The Indian EXPRESS

N 2011, India received around $31.5 billion by way of foreign direct investment (FDI), according to the UNCTAD’s World Investment Report 2012, less than Russia’s $52.8 billion and Brazil’s $66.6 billion and way below the $123.9 billion that multinational corporations pumped into China during the calender year. More worrying is the report’s forecast that a rebound in global investments, which surged to $1.5 trillion in 2011 and far exceeded pre-financial crisis levels, could even out this year. Coming at a time when India has reported a record current account deficit of 4.2 per cent of GDP for 2011-12, subdued inflows — both FDI and foreign institutional investments — conjure up a scary prospect on the macro-economic front. Government must get its act together or risk losing out on potential inflows that could help partially bridge the deficit. Comparative data on yearly FDI equity inflows does show that India received sharply higher inflows during 2011-12, compared to the previous financial year, with inflows in just the first 11 months of the financial year clocking in at Rs 1,33,181 crore, as against the Rs 88,520 crore received during 201011. But there is very little room for complacency. In fact, a research study undertaken by the RBI to ex-


Energise the reforms agenda to revive wilting FDI. Govt doesn’t have time to lose
amine why the FDI flows to India remained sluggish in 2010-11 proves this conclusively. Based on 10 major emerging market economies, it showed that investments were significantly influenced by openness, growth prospects, macroeconomic sustainability, labour costs and predictability in government policy. To woo investors back to India, ushering in the much-delayed policy reform on allowing FDI in the multi-brand retail sector could be a good starting point. Combined with changes to the current policy pertaining to FDI in single-brand retail, this could help reverse the slipping investment sentiment. The longer-term booster dose for the economy could come in the form of credible action in areas such as the pension and insurance sectors, along with the pending reforms in the taxation sector. Despite the worrying forecast of global investments tapering off this year, the silver lining in the UNCTAD report is that it places China, the US and India, in that order, in the list of the hottest investment destinations for global companies over the next three years. For this to translate into investment inflows on the ground, though, the government needs to reinvigorate the flagging reforms agenda. That will show the world it means business.

Down to business


Fukushima lessons


The Japanese panel’s report must restore balance to the global nuclear debate

AST year’s Fukushima disaster in Japan affected the prospects of nuclear power and the nuclear industry globally. The spectrum of reactions ranged from panic and political capitulation, as in Germany’s decision to phase out nuclear power over an 11-year period, to the general rationality in France, which depends on nuclear power for 80 per cent of its electricity. It must be hoped that the Fukushima Nuclear Accident Independent Investigation Commission’s report, released on Thursday, restores some sanity to the global nuclear debate. At the same time, the Indian government’s decision to fast-track reactors 3 and 4 at Koodankulam and resuscitate the Jaitapur project should bring cheer to a country that faces the challenges of increasing energy supply and diversifying its energy basket to reduce dependence on fossil fuels. The commission’s strongly worded report blames Fukushima on human error. Government, regulators and operator Tepco colluded to ensure laws and regulations were unsystematic and not followed, safety lessons were not learnt, and inadequate preparations were

made for a disaster. Although the report might be construed as favourable by both sides of the nuclear debate, it’s actually a win-win for all. While the people can demand absolute transparency on safety standards, the report also rescues nuclear energy from activistserrant who turned “Fukushima” into a handy tool to beat the nuclear industry with. With an acute peak-hour power deficit of 13 per cent and 40 per cent of its population still without electricity, India cannot dispense with Jaitapur, which will provide power to 10 million homes. However, as the Koodankulam impasse showed, the government has a primary responsibility in instilling nuclear literacy and talking to the people well before a project is begun, listening to their legitimate fears and countering misinformation. Moreover, the Centre needs to move on the Nuclear Regulatory Authority of India. The Atomic Energy Regulatory Board still reports to the Atomic Energy Commission. An independent nuclear safety body like the French ASN would make clearances much more credible and build public confidence in nuclear power plants.

