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TheIndian EXPRESS
www.indianexpress.com

l MONDAY l SEPTEMBER 24 l 2012

The Indian EXPRESS

BECAUSE THE TRUTH INVOLVES US ALL

HE last week was a curious one for the world economy as every indicator sent out both negative and positive signals. For investors, this makes things look unpredictable and treacherous, even as, at the beginning of a new week, no new risks can be identified on the global horizon. Instead, there is room for cheer, given that emerging markets like India have begun to show strong positive vibes, while in Europe speculation around Spain is largely positive it is seen to be on course for a bailout, which means it is likely to accept the freezing of pensions and the raising of retirement age. But late on Friday, Germany said it did not think Madrid needed any further support at this point, spooking the currency markets again. Raising fears about faltering global growth, the World Trade Organisation cut its forecast for the growth of global trade to 2.5 per cent from 3.7 per cent on Friday. The numbers are less than half of the average growth rate of trade seen in the last two decades. But even as analysts worked out the impact, they were surprised to see the US markets soar to levels not seen since December 2007. The S&P 500

The world markets send out mixed signals but there may be more reason for hope
index closed out the week 16.1 per cent up from the end of 2011. While some investors would want to believe that the bright trend could persist till the end of the year, others are pointing to the ECBs new plan to provide unlimited support to struggling countries and to the Feds QE3 programme as signs that the recovery is far more fragile than anticipated, which is why it needs such robust support mechanisms. For the global economy, the signs of stabilisation will be in the third quarter report cards for companies, due from early October, and they will also depend on how the new tensions in the Middle East impact oil prices. Thomson Reuters data shows the outlook for the top 500 companies is at its most negative since 2001, yet that is countered by macro economy numbers for US GDP growth, housing markets and consumer spends, all of which have shed more red than at any time in the recent past. September is still the month that has produced some of the most critical episodes in the world economy since 2008. Not surprisingly, no one is willing to bet that this month might also be the one when the economic order turned the corner.

A bright corner

RIME Minister Manmohan Singh finally broke his silence on Friday but it will be difficult for his reasonable, reassuring words to fill the echoing well of silence that has developed over the UPAs second term. Had he spoken of hard choices earlier, he could have arguably softened the blow when he actually made policy ostensibly to protect the common man. For instance, in his speech on Friday, he explained that deficits remain even after hiking fuel prices and capping subsidies, but the aam aadmi he addressed is already focused on the added hardships that have been imposed on him, without appreciating that it could have been much worse. If the government had been more communicative, it would not have attracted the charge that the Congress has acted unilaterally, without taking the people, the opposition or even its own allies into confidence. The opposition is now taking advantage of this lapse to challenge the government to put the reforms agenda to the test in the House. So pervasive is the culture of silence in UPA2 that even communication within the govern-

In this season of reforms, the government could consider this one: become more communicative
ment has begun to a suffer signal drop. Leaders have taken to hedging and second-guessing the high command, instead of speaking their mind on the issues that matter. When the government has faced inclement weather, as in the situations raised by Mamata Banerjee over the presidential election and FDI in retail earlier, the UPAs top leadership has appeared to respond with stoic silence, though these were opportunities to lay down the line. More recently, even in the controversy over coal allocations, the economist prime minister could have made an attempt to deflate some of the speculation over numbers with a little clear talking on profit and loss. A government that has staked its future on visible development and welfare in an adverse economic climate cannot be run out of a Trappist monastery. The essence of progressive politics is communication, a skill this government must learn fast. In this season of reforms, this one cannot wait, if the government wants to repair the damage caused by its unwillingness or inability, or both, to reach out and talk to the people.

Talking it out

RE the new big-bang reforms necessary for India? If yes, why is there so much political opposition? The first is a relatively straightforward economic question, the second requires complex political reasoning. A general point first. If economic policy in India remains unchanged, there is a real danger that Indias investment rate will fall below 30 per cent of the GDP. That will be quite calamitous. It will, quite likely, lead to an annual economic growth rate of less than 6 per cent. With Indias youth entering the labour force in ever larger numbers, employment generation will not reach the necessary levels, and with tax revenues decelerating, there will be less available for welfare programmes for education, health and public works. While India cannot easily get to a Chinesestyle investment rate, touching 4750percentoftheGDP,asystematic attempt is needed to keep the investment rate above 35 per cent. Investment is critical to growth, employment generation and welfare programmes. Viewed from that perspective, the recently announced reforms are a step in the right direction. Foreign direct investment (FDI) in multi-brand retail has become the centrepiece of the proposed new reforms. There are two ways to think about its implications statistical and conceptual. Since 1995, Indian agriculture has grown at roughly 2.5 per cent a year, whereas the overall economic growth rate in this period has been close to 7 per cent per annum. Depending on how one estimates the size of the non-agricultural part of the rural sector, the urban sector has grown at roughly 8-9 per cent per year. Thus, compared to the countryside, the growth in urban incomes is likely to have been three to four times higher. One could say that Indias cities have boomed at Chinese-style growth rates, whereas rural India is still stuck at the historical annual growth rate of 2.5 per cent. This difference mattered less when Indias economy itself was growing at 3.5 per cent per annum, which was true for the period 1950-80. Essentially, urban incomes were not growing much faster than rural incomes in the first three decades of Indian independence. But the urban-rural gap is now huge. For their own good, Indias villages need to be better linked to the rising economic fortunes of the city. That is what FDI in multi-brand retail retail, for short can easily achieve. In the fury of political debate, it is not often noted that

