JUNE 17,2017 Economic&PoliticalwEEKLY EDITORIALS = Unquiet Fields = The Bane of Monetary Policy = HalfLives HT PAREKH FINANCE COLUMN 1 Is Banking Safer Today than before the Crisis? LAW & SOCIETY = Defecting from the Law COMMENTARY = Trump's Toxic Announcement = What Do We Know about Remonetisation? = Government Claims on Health Divide and Educate = ‘Strategic Partners’ in Defence Production REVIEW ARTICLE Askew—A Short Biography of Bangalore = Reengineering India—Work, Capital, and Class in an Offshore Economy = Encoding Race, Encoding Class—Indian IT Workers in Berlin PERSPECTIVES = Nursing Education in india SPECIAL ARTICLES = World Bank’s Poverty Enumeration = Farmers and Climate Change NOTES = Elementary School Social Science CURRENT STATISTICS POSTSCRIPT olLno26 80 wwnwepmin Need for Alternative Calculations The impact of slow remonetisation on the unorganised sector of the economy employing 93% of the workforce remains hidden behind a veil by the GDP and monetary data. page 18 Incredible Claims A civil society joint report on sexual and reproductive health contradicts the government's claims to an international human rights mechanism on its achievements. page 21 Better Out than In Until climate politics changes in the United States, it is better out than in as far as the Paris Agreement on climate change is concerned. page 14 Private Sector in Defence There is no regulatory mechanism for the defence production sector which is being opened up to private and foreign suppliers even as the public sector is being sidelined. page 29 Nursing Education in India Regularisation and standardisation remain the greatest challenge for Indian nursing despite it now being a recognised profession. page 38OSBI Overseas Epucation Loan Challenge the world with GLOBAL ED-VANTAGE FASTER! of LIGHTER! “= Apply Online 9 Attractive interest Rate (2h EAH EARLY APPROVAL! ) EMI Over 15 Years beforei20/Visa PVT Nge NA or SMS ‘GLOBAL to 567676 HIGHER! ®2Dlakhs to®1.ser ‘TAXBENEFIT! under section 80(E)JUNE 17, 2017 | voLtttNo 24 Is Banking Safer Today than before the Crisis? 10 If we are to stick to conventional approaches to protecting stability, then our best bet isto require banks to have substantially more capital than is contemplated under Basel ui, —TT Ram Mohan Defecting from the Law 12 Theimpunity with which legislators in Andhra Pradesh and Telangana have ignored the anti-defection law points to certain weaknesses in the processes and norms laid down in it. —Alok Prasanna Kumar ‘Trump's Toxic Announcement on Climate Change 14 President Donald Trump's announcement that the United States will ex from the Paris Agreement reveals that the us cannot be regarded a reliable partner for global climate cooperation. —Navros K Dubash What Do We Know about Remonetisation? 18. Remonetisation has been far too slow, and its consequences on the informal economy, though invisible to offical data, are a matter of serious economi political and social concern. —Arun Kumar, Ankur Verma Government Claims on Health Inconsistent with Reality 21 Civil society reports on sexual and reproductive health provide a contrast ‘o the claims and assurances made by the government on its public health commitments and achievements. —Jashodhara Dasgupta, Subha Sri B, Priya John, Sana Contractor, Renu Khanna & Sandhya YK Divide and Educate 25 Social and human factors apart, the divisive trends in Indian education threaten the prospects of adequate human resource development for India’s economic growth, — Sukanta Chaudhuri ‘Strategic Partners’ in Defence Production 29 The blatant sidelining of public sector undertakings in defence procurement and the promotion of select private sector companies are deepening the country’s technological dependence in the design, development and production of armaments. — Gautam Navlakha Nursing Education in India 38. The history of nursing education in India, and the state, community and market factors contributing to its recent growth are explored, —Sreelekha Nair, $ Irudaya Rajan World Bank's Poverty Enumeration 43. The World Bank's poverty enumeration exercise fails to satisfy the requirements of transparency, denies researchers access to data, and hinders replicability of the poverty numbers produced by the Bank. —Amita Majumder, Ranjan Ray & Sattwik Santra Farmers Need More Help to Adapt to Climate Change 53 Farmers re aware of long-term changes in the weather pattern and change their practices to deal with socio-economic changes, but do not see these changes as constituting “climate change.” — Amarnath Tripathi, Ashok K Mishra Negotiating the ‘Social’ in Elementary School Social Science 169 The rationale behind and lack of debate on the trifurcation of the social science textbooks published by the National Council of Educational Research and Training into history, geography, and social and politcal life is questioned, —Karthik Venkatesh Postscript 177, Suprabha Seshan's field notes from a botanical sanctuary; Usha Subramanian talks politics and philosophy with a busker; and Last Lines by Ponnappa. Economic&PoliticalwEEKLY "ler Fields The Bane of Monetary Policy ative, ° FROM 50 YEARS AGO. Is Banking Safer Today than before the Crisis? =P Ram Mohan. 10 Defecting from the Law Alok Prasanna Kumar. 2 ‘Trump's Toxic Announcement on Climate Change —Navroe K Dubash 14 What Do We Know about Remonetisation? Analysis of Available Data tll April 2017 —Arun Kumar, Ankur Verma: a8 International Rhetoric, Domestic Evidence: Government Claims on Health Inconsistent ‘with Reality—Jashodhara Dasgupta, ‘Subla Sr B, Priya John, Sana Contractor, Renu Khanna, Sandhya VK. a Divide and Educate—Sukanta Chaudhuri... 25 “Strategic Partners’ in Defence Production: Deepening Dependence Gautam Naviak noes 29 REVIEW ARTICLE ‘Askew—A Short Biography of Bangalore; Reengineering India —Work, Capital, and Class in aan Offshore Economy; Encoding Race, Encoding (Class—Indian IT Workers in Berlin: Bangalore and Is IT Industry—A Changing Landscape of Work and Le in Urban India—Michiel BaQ5.ecreroow31 ‘Nursing Education in India: Changing Facets and Emerging Trends —Sreelekha Nair, §Irudaye Rajan... af ‘World Bank's Poverty Enumeration: A Critial Examination ofthe Process, Methodology, and Numbers—Amita Majumder, Ranjan Ray, Satewik Santra “8 Farmers Need More Help to Adapt 10 Climate Change Amarnath Tripathi, Ashok K MISHTA one 58 Negotiating the ‘Social’ in Elementary School Social Science—Karthik Venkatesh, 169 CURRENT STATISTICS ssnsnnonnannee 8 Once, the Monsoon—Suprabha Seshan (177), Nowhere Man—Usha Subramanian (179), Last Lines (180) APPOINTAMENTS/PROGRAMMES ANNOUNCEMENTS: wae uarrens. 4Economic8PoliticalweeKLy Ts 00129976 andres ine och eee tered mac Wey 999-95) ch wat uch ad psa edie forsyenrs opt) seve meri copninn ey avon! SHETTY sssistanr erro (1782) 'SHIREEN AZAM. KAMAL G FANIBANDA orroniau: edi@epein ceametaion:ciclsinasepin snvanmisno:adverisement@epwin ECONOMIC AND POLITICAL WEEKLY 1320-822, A 10 2 INDUSTHIAL ESTATE tba 400 913 ont: (622) 4003 8282 fest ound, ea on, coms KANDIVALI (EAST), MUMBAI 400 101 ‘wows! (o22) 2687 3028/4, ‘epwrf@epwrtin SAMEEKSHA TRUST (Ovbtahere of Emami Ptica! Weeks) Poe by K Wika t Made Aa apd ntsc, "Si Az india sate Gants Han a, ‘owe id uma and ped yh beha ‘np Kaa Mar, il, Ma ooo, ator Pay ha Ti a Congress Must Come Back whe answer to Zoya Hasan’s timely ‘question “Does the Congress Have a Future?” (zew, 6 May 2017) isa thumping “yes,” if only the party frees itself from familial fetters and oleaginous oafs that surround it. Hasan’s article deserves wide reading because it throws light on the current political scene in India. ‘The decline of the party is a certain pointer to the decline of the family-based feudalistic political clas that is becoming somewhat anachronistic in a globalised world, Indians are becoming more and ‘more disillusioned with politicians of all ideological hues. ‘The real issue is how to understand cour democratic exceptionalism and sus- tain it in the midst of all-round intoler- ance of every conceivable sort and forge ahead on the path of progress. Demo- cratic exceptionalism refers to a certain pride in India being a democratic polity surrounded by a host of theocratic and non-democratic regimes. Athens, for example, prided itself on its democratic exceptionalism. Here then comes the question of individual freedom as an inalienable value that should be pre- served at any cost rather than religious freedom as conventionally understood or secularism as a politically convenient instrument, Otherwise our democratic exceptionalism stands in danger of extinction. ‘There isa growing tendency on the part of intellectuals to debunk the Bharatiya Janata Party's (Bue) recent victory as symptomatic of “Hindu” nationalism, Such peevish descriptions are pernicious to the core. Have not non-Hindus as well as Hindus who are far from hard-core Hindu sympathisers voted for the BJP? Pray ‘what is Hindu, Muslim or Christian about nationalism? Jinnah was as much a na- tionalis as were Tilak, Gandhi or Nehru Did not Jinnah defend Tilak in court against charges of sedition? Nobody called Jinnah a Muslim nationalist then or Nehru a Hindu nationalist; why then call the genuine sentiments of millions of Hindus, “Hindu nationalism,” thereby attaching a certain odium to this noble sentiment, nationalism? Hindu-bashing has become a symbol of intellectual progressivism, in the pro- cess, raking up avoidable acrimonies. Is it not strange that Indian intellectuals have no qualms in being called Marxists, Leninists, Trotskyists or Maoists—all —but being called a or troglodyte? Hasan’s call for rejuvenation of the Congress makes eminent sense and is timely. She has rightly pointed out that it faces a structural dilemma on several fronts. She might as well have added another cause: the unbearable burden of supine sychophants and lupine lam- entations of the gerontocratic guard. ‘The Congress must rejuvenate and re- emerge as a viable alternative if only to act as a check