25 July 2013

China's Geopolitical Fallout ***

JULY 24, 2013

Stratfor
By Robert D. Kaplan

The biggest question in international affairs has nothing to do with Syria or Iran going nuclear. It is has to do with the state of the Chinese economy, and the ability of China's one-party system to navigate through an economic slowdown to a different growth model. China's leaders will likely survive this trial. But what if they don't? What if China faces a severe socio-economic crisis and attendant political one of an unforeseen magnitude? What would be the second-order geopolitical effects? If Syria explodes, it does so regionally. If China explodes, it does so globally.

Such a crisis could lead to an upsurge in nationalism, an emotion that can be easily dialed upwards by Communist party leaders as a means of clinging to power. And it would not only be Communist leaders who play the nationalist card: dissidents and aspiring democrats both might do so as a way to gain political legitimacy. More nationalism would mean more of the same military activity in China's near abroad. China's defense budget has already increased eight-fold since 2001, and might continue to do so under a more nationalist-style regime (even amid slowing growth), enabling China to further implement an anti-access area-denial strategy in the East and South China seas, emphasizing submarine, ballistic missile, and cyber warfare capabilities. The aim would not be to go to war with the U.S. Navy and Air Force (quite the opposite, in fact), but to establish a force ratio more favorable to the continued, perceived growth of Chinese maritime power. But none of this would alter the current state of play in the Indian and Western Pacific oceans -- defined by a slowly diminishing unipolar American air and naval environment.

But what if the opposite occurred? What if an economic and political crisis ignited a downward trend in Chinese military procurements, or at least a less steep growth curve? This is also quite possible: to assuage public anger at poverty and lack of jobs, China's leaders might, for political reasons, ask the military to make sacrifices of its own. After all, a Chinese Spring might be all about demanding more freedom and not about nationalism. Over time, this could affect the foundations of the Eurasian maritime order, albeit to a lesser extent than the collapse of the Berlin Wall shook the foundations of the European continental order.

Stalled Chinese defense budgets would reinvigorate a Pax Americana from the Sea of Japan to the Persian Gulf, despite the debacles of the Iraq and Afghanistan wars, and despite the U.S. military budget crunch. The U.S. Navy would own the seas as though World War II had just ended. Japan, which continues to modernize its air force and navy (the latter is several times larger than the British Royal Navy), would emerge as an enhanced air and sea power in Asia. The same goes for a future reunified Korea governed from Seoul, which, in the event of a weakened China, would face Japan as a principal rival, with the United States keeping the peace between the two states. Remember that Japan occupied Korea from 1910 to 1945, and the hostility between Japan and Korea is thus much greater than the hostility between Korea and China.

Turmoil in China would slow the economic and security integration of Taiwan with the mainland. With more than 1,500 ballistic missiles aimed at Taiwan from the mainland and 270 commercial flights per week between the two Chinas, U.S. military aid to Taipei is designed to defend Taiwan against a sudden Chinese attack, but not necessarily to postpone an inevitable unification of sorts. But the inevitable unification might not happen in the event of a prolonged political crisis in Beijing: a likelier scenario in this case would be for different regional Chinas, democratic to greater or lesser extents, more loosely tied to Beijing, to begin to emerge. This, too, translates into a renewed Pax Americana as long as U.S. defense cuts don't go too far. 

The South China Sea is where the effects of U.S. military decline would, in a geopolitical sense, be most keenly felt. China's geographical centrality, its economic heft (still considerable), and its burgeoning air and naval forces translate into Finlandization for Vietnam, Malaysia, the Philippines, and Singapore in the event of large-scale U.S. defense cuts. However, internal disarray in China, combined with modest U.S. defense cuts that do not fundamentally affect America's Pacific forces, could unleash the opposite effect. Emboldened by a continued American presence and a less than dominant Chinese military, countries such as Singapore and Australia, which are already spending impressively on arms relative to the size of their populations, could emerge, in a comparable military sense at least, as little Israels in Asia, without having to spend more on defense than they already are. Vietnam, meanwhile, with a larger population than Turkey or Iran, and dominating the South China Sea's western seaboard, could become a full-fledged middle-level power in its own right were Beijing's regional grip to loosen, and were Vietnam to gradually gets its own economic house in order.

Recognizing the End of the Chinese Economic Miracle ***

JULY 23, 2013
Stratfor
By George Friedman

Major shifts underway in the Chinese economy that Stratfor has forecast and discussed for years have now drawn the attention of the mainstream media. Many have asked when China would find itself in an economic crisis, to which we have answered that China has been there for awhile -- something not widely recognized outside China, and particularly not in the United States. A crisis can exist before it is recognized. The admission that a crisis exists is a critical moment, because this is when most others start to change their behavior in reaction to the crisis. The question we had been asking was when the Chinese economic crisis would finally become an accepted fact, thus changing the global dynamic.

Last week, the crisis was announced with a flourish. First, The New York Times columnist and Nobel Prize-recipient Paul Krugman penned a piece titled "Hitting China's Wall." He wrote, "The signs are now unmistakable: China is in big trouble. We're not talking about some minor setback along the way, but something more fundamental. The country's whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be."

Later in the week, Ben Levisohn authored a column in Barron's called "Smoke Signals from China." He wrote, "In the classic disaster flick 'The Towering Inferno' partygoers ignored a fire in a storage room because they assumed it has been contained. Are investors making the same mistake with China?" He goes on to answer his question, saying, "Unlike three months ago, when investors were placing big bets that China's policymakers would pump cash into the economy to spur growth, the markets seem to have accepted the fact that sluggish growth for the world's second largest economy is its new normal."

Meanwhile, Goldman Sachs -- where in November 2001 Jim O'Neil coined the term BRICs and forecast that China might surpass the United States economically by 2028 -- cut its forecast of Chinese growth to 7.4 percent. 

The New York Times, Barron's and Goldman Sachs are all both a seismograph of the conventional wisdom and the creators of the conventional wisdom. Therefore, when all three announce within a few weeks that China's economic condition ranges from disappointing to verging on a crash, it transforms the way people think of China. Now the conversation is moving from forecasts of how quickly China will overtake the United States to considerations of what the consequences of a Chinese crash would be. 