Rural welfare, not Walmart A

We need retail reform as Indias farmers must be connected to its rising cities
ASHUTOSH VARSHNEY
FDI in retail will only be for cities with a population of more than a million. According to the 2011 census, there are 53 such cities in India. That means Kanpur, not Aligarh; Bangalore, not Bellary; Nagpur and Pune, not Wardha and Satara. Even if one assumes that neighbourhood stores will be hurt an assumption that requires demonstration, not belief we are not talking about Walmart all over urban India, only in million-plus cities. We should, however, note that these bigger cities have been the engine of Indias economic transformation since 1991. Farmers can be more efficiently connected to the urban economy if the trade chains, for example, provide refrigerated storage and transport. Otherwise, the farmer is primarily dependent on the local mandi, the traditional marketplace which, in most of India, has not yet witnessed any significant modernisation. Has anyone seen refrigeration in many rural mandis are not meaningfully connected to the city. No society has even been economically transformed without that link. Not connecting villages and cities in a mutually beneficial manner is a sure way to hurt the village. Trade and transport are two of the best ways known for creating urban-rural links. In short, FDI in retail is not primarily about Walmart and Tesco. It is about bringing greater incomes tothecountryside.Whateveritsimplications for the traditional trader, it can only benefit the farmer. A farmer left to the village trader and mandisapoor,ormake-do,farmer. A farmer connected to booming urban economies and modern trade is a richer farmer. Why, then, are so many political parties opposed? For long years, I have been associated with an argument that divides the politics of economic reforms into two parts: mass politics and elite politics. That distinction is hugely relevant for the current developments. In the

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Farmers can be more efficiently connected to the urban economy if the trade chains provide refrigerated storage and transport. Otherwise, the farmer is dependent on the local mandi, which, in most of India, has not yet witnessed any significant modernisation.
of India? And how many farmers can afford refrigeration of their own products? For my first book, which dealt with agriculture-industry linkages and urban-rural issues, I spent an enormous amount of time in villages, mandis, and agricultural universities in Punjab, Haryana, UP, Maharashtra and Karnataka. The rot and waste especially in fruit and vegetables could not escape the naked eye. On the whole, farm incomes are better served if farmers move from low value-added foodgrains to high value-added fruit, vegetables, fishery, dairy and cash crops. Whatever else it achieves, FDI in retail will reduce the waste and rot that is a special affliction of the latter set of agricultural products. It connects farmers to the economic operations of modern times. Mandis and traditional traders just cant do it. Conceptually, too, it is a simple and undisputed principle of development theory that rural incomes simplycannotgoupmuchifvillages last version of the argument published in Foreign Affairs (March-April 2007), I argued: It is helpful to think of Indias reform politics as following two tracks: what may be termed elite politics and mass politics. This distinction is absolutely crucial in understanding Indias reform dynamics. In India, the elite consists mainly of English-speaking upper-caste and urban citizens. Elite politics in India typically takes place in the upper realms of the public sphere: in the interactions between business and government and in the dealings between New Delhi and foreign governments and international financial institutions... The upper end of the public sphere includes English-language newspapers and television and the Internet... But Indias mass politics (deals with)... the plebeian social orders that make up (its) political constituency. Streets and the ballot box are the primary sites of the mass politics, and voting, demonstrations, and