OST-MAO China is commonly seen as a country devoid of any ideology. The death of communism meant that the ruling elites could no longer invoke utopian ideals to motivate people or claim legitimacy. Western liberalism has not taken hold in Chinese society either, mainly due to the repression by the Communist Party, which views liberal values as ideological threats to its power. But the lack of ideology in Chinese politics does not mean that Chinese politics has no dominant ideas. If we probe a little more deeply, we should find one particular idea that has decisively influenced the thinking of Chinese elites and society for the last three decades. It is always tricky to label ideas. For the sake of simplicity, we may call this dominant idea “economic determinism”. Its essence is fairly straightforward, although it means different things to different people. From the perspective of the Communist Party, economic determinism simply means that, after the bankruptcy of communism as an ideology, its political legitimacy and ability to hold on to power are determined by its capacity to deliver economic growth and improve the standards of living of the Chinese people. For some Chinese liberals, opposed as they are to one-party rule but denied the means to change it right away, economic determinism offers a possible alternative. If economic growth can transform Chinese society and undermine the socioeconomic foundations of authoritarian rule, then they would rely on both market forces and modernisation to help democratise China. For most Chinese technocrats eager to see China become a successful market economy, economic determinism means that, if the party really wants to stay in power, it will have no choice but to embrace market principles. The influence of economic determinism reaches beyond Chinese borders. Many leaders in western democracies have also apparently fallen for this intellectually seductive theory when it comes to dealing with China. Based on their (flawed) interpreta-

End of a bad idea
China proves economic growth doesn’t always bring civil liberties, political rights
tions of democratic transitions in Taiwan and South Korea, they believe that, like its neighbours, China will become more liberal and democratic as its economy grows. Western businessmen are victims of economic determinism as well. They think that if China’s economic self-interest determines that it must be more open to foreign businesses and reciprocate the benefits it gains from free trade, Beijing should have every reason to do so. Alas, the experience of all those believers in economic determinism in the last decade shows that, like communism, this idea is not only bogus, but has now gone intellectually bankrupt. For example, the ruling party now finds that economic growth has not bought itself a permanent claim on power or stability. Along tials as a successful autocratic model. So there is no direct correlation between economic growth and an autocracy’s propensity to make the transition to democracy. (Incidentally, with a per capita income of $5,000, China is already in a group of nations where 70 per cent are democracies.) Chinese technocrats committed to market reforms have experienced a rude awakening in the last decade as well. They have witnessed a massive reversal of reform and a return of state capitalism. Compared with the 1980s, China today is less market-oriented and more statist. The imperatives of economic efficiency did not have much sway over Chinese rulers, who have ignored friendly advice from the likes of the World Bank and the International Monetary Fund and maintained unsus-

The intellectual bankruptcy of economic determinism in changing China’s political system should be no surprise. As a theory, it fundamentally misunderstands the nature of modern authoritarian regimes.
with economic growth has come higher inequality, more corruption, and greater social tension. The effects of economic prosperity on its legitimacy are temporary at best. Those Chinese liberals who assumed that the party would have to allow more democracy in a Chinese society with more middleclass members have been sorely disappointed. While it is true that per capita income has increased several fold since the Tiananmen pro-democracy movement, the official policy of the Communist Party has become, if anything, more reactionary. Instead of permitting more civil liberties and political rights, the party has deployed the growing wealth of the state in suppressing dissent, censoring the Internet, and burnishing its credentainable economic policies. Needless to say, westerners have become thoroughly disenchanted with China over the last decade, in no small part because the political benefits of economic engagement with China, predicted by economic determinism, have failed to materialise. A more wealthy China has failed to democratise. Its human rights record has in fact deteriorated. Instead of becoming a partner of the West, which has enabled China to grow much faster through free trade, China increasingly behaves like a strategic competitor. Its defence spending has maintained double-digit growth. Its armed forces are busy acquiring weapons designed to deny the American navy unfettered access to the Western Pacific. Economically, western frustrations with

Chinese mercantilism have reached a boiling point. After fruitlessly beseeching Beijing to change its trade policies, the Europeans and the Americans are now finally playing hardball by targeting Chinese products with antidumping charges and lawsuits in the World Trade Organisation. The intellectual bankruptcy of economic determinism in changing China’s political system, economic policy, and external behaviour should not come as a surprise to us. As a theory, economic determinism, which does have empirical basis (otherwise it would not be so influential), fundamentally misunderstands the nature of modern authoritarian regimes. Unlike European autocracies which had constitutional rule but no democracy, a post-communist authoritarian regime such as the Chinese Communist Party faces no internal constraints on its power. This reality allows the ruling elites to use the power of the state primarily for self-enrichment, an objective that overrides both economic rationality and public well-being. In addition, because such a regime is maintained mainly through political patronage and violence, its economic policies must serve the narrow interests of the regime’s core constituencies (the bureaucracy, the military, and state-owned enterprises) even though such policies undermine efficiency and longterm prosperity. Most importantly, for ruling elites in a wealthy society, giving up power also means exposing their ill-gotten wealth to possible confiscation by a democratically elected government. Thus they have all the reasons to resist democratisation at all cost. For China and the world, the bankruptcy of economic determinism could not have come at a better time. Bad ideas must go before people make the right choice. When China’s new leadership is finally installed this fall, their first order of business should be to search for a better idea. The writer is a professor of government at Claremont McKenna College in the US