Doubting China

Suddenly finding Stratfor amid the conventional wisdom regarding China does feel odd, I must admit. Having first noted the underlying contradictions in China's economic growth years ago, when most viewed China as the miracle Japan wasn't, and having been scorned for not understanding the shift in global power underway, it is gratifying to now have a lot of company. Over the past couple of years, the ranks of the China doubters had grown. But the past few months have seen a sea change. We have gone from China the omnipotent, the belief that there was nothing the Chinese couldn't work out, to the realization that China no longer works.

It has not been working for some time. One of the things masking China's weakening has been Chinese statistics, which Krugman referred to as "even more fictional than most." China is a vast country in territory and population. Gathering information on how it is doing would be a daunting task, even were China inclined to do so. Instead, China understands that in the West, there is an assumption that government statistics bear at least a limited relationship to truth. Beijing accordingly uses its numbers to shape perceptions inside and outside China of how it is doing. The Chinese release their annual gross domestic product numbers in the third week of January (and only revise them the following year). They can't possibly know how they did that fast, and they don't. But they do know what they want the world to believe about their growth, and the world has believed them -- hence, the fantastic tales of economic growth. 

China in fact has had an extraordinary period of growth. The last 30 years have been remarkable, marred only by the fact that the Chinese started at such a low point due to the policies of the Maoist period. Growth at first was relatively easy; it was hard for China to do worse. But make no mistake: China surged. Still, basing economic performance on consumption, Krugman notes that China is barely larger economically than Japan. Given the compounding effects of China's guesses at GDP, we would guess it remains behind Japan, but how can you tell? We can say without a doubt that China's economy has grown dramatically in the past 30 years but that it is no longer growing nearly as quickly as it once did.

China's growth surge was built on a very unglamorous fact: Chinese wages were far below Western wages, and therefore the Chinese were able to produce a certain class of products at lower cost than possible in the West. The Chinese built businesses around this, and Western companies built factories in China to take advantage of the differential. Since Chinese workers were unable to purchase many of the products they produced given their wages, China built its growth on exports

For this to continue, China had to maintain its wage differential indefinitely. But China had another essential policy: Beijing was terrified of unemployment and the social consequences that flow from it. This was a rational fear, but one that contradicted China's main strength, its wage advantage. Because the Chinese feared unemployment, Chinese policy, manifested in bank lending policies, stressed preventing unemployment by keeping businesses going even when they were inefficient. China also used bank lending to build massive infrastructure and commercial and residential property. Over time, this policy created huge inefficiencies in the Chinese economy. Without recessions, inefficiencies develop. Growing the economy is possible, but not growing profitability. Eventually, the economy will be dragged down by its inefficiency. 

Inflation vs. Unemployment

As businesses become inefficient, production costs rise. And that leads to inflation. As money is lent to keep inefficient businesses going, inflation increases even more markedly. The increase in inefficiency is compounded by the growth of the money supply prompted by aggressive lending to keep the economy going. As this persisted over many years, the inefficiencies built into the Chinese economy have become staggering. 

The second thing to bear in mind is the overwhelming poverty of China, where 900 million people have an annual per capita income around the same level as Guatemala, Georgia, Indonesia or Mongolia ($3,000-$3,500 a year), while around 500 million of those have an annual per capita income around the same level as India, Nicaragua, Ghana, Uzbekistan or Nigeria ($1,500-$1,700). China's overall per capita GDP is around the same level as the Dominican Republic, Serbia, Thailand or Jamaica. Stimulating an economy where more than a billion people live in deep poverty is impossible. Economic stimulus makes sense when products can be sold to the public. But the vast majority of Chinese cannot afford the products produced in China, and therefore, stimulus will not increase consumption of those products. As important, stimulating demand so that inefficient factories can sell products is not only inflationary, it is suicidal. The task is to increase consumption, not to subsidize inefficiency.

Handle with care, Bhutan is a friend

Wednesday, 24 July 2013 | Ashok K Mehta |

A country which India has taken for granted, requires special consideration to prevent it from becoming a ‘Nepal'. To begin with, let’s take Thimphu out of the unwritten reciprocity clause

India’s coercive diplomacy in Bhutan has presumably worked to stem the overtures made by the latter towards China and the latent but unprecedented anti-India sentiment whipped up by the withdrawal of subsidy on cooking gas and kerosene, which was restored last week.

The regime change following the second multi-party election has produced a landslide victory for Prime Minister-designate Tshering Tobgay who has pledged to preserve the special relation with India. For Bhutan, India had employed a carrot-but-no-stick policy so far in maintaining their genuinely special relations. The dramatic transformation of Bhutan from an absolute monarchy to a constitutional monarchy and then a multi-party democracy has been compressed into all of five years, creating problems and irritants for its seven lakh people. In my numerous travels across Bhutan, one heard in the early nineties of ‘population rebalancing’ that democracy could not take root in a country with less than one million people and that it would spell disaster. The prophets of doom have been proved wrong.

Bhutan’s national strategy comprises keeping the population balance in favour of the local Drukpas to avoid a ‘Sikkim’; being unabashedly pro-India (the King would say we have put all our eggs in India’s basket); keep a distance from China (no trade or diplomatic ties, only an office in Beijing); negotiate its border dispute with China in consultation with India, and enjoy the fruits of water power to achieve a high per capita income leading to Gross National Happiness.

The drivers of change in Bhutan were the assimilation of Sikkim in the Union of India in 1974; the movement for restoration of democracy in Nepal and the violence perpetrated by Bhupalese dissident groups in 1990; the 2000 palace massacre and the Maoist-spurred jan andolan in 2006 in Nepal. Historically, India has preferred regime stability to democracy in Bhutan. Relations with Thimphu were framed according to the Treaty of Perpetual Peace and Friendship Between the Government of India and Government of Bhutan in 1949 which is derived from the Treaty of Punakha in 1910. Article 2 of the Punakha treaty on guidance and advice of the British Government was retained by India, though intuitively in 2007 New Delhi, unilaterally, altered ‘guidance’ to ‘cooperation’. Lately though the buzz in Thimphu is: Bhutan is India-locked and why should it refer to New Delhi for its external relations?

Not only had India advised regulating the pace of democracy but had also turned a Nelson’s eye during the population rebalancing (some call it downsizing Nepalese) in 1990-19991 when around 1,00,000 Bhutanese of Nepalese origin were allegedly systematically pushed out of the country. In the early eighties, Drukpas were in a minority with Nepalese comprising around 53 per cent of the population. Their expulsion, for which anti-national elements (read: Dissident Bhupanese and Nepalese) were responsible, according to the Bhutan Government, involved the bloodshed at Samchi on September 21, 1990. The King of Nepal though did not protest against the mistreatment of the Bhupalese.

