Indian Oil

As one of the fastest growing economies in the world, India has a growing appetite for energy: electricity, oil, etc. This post is specifically about oil.

While it has a huge land mass, India does not have a long history of oil exploration. Now that the country has realized its growing appetite, the government has started to look at private companies in the hope that they will help it find new sources of oil. Unfortunately, this looks like its running counter to the country's tendency to fight private investment, especially foreign direct investment (FDI).

One example of this conflict is the Cairn India oil project. Funded by the IFC ($150 million), this project has run into problems because the company and the Indian government cannot agree on how the oil, which will be pulled from the Rajasthan desert, will be delivered to the market.

Cairn, who wants to build an $800 million pipeline to transport the oil from the site to the coast, has promised its investors and lenders an output of 150,000 barrels a day. However, the government, which has ultimate responsibility for delivering the oil from the field to the market, wants to build a "mini-refinery" on the site, arguing that this would greatly reduce the shipping cost. The problem is that would halve the production and thereby reduce profits. Not only that, a reduction in output could also violate its agreement with the government.

The other interesting fact is that the government is considering a plan by "steel baron Lakshmi Mittal to buy a 49 per cent stake in the Bhatinda refinery, which is under construction ... [and would] ... have a 180,000 barrel-a-day capacity ... [and] ... being built in northern Punjab state by state refiner Hindustan Petroleum Corp."

Could there be conflict of interest there and how would this impact the attitude of other companies that want to invest in the country?

The Future of Pakistan and its Past

A genuine democracy does not depend on the same leaders. Its vibrancy depends on fresh blood, new leaders, culled from its own population. New leaders who are the best and brightest, and who bring new ideas and fresh perspective to the political process.

If one were looking to see why Pakistan is stuck in political doldrums, even when it engages in supposedly free elections, one need only look at former prime ministers Benazir Bhutto and Nawaz Sharif.

In their effort to counter General Musharraf, these two former political opponents, have decided to join forces against the Pakistani president. Here's the problem: these two former political leaders were thrown out for corruption (during each of their two administrations), and the citizens of the country celebrated their departure each time. Apparently, the Pakistani people have very short memories (another sign of a non-democracy) because, in a recent poll, Ms. Bhutto ranked as the most popular political leader.

The situation in Pakistan will not get better if the country does not produce, and its citizens do not elect, new political leaders. Unfortunately, apart from former cricketer Imran Khan, there do not seem to be any viable secular national political leaders in the country.

Pakistani Democracy

The western world has a large stake in Pakistan and, subsequently, is paying great interest to what's going on in that country. For example, it has now become public knowledge that the primary reason General Musharraf decided to back down from imposing stronger restrictions on the country's media was because the United States pushed him to back down.

Given the recent events in Iraq and Palestine, the United States (and its allies) have come to realize that their definition of democracy is not easily transferable. Combined with the general's value in the war on terror, it is not surprising that the United States fears "that democracy could be a recipe for instability. " As the story in this weekend's New York Times notes, this attitude has left Pakistan's democracy activists surprised.

Students of history would not have been surprised by the U.S. reaction. The United States, like any other superpower, is interested in protecting its interests and, seeing who was elected in Palestine and fearing who might be elected in Pakistan, the U.S. has decided to publicly express support for the general. Of course, there has been dissension: "some members of Congress ... have called for a review of American policy toward Pakistan ... say[ing] that American aid should be conditioned on improved performance in the war on terror and an increase in Pakistan’s spending on development and education."

Note that this not mention Pakistani democracy nor that the general should turn in his uniform. Given the major threats sprouting against the United States around the world, it seems the U.S. has decided to back an ally, regardless of his record.

There is a problem though. The U.S. has followed similar policies in the past and they have not turned out so well, indeed the rise of Al-Qaeda in one sense could be attributed to the U.S.' support for the undemocratic regimes of Saudi Arabia and Egypt. So, the question needs to be asked: are we making the same mistake again?

India's First Female President

It has been a long time since a woman held a powerful position in India's government, the last one being the former Prime Minister Indira Gandhi whose family continues to remain powerful in the country's politics. Mrs. Gandhi had two sons: Rahul and Sanjay; the former rose to be prime minister while the latter was killed in an airplane accident.

Rahul Gandhi's wife Sonia is the head of the ruling Congress party, which was also Mrs. Gandhi's party. His son, Rahul, is a member of parliament and his daughter, Priyanka, campaigns for the Congress party. Sanjay Gandhi's widow Maneka and his son Varun are members of the BJP, a rival party.

However, no woman has risen to the heights of the former prime minister. Now comes news that India may have her first female president. The ruling Congress party has chosen veteran politician Pratibha Patil for this post. Ms. Patil will be the party's candidate for this largely ceremonial position in the elections next month.

