PM IAS EDITORIAL ANALYSIS SEP 12

Editorial 1:

Instability and uncertainty stalk Bangladesh

Context

The troubles in Bangladesh are by no means over and India may need new strategies to deal with the situation to its east.

Introduction

It is often mentioned that the fate of individuals and nations hang by a slender thread. On August 5 this year, even as Muhammad Yunus (the current head/chief adviser of the interim government in Bangladesh) was to be arraigned before a court of law for certain alleged actions against the state, the then Prime Minister, Sheikh Hasina, was compelled to resign and flee the country to neighbouring India.

What led to the Bangladesh protest?

Protest for equality: This was a sequel to several weeks of protests over a ‘quota system’, reserving a percentage of all government jobs to descendants of ‘freedom’ fighters involved in Bangladesh’s ‘war of independence’.
The government’s heavy-handed measures: to suppress the student demonstrations had led to a groundswell of protest against the government, and Sheikh Hasina herself.
Continued protests: Even after the proposal for the ‘quota system’ was withdrawn, massive protests continued, signalling the depth of anger against the government, and Sheikh Hasina personally, compelling her to flee.
Formation of the interim government: Headed by Mr. Yunus, an economist, which has the backing of the Army, and with students functioning as the ‘storm-troopers’.
Forced changes at the institutional level: In quick succession, the Chief Justice, the central bank governor, a host of university vice-chancellors and other key personnel were compelled to step down.
Accused as a dictator: The main charge levelled against Sheikh Hasina is that she had become a virtual dictator, trampling on the civil liberties of citizens and embarking on high handed actions against her political opponents.

Still early days but much can happen

Characterising Sheikh Hasina’s ouster as a victory for ‘democratic forces’.

The situation shares similarities with the ‘Prague Spring’ in Czechoslovakia but lacks the same international intervention for e.g., Warsaw Pact Powers.
Today’s major powers, essentially the United States and China, however, have a huge stake in how matters turn out and are not averse to meddling in Bangladesh.

International reactions: The incidents taking place in Bangladesh do not resemble the typical “color” revolution model that has often been directed at some states by the United States or the West; however, it does offer the possibility for major powers to intervene to establish a presence in South Asia toward their strategic aims..
Ambiguities and uncertainties: In the first flush of exuberance and anger against Sheikh Hasina, vandalism seemed to reach its apogee, with images of Sheikh Hasina and even the statue of the nation’s founding father, Sheikh Mujibur Rahman, becoming targets of riotous mobs.
Army’s discretion: The position of Mr. Yunus itself appears tenuous at this stage, and it is uncertain how long the Army would support the present arrangement.
Democratic pressure: Pressure from political parties to hold early elections is already evident, and if and when elections are announced, it could shatter the surface calm.

What are the areas of danger?

Concern for democratic deficit: which Sheikh Hasina helped perpetuate to overcome political obstacles, can be offset democratically, or whether it would lead to another round of violent events.
Rise in other parties: A worrying aspect is the increasing role of Islamist parties in Bangladesh which, in recent years, has become a potent force.
India’s intent: will be on maintaining a balance between religion and politics would find the growing presence of radical Islamist entities a potent danger.
Importance of historical recognition: What India can at present possibly hope for is that the people of Bangladesh would continue to remember India’s role in the early 1970s, which led to the creation of an independent state of Bangladesh.
Continuing the bilateral relations: Also that any and future governments would display the same degree of warmth as the outgoing Sheikh Hasina regime.
Prized Sentimental attachments: Despite India’s memories of the difficult 1970s—marked by war with Pakistan and U.S. hostility aimed at separating it from Russia—India hopes that Bangladesh continues to appreciate its role in the country’s independence and maintains positive sentiments, despite current tensions with Sheikh Hasina and the Awami League.