A number of spoken agreements are in place, especially the King’s commitment to becoming a part of India’s security architecture. The defence of Bhutan is a key component of the unwritten portion of the 1949 treaty. The Royal Bhutanese Army played a crucial role in assisting the remnants of the Indian army evacuating from Towang and Sela in 1962. The 1,000 member strong Indian Military Training and Assistance Team was deployed in Bhutan in 1962 and has detachments in Ha, Thimphu and in the east for training of the RBA and other Bhutanese military units. Defence cooperation is of such exemplary order that in 2003 the two Armies launched a joint operation to flush out Bodo and Ulfa insurgents numbering about 3,000 in 10 major camps. Admittedly, the King prevaricated due to the blowback he feared from military operations.

What the poverty numbers don’t say

Thu Jul 25 2013

What caused the steep fall in poverty reported by the Planning Commission? The evidence is mixed

Earlier this week, the Planning Commission released estimates of the incidence of poverty in 2011-12. As in virtually the entire literature on the measurement of poverty in India, these estimates are based on data on per capita consumption expenditure collected by the National Sample Survey Organisation. The estimates show that there has been a quite dramatic fall in the level of poverty. The number of people below the poverty line — the threshold level of per capita expenditure below which a person is deemed poor — has declined from 37 to 22 per cent in the seven years between 2004-05 and 2011-12. This is the fastest rate of poverty reduction that has been experienced in India. Moreover, the gains have been distributed across a large number of states, with several backward states such as Bihar and Uttar Pradesh also achieving significant reductions in the level of poverty.

Of course, many people will question the significance of these estimates by arguing that the Planning Commission's specification of the poverty line is set at an absurdly low level, the implication being that a correct — and hence higher — specification of the poverty line would mean that a much larger number of people are below the appropriate poverty line, and should be counted amongst the poor. It is, of course, a tautology that a higher poverty line will imply a greater level of poverty. However, this is a criticism about the estimated level of poverty in 2011-12, and is completely silent about the trend in the incidence of poverty.

A debate about what is the appropriate poverty line is, except for one reason, about as puerile as any discussion can be. There is no "correct" level, because any specification is essentially subjective and arbitrary. What is undeniably true is that a vast number of Indians are poor by any yardstick — one does not need the NSS data to establish this, given that we see large numbers of the poor in our everyday lives.

A short digression is in order. Perhaps the only reason the specification of the poverty line has real significance is that the government often ties social benefits to whether individuals are poor or not. Readers will recall that this was precisely the reason why there was such a public outcry a short while ago about the fact that the Planning Commission poverty line is only Rs 32 per day per capita. A vast majority felt that individuals with per capita expenditures well above that deserve welfare benefits. Fortunately, the new food security bill, by eliminating the distinction between "below the poverty line" and "above the poverty line", will have taken a big step in making the specification of the poverty line somewhat irrelevant.

The obvious fact that a sizeable fraction of society is poor does not mean that the NSS data are useless or that the poverty estimates based on them are of no interest. This is because it is more important to find out how the incidence of poverty is changing over time. Have the benefits of the high rates of growth accrued entirely to the rich, as some would like us to believe? Or has growth trickled down effectively to the poorest of the poor?

Tentative conclusions can be drawn about these trends from the NSS data. Consider, for instance, the latest estimates of the Planning Commission, which show a large reduction in poverty in the seven years after 2004-05. Suppose the poverty line is set at a level higher than that used by the Planning Commission. Then, both the base level of poverty, that is, the poverty level in 2004-05, as well as poverty in the terminal year, would have been higher. Unless the change in the distribution of consumption expenditure has been extremely perverse, the dramatic reduction in poverty according to the Planning Commission estimate also guarantees that there would be a sizeable reduction even if the poverty line were set a higher level.

What factors can explain the steep fall in the incidence of poverty? Obviously, the answer has important implications for public policy. The first four years of the seven-year period witnessed a high growth rate. If the trickle-down process was the major explanatory factor, this would provide strong support to those who argue that the government should focus almost entirely on removing constraints to the growth process. "Eschew expenditure in the social sectors in view of the large leakages and press hard on the growth pedal," they would argue. On the other hand, if there is little evidence in support of the trickle-down process, that would provide ammunition to the advocates of policy initiatives such as the food security bill.

Beijing and the bubble

Minxin Pei : Thu Jul 25 2013

The short-lived credit crunch and subsequent panic in the financial markets in China have refocused our attention on the perils facing the world's second-largest economy. At the moment, theories abound regarding the causes of the credit squeeze. Some believe it was a deliberate step taken by the Chinese central bank to rein in runaway credit growth, particularly in the shadow banking sector. Others suspect it was an ill-planned move that frightened the markets but did little to strengthen the credibility of the government (because the central bank quickly backed down and boosted liquidity).

At this point, the most useful thing to do is not to dwell upon the events in June, however interesting they might be, but to examine the consequences of financial deleveraging in China. The unambiguous signal from the crisis in June is that China's credit bubble is bursting and, as a result, the country will go through a period of painful financial deleveraging and slow growth.

Until recently, most analysts of the Chinese economy have overlooked the role of the massive expansion of credit in boosting China's investment-driven growth. To give you some idea about the extent of the credit bubble in China, just take a look at one figure. Total credit was 115 per cent of the GDP in 2008; today it is estimated to be 173 per cent of the GDP. As in all credit bubbles, most of the new loans have gone to risky borrowers, both through the state-owned banks and unregulated shadow banking sector. The biggest beneficiaries of the credit explosion are state-owned enterprises, local governments and real-estate developers. They have put borrowed money into projects of dubious financial viability, such as excess manufacturing facilities, infrastructure and speculative real estate. When the credit frenzy was going on, they did very well. But today, when growth is slowing and the credit bubble has reached a dangerous level, they are feeling the pain.

Even if you have little sympathy for this group, you should be very worried about two issues connected to China's credit bubble.

The first is regarding the solvency of the banking system and the risks of a full-blown financial crisis. Thankfully, given the nature of the Chinese banking system, which is essentially owned by the state and has sovereign guarantee, a total collapse of this system can be ruled out. Of course, technically speaking, Chinese banks may have bad loans that exceed their capital and are insolvent. In reality, because the government owns and controls the banks and maintains relatively effective capital control, a quick and complete financial meltdown is unlikely to happen. The government can force banks to lend to each other. The central bank can keep the printing press running 24x7. And if recapitalisation of the banking system is needed, Beijing can move the bad assets off the balance sheet or use a combination of fiscal injection and inflation to write off the massive bad loans.