EDITOR Letter of the

Letters to the


Technical snags

■ IT STRIKES me that

what is being called a solution to the controversy over the admission process for the IITs is only the beginning of a new set of problems. First, it has been proposed that only students in the top 20 percentile category of each school board will be eligible for the IITs. Under the old system, anyone with 60 per cent in their class 12 boards was eligible for the IITs after clearing the JEE. Second, the new system will only increase, not reduce, stress levels for students. They will now have to clear the difficult entrance exams and do well in the board exams. On the one hand, HRD Minister Kapil Sibal talks about reducing emphasis on marksbased evaluation through measures like the CCE. On the other, he increases competition by bringing in a filtering system for admission to engineering colleges. — Naheed Srinagar

Rude methods



Why must households pay first-rate costs for third-grade water delivery?
without a good, functional and up-to-date management information system. Furthermore, the DJB’s management process is fundamentally flawed. In other countries, water utilities are managed by professionals who are responsible and held accountable for their performance. The head of DJB is an IAS officer who, when she or he takes charge, knows virtually nothing about water, or how a large and complex utility should be professionally managed. The average tenure of such officers is short, usually two-anda-half to three years. By the time to two-thirds of treated water never reaches the intended consumers. Yet, a city like Phnom Penh has reduced its water losses from nearly 80 per cent in 1993 to 5 per cent in 2011 through professional management. The current director general of Phnom Penh’s water supply authority had spent some 18 years on the job. During his tenure, the city successfully provided clean water that could be drunk straight from the tap. Water is available 24 hours a day for both rich and poor households. Every household pays for clean water. Phnom Penh’s is a public water utility where concause of the steady deterioration of water quality. Even when households receive water free from a city, they pay for construction of underground and overhead tanks, cleaning of both the tanks every two months, electricity costs for pumping up water several times each day, and operation and maintenance of water treatment systems from a private sector company. Our analyses for Kolkata show that if the corporation provided water service efficiently, and if all households paid for these services fairly, they would save at least 35 per cent of what they are paying now. Unfortunately, all households in cities like Delhi, Kolkata, Mumbai or Chennai are now paying first-rate costs for thirdgrade water delivery services. Cities have been offering many excuses for this incompetence, but there is no persuasive technical, economic or social reason why Indian cities cannot have 24hour drinkable water services. The fact that not a single Indian city has such a service is an indictment on the terrible status of urban water management. Asit K. Biswas is the founder of the Third World Centre for Water Management and Distinguished Visiting Professor of the Lee Kuan Yew School of Public Policy, Singapore

The arid city

incivility’ (IE, July 6) mentions the “stratagems” that political parties have stooped to in a bid to outsmart each other. Our parties seem to thrive on negative agendas. They appear to lack any constructive agenda or policy that could benefit the people. This is true of both national and regional parties. The largest democracy in the world is burdened with a vast disconnect between the leaders and the people. — Hema Langeri
■ RECENTLY, political autobiographies have created a stir. Former president A.P.J. Abdul Kalam wrote in his memoir, Turning Points, that he would have sworn in Sonia Gandhi as PM (‘Listening to Kalam’, IE, July 2). The late Arjun Singh’s posthumously published biography, A Grain of Sand in the Hourglass of Time, contains strong criticism of former prime minister P.V. Narasimha Rao. Journalist Kuldip Nayar in his book, Beyond the Lines, claims that Rao locked himself in a room and prayed while the Babri Masjid burned. But perhaps it is better to refrain from criticising people who are not alive to defend themselves. — Bidyut K. Chatterjee Faridabad

■ THE editorial ‘Terms of

Old yarns

Tragedy in Timbuktu
IMBUKTU in Mali was a vital centre of the Muslim world in the 15th and 16th centuries, the hub of learning, culture and commerce in Africa, its very name an evocative magnet for European explorers. As a West African proverb put it, “Salt comes from the north, gold from the south, and silver from the country of the white man, but the word of God and the treasures of truth are found only in Timbuktu.” Its shrines, mosques and mausoleums are now being destroyed by an alQaeda-affiliated Islamist faction, Ansar Dine. This week, a mob tore down the Sidi Yahya mosque, which, in legend, would open its doors only on the day the world ended. It has been compared to the Taliban’s destruction of the Bamiyan Buddhas — silent, sacred repositories of our past. Mali has been torn by sectarian struggle after a military coup ear-


