The global economicpolicy elite havebeen tuning in togoings-on in an outpostalong the valley floor ofthe majestic Teton moun-tains in the northwesternUnited States. I speak, ofcourse, of the annual late-August confab of centralbankers and economistshosted by the FederalReserve Bank of KansasCity in Jackson Hole.Picture-perfect JacksonHole, for one, is far fromanybodys conception ofa hole. It is also far fromKansas City. Most impor-tantly, it is far from thedismal everyday realitiesfor the muckety-mucksof the world monetaryorder, who must make thetrip to step back andchallenge their assump-tions, according to avery pleasant history ofthe confab put out by theorganisers. This year, tryas they might to step backfrom it, the recent gyra-tions of stockmarketsfrom Shanghai to WallStreet could not havebeen too far from anyattendees mind.

This year also hap-pened to be the 10thanniversary of aUniversity of Chicagoprofessor, RaghuramRajan, taking the mes-sage of challengingassumptions a little tooseriously and attractingthe scorn of the JacksonHole elite. He had bad-mouthed the most cele-brated of financial inno-vations, the likes of cred-it-default swaps andmortgage-backed securi-ties, claiming that theywere creating conditionsfor a full-blown finan-cial crisis (in his words).It didnt take more thanthree years for him to beproven right and for the

elite to have egg on theirfaces.

In response to the crashof 2008, the US FederalReserve had taken theunprecedented step ofdropping its benchmarkinterest rate to a levelclose to zero and keepingit there for almost sevenyears. Now, Fed officialsare considering whetherit is time to raise the rate

to more normal levels;this, in fact, was the talkof Jackson Hole this yearand the reason why therewas so much worldwideinterest in the gathering.In a recent interview,now RBI Governor Rajancautioned: If you are notcareful about the volatili-ty you are creating, theothers have to respondand everybody is worseoff. It would be wise forthe Jackson Hole elite tolisten to the man.

To be clear, interestrate increases by the Fedprofoundly affect theemerging markets (EMs)in particular. A rate hikewould likely lead to astronger dollar, causing

global investors to parkmore of their money inthe US, instead of inEMs. This, in turn, couldaffect their currencies,exports and evenemployment levels.India, too, has reason tobe following these issuesclosely, though it is lessfragile than it was even ayear ago. Like otherEMs, India may have to

build up reserves as acushion against anypotential fallout from theFeds actions. Whilecheap oil helps, in top-ping up its reserves, Indiawill be decreasing itsdemand for goods fromthe US and elsewhere.

The Jackson Hole gath-ering ended without aclear sign of the Fedsintent on next steps. Thedebates at the confab dopoint to some centraldilemmas for centralbankers. Three majoruncertainties will give theFed reason to take a deepbreath before making anydecisions.

For one, US policy-makers have been taken

aback by the persistenceof low inflation in thecountry. Inflation wasstill running at just 1.2per cent a year wellbelow the Feds target of2 per cent. It is useful torecall that the Fed hasbeen tasked by the USCongress to maximiseemployment and main-tain stable prices. Despitethe steadiness of the post-

2008 recovery, wagegrowth in the US has sofar been modest.

Couple this with thedisappointing jobsgrowth numbers fromSeptember 4, and it is notunreasonable to expectthat there is still room topush towards the twingoals of maximumemployment and pricestability. A premature ratehike could run the risk ofhalting that process.

In addition to the pre-sent, the future is shroud-ed in macroeconomicand geopoliticalunknowns. There is con-tinued downward pres-sure on oil prices. Add tothat the sharp slowdown

in Chinas economy, andwe can expect furtherdeclines in commodityprices. This means therewill be further risk thatthe Fed will not make itsinflation target. In suchscenarios, an argumentcan be made for a returnto further monetary eas-ing, rather than a ratehike.

A third uncertainty

source is, of course,China, and, by extension,other EMs. Chinas debt,at $28 trillion in 2014, is282 per cent of its GDP.The Shanghai indexdropped dramatically, thegovernment devalued therenminbi and cut interestrates. With falling com-modity demand fromChina, the currencies ofthe major commodity-suppliers to China South Africa, Brazil,Indonesia, Russia have been simultaneous-ly hit. These are alsocountries with severeinstitutional voids andpoor political steward-ship. But with EMs pro-ducing close to 40 per

cent of the global output,a further slowdown inthese economies, trig-gered by higher interestrates in the US, riskscontaminating the entireworld economy. With theEU and Japan struggling,the last finger in theglobal economic dike isthat of the US. Pullingthat finger out to seewhich way the wind isblowing could presentmany perils.

