and his successors, the RBI didn’t make any fuss about deficit financing or, indeed, about anything. Even when fourteen banks were nationalized, virtually overnight, by Indira Gandhi in 1969 the RBI merely sighed and accepted that the new department of banking would be the real boss. It has its differences of opinion which were expressed in long and lugubriously polite letters. But in the end, it did what it was told— just as it has always done since the time that Osborne Smith was sacked.

Sir Osborne Smith was the first Governor of the RBI & he was sacked for his disagreements with the Secretary of State in London. In 1936, he wrote in a letter that he was ‘sick to death’ of the government’s attempt to dominate the RBI. In the second half of the 1950s, RBI was asked to simply print notes to make up for the difference between the government’s revenue and expenditure. This deficit financing would give rise to inflation for which the RBI was responsible but It was left with no choices in this matter. B.K. Nehru would just phone RBI governor and order him to issue a certain amount of ad hoc treasury bills. In years to come, in spite of a dominant finance ministry, the RBI performed exceptionally well.

Unlike the independence of Judiciary, the autonomy of RBI isn’t something written down in our Constitution or the Law. The RBI Act itself gives powers to the government to issue directives to RBI under Section 7. The wide autonomy given to RBI by the Finance Ministry is a recent phenomenon. D. Subbarao started acting independently maybe from 2011. Raghuram Rajan got a fair amount of autonomy. And for Urjit Patel, we were back to square one.

Section 7 wasn’t invoked in RBI’s history because there was no need to do that. Governors implicitly accepted that RBI was created by a law passed by the parliament & they are only as autonomous as the government wants them to be. The Deputy Governor Viral Acharya in a speech warned that:

Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite the economic fire, and come to rue the day they undermined an important regulatory institution.

Those are some powerful words. It isn’t a surprise that the Government & RBI has disagreements. It is sad that they let the spat go public. The RBI didn’t want to play the part of a “wife in a Hindu joint family” anymore. And it was putting it out in the open that the government cannot infringe its autonomy.

Kadyalwar Sunil Abhinav