on the authoritarian ten- dencies of the ruling party at the centre so as to ensure a vibrant and vigorous democracy. This has become a historical necessity as the possibility of a third alternative in the form of a ragtag of small parties is likely to remain just that. Hopes of the left parties as a strong alternative have as good as vanished con- sidering their pitiful struggle for surviv- al. The sad decline of the leftists in India ‘who were on the forefront in champion- ing progressive causes is due mainly to the ideology’s iron-clad grip on their un- derstanding of India’s complex political problems, blind as they were to the ground realities. There is a lesson in their dectine. Foreign ideologies whatever their romantic lure just cannot substitute homespun ‘ones. Marx, Mao, Lenin and Stalin, there- fore have remained intellectual curiosi- ties rather than idols to emulate, This is because the leftists have rarely made any efforts to understand ground realities in India. The fact remains that the leftists in general and particularly in India have been a fairly honest and fiercely non- corrupt lot. If only their ideological gulli- bility were tempered by rationality and they forged a strategy backed by a correct understanding of political culture in the country, India would not have to witness the sad spectacle of the decline of left- ism as a political fore. ‘The Indian state i certainly in “an inter- nal siege.” A number of factors contribute owe 17,2017 ou tH No 24 BNND Economic Pokal waexeyLETTERS to this—growing violence, lawlessness, political opportunism, vote bank poli- tics, religious fundamentalism, rising economic inequalities and economic challenges such as inflation, unemploy- ‘ment and fiscal deficits, the rise of local nationalism pose a big question mark before national integrity. The challenge is to forge a strategy that strikes a neat balance between individual liberty and the requirements of national security. ‘Therefore, the anomie that grips the Indian state is very much endogenous. Exogenous factors have only abetted it. SRKasbekar Gender Bias at Workplace Tiare Pam sagatan aha Dang, “Sexual Harassment at Work- place: Experiences of Women Managers and Organisations” (gew, 2 June 2017), reflects the increasing rate of sexual harassment of working women despite the fact that they are well educated and in a position to leave and opt for alternate livelihood opportunities. The writers’ argument holds water that sexual harassment at the workplace re- flects men’s aggression against women ‘who occupy positions traditionally in men’s purview. ‘The policies and work culture of economic organisations need to intro- duce parity between men and women in the workplace and management. Women should be assured that their complaints will not fall on deaf ears and they will ‘be provided speedy justice. Women most- ly refrain from registering complaints ‘owing to the notion that far from justice they might be handed out defamation and neglect by the investigating officials. ‘Women are forced to keep quiet about their sexual abuses until itis beyond tol: erance. However, to neglect or bear minor sexual abuses is routine owing to the fears of social stigma and the pros pect of job loss, especially ifthe perpe trator is the boss. The social construe- tion of gender invisibilises this structur- al violence which prevails both in the family and workplace, with women, more often than not, consenting to this male hegemonic culture. ‘There is a need to change the mind- set along with the legal system. We ‘must shun gender-biased morality and ‘modernity. Supriya Singh University of Lucknow, Academic Entrepreneur whe 1970s produced a number of social science institutions named after doyens like V K RV Rao, K N Raj, CT Kurian, and DT Lakdawala. India was a pioneer in the craft of academic institution-building, often from a limit- ed resource base, and the country’s ex- perience has immensely inspired scholars in the rest of Asia, One among them was M Alimullah Miyan. A pioneer of the non-government uni- versity in Bangladesh and founder vice chancellor ofthe International University of Business Agriculture and Technology (eat), Miyan passed away on 10 May 2017. Abrilliant scholar of migration and small business studies, his untimely death is a great loss to the Institute of Small Enterprises and Development sep), Cochin, and, personally, to many of his admirers. ‘My association and interaction with Miyan dates back to 2005, when I was based at the Development Research Ins- titute, University of Tilburg, on a short assignment. Since then, Miyan and the university he nursed became intimate partners of the ise. Serving as a mem- ber ofits International Advisory Group, he subsequently extended his services to the institute, and to the cause of small business and entrepreneurship in Asia, Miyan was also a partner in the sep Project on “Renewable Energy Entrepre- in South Asia,” and played a key role in organising two international Besides the 1par, which he founded in 1991, Miyan was the founder of the South Asian Disaster Management Center (sabato), which is involved in training, research, and publication on disaster preparedness and mitigation, He was in- vited as an expert to the World Confer- ence on Disaster Reduction (wenr) in Kobe, Japan, in January 2005. Miyan’s contribution to migration studies stands out. Titled “Dynamics and Diversity: Employment Relations in the Asia-Pacific Region,” his contribution has triggered widespread debates on the subject, especially in Asian countries. He has published extensively on family plan- nning, human resources and business ‘management, industrial relations, mar- keting, social development programmes, disaster management, and energy policy. In addition, he has undertaken research and evaluation on public administra- tion, management strategies for small business and government, as well as training needs of the health and family planning sectors. After completing his honours and masters degree from Dhaka University, he received an wa from Indiana Univer- sity in the United States (us), and a doc- torate from the Manchester Business ‘School in the United Kingdom, Miyan was the chairman of the Regi onal Centre of Expertise on Education for Sustainable Development, Greater Dhaka; founding executive board mem- ber, Association of Management Deve- lopment Institutions in South Asia (ampisa); executive member, Inter- national Society for Labour and Social Security Law; member, International La- bour and Employment Relations Ass0- ciation, Geneva; member, Society for International Development, Rome; and, regional chair, International Association of University Presidents, us. conferences in Cochin and Colombo, PM Mathew respectively. scocun Web Exclusives Thefollowing aticleshaveben published inthe past week nthe WebExclsives section ofthe EPW website (1) OdPians Ongoing Handouts, New Spin—M V Romana, Surat Raju (2) Banks MayLose®4.300 Crore on Loans to Kingfisher Atines—or Goto (3) cessing height tw Food inDelhi—Nandin Naya, Sika etna Articles posted before 10June2017 emainavalableinthe Web Exclusives sectionNew Subscription Rates Pi Pere nl pay ats ates fr One Yarns) ates for Three Yeats ins) ise Tatami Pie gan ve 70 "0 Concesonl ates are resticted to students in Inia To subscribe at concessional ates, plese submit rot of gly fom an nstttn, Pin ao: Alsabscriest the peo can dounload the we, without mang anya pgm ates pubishedinthe previous two aendt ear Prins Aches Subscibe eeveste pit copyandhasaccestotheenireives ontheEPW website Print Edition —ForSAARCand Resto the World io? ‘Web Edition/Digital Archives ‘Teflanentof the andthe ent chivesae to aabetothoewhadonatwih ‘asubserbta the painteiion. 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(sur) made extravagant promises of doubling farm incomes, generating large-scale employment and bringing back black money. The fate of poll promises is no secret in this country. However, the difference with this govemment is that it also promised a leader who actually delivers. Thus, the otherwise for- giving and forgetting citizenry, pumped up on the projection of a hyper-masculine, hyper-efficent leader, has assumed the burden of reminding the leader of his self-proclaimed agenda. This ex- plains the quandary in which the nsp finds itself as it confronts the countrywide agrarian and livelihoods crises, even as its de- monetisation histrionic appears to be unravelling atthe seams. ‘The ten-day historic strike by farmers in Maharashtra and adjacent Madhya Pradesh (a4) caught the country in general and the syp in particular by surprise. The hitherto unassertive, un- organised mass of farmers across the rural expanse transformed into a veritable political force overnight, The striking farmers have reaffirmed the need to implement the structural reforms proposed by the Swaminathan Commission, and to offset the immediate setback of reduced prices for farm produce following demoneti- sation and a bumper crop. The problem of a surplus crop in the affected region has come after two years of intense drought. Thus, this agitation has emerged from the relatively well-irrigated and prosperous Pune and Nashik divisions of Maharashtra, and Ujjain division of mr, and not the drought-prone and highly im- poverished Marathwada and Vidarbha or Chambal and Bun- delkhand respectively. Apart from the vagaries of nature, agri- culture in India overall has been in deep crisis. Rising input costs and falling output prices, dwindling government support and increasing market instability, decreasing size of landhold- ings and falling productivity, have led to reduced farm incomes, making agriculture altogether unviable. Small and marginal farmers, tillers, landless agricultural labour and those living on the margins of the agrarian economy are the worst affected. ‘The nsp-led dispensation in both states has blundered in effec- tively quelling or addressing the protests. They first suggested that