The view of India

Acknowledging support: For its part, India must acknowledge, and be grateful for, the support extended by Bangladesh over the years in dealing with militant groups belonging to India’s northeast, that had sought a home there and become a scourge for India’s security establishment. Under Sheikh Hasina these militants could no longer find place in Bangladesh.
Revival of anti-national forces: A prolonged period of uncertainty in Bangladesh following recent developments could well result in the regrouping of, and revival of militant activities in India by groups such as the United Liberation Front of Asom, the Mizo National Front and the NSCN.

The view of the West

Indo-China conflict: West, which generally views events across the globe through the prism of geo-politics, is already putting out the idea that Bangladesh might well become the crucible for the next phase of conflict between India and China.
Indo-China interests: Undoubtedly, both India and China have important stakes in Bangladesh. More recently, Bangladesh has begun to make certain overtures to China to accommodate its economic and defence needs.
Power shift towards china: It is quite possible that with the eclipse of Sheikh Hasina, the successor regime in Bangladesh might well seek to strengthen its China connection, even as Sheikh Hasina was seen to be manifestly pro-India.

All this is, however, in the realm of conjecture, and it may be too early to view Bangladesh through the prism of geo-politics — China, India, the U.S. et al.

Compounding problems for India

Handling the border: For an India, wrestling with the problem of having to deal with difficult and uncertain situations along much of its periphery, specially to the west and the northwest, the Bangladesh developments could not have come at a worse time.
Change in relationship: In the east, it now confronts a Bangladesh that appears set to shift from being a friendly neighbour to a problem state.
The vexed issue of the Rohingya Muslims, which needed an early solution, will, in all likelihood, be put on the back burner for now.

Hostile Military rule in Mynmmar: Myanmar is currently controlled by a clutch of generals (who are not above being enticed by western military advisers), and while the generals may not be overtly hostile to India at present, they do not see themselves as being in step with it.
Indo-Pak partnerships: Lurking in the background are again certain external forces — not only China and Pakistan — who are likely to fish in these troubled waters.

This could exert a pincer-type stranglehold on India’s ambition to achieve a peaceful and prosperous South Asia.

Way forward

Devising new strategies: India may, hence, need to devise a new set of strategies to deal with the emerging situation. India had little to fear from developments to its east and south. Both regions have today become highly problematic, to say the least.
The threat from China: also looms larger than ever before if, as is being anticipated, it could secure a beachhead in a post-Sheikh Hasina Bangladesh.
A simultaneous strengthening of the China-Pakistan axis would thereafter pose a threat of a kind that had not existed for several years.

More than anything else, it is the spectre of Islamist radicalism that could well haunt the entire region — more so in Bangladesh at this time alongside the threat of a possible link up between radical Islamist elements in Bangladesh, Myanmar, Thailand and Southeast Asia.

Conclusion

The troubles in Bangladesh are by no means over. Violent street protests are usually a precursor for events that seldom have a good ending. The experience of other countries is that students seldom achieve through protests what they seek. This has been the recent experience in Europe and elsewhere. Movements of this kind tend to be usually taken over by forces inimical to democracy. Consequently, India faces a moral and security dilemma in the wake of recent events in Bangladesh. India must take strategic steps to ensure a balance in delicate geopolitical relations between India and Bangladesh.

Editorial 2:

Perils of decentralisation with Chinese characteristics

Context

India must note that decentralisation, once celebrated as a reason for China’s economic miracle, has turned counter-productive.

Introduction

In his Independence day speech this year, the Prime Minister urged States to compete with each other to attract investors. In sharp contrast, extreme subnational economic competition seems to have run its course in China. Here is why decentralisation, once celebrated as a reason for China’s economic miracle, has turned counter-productive.

Comparing India and China’s economic decentralisation

City level data: Unlike India, where city-level governments account for less than 3% of total government spending, a staggering 51% of government spending in China happens at sub-provincial levels.
Qualitative mandate for local government: They are almost exclusively responsible for unemployment insurance and pensions, subjects Indians generally associate with the national government.
Non-federal and centralising tendencies of China: China’s extreme decentralisation does not make it a federal country.