riots its major manifestations. I also wrote: Three factors are typically critical in determining whether any particular policy enters the arena of mass politics: the number of people affected by the policy, how organised those people are, and whether the effect is direct and immediate or indirect and over a long time horizon. The more people affected by a policy choice, the more organised they are, and the more direct the policys effects, the more likely it is that a policy will generate mass concern. Consider now what has generated the greatest political fury not FDI in civil aviation, broadcasting or the power sector, but FDI in retailandalsoreductioninfuelsubsidies. The former sets of reforms are all in the elite sector. How many small farmers, after all, fly Kingfisher Airlines? And how many watch CNN-IBN? And how many can tell whether FDI in power will make electricity for their khet (farm) and ghar (home) cheaper and more plentiful? In contrast, FDI in retail and reductionoffuelsubsidydirectlyaffect millions of people in the short run, whatever their long-term benefits. The inverse relationship between Walmart and the welfare of the small trader or the fear, if not directevidence,thereofaffectsmillions of kirana shopkeepers. The connection I have drawn between FDI in retail and rural welfare is an indirect one. The fact that it is indirect does not mean it is not real, but its reality requires demonstration and political communication. It is the best way right now to lift the economic fortunes of Indias farmers. NREGA wont do it, for it will only allow the digging of ditches, a not unworthy welfare operation, but NREGA cannot be the foundation for a long-term economic uplift. It is a holding operation. Indias farmers need to be connected to the nations rising cities. The government should stick to the reforms it has announced. What it needs is better communication about how Walmart is not the main point of its retail reforms. Rural welfare is.
The writer is Sol Goldman Professor of International Studies and the Social Sciences at Brown University, where he also directs the India Initiative at the Watson Institute. His books include Democracy, Development and the Countryside: Urban-Rural Struggles in India. He is a contributing editor at The Indian Express
express@expressindia.com

Letters to the

EDITOR

For the people?

September 19). TMC chief Mamata Banerjee seems to be trying to depict herself as the common mans saviour. Opposing the UPA governments policies has become a habit with her and she has acquired a name for courting controversy. If a coalition government is to work, measures taken by it must be well-coordinated and have the consensus of all partners. Introducing FDI in retail is the first bold step taken by the UPA government after it powered through with the Indo-US nuclear deal. It is time Banerjee expanded her focus from Bengal and thought of the larger national interest as well. Kanishka Pathak Dhanbad

THIS refers to UPA 3 (IE,

Road to freedom

apart by Amita Baviskar (IE, September 21),it took a number of factors to make an exhausted Britain leave India. Gandhis movement was one among them. Now, Anna Hazare equates himself with Gandhi and feels he can single-handedly change a corrupt system. However, his main support base seems to come from the affluent middle class and he has limited influence on a wider cross section of society. A social movement works best when it draws strength from the polity, rather than when it holds Parliament hostage. The younger generation in India believes strongly in a participatory democracy. Abhishek Puri Chandigarh

APROPOS They all fall

Friend or foe?

KAUSHIK SUNDER RAJAN

HE Supreme Court has commenced final hearings on a case brought before it by the Swiss pharmaceutical company, Novartis. The case disputes the denial of a patent on Novartiss anti-cancer drug Glivec. Novartiss position is that incentives to pharmaceutical innovation require stringent patent protection. But the companys definition of innovation is not one that will serve Indias needs in research and development, industrial development, or public health. At issue is a key provision in Indias 2005 Patent (Amendment) Act section 3(d). Introduced by Parliament as a health safeguard, this provision disallows product patents on modifications of existing drugs (a practice known as evergreening), unless those modifications demonstrate significantly enhanced therapeutic efficacy. Novartis is arguing in court to weaken the interpretation of this provision to such an extent that it would end up being a dead letter. Its claim is that by curtailing the scope of product patents, section 3(d) reduces incentives to invest in the research and development of new drugs. This suggests a simple correlation between stronger patents and more innovation. But the recent history of pharmaceutical development presents a more complicated picture. In spite of stringent intellectual property protections, the multinational pharmaceutical industry is not particularly innovative. While this industry presents itself as an innovator in global pol-

HE notoriously secretive North Korea makes strange forays into international news. Recently, pictures of a mystery woman standing next to its leader Kim Jong-un gave rise to weeks of speculation, until the state media clarified she was his wife. Now, in an unprecedented fit of caprice, it has posted on its official website a clip parodying Gangnam Style, the enormously popular video by the South Korean pop star PSY. Pyongyang used the video to take a dig at the South Korean presidential candidate, Park Geun-Hye, who belongs to the ruling Saenuri party. Only last month, North Korea had threatened all-out war on its southern neighbour, after the US and South Korea conducted joint military exercises. It now seems to have abandoned belligerence for satire. Gangnam Style, which managed to stir the tight-lipped Pyongyang, is one of the few Korean videos to have broken out of the Asian market. The US navy did a

North Korea betrays a humorous streak, parodying a pop single for propaganda
parody of it, lifeguards in El Monte got fired after they tried to spoof it, Ellen Degeneres imported PSY into her show to teach Britney Spears his signature dance. Perhaps it is no coincidence that Pyongyang picked a video feted in America to parody South Korea, which has close ties with the US. The original video shows the stocky pop star emerging from the stables to break into a jig that roughly imitates riding a horse. The North Korean version has Parks face tacked on to the dancing figure, mocking her for endorsing the actions of her father, Park Chung-Hee, who seized power in 1961, got himself elected in 1963 and ruled till his assassination in 1979. This is unexpected, coming from North Korea, where leadership has been passed down from father to son since 1948 and where the last elections, held in 2009, saw the late Kim Jong-il voted unanimously into power. Could this video bode a change of heart in Pyongyang?