However, even if Beijing dodges one bullet (a collapse of its banking sector), it is unlikely to dodge another — a significant deterioration of growth for an extended period of time.

What we know now about the Chinese economy is that it is fuelled by investment growth, which is in turn driven by credit growth. Since credit growth is about to turn into retrenchment, investment is certain to decline, thus bringing down growth as a whole.

Optimists tend to view slowing growth in China as a linear process, projecting a gradual decline, but no abrupt collapse. Their favoured metaphor for the Chinese economy is that of a speeding train, which can be slowed down without crashing.

But there is a more pessimistic perspective. Martin Wolf, chief economics commentator of the Financial Times, recently compared the Chinese economy to a jetliner and warned that once growth falls to a certain rate, the economy will be stalled and plunged into a downward spiral, just like a jetliner.

This sobering analogy provides a more insightful way of understanding the consequences of financial deleveraging in China because it points to the interconnected nature of the various components of an investment-driven economy (investment has been over 45 per cent of the GDP in China for years). Reducing credit and cutting investment will create simultaneous shocks throughout the economy. On the financial side, excessive manufacturing capacity and infrastructure projects built on the assumptions of future high growth will not be able to service their debts (debt repayments are expected to rise dramatically because of the three to five year maturity terms of new loans). Large-scale default will further depress bank lending because banks with a mountain of bad credit on their books are unwilling to make more loans.

Relations with Bhutan

Give neighbours their due
by Harsh V. Pant

IT is a tribute to the ham-handed manner in which Indian foreign policy is managed that even India's relations with Bhutan are now attracting undue attention. The withdrawal of subsidies to Bhutan on petroleum products in the midst of recent elections is merely a manifestation of how poorly conceived and executed India's policies have become, completely disconnected from any strategic thinking.

Of course, now there is widespread hype in the Indian media that with the coming to power in Thimpu of the former opposition People's Democratic Party (PDP) emphasising strong ties with India, all will be well once again. But if the Indian policymakers think things will be back to normal, they are mistaken. Trouble in Delhi-Bhutan ties is only beginning to emerge and this process will be accelerated by the onset of real democracy and competitive politics in the Himalayan Kingdom. India will need to play its cards with great finesse if it wants to maintain its special relationship with Bhutan.

The King of Bhutan, Jigme Khesar Namgyel Wangchuk, was the chief guest earlier this year at the Republic Day celebrations in New Delhi eight years after his father graced the occasion. As it turned out, however, he was not the first choice of the Indian government. New Delhi wanted the Sultan of Oman to be the chief guest but such are the mysterious ways of the great Indian bureaucracy that even a routine invitation to the Head of a State was goofed up. Even though this was clearly a major debacle, New Delhi quickly tried to salvage the situation by turning to its old friend in Bhutan for damage control who agreed to act as a replacement. Though the Bhutanese King was received with due pomp and ceremony in New Delhi, the cavalier attitude of India towards its smaller neighbours did not go unnoticed.

Bhutan remains the only resolutely pro-India country in South Asia today. At a time when India is rapidly ceding strategic space to China in its vicinity, it should be cultivating its immediate neigbours with greater sensitivity. As it is, Bhutan has signalled that it does not want to remain the only country in India's neighbourhood without official ties with Beijing. The previous Bhutanese Prime Minister Jigme Thinley made overtures to Beijing, meeting his Chinese counterpart on the sidelines of the United Nations Conference on Sustainable Development at Rio de Janeiro last year in an attempt to lobby for Bhutan’s candidacy for the non-permanent seat in the United Nations Security Council. He also reportedly raised the issue of establishing diplomatic ties between the two nations though this was later denied by Thimpu. China's economic engagement with Bhutan is also likely to grow in future, especially as China's infrastructure development leads to greater connectivity between the two states.

What might be most troubling for India is a boundary settlement between China and Bhutan. Besides India, Bhutan is the only country with a land border dispute with China today as the 470-km long border between the two nations remains contentious. China's slow encroachment into Bhutanese territory is also making Bhutan eager for an early boundary settlement. And if such a settlement allows China access to disputed areas in the Chumbi Valley, a tri-junction abutting Bhutan, Tibet and Sikkim, Indian security interests will suffer significantly as the Siliguri corridor connecting India to its Northeast will come under direct Chinese threat.

In response, India has indeed stepped up its own economic profile in Bhutan. India views Bhutan as a major source of hydropower in the coming years and is seeking greater access for its energy companies. India is hoping to import 10,000MW hydropower from Bhutan by 2020 and is ramping up its economic aid to Thimpu. But the issue is larger than economic assistance and military security.

If New Delhi continues to treat its smaller neigbours as second-class states which are only to be courted if the Chinese end up expanding their footprints, then sooner or later these smaller states will start treating India as a second-rate power, lagging much behind China in their foreign policy priorities. The 'special' relationship that New Delhi and Thimpu share would hold only water if both sides are equally interested in sustaining it. Much like other smaller states in India's neighbourhood, Bhutan would also like greater autonomy in its foreign and security policies. And with democracy taking root in the country, India will be soon seen as a nosy external party interfering in Bhutan's internal affairs. China will then emerge as an effective balancer against India's overweening presence.

The security implications of Al Qaeda's call to Indian Muslims

Last updated on: July 24, 2013

If viewed as a part of the Al Qaeda's radicalisation effort to produce jihadists out of discontented Muslim youth in India, the call could well have a much larger dimension, both in the near as well as long term, directly impacting on national security, says Bibhu Prasad Routray.


The title could well be inspired by an evangelical video, "There's A Storm On the Ocean". On July 23, Al Qaeda's media arm, As-Sahab, released the English translation of a video statement it had posted earlier in June calling upon Indian Muslims to join the jihad in Syria. Titled, "A Message for the Muslims of India: Why is There No Storm in Your Ocean?", this video features Maulana Aasim Umar, an Al Qaeda ideologue believed to be based in northwest Pakistan.

Umar is believed to be 'a scholarly militant who liaises closely with Al Qaeda’s core leadership'. Many of Umar's writings are freely available on the internet and include "Teesri Jange Azeem aur Dajjal", "Imam Mehdi (R.A) K Dost Aur Dushman", etc.