An Islamist faction is methodically destroying its ancient monuments to peace

lier this year. The fall of the Gaddafi regime in neighbouring Libya, and the subsequent rebellions by Tuareg separatists and religious extremists, have led to this instability. The destruction is not confined to monuments — lives and homes have been lost, hundreds and thousands of people have fled the country. Cultural and material destruction was only collateral damage — a conflict that hurts people inevitably turns on their cherished artefacts as well. However, there is a special edge to this violence. The insecure Wahabi Ansar Dine cannot countenance this physical proof of Timbuktu’s Sufi history, its accommodation of diverse strains and pre-Islamic ideas. As UNESCO’s director-general Irina Bokova put it, this is a raid on Timbuktu’s “history and the values it carries — values of tolerance, exchange and living together.”

ATER management in India’s big cities is worse than ever, though both technologically and economically, there is no reason why citizens should not have uninterrupted access to safe water. The problems and solutions are well known, and yet, the situation has only deteriorated in cities like Delhi, Chennai or Mumbai. The standard excuse, that there is not enough water, seems valid on the surface, but further study reveals that the urban water crisis is avoidable, and entirely created by institutional and management deficiencies and lack of sustained political will. Take the case of Delhi Jal Board (DJB), from whom it is impossible to get any reliable information. When we forced the DJB to provide available data under the Right to Information Act, we were surprised at how a utility with over a billion dollars in assets could be run in such a cavalier fashion, with unreliable or anecdotal information. For example, it does not reliably know how many consumers it has, what their per capita water use is, how much water it loses due to leakages and unauthorised connections, how much staff it has per 1,000 connections. It does not have a business plan on cash flow and expenditure for the next five years, let alone over the long-term. It is simply impossible to manage any large business, public or private,

Delhi Jal Board does not reliably know how many consumers it has, what their per capita water use is, how much water it loses in leakages.
they understand the complexities of the problem and start planning solutions, they are gone. They are never held accountable, for their performance. In contrast, the average stay of a utility head in an important US or European utility is around eight years. They are selected on the basis of their ability to run a major utility, and directly accountable for the performance of the utilities. Unless Indian megacities also hire professional utility managers, their water-related problems will only get worse. Current water losses from major urban centres run from 35 to 60 per cent. This means some one-third sumers pay for operation, maintenance and investment costs. It does not receive any funds from the city. It provides excellent service and has been consistently profitable over the past decade. In contrast, each household in a city like Delhi has been forced to become a mini-utility. When water comes for a few hours a day, each household stores it in underground tanks, and then pumps it to an overhead tank. Each household has its own treatment system provided by the private sector. Ten years ago, people used simple carbon filters, now they are being forced to use membranes and reverse osmosis to treat water be-

Dictating terms
seems to have succumbed to pressure from former Karnataka chief minister B.S. Yeddyurappa (‘BJP plans for Karnataka peace: Shettar new CM with 2 deputies, IE, July 5). Evidently, Yeddyurappa still commands enough support in Karnataka to be able to push his demands with the central leadership. When he was forced to step down as CM, he chose Sadananda Gowda as his successor. But when Gowda began to assert his own authority, it suited Yeddyurappa to call for a change in leadership. The appointment of deputy CMs should also be questioned. The post seems to serve no purpose. — Ganapathi Bhat Akola
■ THE BJP top brass


Goodbye to all that

W. H. Auden

Thousands have lived without love, not one without water.

LANS to raise 7.2 billion euros on taxing the rich, be they big busi- bers of posts in education, and to freeze total public spending. With a 40 bilnesses or the richest households, all fall under the rubric of a “fair” lion euro hole to fill over the next two years, real cuts will have to come. effort, “just” budgetary discipline, “fairly redressing” the From which ministries the government refuses to say. But nation’s finances. Give François Hollande and his prime ministhis week was also about symbols. Another sign of changed ter, Jean-Marc Ayrault, their due. They are doing exactly what times was the police raid on Sarkozy’s home and offices, as they told the French they would do, and what they are doing is part of an investigation into allegations of illegal campaign proving to be popular. Measures such as a 75 per cent tax on PRINTLINE funding from France’s richest woman, the L’Oréal heiress people who earn over 1million euros get approval ratings of 76 Liliane Bettencourt. per cent... The deeper tax reforms will come next year. But so too will the hard stuff: spending cuts. Hollande has pledged both to increase the numFrom ‘The Guardian’, London