Pyongyang style

The Novartis case highlights the need for innovation in the public interest
icy debates around intellectual property, the innovation deficit is acknowledged within industry circles. For instance, a 2008 survey of 360 senior pharmaceutical industry executives, conducted by Deloitte, predicted that over the next decade, most research and development would not be conducted within large pharmaceutical companies. Indeed, the trend has been towards in-licensing promising molecules from smaller companies, or acquiring a smaller company altogether. Mergers and acquisitions, rather than research and development, increasingly constitute the cornerstone of the industrys business model. Furthermore, most recent product innovation in the Western pharmaceutical industry has been enabled by research universities, and underwritten in significant measure by public and philanthropic money. Take the case of Glivec itself. Novartis insists that a product patent on the drug is just acknowledgement of its role in inventing the drug. Undoubtedly, Novartis played an essential role in Glivecs development. But one also has to consider the role of academic medical centres where clinical trials were conducted the important research of Brian Druker at the Oregon Health and Science University, which showed this was a molecule that could be effective in the treatment of chronic myeloid leukemia, and the fundamental research on chromosomal translocation conducted by Janet Rowley at the University of Chicago in the early 1970s, which was not done with drug development in mind but which provided the mechanistic understanding without which Glivec would have been inconceivable. Nevertheless, Novartiss arguments get traction in the context of the prevalent structure of pharmaceutical development. This is because the pharmaceutical industry tends to be the only entity with the capital resources and infrastructure to take drugs through clinical trials and bring them to the market. In the US, for instance, there has been tremendous public investment in academic research that enables drug discovery; but drug development itself has been left almost entirely to the private sector. As long as we are dependent on highly capitalised, privatised structures of pharmaceutical development, we will be trapped in the Faustian bargain that Novartis presents, where innovation by definition requires corporate monopoly. In such a situation, access to essential medicines depends purely on the will, privilege and generosity of pharmaceutical companies. What is needed in India is an innovation policy that can provide more open models of pharmaceutical development. Such alternatives must involve serious public investment in research as well as creative mechanisms through which such investments can lead to non-proprietary modes of drug development. This is inconceivable unless there is public funding of clinical trials, and an active attempt to build and sustain a public-sector pharmaceutical industry. Far from attending to the public infrastructure needed for pharmaceutical innovation, the Indian state has progressively abdicated its responsibilities towards public health. It has let public-sector drug manufacturing capacity wither. It does not have a functional system of price controls on essential medicines. It provides no nationalised health insurance schemes, leaving drug pricing and access entirely to market mechanisms. It has liberalised regulation for clinical trials in a manner driven by the interests of private entities. And while there has been investment in building centres of research excellence in the life sciences, there has been little strategic conceptualisation on how these institutions can function to facilitate public interest or public health. While the judicial thrust of Novartiss arguments about innovation is on a particular provision of the Patent Act, there are broader implications for policy. An adequate policy response to Novartis cannot happen as long as pharmaceutical research and development is beholden to corporate interests. Innovation in the public interest can only happen if we are willing to consider mechanisms by which therapeutic development, manufacture and access can be socialised. The writer is associate professor of anthropology, University of Chicago
express@expressindia.com

A bitter pill

Yadav seems to be making a bid for the post of prime minister in 2014 (As Mamata exits, Mulayam spells it out: Well support UPA, IE, September 21). If not, he sees himself at least as a kingmaker, able to dictate who comes to power and extract favourable terms for his own party. At the moment, he has taken a confusing stance. He opposes FDI in retail as he claims to be for the people, but he has also said he will support the government. Meanwhile, it will be interesting to see whether his newfound bonhomie with certain members of the Left will stand the test of time. Prashant P. Singh Lucknow
AS EXPECTED, Mulayam

SP CHIEF Mulayam Singh

WORDLY WISE
Tory Burch

I wanted to create a new way of looking at retail.

Singh Yadav has said that the SP will continue to support the UPA government in order to keep communal forces at bay. Participating in the Bharat bandh with a section of the Left, he declared that his party will not tolerate anti-people decisions like a hike in diesel prices and FDI in retail (Bharat bandh: Mulayam Singh, Left forge common front on diesel, LPG cap, retail FDI fire, IE, September 20). Given that the UPA seems quite determined to implement its decisions, one wonders if Mulayam will end up doing a Mamata Banerjee, even though he has assured the government of his support for the time being. A.K. Saxena Gwalior