this was the handiwork of the opposition parties, giving the latter undue credit. Then they went on to delegitimise the protes- tors as not “genuine” farmers, which backfired instantaneously. In Maharashtra, the government played divide and rule with members ofthe core committee representing the farmers resulting in a new I: the run-up to the 2014 elections, the Bharatiya Janata Party ‘and more exacting committee to replace them, with leaders from the left taking charge. Finally, Chief Minister Devendra Fadnavis buckled and relented to a €30,000 crore loan waiver for small and ‘marginal farmers, immediate disbursement of new loans for the next cropping cycle, substantial increase inthe price of milk with 70% of the realised price assured to the farmer. He also promised to lobby with the centre for fixing a minimum support price (Msp) at the cost of production plus 50% profit. These promise, while highly ambitious, are logistically challenging (in terms of identifying genuinely needy farmers for loan waiver or calculating precise cost of production), fiscally overwhelming and financially foreboding, Notably, it is @ policy reversal back to government intervention in agriculture, precisely the opposite of what the nse supports. In mr, despite the death toll rising to seven, Chief Minister Shivraj CChouhan is stil holding out with limited relief measures, including ‘waiver of loan interests and invitation to dialogue. Far from pla- cating protestors, this move has actually empowered the opposition. ‘The bottom line is that the ssp needs to pay attention to rural, India and the agrarian economy, Primarily, traderfriendly and urban-based party, the Bsr secured rural votes on the back of intricate caste calculations and a promise to revamp the econo- my in general and agriculture in particular. This promise has come back to haunt it. The current agrarian crisis i the result of accumulated policy distegard and incoherence vis-&-vis agricul- ture across political parties and governments. While the BsP is not, and cannot be held, exclusively responsible for this criss, it has to bear the consequences of a desperate and desolate mass demanding justice as never before. In the past, the asp had reso- lutely opposed rural development schemes promoted by the Congress party such as the Mahatma Gandhi National Rural Employment Guarantee Act. On the other hand, its own policy ‘moves, including the proposed amendments to the Land Acqui sition Act and demonetisation, betray ignorance and indiffer- ence to the rural economy and its modes of functioning. This is evident from the Reserve Bank of India's monetary policy review statement on 7 June 2017 asserting the remarkable fallin prices across agricultural commodities resulting in “fre (distress) sales” ‘on account of demonetisation. The cash crunch induced by de- ‘monetisation that persists to the day across villages, small towns and bazaars, has triggered a deflation in the farm sector by rob- bing produce markets of the all-important liquid capital. This is 7plainly visible as farmers in Haryana, Rajasthan, Gujarat, ‘Andhra Pradesh, Telangana and Karnataka ready to take up the baton of protest, next. A poignant detail missed by most is that the farmers’ strike in, Maharashtra emanated from the same district where the Maratha morchas began—Ahmednagar in Pune division, Both the public The Bane of Monetary Policy agitations, although different in demands and methods of pro- test, have witnessed spontaneous mobilisation on.a scale, scope and intensity that should be worrying to any government. In the absence of a strong opposition, itis the intensifying wrath of people that has proved to be the real check on this government in securing accountability and the changes promised. The rer’ stubborn stance on inflation has its roots in the government's own economic policies. 9f India’s (noi) refusal to reduce the rate of interest once again at the second bimonthly monetary policy review on. 7 June 2017 that would have facilitated a reduction in bank lend- ing rates and help boost growth, is rather perplexing. The chief economic advisor ought to have realised that the Rat’ stubborn- ness, a display of its independence, in pursuing a narrow, single- minded policy perspective of inflation targeting, contrary to the government's explicit wishes, is directly inspired by the govern- rment’s own policy of stabilisation rooted in the theology advanced by the International Monetary Fund (1ntr) and the World Bank. It is a different matter that the Bt did not exhibit such independ- ence when the government interfered with its autonomy during demonetisation and in a few other administrative matters. ‘That apart, the central bank’s own image has been one of overtly promoting the nar’s stabilisation programmes during the past two decades or so. More specifically, a paper which is the outcome ofa “technical collaboration” between the nat and, the mtr, provides an outline of the analytical framework for such an inflation targeting policy. It seeks to concretise what is called flexible inflation targeting (rrr) recommended earlier by an, expert committee headed by the current ret Governor, Urjit Patel ‘The committee had exhibited a single-minded devotion to con- trolling inflation through a unique interest rate channel. It had accordingly recommended a nominal inflation rate of 4% of which operated around a + 2% band based on the consumer price index (cn). This has been imposed statutorily by the govern- ‘menton the monetary system after it signed the Monetary Policy Framework Agreement (MPRA) with the rat in February 2015. ‘The primary objective of monetary policy was thus ordained as one of maintaining price stability. For this, nat has to establish an. operating target and an operating procedure. With the amend- ‘ment ofthe ri Act, the central government, in consultation with the Ret, notified the inflation target mentioned which is appli- cable for the next five years until March 2021. If fails, the Ret shall explain the failure and propose remedial measures, and state the time required to bring inflation to the target level; as though monetary policy alone was capable of inflation control. Thus, there is this sword of Damocles hanging over the na’ head to ensure that the inflation targets met. Itisa different ques- tion that this imposition is the result of the Rat’ own initiative, based as itis ona blinkered view of the macroeconomy. The propa- gation of rrrhas also been done witha selective and biased view of other country experiences, some of which have no doubt been T: government's public disapproval of the Reserve Bank successful in moderating commodity inflation, but admittedly at the cost of output, employment growth, and social welfare. The propagation is further buttressed by the theoretical construct of “rational expectations” (nz) which stands largely discredited in re cent economic literature. As articles in this journal have brought ‘ut, the RE hypothesis fails to recognise the limits on individuals’ rationality imposed by cognitive liabilities India adopted the rrr framework despite opposition to it from even former nat governors. Those opposing it rightly contended that focusing only on inflation while ignoring the wider develop- ‘mental issues is improper and supply-side influences, which are beyond the control of monetary policy are more dominant in In- dian inflation. The monetary transmission mechanism here faces ‘untold hurdles, including the complex nature of economic struc- tures that prevent the spread of monetary signals. Just to cite the importance of supplyside issues, studies show that of the 117% inerease in the cpt during the decade between. March 2007 and March 2017, 53% has been contributed by the food index. In absolute terms, the food index has increased by 131%, while the non-food index has risen by 104% during the dec- ade. Interestingly, even under the wholesale price index (wr), the price index for food items has risen by 108% while prices of all other nonfood items have risen by less than hal. No doubt, food items in the commodities basket have considerably diver fied with a shift in favour of millets as well as fruits and vegeta- bles. Their prices do translate into higher prices in non-food items and also into the general inflationary spiral. But that is at a second stage when there can be varied forces operating in the eco- nomic environment; it provides no justification for squeezing the growth process by a restrictive ant-inflationary policy. Reducing the inherently complex issues involved in monetary policy strategy to a single, simplistic nominal anchor, which is what has been done in the rr framework, appears textbookish and lacks depth. Interestingly, studies done in the nat (Bulletin, March 2010) have shown how the multiple indicator approach was suc- cessful on all fronts: in actual growth of gross domestic product, {in inflation control, and in reducing volatility of the wer. The only ‘exception was the increased volatility in the cpr due to food pric- es, thus underlying the importance of supply management. Considering the complexity of India's economic structure, and its multiple social, fiscal and monetary needs, the earlier ‘multiple indicators approach adopted by the net that was in- formed by varied financial and real sector variables has a strong case for deployment in monetary policy.Half Lives Debilitating diabetes is spreading fast among the poor. disease that mainly affected the rich has now afflicted the poor in India. This is the disturbing finding of a maior study conducted by the Indian Council of Medical Re search (rexan). Until some years ago, Diabetes Mellitus was con- sidered to be a lifestyle disease that mainly afflicted the socio- economically better off sections of society. The “epidemic” sweep- ing lange swathes of Asia was assumed to target consumers of high-fat and sugary foods, the overweight and the sedentary However, recent studies have found that the urban poor