Speaking in Urdu, Umar vents his frustration regarding the inability of the organisation to recruit Indian Muslims into global jihad.

The 11-page statement specifically exhorts the Muslims of Delhi, Uttar Pradesh, Bihar, southern India and Gujarat to "Join the forces of global jihad." Some of the points he makes:
  • Will the land of Delhi not give birth to a Shah Muhadith Delhvi who may once again teach the Muslims of India the forgotten lesson of jihad and inspire them to take to the battlefields of jihad?
  • Is there not even a single mother in Uttar Pardesh who may sing those lullabies to children after listening to which they grow up to stage the battleground of Shamili instead of heading to bazaars, parks and playing fields?
  • Has the land of Bihar become so barren that it is unable to prepare even a single group of the like of the Mujahideen of Azeemabad?
  • The Muslims of southern India, it seems, have totally forgotten those words of the lion of Mysore which still cause the infidels to tremble in fear: ‘A single day’s life of a lion is better than a jackal’s life of a thousand years’.
  • What has afflicted the land of Gujarat, where the cries of Takbeer were raised against Kufr and Shirk, that today although the cries of Takbeer are still being raised, but Somnat does not tremble in fear?
  • Why is it that the Muslims of India are totally absent from the fields of jihad? ...How can anyone scare you from bloodshed?
  • Muslim youth of India.. Head for arenas of jihad to establish the system of the Caliphate [again]! Join the forces of global jihad!

According to the Long War Journal, Umar claimed in July that many militant leaders and fighters from the Af-Pak region have been transferred to the Syrian front. "At present, Al Qaeda and other mujahideen of Islam have fully controlled this movement", he said in a statement. "Several lashkars from Afghanistan are also leading in Syria", he added.

The BBC in July, quoting Mohammad Amin, a senior Taliban operative and 'co-ordinator of the Syrian base, too reported that 12 Tehrik-e-Taliban "experts in warfare and information technology" have been moved to Syria in the past two months (May and June 2013) to aid Syrian jihadists.

The TTP's Syrian base came up sometime in January/February 2013. Although further details are currently unavailable, the base remains integral part of the Pakistani Brigade 313, which consists of the Taliban and associated jihadist groups such as the Laskhar-e-Jhangvi, Harkat-ul-Jihad-al-Islami, Lashkar-e-Tayiba, Jaish-e-Mohammed, Jundallah (the Karachi-based, Al Qaeda-linked group), and several other Pakistani terror groups are known to have merged with Al Qaeda in Pakistan.

To dismiss Umar's call to the Indian Muslims as a rhetorical statement with an outward and external manifestation could be a mistake. The natural tendency would be to treat the statement with negligible repercussions on the India's security. The timing of the English translation could well be linked to the American Vice President Joe Biden's trip to India.

However, viewed as a part of the Al Qaeda's radicalisation effort to produce jihadists out of discontented Muslim youth in India, the call could well have a much larger dimension, both in the near as well as long term, directly impacting on national security.

Dr Bibhu Prasad Routray is a Singapore-based security analyst/consultant and served in the National Security Council Secretariat, New Delhi.

How to Save the War in Afghanistan

July 24, 2013

The U.S. is slowly and steadily losing the war in Afghanistan. It is not losing the war at the military level - although such defeat is possible in coming years if the U.S. does not provide the necessary funds, advisors, and partners. The U.S. is losing the war at the political level by failing to win (and merit) the support of the Congress, the American people, its allies, and the Afghans.

At one level, the U.S. is losing the war through a failure to provide credible leadership. It is losing the war through a combination of a lack of strategic realism, meaningful judgments about the cost-benefits of continuing the war, and a failure to develop credible plans.At another level, the U.S. is losing the war through delays, neglect, and a failure to lead at the top levels of the Obama Administration.

The Obama Administration does, however, face critical problems in providing effective leadership. It inherited a massive and unnecessary mess from the Bush Administration. It also inherited a major recession, and a crisis in federal spending that now forces major cuts in U.S. military capability and hard choices in terms of strategic priorities. The Congress has contributed to its own failures on a bipartisan basis. Rather than demand effective plans, accountability, and measures of effectiveness, it has simply accepted most funding requests in an effort to show it has supported the troops and the war.

At the same time, far too many outside government have become passive partners in the drift towards failure. They are unwilling to say they do not support the war, and they are waiting for the near total U.S. withdrawal that they now believe is inevitable without trying to find a workable solution.

At the same time, the U.S. lacks a credible Afghan partner. The U.S. does not need the Taliban or other insurgent enemies when its Afghan ally is guilty of so many failures and mistakes. President Karzai seems determined to exit having left the equivalent of a poisoned pill to his successor. He has never been willing to come to grips with the military realities shaping the war and the ANSF. He steadily and pointlessly alienates U.S. support for the war.

He continues to put power brokering before efforts to improve governance and the economy, before giving aid a credible level of freedom from corruption and chance of success. Almost every week, he creates a new and unnecessary problem in U.S. and Afghan relations, evidently based on the assumption that the U.S. really needs to back the Afghan government and has serious rather than marginal strategic interests in Afghanistan.

Uncertain Chances of Victory in a War and Country of Marginal Strategic Importance

No one can guarantee that the war will end in any form of success even with far better U.S. and Afghan leadership. At best, the odds of real, sustained success after 2014 are "acceptable" rather than "good."

Even the best U.S., Afghan, and allied partnership may not be able to hold the country together if the Taliban and other insurgents prove to be highly resilient and effective over time. They also include the real world burdens Afghanistan faces in dealing with the withdrawal of most U.S. and allied forces, and with massive cuts in military spending and civil and military aid. This may be more than the government in Kabul and Afghanistan's civil and military elite can deal with.

The most serious challenges, however, occur in governance, economics, and winning sustained outside aid. They include the lack of effective Afghan political and civil leadership, the level of corruption and waste in both outside aid and Afghan use of that aid. They also are the result of the failure of the U.S. and its allies to create effective plans to assist Afghanistan and set and enforce the conditions for Afghan reform and progress.

Better U.S. leadership, planning, and management of the transition effort will fail without far better Afghan leadership and realism and vice versa. The U.S. and its allies need to accept this and start putting real pressure on Karzai as well as start working with the full range of potential successors to develop an effective post-election set of partners rather than focus on the "purity" of the election rather than its aftermath.