Pratibha Patil, 72, is the governor of Rajasthan and was picked after Congress and its leftist allies failed to agree on other names. While this is a ceremonial position, the president has "important discretionary powers in the process of choosing a prime minister when no party wins a majority in parliamentary elections, and can also return bills sent for assent before they become law."

Conspicuous Consumption

As capitalist economies grow, generally, so does the difference between the rich and the poor. This difference is clearly visible in one of the fastest growing economies in the world: India.

The country's richest man, Mukesh Ambani of Reliance Industries, is building a new home in Mumbai, "Antilla," that will have 60 stories, a helipad, a health club, a home theatre, a glass-fronted apartment for guests, six floors of parking, and expected to cost around $982 million. In addition to Mr. Ambani, it will house his mother, wife, three children, and 600 full-time staff.

One of the things that used to be common in South Asia was that the rich used to hide their money. This was particularly true for India where protectionist measures used to limit the kinds of things the rich could buy. Now, with the economies growing around six to nine percent every year and the economies opening, conspicuous consumption is on the rise.

Mr. Ambani's flashiness is slightly different from that of Vijay Mallya, the chairman of the UB Group., India's biggest maker of whiskey and beer in India. He calls himself the "King of Good Times, wears wears gold necklaces and a diamond bracelet, surrounds himself with film stars, and holds liquor-soaked parties on his 165-foot yacht, once owned by Elizabeth Taylor."

He also uses this image to sell alcohol in a country where the spirits market has gone from $10 billion in 2002 to over $15 billion in 2006 (Euromonitor). People are interested in emulating his lifestyle and want to live the flashy, exciting life that he leads.

However, this consumption, by both gentlemen, raises the question of the disparity between the rich and the poor. If the people cannot get water or electricity, then how will they feel about the houses and yachts? How will they react? Will they steal and take? The West is used to these differences but in countries where there was no conspicuous consumption until very recently, how will this translate?

Indian Special Economy Zones (SOZs)

Once you get on a roll, you just keep rolling. The Indian economy is a perfect example of this rule. On June 5, the Indian government announced that, setting aside protests from farmers and landowners, it had given final approval for 24 SEZs. The Indian are following the Chinese model in this case, of course they are a democracy and have to consider the wishes of their people while the Chinese do not.

Regardless of the political situation, this move will help major Indian companies such as Reliance, Tata, and Wipro. They may end up helping the overall economy (in the final analysis) but are causing a lot of friction within the societies currently. Regardless, they sound pretty cool. For example, the Rewas scheme, located in the Delhi-Mumbai corridor, will have about 200 high-speed freight trains linking trade zones with industrial complexes and ports. SOZ's are tax-free enclaves that are thought to promote trade, and the Indian government believes that they will help provide employment and secure large amounts of foreign investment. It will be interesting to see how things will work out i.e. whether India can pacify its angry, affected population and take advantage of the investment opportunities that such economic actions bring.

Of course, one could argue that too attract investment a country should lower its entry barriers (tariffs and such) and make itself more open, something that the Indians have consistently failed to. However, that is a subject for another post. In the meantime, the development of the SOZs is a positive development indeed.

Bangladesh and the Military Takeover

In focusing on India and Pakistan, we sometimes forget the other countries in the region, and their influence on the world stage. For example, today's story in the Wall Street Journal about Bangladesh brings up some very interesting points.

An interesting point about this story (linked above and requiring subscription) is that Bangladesh, before the January coup, was the second largest Muslim democracy in the world. The first being Indonesia, of course.

It was also of of the most corrupt countries in the world and that's why the general public supported the army when they canceled the upcoming elections and banned most political activity. The one smart thing, in terms of international relations, that the military did was in placing a technocrat as the figurehead. Also the initial results (economic and social) were very positive.

Another development was that this coup was supported by the United States and, more interestingly, the United Nations. However, this support has recently started to shake as the military government has shown signs that it will neither give up the power or hold elections anytime soon.

Corruption is endemic in countries in South Asia and Bangladesh is no different. Additionally, the military is the most trusted structure in these countries. So, generally, the people support the military when it overthrows the civilian government. However, after some time they realize that there is no difference between the civilian and non-civilian institutions and the people start protesting against the military leaders. At that time, there are elections and a civilian government comes to power. Then the cycle starts up again.

The Bangladeshi military leaders are correct in stating that it takes time to incorporate actual reform and that the international community needs to give them that time. The actual result of this coup will come when a civilian government does come to power. Then we will see if this coup served a purpose. Since human rights weren't respected by the civilian governments, the fact that the military government is not respecting these rights, is nothing new to the Bangladeshis. The true test will come in two steps: (1) If they go too far and there are mass disappearances; and (2) If, as mentioned above, the new civilian government follows the same pattern.