both in the developed and the developing world are increasingly becom- ing diabetic. Termed the diabetes capital of the world, India to is going the same way. The largest national study conducted by the tem and the Ministry of Health and Family Welfare has found that in the urban areas of the more economically advanced states, diabetes is higher among people from lower socio-economic status, than those from the upper strata, However in all the states, in the rural areas the disease was seen among those of a higher socio- economic status. The findings imply that overall the disease is spreading to sections that were hitherto considered unaffected or less affected—poorer urban dwellers and better off rural dwellers. Thisisa cause for not just concern but even alarm, Diabetes isa “high maintenance” disease that leads to severe damage to the heart, kidneys and eyes apart from risk of gangrene if misman- aged. Given the state ofthe public health system inthe country, and the fact that the poor have to pay for healthcare, the findings must be treated as a distress signal on an urgent basis. According to the rea study, while the overall prevalence of diabetes in all 1g states was 7.3%, it varied from 4.3% in Bihar to 10.0% in Punjab, With a sample size of nearly 60,000, the study noted that since 70% of the population lives in rural areas, even a small increase in percentage adds up to a large number of people who need sus- tained medical attention but have access to poor health services. In seven affluent states, including Chandigarh, Maharashtra and ‘Tamil Nadu, the prevalence was higher in those from the ower socio- economic trata in urban areas. This finding could relate to greater awareness about the disease in urban areas among the economically ‘etter off and their ability o spend more on managing the disease, Nutritionists have pointed to the greater availability of “junk food!” at affordable prices in cities as a possible cause ofa high-fat EDITORIALS diet among those of a lower socio-economic strata but there are ‘other factors that must be considered. For many poorer people in cities, nutritionally well-balanced food may not be within their ‘means, Eating “junk food” is thus not a matter of choice or taste as ‘much asaffordabilty Similarly the study points to factorslike higher income levels, ess physically demanding occupations and increased availability of mechanised transport and household appliances among urban dwellers to possibly explain the higher incidence of the disease in urban areas. The pressure of commuting long dis- tances to work and the need to use the public transport system is also nota matter of choice in cities. These issues lead tothe build-up of stress—another factor that is among the causes ofthe disease. ‘The onset of Type 2 diabetes among South Asians occurs at a ‘much younger age as compared to other populations, thus straining the healthcare services. The study also points to another known, fact: Asian Indians progress faster through the pre-diabetes stage than those of other ethnic groups. Also, asin other countries where diabetes is spreading rapidly in India too, recreational physical activity is very low, more so, among women from all sections. ‘This study backs with data what has been surmised and found inearlier but smaller studies. For instance, the National Programme for Control and Prevention of Cancer, Diabetes, Cardiovascular Disease and Strokes has been active since 2010. But the scan findings cal for urgent short- and long-term interventions. The government, non-governmental organisations (Nos), the medical community and diabetics will have to join hands to ensure that community involvement is encouraged. Starting with the avail- ability of nutritious food and facilities for physical recreational activities, a sustained campaign to spread awareness of the dis- cease is needed. These in tur call for more long-term policy inter- ventions that go beyond packaging and advertising of fas foo. Infectious diseases remain the largest concern in developing countries. However, non-communicable diseases like diabetes (known appropriately as the silent killer) are spreading at a frightening rate. Before the discovery of insulin in 1921, having diabetes meant a sentence of death and after it, until some de- cades ago, a 50% chance of survival. In the 2st century, if we are not to sentence large sections ofthe population to a halflife, ‘we must act quickly and in concert. FROM 50 YEARS AGO oT TG ‘AND POLITICAL All the Wrong P: Hlibbertigibber With the presence of thieweeek somewhere WEEKLY’ arallels as many a5 six ministers und Nexabbari (E&P W, ‘June 3) the place became not some obscure area in easily forgetable North Bengal but—whar? ‘Some seein Naxalbari another Telengana the ‘more imaginative reporters tended to see in Naxatbaria future Vietcong. Another Kakveip seems more like i,t those who know the Ben- galitemperament wth ts incoregibe volatility Bue the other suggestions, domestic and exter nal are worth discussing because they represent the shadow that always falls between the idea ‘andthe realty in the Waste Land that is West Bengal, The proximity of foreign borders—Nax- abba is so many miles trom East Pakistan, so ‘many from Tibet and so many from Nepal (he expert have the figures pat)—adds eredbility {othe stories current inCalcuta and elsewhere; Dut the facts are really much simpler. In North Bengal there is a lot of uncultivated land: ‘Shareeroppers want some ot and vo preted in the circumstances that isan international con spracy involving several unfriendly neighbours is to invite such a conspiracy. (Vide Nagaland, Mizo Hills et, et “The orldest thing is that, place names like Naxalbai, Kharbari and Phansideon are begin: ning to sound foreign. Will the ministerial cele {gtion go into the interior or does it go only to Siigue and take decisions onthe basis of reports From the Commissioner of the Northern Range and the Deputy Commissioner of Darjeeling? In Spite of vaguely worded official contradictions, there is litle doubt that local officals favour 8 hhand-over ofthe atea tothe atmy, The failure of, the civil administration needs tobe looked into,Is Banking Safer Today than before the Crisis? the world economy has been in I slow motion for most of the period since the financial crisis of 2007. Interest rates fell steeply as central banks attempted to use monetary policy to get economies back on track. Falling interest rates result in lower interest margins for banks and a squeeze on profits. Banks have ended up paying hefty fines for assorted violations during and after the financial crisis. ‘This combination of adverse factors should have been bad news for banking in the advanced economies. It has been ‘you look at valuations of banks. Major banks in the United States (us) traded at below their book value until about a year or two ago. Leading banks in Europe are stil trading below their book values. However, there is little talk of an imminent banking crisis. On the con- trary, regulators exude confidence that ‘banks have become safer, thanks to tighter regulation since the crisis. Is this true? The Economist (2017) devotes a special report to the subject and comes up with a tentative “yes.” Many will be sceptical about this conclusion. Regulators have taken several meas ues since the financial crisis of 2007 in order to ensure greater stability in banking. Three of these are seen as especially crucial. The Bank for Interna- tional Settlements (61s) has stipulated higher capital requirements. Regulators in the us and Europe have sought to bol: ster with “stress tests” that will check that banks have adequate capital under simulated conditions. In the us, regule- tors have stipulated “living wills” that will spell out how banks can meet their liabilities in the event of failure without requiring the injection of taxpayer money. Inthe us and the United Kingdom (ux), restrictions have been placed on the scope of banks. ‘Many, especially in the banking com- ‘munity, believe that the combination of higher capital and living wills suffices to make a huge difference to stability in banking. How true is this contention? Let us examine each ofthe key measures inturn, Higher Capital Requirements Following the crisis, the mis came up with Basel 1 requirements for capital. Of the basic requirement of 8% of capital against riskweighted assets, the share of tier 1 capital (which is equity plus quasi-equity capital) has been increased from 4% to 6%. In addition, Basel 1 pre- scribes a capital conservation buffer of up to2.5%, a countercyclical buffer of up 10 2.5% and a capital charge on systemi- cally important banks of 2.5%. Adding up the various charges, the largest banks would require as much as 15.5% of capi- tal, which is virtually double the require- ‘ment prior to the crisis In addition, regulators in the us have asked banks to hold debe that would convert into equity in a crisis. Total loss absorbing capacity (ri.ac) would include equity and contingent convertibles that convert into equity. Jamie Dimon, the chief executive officer (ceo) of JPMorgan Chase, America's biggest bank, seems to think that regulators have erred on the side of excess. In a letter to shareholders in April 2017, Dimon contended that “banks have too much capital” and that “essentially, ‘too big to fail’ has been solved—taxpay- ers will not pay if a bank fails” (Dimon 2017). Dimon based his contention on stress tests conducted by the us Federal Reserve (or Fed) on the top 33 major banks. The tests estimated losses at each bank assuming it would be the worst bank in a crisis. Even in this worst-case scenario, losses added up to less than 10% of the banks’ combined capital. Dimon wrote, “This definitively proves that there is excess capital in the system.” Neel Kashkari, President of the Fed- ral Reserve Bank of Minneapolis, has pointed out the fallacy in Dimon’s con- tention (Kashkari 2017). Dimon bases his argument on the total capital