They also include the need for a new level of U.S. strategic realism. Today's increasingly hollow mix of reassuring U.S. political rhetoric and leaks about a zero option need to be replaced with credible U.S. plans tailored to Afghanistan's limited strategic importance and priority. It is time that everyone began to be honest about the fact that the cost-benefits of a continued U.S. effort are limited.

The U.S. has some strategic interest in Afghanistan, but only a limited one. It is not the center of terrorism or even Al Qa'ida - which is now dispersed into Pakistan, Iraq, Yemen, North Africa and other areas. The U.S. has marginal interests in the rest of central Asia vital strategic interests in Asia and the Gulf, and far more important strategic interests in other areas in the MENA, Sub-Saharan Africa, and Latin America. Continued - grossly exaggerated and oversimplified -- U.S. official rhetoric about Afghanistan's importance cannot disguise very different realities.In a time of global turmoil and limited U.S. resources, Afghanistan scores somewhere between 1 and 2.5 on a scale of 10 in terms of global strategic importance to the U.S..

How to Save the War in Afghanistan

July 24, 2013

The U.S. is slowly and steadily losing the war in Afghanistan. It is not losing the war at the military level - although such defeat is possible in coming years if the U.S. does not provide the necessary funds, advisors, and partners. The U.S. is losing the war at the political level by failing to win (and merit) the support of the Congress, the American people, its allies, and the Afghans.

At one level, the U.S. is losing the war through a failure to provide credible leadership. It is losing the war through a combination of a lack of strategic realism, meaningful judgments about the cost-benefits of continuing the war, and a failure to develop credible plans.At another level, the U.S. is losing the war through delays, neglect, and a failure to lead at the top levels of the Obama Administration.

The Obama Administration does, however, face critical problems in providing effective leadership. It inherited a massive and unnecessary mess from the Bush Administration. It also inherited a major recession, and a crisis in federal spending that now forces major cuts in U.S. military capability and hard choices in terms of strategic priorities. The Congress has contributed to its own failures on a bipartisan basis. Rather than demand effective plans, accountability, and measures of effectiveness, it has simply accepted most funding requests in an effort to show it has supported the troops and the war.

At the same time, far too many outside government have become passive partners in the drift towards failure. They are unwilling to say they do not support the war, and they are waiting for the near total U.S. withdrawal that they now believe is inevitable without trying to find a workable solution.

At the same time, the U.S. lacks a credible Afghan partner. The U.S. does not need the Taliban or other insurgent enemies when its Afghan ally is guilty of so many failures and mistakes. President Karzai seems determined to exit having left the equivalent of a poisoned pill to his successor. He has never been willing to come to grips with the military realities shaping the war and the ANSF. He steadily and pointlessly alienates U.S. support for the war.

He continues to put power brokering before efforts to improve governance and the economy, before giving aid a credible level of freedom from corruption and chance of success. Almost every week, he creates a new and unnecessary problem in U.S. and Afghan relations, evidently based on the assumption that the U.S. really needs to back the Afghan government and has serious rather than marginal strategic interests in Afghanistan.

Uncertain Chances of Victory in a War and Country of Marginal Strategic Importance

No one can guarantee that the war will end in any form of success even with far better U.S. and Afghan leadership. At best, the odds of real, sustained success after 2014 are "acceptable" rather than "good."

Even the best U.S., Afghan, and allied partnership may not be able to hold the country together if the Taliban and other insurgents prove to be highly resilient and effective over time. They also include the real world burdens Afghanistan faces in dealing with the withdrawal of most U.S. and allied forces, and with massive cuts in military spending and civil and military aid. This may be more than the government in Kabul and Afghanistan's civil and military elite can deal with.

The most serious challenges, however, occur in governance, economics, and winning sustained outside aid. They include the lack of effective Afghan political and civil leadership, the level of corruption and waste in both outside aid and Afghan use of that aid. They also are the result of the failure of the U.S. and its allies to create effective plans to assist Afghanistan and set and enforce the conditions for Afghan reform and progress.

Better U.S. leadership, planning, and management of the transition effort will fail without far better Afghan leadership and realism and vice versa. The U.S. and its allies need to accept this and start putting real pressure on Karzai as well as start working with the full range of potential successors to develop an effective post-election set of partners rather than focus on the "purity" of the election rather than its aftermath.

They also include the need for a new level of U.S. strategic realism. Today's increasingly hollow mix of reassuring U.S. political rhetoric and leaks about a zero option need to be replaced with credible U.S. plans tailored to Afghanistan's limited strategic importance and priority. It is time that everyone began to be honest about the fact that the cost-benefits of a continued U.S. effort are limited.

The U.S. has some strategic interest in Afghanistan, but only a limited one. It is not the center of terrorism or even Al Qa'ida - which is now dispersed into Pakistan, Iraq, Yemen, North Africa and other areas. The U.S. has marginal interests in the rest of central Asia vital strategic interests in Asia and the Gulf, and far more important strategic interests in other areas in the MENA, Sub-Saharan Africa, and Latin America. Continued - grossly exaggerated and oversimplified -- U.S. official rhetoric about Afghanistan's importance cannot disguise very different realities.In a time of global turmoil and limited U.S. resources, Afghanistan scores somewhere between 1 and 2.5 on a scale of 10 in terms of global strategic importance to the U.S..

The U.S. also faces few liabilities if it does not continue to support the war. The Afghan government offers many reasons to withdraw. Most of the world has already accepted and discounts the prospect of something approaching a U.S. "zero option" in the years after 2014.

Unbalanced Growth Will Help China Avoid a Slump

OP-ED JULY 23, 2013
FINANCIAL TIMES

SUMMARY

China’s unbalanced economy is the result of a successful structural transition that has created sustained GDP, consumption, and wage growth.

Markets are having a hard time interpreting China’s economic slowdown and evaluating policy options. At one extreme, some observers are talking about a potential dynastic collapse. But most have turned to the notion that economic growth needs to be more consumption driven since the almost universal view is that China’s growth is unbalanced, with consumption as a share of gross domestic product having declined steadily to below 35 per cent – the lowest level of any major economy – while its investment share rose to above 45 per cent, correspondingly the highest.