In sum, there are stillrational arguments to bemade that the best theFed can do for its newnormal after its upcom-ing September meeting isto preserve the oldabnormal keep therate low. Of course, it isalso reasonable to grum-ble about the free ride thelow-rate regime gives toWall Street and the fatcats of the banking sys-tem.

My advice? It is timefor Indias policy elite toget beyond Jackson Holeand placing bets on thenext shoe dropping. Withoil and commodity priceslow, this is a rare windowfor India to take boldermeasures. Stop frettingabout economists pre-senting papers in distantmountain retreats and getback to the ground level:Long-sighted policyreform, investment in thelong-term, fixing thetrack records of poor cor-porate profitability andbad loans in the statebanking system, amongothers. This is a rareopportunity to build amore solid frameworkfor Indias growth in thereal economy. It is timeto be the anti-JacksonHole: step forward andtake actions that areresilient, no matter whichassumptions about theFed or China turn outto be true in the end.

(Courtesy: IndianExpress)

4 GANGTOK, SATURDAY 12 SEPTEMBER 2015HIMALAYAN MIRROR EDITORIALENGLISH DAILY PUBLISHED FROM GANGTOK

HIMALAYAN MIRRORSEPTEMBER 12 2015 VOL 10 NO. 08

FFoorrggeett nnoott tthhaatt tthheeeeaarrtthh ddeelliigghhttss ttooffeeeell yyoouurr bbaarree ffeeeettaanndd tthhee wwiinnddss lloonnggttoo ppllaayy wwiitthh yyoouurrhhaaiirr..

-KKhhaalliill GGiibbrraann

A shared failure

By Amma, for womenBy all accounts, the Amma Baby Care Kitlaunched by Tamil Nadu Chief Minister J.Jayalalithaa on Monday could make every ammain the state happier. The kit, which has 16 itemsranging from a mosquito net and an infant mattressto a dress, toy and a hand sanitiser, will be distrib-uted to mothers of new-borns through governmenthospitals. The Rs 67-crore initiative is aimed atimproving hygiene and sanitation among the poor,which in turn could help reduce ailments amongnewborns. Women and children have always beenseen to occupy a place in Jayalalithaas projecteddevelopment narrative. Prior to the kit, she hadannounced setting up exclusive enclosures in busstations for lactating mothers. Her previoustenures as CM saw targeted welfare measures suchas the cradle baby scheme to curb female infanti-cide. Many of these have been successful and havesince been adopted by other states.

It is often asked whether governments shouldspend precious resources on subsidies and so-called freebies. States like Tamil Nadu offer a slewof free or subsidised goods that range from televi-sion sets and mixie-grinders to seeds and cement.Over the years, the state has expanded the ambit ofpublic services from running schools, hospitalsand transport utilities to managing canteens, sell-ling subsidised drinking water and medicines.Competitive populism has led to every successivegovernment adding to the list of free or subsidisedgoods and services. The fiscal cost of such extrav-agance has weighed on the state finances and crip-pled public investment in infrastructure. That said,however, a sweeping critique of subsidies and wel-fare misses the point.

The experience from the southern states is thatwell-designed welfare initiatives targeted at vul-nerable sections, primarily women, girl childrenand the poor, deliver results. The achievements ofTamil Nadu and Kerala in areas like public healthand literacy are the outcome of targeted subsidies.Welfare works in the southern states mainlybecause the delivery mechanisms are in place.With the deepening of democracy and the electoralspace becoming more and more competitive, thisshould happen in the rest of India too.

Back in July, in his convocation address at the IndianInstitute of Science in Bangalore, N.R. NarayanaMurthy threw down the gauntlet to the Indian scien-tific establishment. What, he asked, were the contri-butions of the products of such institutions? Had Indiaproduced a single invention in the past 60-odd yearsthat could be said to be indispensable to lives acrossthe world? C.N.R. Rao, distinguished scientist andchairman of the scientific advisory council to theprime minister, has responded to Murthy in CurrentScience, pointing out that though the government hashobbled scientific research for its own sake with itsinsistence that engineers and scientists focus on solv-ing specific problems or building on existing technol-ogy, private enterprise has failed to step into the spacevacated by government.