available with banks, which is equity plus bonds. This assumes that, in a crisis, after equity holders have been wiped out by losses at a bank, regulators will get bondholders to bear losses. But we know that this seldom hap- pens. When bondholders at a bank are forced to take losses, bondholders at other banks take flight, at the very least, they will not roll over the bonds on maturity. ‘The failure of any bank would thus result in contagion. The only capital that mat- ters when it comes to absorbing losses at a bank, therefore, is equity capital. Despite Basel 1m, there is not enough equity capital in the system at the ‘moment. Under Basel m, the leverage ratio (the ratio of equity to assets) is 3%. For the top six banks in the us, the ratio today is 6.69%. Kashkari thinks the lever- age ratio for the biggest banks needs to move up to around 15% (which would mean a debt to equity ratio of about 5.52). For this to happen, the biggest banks would need to have a capital to riskweighted assets ratio of 23.5% (Financial Times 2016). In their well-known book, The Bank- ers’ New Clothes: What’s Wrong with Banking and What to Do About It (2013), ‘two academics, Anat Admati and Martin Hellwig, take the case for higher capital even further. The authors argue that the leverage ratio may need to be as high as 25% for banks to be truly stable. This means that the debt to equity ratio would have to come down from 33:1 today to3:1. In terms of having adequate capital at banks, we have a really long way to go. In the us, there is a proposal in Congress to offer banks an alternative to the complex regulations of Dodd-Frank Act: a leverage ratio of 10:1. Then, banks do not have to opt for Basel mt and other norms. The Economist (2017) says thatHT PAREKH FINANCE COLUMN small banks may opt for this alternative ‘but not the larger banks. Living Wills We have thus far lacked mechanisms for orderly resolution of banks in a crisis. ‘That is why governments had to infuse capital into banks in order to prevent failure. Living wills are intended to provide for orderly resolution, that is, losses would be borne by equity and bondholders (and, perhaps, by depositors with deposits above the guaranteed limit), The Dodd-Frank Act in the us has provisions for living wills and it also creates a new resolution authority called the Orderly Liquidation Authority. In 2014, 11 us banks submitted their living wills to the Federal Deposit Insur- ance Corporation (roic). All were reje- cted. In 2016, five out of eight living wills were rejected by the Fed and the prc. There are serious doubts as to whether living wills will ever work in practice. ‘The living wills are based on est mates of the value of assets and liabi ties in normal times. In times of crises, the valuations may well turn out to be incorrect. Many of the large banks oper- ate across several countries. Cross border resolution of assets and liabilities poses formidable challenges. Moreover, living wills hinge on Tic, which includes convertible debt. The dea in having debt as a component of ‘TLacis that debr is cheaper than equity. But if investors believe that debt is likely to be converted into equity with a high probability, they are likely to price it closer to equity, thereby defeating the purpose of having a debtlike instru- ment. The concept of living wills as a means of making the banking system safer fails to inspire confidence. Restrictions on Scope ‘There is a view that banks came to grief in the financial crisis because they were using depositor money for high-risk activities. In the us and the ux, regula: tors have moved to restrict the scope of banks’ activities. In the us, we have the Volcker Rule in the Dodd-Frank Act. Under the rule, banks are barred from proprietary trading, hedge funds, and private equity commie & Pllc wrsxsy ‘The UK has opted to ring-fence retail banking activities from investment ban- king activities as recommended by the ‘Vickers Commission. There will be higher capital requirements for the retail bank- ing part and the regulatory safety net will be available for the retail part alone. Do restrictions on scope make bank- ing safer? First, there are significant challenges of implementation. In the us, it has been especially difficult to define “proprietary trading” under the Volcker Rule and to distinguish it from hedging cor market-making activities. In the UK, ensuring that retail banking is properly ring fenced poses its own challenges. ‘That apart, itis not clear that itis the integration of investment banking with retail banking that makes banking risk- ier. In the last crisis, some investment banks (for example, Bear Stearns and Lehman Brothers) failed as did some pure commercial banks (such as North- em Rock and Washington Mutual). Some banks that combined commercial and investment banking (for example, Royal Bank of Scotland) failed while others (for example, JPMorgan Chase) weath- ered the storm, ‘Moreover, separating investment ban- king from commercial banking would reverse a market-driven process stretch- ing over a long period as banks found that they were losing clients to the capi- tal markets. The problem for universal banks may not be scope of operations per se. It may be that they have not, in the past, set appropriate limits for various activities or income streams i accordance with prudent norms of risk ‘management. The answer, then, is not to eliminate proprietary trading or hedge fund activities but to place appropriate limits on exposures to these activities. If greater scope has resulted in banks becoming bigger, then, perhaps, the pro- blem is better addressed by addressing the problem of size itself. As the argu- ‘ment goes, if a bank is too big to fail, it should be too big to exist in the frst place. Simon Johnson of the Sloan School of ‘Management, Massachusetts Institute of ‘Technology, has argued that banks’ size should be limited to 2% of gross domes- tic product. At least for now, the idea is ‘00 radical for regulators to stomach. It does appear that banking stability is still some distance away. If we are to stick to conventional approaches. to protecting stability, then our best bet is to require banks to have substantially ‘more capital than is contemplated under Basel mt. But this is an idea that has yet to gain general acceptance. ‘A paper that came out last year should jolt regulators out of their com- placeney (Sarin and Summers 2016). Using several measures of risk, the paper finds that banks in the us and elsewhere are not safe. If banks were safer, bank equity should be less volatile and there should be less market expec- tation of future volatility of equity. It turns out that this isnot the case. Meas- ures of volatility are higher post-crisis than before the crisis ‘The authors find that the franchise value of most institutions, reflected in the ratio of market value of equity to assets, has declined significantly for ‘most major institutions after the crisis. This naturally signals higher risk: there is less equity available to bear losses on assets. The authors say that their find- ings “clearly call into question the view ‘of many officials and financial sector leaders who believe that large banks are far safer today than they were a decade ago.” That is certainly some- thing for regulators and policymakers to chew over. ‘TT Ram Mohan ((o7@iima ac in) veaches at the Indian Institute of Management, Ahmedabad, Dimon, Jamie (2017): “Dear Fellow Shareholders “4 April, beps//www. jpmorganchase.com/ ‘Corpcateinvesorrlaons/decument/a2016, ‘eolettersreoers pl -Beonomist (2017): A Decade After the Crisis, How Tare the Work!® Banks Doing?” @-12' May, http/tww:economistcom/newsspecial report 21721505-though-ffects- financial sit2007-08-are sll reverberating banks are, Pinancial Times (2016): “Neo! Kashkari Pulls No Punches in Plan to End "Too Big Too Fal." 18 November, htps//www.fecom/eontent/b4bo an6a-adge-ne6-9¢b3-0b8207902122, Kashkari, Neel (2017): Jamie Dimon's Shareholder (Advocacy) Lette.” Mediumcom, 6 April, hreps:/medium com/@neelkasnkar/jamie «mons shareholder advocacy leterc24867- pene Sarin, Natasha and Lawrence H Summers (2016): fave big Banks Gotten Safer" Brooking Papers on Economic Activity, Fal ttps:/Wwwe brookingsdu/peaatiles/have-big banks gotten saferDefecting from the Law ALOK PRASANNA KUMAR ‘The impunity with which legislators in Andhra Pradesh and ‘Telangana have ignored the anti-defection law points to certain weaknesses in the processes and norms laid down in it. What is required to remedy this, however, is not just a minor tweak, but a complete overhaul of the way the law works to adequately address the problem of defections by sitting legislators before it overwhelms India’s democracy. [would like to thank Hemant Desai and ‘Shraddha Upadhyay for their inputs. ‘Alok Prasanna Kumar (alok prasanna@ vidhilegelpolicy.in) isa visiting fellow atthe Vidhi Centre for Legal Policy, New Delhi, 2 ince it was inserted into the Consti- tution, the Tenth Schedule of the Constitution of India (the “ant defection law”) has been a subject of con- siderable debate and controversy. It has ‘been partially struck down by the Supreme Court in Kihoto Hollohan vZachilhu (1992). Yet, the controversies and debates have led it to be amended again through the Constitution (Ninety-First Amendment) ‘Act, 2003. In its 32 years of existence, political parties and legislators have come th creative and ingenious ways of the rigours ofthe law, an taken much litigation, going all the way up to the Supreme Court, not to mention the ‘ist amendment, to curb these attempts. However, recent events in Telangana and Andhra Pradesh show that the anti- defection law faces a new, devast threat, It comes from the simple refusal of speakers to perform their constitu- tional duties under the law by not taking a decision as to the disqualification of a member of legislative assembly (ta) within reasonable time. This means that aan mua, who has otherwise violated the ‘Tenth