The reason for this imbalance is often attributed to low interest rates or an undervalued exchange rate. This has been the easy explanatory option since financial markets are comfortable with prices driving outcomes. But in his article in The New York Times last week, Paul Krugman is unique among prominent commentators in getting it right. He notes that China’s unbalanced growth is explained by the Nobel Prize-winning model by Arthur Lewis that shows how the transfer of surplus workers from the rural sector to the modern economy, complemented by rising investment, leads to rapid but unbalanced growth. The model also lays out the conditions when labour supplies tighten, growth slows and China’s economy eventually becomes more balanced – referred to as the “Lewis turning point” – and this as argued by Mr Krugman is causing China to “hit its Great Wall”.

But then he gets it wrong by saying that this urbanisation cum industrialisation process in China “keeps wages low even as the economy gets richer” and that its economy needs to rebalance soon to avoid a nasty slump. Like many others Mr Krugman sees rebalancing as the solution if China wants to avoid a premature economic slowdown that has prevented the majority of aspiring developing countries from reaching high-income levels, most notably in Latin America, a phenomenon which has become known as the “middle-income trap”.

In fact only a handful of non-European economies managed to escape the middle-income trap over the past half century and most of them were in East Asia – Japan, South Korea, Taiwan and Singapore. Less well recognised is that these economies went through several decades of unbalanced growth with consumption as a share of GDP falling by 20-30 percentage points before they became more balanced – a path which China appears to be following. In fact, only unbalanced economies have been successful in moving to high-income status while “trapped” Latin American economies and lagging southeast Asian countries have balanced growth paths.

But why is successful growth so unbalanced? The explanation lies in the structural shifts as an economy moves from being dependent on agriculture to urban-based industries and services. China’s population has become more than 50 per cent urbanised compared with 20 per cent three decades ago. As millions of migrant workers moved annually from smallholder agriculture, where labour’s share of the value of production is about 90 per cent, to industry or services, where labour’s share of production is closer to 50 per cent (the rest going to other inputs), the effect in the national accounts is that labour’s share of GDP automatically declines and in turn consumption as a share of GDP falls.

The End of the Chinese Economic Miracle ***

July 23, 2013

Major shifts underway in the Chinese economy that Stratfor has forecast and discussed for years have now drawn the attention of the mainstream media. Many have asked when China would find itself in an economic crisis, to which we have answered that China has been there for awhile -- something not widely recognized outside China, and particularly not in the United States. A crisis can exist before it is recognized. The admission that a crisis exists is a critical moment, because this is when most others start to change their behavior in reaction to the crisis. The question we had been asking was when the Chinese economic crisis would finally become an accepted fact, thus changing the global dynamic.

Last week, the crisis was announced with a flourish. First, The New York Times columnist and Nobel Prize-recipient Paul Krugman penned a piece titled "Hitting China's Wall." He wrote, "The signs are now unmistakable: China is in big trouble. We're not talking about some minor setback along the way, but something more fundamental. The country's whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be."

Later in the week, Ben Levisohn authored a column in Barron's called "Smoke Signals from China." He wrote, "In the classic disaster flick 'The Towering Inferno' partygoers ignored a fire in a storage room because they assumed it has been contained. Are investors making the same mistake with China?" He goes on to answer his question, saying, "Unlike three months ago, when investors were placing big bets that China's policymakers would pump cash into the economy to spur growth, the markets seem to have accepted the fact that sluggish growth for the world's second largest economy is its new normal."

Meanwhile, Goldman Sachs -- where in November 2001 Jim O'Neil coined the term BRICs and forecast that China might surpass the United States economically by 2028 -- cut its forecast of Chinese growth to 7.4 percent.

The New York Times, Barron's and Goldman Sachs are all both a seismograph of the conventional wisdom and the creators of the conventional wisdom. Therefore, when all three announce within a few weeks that China's economic condition ranges from disappointing to verging on a crash, it transforms the way people think of China. Now the conversation is moving from forecasts of how quickly China will overtake the United States to considerations of what the consequences of a Chinese crash would be.

Doubting China

Suddenly finding Stratfor amid the conventional wisdom regarding China does feel odd, I must admit. Having first noted the underlying contradictions in China's economic growth years ago, when most viewed China as the miracle Japan wasn't, and having been scorned for not understanding the shift in global power underway, it is gratifying to now have a lot of company. Over the past couple of years, the ranks of the China doubters had grown. But the past few months have seen a sea change. We have gone from China the omnipotent, the belief that there was nothing the Chinese couldn't work out, to the realization that China no longer works.

It has not been working for some time. One of things masking China's weakening has been Chinese statistics, which Krugman referred to as "even more fictional than most." China is a vast country in territory and population. Gathering information on how it is doing would be a daunting task, even were China inclined to do so. Instead, China understands that in the West, there is an assumption that government statistics bear at least a limited relationship to truth. Beijing accordingly uses its numbers to shape perceptions inside and outside China of how it is doing. The Chinese release their annual gross domestic product numbers in the third week of January (and only revise them the following year). They can't possibly know how they did that fast, and they don't. But they do know what they want the world to believe about their growth, and the world has believed them -- hence, the fantastic tales of economic growth.

China in fact has had an extraordinary period of growth. The last 30 years have been remarkable, marred only by the fact that the Chinese started at such a low point due to the policies of the Maoist period. Growth at first was relatively easy; it was hard for China to do worse. But make no mistake: China surged. Still, basing economic performance on consumption, Krugman notes that China is barely larger economically than Japan. Given the compounding effects of China's guesses at GDP, we would guess it remains behind Japan, but how can you tell? We can say without a doubt that China's economy has grown dramatically in the past 30 years but that it is no longer growing nearly as quickly as it once did.

China's growth surge was built on a very unglamorous fact: Chinese wages were far below Western wages, and therefore the Chinese were able to produce a certain class of products at lower cost than possible in the West. The Chinese built businesses around this, and Western companies built factories in China to take advantage of the differential. Since Chinese workers were unable to purchase many of the products they produced given their wages, China built its growth on exports.

For this to continue, China had to maintain its wage differential indefinitely. But China had another essential policy: Beijing was terrified of unemployment and the social consequences that flow from it. This was a rational fear, but one that contradicted China's main strength, its wage advantage. Because the Chinese feared unemployment, Chinese policy, manifested in bank lending policies, stressed preventing unemployment by keeping businesses going even when they were inefficient. China also used bank lending to build massive infrastructure and commercial and residential property. Over time, this policy created huge inefficiencies in the Chinese economy. Without recessions, inefficiencies develop. Growing the economy is possible, but not growing profitability. Eventually, the economy will be dragged down by its inefficiency.