A key feature of a federal system is that higher-level governments cannot extinguish the powers given to lower-level governments, as the Constitution protects them.
No such provision exists in China’s Party-state system.
After Deng Xiaoping’s Southern Tour caused local governments to go on a spending spree, the central government severely and immediately restricted their ability to raise money through the Tax-Sharing Reform of 1994.

Overcapacity is structural

Industrial prioritisation: Since economic growth was an important determinant of local leaders’ political prospects, they started prioritising industrial construction over the provision of public services.

They offered industrial land at deep discounts compared to residential land in the hope that industrial outputs would increase regional economic growth and also become a source for future local tax revenues.
Local governments attracted investors with attractive land rights.
Firms accepted the offer, churned out goods at low rates because of cost advantages, and exported to the world.
Over-capacitated investment-led model: The arrangement worked well till the Hu Jintao period.

The central leadership set broad priorities and targets while local governments experimented and competed.
The process of crossing the river while feeling the stones created tremendous wealth, while also generating structural overcapacity, wasteful investment, and loss-making entities.

Positive Trends in China’s Economic Policies

The overall trend remained net positive for two reasons:

The directives and local innovations: were broad enough for local governments to try different ways to achieve growth or reform goals.

For instance, Guangdong interpreted the central goal of economic opening by experimenting with special economic zones. Other regions were free to follow alternate models.
Likewise, the central leadership permitted local innovations in the housing sector, rather than imposing a particular solution.
This policy innovation process was locally determined and not micromanaged by the centre.
A salubrious geopolitical climate: Foreign markets were willing and able to absorb China’s ever-increasing capacity.

China’s steel sector’s expansion is a case in point.
Starting from the turn of the millennium, within six years, China went from being a net steel importer to the largest steel manufacturer and a net exporter.
By the beginning of the 2010s, tackling overcapacity in the steel sector had become a prominent policy objective.
While many Chinese companies failed along the way, several rode this wave, generating tremendous value for employees and the government.

Tipping points and need for policy changes

However, this model began to reach a tipping point around the time Xi Jinping came to power.

Ineffective investments: Researchers at the National Development and Reform Commission (NDRC) in 2014 estimated that half of all investment between 2009 and 2013 was “ineffective”, amounting to a waste of nearly $6.9 trillion.
Mr. Xi’s solution to this predicament was to strengthen central control and establish traffic lights to direct state and private capital in desirable domains.
Narrowness of the central directives: The desire for self-sufficiency has further resulted in them focusing on specific product lines.

For example, the drive to localise the entire supply chain for semiconductors is divorced from market-based demand and the comparative advantages of the Chinese industry.
The “Big Fund” began in 2014 intending to build a self-sufficient semiconductor industry. Drawing on this, many local governments indiscriminately poured money into chip-making firms.
Ten years later, China has not mastered the production of advanced chips. Nevertheless, many firms continue to milk local governments for funding.
The Economist reports that 30% of all industrial firms were making losses at the end of June 2024, beating the previous worst performance during the Asian financial crisis in the late 1990s.

China’s overcapacity as a national security threat: This is evident in the geopolitical wrangling underway over tech-enabled Chinese products such as electric vehicles and telecom equipment.
China’s bad international conduct: Has exacerbated the negative perceptions of Chinese products and investments.

Way forward

Overcoming the shortcomings in the BRI approach

Mr. Xi planned to substitute western markets with increasing domestic demand and find new international markets through the Belt and Road Initiative (BRI). Increasing domestic demand has not worked out because this is unfamiliar territory for a structure obsessed with supply-side stimuli. The BRI approach has not worked because the participating countries are not economically strong enough to generate huge demand. China should shift from relying on domestic demand and the Belt and Road Initiative (BRI) to fostering innovation and building partnerships with stronger global markets. This shift can improve efficiency and competitiveness.