Schedule by “defecting” to another political party, will not suffer the legal consequence of disqualification for such “defection,” but instead will continue to enjoy her seat. This effectively renders the anti-defection law irrelevant, with terrible consequences for India's consti- tutional democracy. Until the Constitution (Fifty-Second Amendment) Act, 1985 was passed, the Constitution of India did not use the phrase “politcal party” at all. Even though the Indian Republic has been a multiparty system, following the Westminster form of parliamentary democracy, the Consti- tution itself seems to be “blind” to the existence and operation of political parties. Itis nots if India did not have experience with a limited form of multiparty demo- cracy prior to the coming into force of the Constitution; this was what the Government of India Act, 1935 had ena- bled. Yet, it was only with the coming into force of the sand amendment to the Constitution, which introduced the Tenth Schedule to the Constitution, that the words political party” were used for the first time in the Constitution of India. ‘The ostensible reason for the intro- duction of the ‘Tenth Schedule was to curb the so-called “aaya-ram-gaya-ram’ practices of Indian legislators. The inspi- ration for this moniker is said to be Gaya Lal, a Haryana sia who changed par- ties thrice in the space of one fortnight in 1967 while retaining his seat as an MLA. Defections thereafter reached such epidemic proportions that the stability of some state governments was always in question, distracting from any sem- blance of good governance. ‘The Tenth Schedule was offered as the solution to this issue, But, almost as soon as it was applied in various legislatures, it was challenged in the Supreme Court as being against the basic structure of the Constitution. By a narrow majority of three to two, a Constitution Bench held in the Kihoto Hollohan case that the Tenth Schedule was largely valid, but read down paragraph 7 which tried to exclude judi- cial review of the speaker's decision on disqualification. The minority judgment (authored by Justice JS Verma) held it to be against democracy, a basic feature of the Constitution, raising some valid con cerns about the Tenth Schedule, notably its reliance on the position of the speaker to make an impartial adjudication when the post clearly was a partisan one. Sub- sequent years have proved the minority judgment right as speakers have only become more partisan One initial loophole in the law, that of defections being valid if a party “split,” was closed by the gist Amendment Act. Multiple committees over the years had recommended that this loophole, which allowed “bulk defections” while penalis- ing individual defections, be closed. Coupled with the constitutional limit placed on the number of ministers in a government, it was hoped that this would prevent the kind of unprincipled defections that the Tenth Schedule hadTAW& SOCIETY tried and failed to stop.? This did not necessarily work as intended. Disregard for the Law After the assembly elections in 2014, a troubling situation has emerged in Andhra Pradesh and Telangana in the context of. the anti-defection law. As of date, 27 legis- lators are alleged to have defected from various parties to the ruling Telangana Rashtra Samiti (res) since 2014. The speaker, § Madhusudhana Chary, himself a member of the TRS, has not taken any decision on the disqualification petitions filed against these atuas over these three years. Likewise, in Andhra Pradesh, the ‘Telugu Desam Party (roP) in power has been able to get 21 mttas from the Yuvajana Shramika Rythu Congress Party (vsxce) to defect to it, without suffering disquali- fication (Somashekar 2017). Here t00, Speaker Kodela Siva Prasada Rao, a member of the Tbe, has taken no decision (on the disqualification petitions. ‘The speakers’ inaction in both these states is the latest manifestation of the underlying problem highlighted by the minority judgment in the Kihoto Hollo- han case—the partisan role of the speaker. In the past, speakers’ decisions have been challenged before the Supreme Court and high courts, and set aside on various sgrounds® This new modus operandi to defeat the anti-defection law seems to avoid any possible judicial review. Nonetheless, judicial review will not be taken away entirely. The Telangana impasse is under consideration in the Supreme Court of India (S$ A Sampath Kumar v Kale Yadaiah 2016) and the ‘Andhra Pradesh case is in the Hyderabad High Court (Business Standard 2016). The Supreme Court has referred the Telangana case to a Constitution bench in an order dated 8 November 2016 and one hopes that the Court hears and decides the case before the completion of the full term of the legislative assembly. Before the Supreme Court, the Telangana speaker has raised the question as to whether a court can at all issue a direction for expeditious disposal of a disquelifica- tion petition under the Tenth Schedule. ‘The key question before the Constitution bench is whether a high court or the Supreme Court can order the speaker to commie & Pllc wrsxsy take a decision on such disqualification petitions. ‘The instances in Telangana and Andhra Pradesh are not the first, and certainly will not be the last attempts by political parties or legislators to overcome the ‘Tenth Schedule. These have happened exactly because of the reasons pointed out by the minority judgment in the Kihoto Hollohan case—an overbroad law which requires a partisan speaker to act ina non-partisan manner. ‘Though transplanted from foreign shores, the Westminster form of parlia- ‘mentary democracy has taken root here but developed some rather bizarre and dangerous mutations, such as routine defection. Further, with the increasing likelihood of those with criminal charges against them getting elected and the decisive role of money power in an elec- (Vaishnav 2017), this suggests a democracy in poor health, But, is the fix the right one? Does the ‘Tenth Schedule, in its present form, strike the right balance between the freedoms of the legislator and the need for respect- ing democratic mandates and processes? It is perhaps time to take heed of Justice ‘Verma's dissent in the Kihoto Hollohan case and reconsider the anti-defection law. Pethaps, one ofthe reasons wy there isso litle debate in Parliament over important legislation (Gandhi 2016) could be because there is little or no incentive to do so ‘when the voting takes place along entirely expected lines. It might make sense, there- fore, to restrict the anti-defection law only to votes on the budget and confidence/ no-confidence motions. It follows, there- fore, that votes which do not follow the party whip in such instances should be automatically deemed invalid, and the ‘member disqualified by operation of law. ‘The disqualification should also be as a ‘matter of course and not involve any dis- cretion or decision-making on the part of. the speaker. While the Supreme Courthas placed much faith in the neutrality and sanetity of the office of the speaker, the reality is that the office is anything but, a fact recognised ironically by the Supreme Court itself while holding that the deci- sions of the speaker nonetheless will be subject to judicial review, and invalidating stich decisions in no fewer than 1 cases. ‘These changes are necessary since what haas taken place in Telangana and Andhra Pradesh is probably being watched with interest by politcal parties around the country. Given that most ideas concern- ing governance in India, good or bad, have travelled from the states to the cen- tre, the day may not be far when the cen- tral government is formed through an illegitimate majority gained only by fla- ‘grant violation of the Tenth Schedule. ores 1 TheSupreme Court alone ha delivered no fewer than 26 judgments interpreting some aspect of the Tench Schedule, the envlest being the Kioto Hollohan case ad the latest in Nobort Rela & Bamang! elie ¥. Deputy. Speaker, Arunachal Pradesh Legislative Assobly 2016). 2 SeeStatement of Objects and Reasons” ro the Constitution (Ninety-first Amendment Act, 2008 (http/ndiacode nie incotweb/amend? amendou.pat. 3 See, for instance, Balehondra Jharkhol B.S Yedyurappa Goi), where the Supreme Court Sct aside te decision ofthe speaker ofthe Kar hataka State Legislative Assembly disquality ing members of egisative assemblies. 4 This suggestion was made ina private mem- ber bill to this effec by then member of par liament, Manish Tewari, bu the same lapse. See Manish Tewari (201) REFERENCES Balchendra Jharkoll » BS Yeddyurappa (ou SCC, SC, 7, p Business Standard (2016): “Hycerabad High Court Issues Notices 020 YSACP Members," 14 Novem ber, viewed on 10 ne 207, htp//www bus ness standard.con/aticle/ polities” hyderabad high-coureissues-notces-10.20 9 ep members-n6m4o1222_ hm ‘Gandhi, Jatin (2016): “Patient Spending Less "Time Debating Laws Than Ever. Hete’s Poo” Hinduscan Times, 29 August, viewed on une 2oiy, htp//Anwwhindustantimescom/india news/parliament-spendingiesstime-debat- inglaws-than-ever/story-SoudFmmvUsDIWp- MaBE7PUN hm ihoto HollohanvZacilh (1992): SCC Supp, SC, 2, Pst aba Rebia & Bamang Felix v Deputy Speaker, ‘Arunachal Pradesh Legislative Asembly 2016) SCC, SC, 8p A Sampath Kumar v Kale Yadaih (2016): Speci Leave Petcon (Civil), $C, 3367/2015, ode by the Supreme Court dated 8 November 2016, ewe on 10 June 2017, p:/supremecourt go" ivjonew/courni/rop 201 40016/84771 pal Somashekar, M (207): “Ruling Parties Use Defec tions to Consolidate Position in AP, Telangana,” Business Line, April viewed on 10 June 2017, hutp//ww.thehindubusinessline.com/news/ national/rlng parties defections t-con felidate-posionin-aptelangana/art legenias.ece, Tewari, Manish (2016); “Liberate the Lepisator” “linda, 30 Api, viewed ono June 207, tp \wwwthehindu.com/opinion/lead/lead-artice by-congres-lader-manish-tewarton erat ‘the legislator /artiless37888.ece. Vaishnav, Milan (2o17): When Crime Pays: ‘Money and Muscle iz