China’s “New Kind of Terrorism” is Winning Hearts and Minds

By Tyler Roney
July 24, 2013

The paralyzed petitioner from Shandong Province who set off a homemade bomb at Terminal 3 in Beijing’s Capital Airport over the weekend is finding a sympathetic audience online and in some of China’s official media. But, many are left wondering if this is the new face of domestic terrorism in China.

In the Xinhua Daily Telegraph, Judge Shu Rui wrote an editorial arguing that, “Each person who feels wronged, could be a time bomb…. For the sake of security, the entire community has a responsibility to emphasize ‘injustice.’”

Shu then goes on to call the act a “new kind of terrorism.”

Although Ji Zhongxing, the bomber, was arguably committing an act of terrorism, he certainly wasn’t the first one.

For the past three years, China has seen several high-profile suicide bombings from disenchanted citizens and petitioners, all of whom receive at least some minor sympathy from the public. In Jiangxi Province in 2011, for instance, explosions ripped through three government buildings, killing three people, including the bomber, Qian Mingqi. It was later revealed that Qian’s vicious act was preceded by him spending a decade trying unsuccessfully to seek redress from authorities after his land was seized without compensation.

Despite the violence and deaths the explosions caused, Qian won over a lot of the public. One popular online commenter, for instance, said “Qian was no Bin Laden, he was one of the weak.”

A similar—though disputed—suicide bombing case in May of 2012 killed four people in Yunnan Province. More recently, in January of this year a suicide bomber in Guangzhou took his own life and injured several others over wages he was owed.

In the media firestorm that followed this weekend’s bombing, Ji’s case has become well known to the Chines public­­­­: his fight with police that left him with a broken spine, his eight years of petitioning for redress and, of course, his homemade firework explosives. As such, many have shown their support for his actions, some going so far as to call him a hero.

Others simply capitalized on the idea; the Beijing Public Security Bureau announced on its official Weibo that two other people were arrested for similar threats, one from a 39-year-old man who threatened to bomb the airport to over a land dispute.

In a country without an independent judiciary and a beleaguered press, this type of costly civil disobedience may be more difficult to explain away than the constant social unrest in China’s western regions.

As such, the government acted quickly to make sure the public knew this type of needless violence will not be tolerated. The Beijing News reported that, on Monday alone, police in the city had seized 327 firearms, 631 imitation guns, around 60 crossbows and over 1,100 knives. Public support is one thing, but these outbursts have, in the past, taken deadly tolls.

More specifically, Ji’s case has been compared to the infamous Yang Jia, who—after taking a beating from police for riding an “unlicensed bicycle” and failing to have his complaints recognized by the courts—stabbed and killed six police officers. Unlike the peaceful Ji, who warned people away to prevent loss of life, Yang was armed with Molotov cocktails, a hammer and knives. But what was most fascinating was that even after committing such horrendous acts against public servants, Yang became an internet hero in China and abroad, before his one-hour trial and subsequent execution in 2008. Indeed, a movie was even made about him.

Rather than the vitriolic rhetoric that often accompanies attacks in Xinjiang or self-immolation in Tibet, Chinese media have cast this weekend’s events in a comparatively flattering light. In fact, Shu’s editorial is a call to arms, entitled, “Everyone should take discontent seriously.” Support—and a fair bit of scorn—poured in from all corners of China’s highly-censored online world.

The unempowered Asian

Pulapre Balakrishnan 


Despite overtaking Japan as the third largest economy, India has lost its leadership role in the continent because, unlike its eastern neighbours, it has ignored its poor

India’s founding fathers had a clear idea where it was to stand in the comity of nations. They were quite sure that India’s place was in Asia. There was nothing parochial to this vision. It sprang from a certain understanding of world history and Asian culture. As they saw it, at the end of Second World War, almost all of Asia had been at the heel of the Europeans for close to two centuries. While acutely aware of this, they saw the sloughing-off of the colonial yoke as the mere beginning of a meaningful journey. The continent’s nation-builders set themselves the far more ambitious task of building an Asia so prosperous that it could provide a balance to western hegemony.

Seoul, an urban marvel

On a busman’s holiday to the East of us, an Indian economist sees that in the rest of Asia much of this grand vision has been realised. For instance, Seoul in its north-eastern extremity is an urban marvel. Its network of expressways, efficient public transport, pedestrian-friendly streets and glorious public services leave you in a state of shock and awe. To the naked eye there is no poverty visible on its streets, nor any great inequality. Instead, food stalls abound and everybody is gorging on their stuff while clutching at their Gucci bags when it is not their Samsung Android phone.

Having once been the champion of the Asian voice in the United Nations, India now languishes as its poor cousin. Its GDP per capita is pitifully low compared to that of the Asian powerhouses, the price of food too high in relation to capita income and the fruits of its much-vaunted high growth in recent years are poorly distributed. From having convened the Asian Relations Conference even before gaining independence to later inspiring Bandung, India has lost its leadership role mainly because it has been left behind in the race to develop the economy. The rest of Asia may admire India as the original home of some profound philosophies, but it is unlikely to capture their imagination as an economy.

This has less to do with the size and growth of India’s economy but to do with the fact that India is clearly out of line with one central aspect of the Asian development model which is the wide-spreading of the fruits of growth. India has by now overtaken Japan as the world’s third largest economy in purchasing-power-parity terms but the backlog of poverty in India is overwhelming even when the bar is set low. China does have high inequality but has far lower poverty levels than India. In any case, restricting ourselves to the income criterion misses an important element when it comes to evaluating the standard of living. Beyond higher per capita incomes, the economies of the east have a vast stock of well functioning public infrastructure. We refuse to acknowledge how important this is in enabling people to lead a dignified life.

Need for course correction

But has India lost the plot for all time? Not at all. However, we need to recognise how the rest of Asia has done it, and grasp the opportunity to make a course correction when required. At the core of the Asian model is the wide provision of health and education by the state. The human capital thus created contributes to high productivity growth which alone can drive growth in the long run. We can think of productivity growth as that source from which flow the two parallel currents that undergird a dynamic economy. On the one hand, it generates the demand needed to sustain growth and, on the other, releases the resources necessary to provision it. But human capital in the form of a healthy and educated populace is per se inadequate to the task of production. This requires physical infrastructure without which a population is powerless. Countless Indians are unable to improve their lot due to the paucity of electricity, water supply, transportation and sanitation.