Indien Politics, Delhi: HarperCollins 3Trump’s Toxic Announcement on Climate Change President Donald Trump's announcement that the United States will exit from the Paris Agreement betrays a fundamental misunderstanding of the way the agreement works. It also goes against long-agreed climate principles, and is blind to emergent clean energy trends. In practical terms, the us had activated a rollback of mitigation policies and contributions to climate finance prior to this announcement. Until there are changes in domestic us climate politics—of which there are positive signs—the us cannot be regarded a reliable partner for global climate cooperation, Navrot K Dubash (ndubash@gmail.com) is senior fellow atthe Centre for Policy Research, New Delbi 4 ver since Donald Trump took office E: President of the United States (us) in January this year, environ- ‘mentalists the world over have been ask- ing: will he or won't he withdraw the us from the Paris Agreement on climate change? Now we know. On 1 June, Trump announced that “to fulfil my solemn duty to protect America and its citizens, the United States will withdraw from the Paris climate accord...” (The White House 20176). This article examines the {implications of this statement for the fu- ture of the Paris Agreement, the pros- pects of meeting a global temperature goal, the provision of climate finance, and global climate politics. However, to understand the implica- tions of this action along these dimen- sions, itis helpful to first delve into the stated reasons for the us withdrawal, and in Trumps own rather toxic words. ‘Trump said the Paris Agreement will have the effect of “ost jobs, lower wag- ¢s, shuttered factories,” that it “punishes the United States ... while imposing no ‘meaningful obligations of the world’s leading polluters,” that it is “unfair, at the very highest level, to the United States,” and that it will lead to a “mas redistribution of wealth to other countries.” This reasoning, such as itis, supports three disturbing interpretations, all of which bode ill for the future of us participation in global climate cooperation First, it betrays, intentionally or not, a fundamental misunderstanding of the ‘underlying mechanism ofthe Paris Agree- ‘ment Bodansky 2017; Rajamani 2017). ‘The agreement is structured around bot- tom-up voluntary pledges; each country puts on the table what it deems fit in terms of mitigation action and also finan- cial support. The only mandatory elements of the Paris Agreement are procedural cones, such as reporting progress and regularly updating pledges. Given this cemtrely Voluntary structure, representing the us as a victim fundamentally misin- terprets the agreement Second, Trump's language seeks to appropriate the notion of fairness in cli- ‘mate politics in a manner that belies a long history of negotiation. Historically, equity and fairness have been determined by which countries have responsibility for causing the problem—in terms of contri- bution to emissions over time—and which countries are best placed to solve it, in terms of their capacity to address the problem. While the negotiations have long been plagued by contradictory interpreta- tions of these principles, Trump dismiss- es the very basis for discussions of fair- ness. Instead he seeks to replace it with the idea that all countries bear equiva- lent obligations, irrespective of responsi- bility and capacity. This interpretation rejects, even as a principle, any differen- tial treatment for poor countries or coun- tries that have not contributed much to the build-up of greenhouse gases. Third, by emphasising the potential ‘economic downsides of climate action— jobs, shuttered factories—the Trump state- ‘ment seeks to deny the feasibility of alow carbon transition at a reasonable and shrinking cost. Trump's assertions are based on an industry-funded report (vena 2017) that has been heavily criticised by environmental groups (Steinberger and Levin 2017; wrt 2017). Among the criti- cisms are that the speech cherry-picks only the highest cost case among several presented in the underlying report, and is based on an assumed low level of in- novation in renewable energy. This as- sertion cuts at a critical understanding that underpinned the political agree- ‘ment at Paris: that a low carbon energy transition is feasible at a reasonable and falling economic cost. Undercutting this ‘message feeds the political reluctance to address climate change in the us. The flexible architecture of Paris, the agreement on the underlying conception of fairness, and the promise of a declin- ing cost energy transition were central to agreement in Paris. Conversely, the vs denial of all three concepts can have‘COMMENTARY a deeply corrosive effect on the agree- ment. To what extent are these ideas likely to be propagated and affect mate- rial outcomes? Future of the Paris Agreement ‘The obvious concern following the us announcement of intent to exit is that it will trigger a domino effect, and lead other countries to follow suit. Afterall, if the country most responsible for the build-up of greenhouse gases over time refuses to act, why should other, smaller, poorer, and lower emitting countries continue to cooperate? Whether or not this is a real risk depends greatly on the reaction of other countries, particularly other powers. If the us is isolated, and the reputational costs to an exit are high, other defections are less likely. The immediate reactions by other countries are heartening. The European Union (ev) and China reaf- firmed their commitment to implement ing the Paris Agreement and to hosting a joint ministerial gathering to take this forward (European Commission 2017). French President Emmanuel Macron gave a stirring speech calling on the ‘world to “make our planet great again,” and Prime Minister Narendra Modi has stressed India’s commitment to the Paris Agreement in bilateral meetings with Chancellor Angela Merkel and President Macron. India’s Minister for External Affairs Sushma Swaraj has explicitly confirmed that India would meet its obi gations in the Paris Agreement irrespec- tive of any us actions (Hindu 2017), These statements suggest that there may be no takers for Trump's offer to “re-negoti- ate” an agreement arrived at after years of gruelling negotiations. And they but- tress the agreement, signalling to others that exiting it may not be politically without costs. Interestingly, the us statement of intent to exit may not be the worst outcome. Another option Trump was reportedly considering, to stay in the agreement but to reduce the us mitigation pledge (or “nationally determined contribu- tion"), may, paradoxically, have been worse. Doing so would have violated the Paris Agreement’s principle of “pro- sression,” by which each new pledge has to be more ambitious than past one Yet, some us environmental groups, an effort to keep the us in at any cost, have argued that the Paris Agreement allowed for such a step, legally even if not ethically (c2es 2017), a view that has correctly been challenged forcefully (Rajamani 2017a). Had Trump taken this, route, and the effort to legitimise a low- cr pledge succeeded, it would have sent the signal that any country could, at any time, lower its pledge if it became in- convenient, This would have entirely undermined a central principle of the Paris Agreement—no back-sliding— and rendered ineffective the ability of the agreement to nudge countries onto a virtuous cycle. The formal exit, with its higher political costs, is less likely to lead to a domino effect than the alter- native of staying in and watering down its pledge ‘An important detail, and one that complicates interpretation of the ‘Trump statement on the agreement, is that a party can only withdraw from the Paris Agreement three years after it enters into force, and withdrawal takes a further year. Hence, despite Trump's statement that the us will cease to hon- ur its obligations immediately, the us cannot legally withdraw for four years, around the time of the next us election, in November 2019. This has implications for the ongoing negotiations to elaborate the agreement's ‘mechanisms. Ifthe us is committed to a withdrawal, it will play a limited rote in these negotiations, weaken the development of important Paris Agreement mechanisms on trans- parency and review. However, there is also risk that the us’ stated withdrawal could complicate negotiations, by leaving negotiators guessing at what may be required to induce a future us adminis- tration to rejoin the agreement. In sum, the short-term risk to the stability of the agreement appears man- ageable, particularly if other powers join forces to buttress it. And there does not seem to be much danger of a renegotia- tion process. Whether the us will rejoin the agreement at a future date, and ‘under what terms, isa complex question and is dependent on potential shifts in us politics around climate change in the coming years. Global Temperature Target fone were to consider actual greenhouse {gas reductions, the prospect of diminis- hed action by the us is alarming, The us accounts for the largest share of cumula- tive emissions since 1850, about 27%, and emits about 13% of annual global emissions currently, second only to China (wrt 2014). To have any chance of limit- ing the increase in global average tem- perature to well below 2°c, as the Paris Agreement states, large emitters such as the us have to limit their emissions. However, even before he made the announcement, Trump had signed an executive order on Energy rolling back a series of Obama-era measures designed to limit us emissions (The White House 2017). This order, among other things, sets in place processes to slow down or it the Clean Power Plan aimed at re- ducing emissions from the electricity sector, lifts restrictions on using federal and for coal mining, and revisits an im- portant regulatory measure aimed at set- ting an implicit price on carbon for the purpose of regulatory decisions, The playing field, in short, is being systemati cally tilted towards greenhouse gas-emit- ting fossil fuels. ‘The achievement of its pledge—of a 26%-28% reduction in its emissions by 2025, from a 2005 baseline—was by no means clear even with Obama-era policies, but the Trump order further reduces the likelihood of the us meet- ing this pledge. For example, one study suggests the effects of these changes are that the us will decrease its emis- sions by a much lower 15%-18% by 2025 (Larsen et al 2017). us environmental groups argue that the Trump policies ‘may have less effect than expected, both because some of these, such as the Clean Power Plan, are complex to undo, and because market forces are working towards clean energy independent of regulatory measures. While the final outcome is certainly hard to predict, there is little doubt that Trump's energy order undoes efforts to achieve the us pledge and makes the 2° limit harder to achieve. For climate-vulnerable countries 15‘COMMENTARY. such as India, this represents a clear abdication of responsibility. ‘The emergent countertrend to this bad news message is that the baldness of the Trump statement appears to have had a galvanising effect on other actors in American society. For example, a net- ‘work of us cities, states, corporations and universities are preparing a plan to redouble mitigation efforts in order to achieve the original us pledge in Paris (Tabuchi and Fountain 2017). Opinion polls suggest that there is a wide pool of popular support into which such initi tives could tap: a majority of voters in every state were in favour ofthe us stay- ing in the Paris Agreement (Marion et al 2o17), and 42% think the pullout will hurt the us economy, while 32% think it will help (Langer 2017). These numbers suggest that an intense battle of opinion- shaping and mobilisation around climate outcomes is under way in the us. While the outcome cannot be prejudged, there is at least a possibility that some of the slowdown in mitigation may, over time, be reversed both by market forces and collective action by pro-climate action coalitions in the us. Implications for Climate Finance ‘Trump took central aim at financing for climate change action as a key reason ‘why the Paris Agreement is unfairto the us. The proposed Trump budget for 2018, already discontinues funding for the Green Climate Fund and other interna: tional climate support programmes, as well as the Advanced Research Projects ‘Agency-Energy, the programme charged ‘with taking further clean energy research and development (Office of Management and Budget 2017: 19). In his announce- ment, he criticised the Green Climate Fund, ascribed a massive redistribution of wealth due to the Paris Agreement, and singled out India as a country that stood to gain “billions and billions” of dollars. To understand these comments and the ways in which they are mislead: ing, it is necessary to briefly take a detour into the evolution of discussions around climate finance. Climate finance has long had a bit of. an “Alice in Wonderland” quality, in that countries have argued vociferously over 16 the underlying principle of climate fina- nce, even as remarkably little money has flowed into or shaped actual climate ac- tions. The Paris Agreement enshrines a ‘compromise view on finance: Support shall be provided to developing ‘country Parties. recognising that enhanced support for developing country Parties will allow for higher ambition in their actions. (onrece 2015: Article 4, Paragraph s) ‘This formulation recognises the principle that developing countries need financing, while also allowing for the fact that developing countries will take some actions with their own domestic finane- ing. No amounts were agreed upon, al- though in early negotiations developed countries had offered a goal of providing S100 billion a year from 2020 onward (onc 2016). In the short term, devel- ‘oped countries have pledged just over Sto billion. ‘The us has, in actual fact, only con- tributed $1 billion so far, intended to support both mitigation and adaptation for all countries, against a pledge of $3 billion, As Trump now limits further payment, as he has announced, the us ‘would be the second-lowest contributor in per capita terms among developed countries, at $3 per capita (the highest, in comparison, is Sweden's at $59 per capita). Were the us to contribute is full $3 billion, it would still rank 11th in per capita terms, at about $9 per capita ravins 2017). It is difficult to under- stand how these numbers indicate un- fairness to the us. More salient, however, the Trumpstate- ‘ment fails to appreciate the extent to which climate finance discussions are shaped by jostling over principle as ‘much as by reality. For example, India has made considerable strides in imple. ‘menting its pledge to enhance non fossil fuel electricity capacity entirely with domestic resources, even though India’s Paris pledge does include an estimate of mitigation needs of $834 billion for “sue- cessful implementation” and adaptation needs of $206 billion. Arguably, India can and should do a better job being more precise and specific about the method through which these numbers were ar- rived at. But, in the curious, unreal world of climate finance, these numbers are at least as much about reinforcing the prin- ciple of who is responsible, even while action on both climate mitigation and adaptation proceeds with domestic funds. The lack of finance is unlikely to induce the larger emerging economies, such as China, India, South Africa and Brazil, to slow down the realisation of their mitigation pledges. However, the shortfall in funds will have negative implications, particularly on adaptation programmes in poor and vulnerable nations. Neither any arguments about fairness, based on relative contributions, nor arguments about other countries pulling their weight, provide even the smallest justification for the us pulling back on its agreed, and so far very limit- ed, contribution to climate finance. Global Climate Polities What, collectively, does allthis imply for global climate polities and outcomes? To begin with, the deleterious effects of ‘Trump's policies on us emissions and on finance were apparent even before the announcement on the Paris Agreement (Kemp 2017). The rollback of Obama-era emission reduction policies and the withdrawal of funding for international climate programmes will undoubtedly have directly negative consequences. ‘They will slow the pace of global emission reductions and, unless compensated by other countries, reduce the quantum of funds available for developing countries. The announcement to exit the Paris Agreement does not modify these ef- fects, for better or worse. However, its real potential effects are political and operate at three levels. First, based on inital reactions, the Trump announcement is unlikely to lead to a deleterious domino effect of other coun- tries exiting from the Paris Agreement. The statements from other powerful countries and regions, such as the eu, China, and India, are reassuring in this regard. There sno indication whatsoever that countries are considering reopening negotiation. Confronted with the Paris Agreement potentially under threat, the early indications seem to be that other countries are willing to set aside their residual concerns about the agreement and coalesce around keeping Paris intact.‘As has been mentioned, the alternative— of the us staying in the Paris Agreement but lowering its pledge—may have had a more destructive effect. ‘Second, mobilisation by states and cit- ies, and by civil society and business signal a strong latent constituency for climate action in the us, which has also been energised by the Trump announce- ment. In addition to taking action to compensate for federal inaction, these actors could provoke a deeper and more robust debate on climate change in American politics. The result is not a foregone conclusion; Trump was clearly playing to a social base that continues to harbour deeply negative views about Paris. But if a decisive majority is to >be forged in favour of climate action, a catalyst such as the Trump announce- ment may well have been needed. Climate change is now likely to be firmly on the radar for the next presidential elections; continuing with low-level po- litical skirmishes may not have resulted in this opening. ‘Third, the tone and tenor of the Trump remarks, and their narrative break with key concepts—agreement on the archi- tecture of climate cooperation, key prin- ciples, and direction of travel towards cleaner energy—signal the futility of any further accommodation of the vs. ‘The climate announcement is of a piece with a much-discussed recent article by the us National Security Adviser and Chief Economic Adviser that proclaims: «the word is nota global community” but fan arena where nations, non-governmental factors and businesses engage and compete foradvantage. (MeMaster and Cohn 2017) ‘The long and contentious history of climate negotiations indeed suggests the ‘world is not a perfect global community. But italso suggests that a purely transac- tional, competitive view, one that belies important shared principles and that re~ fuses to honour hard-won past agree- ‘ments, is not a basis for engagement ona complex subject such as climate change. An article in Nature Climate Change, anticipating this decision, argued that from a global perspective, the us “Better Out Than In” (Kemp 2017).Given that weak mitigation actions and lower finance would have happened anyway, given the hopeful upsurge in mobilisa- tion globally and in the us, and, above all, given the toxic language that denies room for dialogue and new understand- ings, until climate polities changes for the better in the us, better out than in is an apt conclusion, Bodansky, Dan (2017): “Sound and Fury on the Paris Agreement —But Does It Signify Any thing?” Opinio. 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