Murthy was right, but so is Rao. Several of the trulygroundbreaking inventions from the last half-centuryor so, such as the internet, cellphone or the globalpositioning system, originated from research sub-sidised by the United States military. But besidesDarpa, the US defence research agency, the commonthread running through many of these technologicalinnovations is private partners. The US governmentplayed entrepreneur, taking risks to support suchfuture successes as Tesla Motors and Apple. AndGoogle Maps, for instance, owes its existence to anMIT project funded by Darpa. The Indian govern-ment, on the other hand, has chosen to apply its ener-gies to reinventing the wheel with the doomed Akashtablet, for instance.

Certainly, much of the blame for the lack of similarstories coming out of India lies in the states wearyingparanoia and lack of vision when it comes to allowingprivate players a role in defence research. But corpo-rations have also failed to put their money where theirmouth is. Murthy name-checked MIT in his speech atIISc, to which he unfavourably compared the IITs.But, as Rao noted, Indian billionaires have not, sepa-rately or together, founded institutions like MIT orStanford both of which have trained and nurturedthe best minds to enable scientific advancement.Separate reports by Bain and McKinsey this year findthat philanthropy levels in India remain low by glob-al standards. According to Bain, in the UK, 74 percent of people made charitable donations in 2013,compared with 28 per cent in India. And McKinseynotes that Indian donors tended to prefer direct inter-ventions to help beneficiaries immediately, ratherthan indirect interventions that seek to build organisa-tional capacity at scale. As the American examplemakes clear, it is the willingness and ability of bothpublic and private economic agents to take risks thatproduces new, gamechanging advances.

Soldier of steelIt surely is a dauntingtask for a modernmilitary historian tochoose Indias mostaccomplished and illus-trious contemporarywar-time generalbetween K.S.Thimayya, HarbakshSingh and Sagat Singh.However, on the 50thanniversary of theIndia-Pakistan war of1965, the exploits ofIndias steely WesternArmy commander dur-ing the 1965 war,Lieutenant GeneralHarbaksh Singh, meritreflection. Blooded incombat as a captain inthe steamy jungles ofSoutheast Asia againstthe relentless Japaneseduring World War II,Harbakshs early mili-tary personality wasshaped by a contemptfor the manner in whichthe Allied forces wiltedin the face of theJapanese offensive,physical toughness anda steely determinationas a PoW in Malaya,and circumspectionabout the military capa-bilities of the IndianNational Army to defeatthe battle-hardenedBritish Indian army.

Much of the Indianarmys early aggressionduring the India-Pakistan conflict of1947-48 could be attrib-uted to Harbaksh, who,as a colonel and the sec-ond-in-command toBrigadier L.P. Sen in161 Brigade, orchestrat-ed a number of battles,including the Battle ofShalateng that had thePakistani raiders retreat-ing along the Srinagar-Baramula-Domel high-

way. As a brigade com-mander during thespring of 1948, it washis brigade that gavesignificant momentumto Thimayyas offensivethat sought to push the

Pakistanis all the way toMuzaffarabad. Hisnorthern push in theTithwal andKishenganga sectorssaw significant territori-al gains being made,many of which werereturned to Pakistanafter the UN-sponsoredceasefire of January1949.

When LieutenantGeneral B.M. Kaul, thecontroversial corpscommander of thenewly formed and ill-fated 4 Corps, took sud-denly ill with high alti-tude sickness daysbefore the Chinese

attacked in October1962, Harbaksh wasflown in to replace him.It was too late, however,for him to influence thecourse of battle and allhe could do was rally

his troops to put up atough fight in the givencircumstances. Thereturn of captured terri-tory in 1947-48 and thesetbacks of 1962 trou-bled Harbaksh and hevowed to set things rightwhenever presentedwith an opportunity todo so. He was to get hischance as general offi-cer commanding of theIndian armys premierWestern Command aswar clouds loomed onthe horizon in 1965.

Tough, unyielding anda demanding comman-der, Harbaksh was in thethick of action July-

August 1965 onwards,as he crushed Pakistanssecond attempt at infil-trating Kashmir withthousands of proxyraiders through multipleingress points. Having

operated extensively inthe Kashmir Valley dur-ing the 1947-48 con-flict, Harbaksh knew theterrain like the back ofhis hand and had regularforces waiting at almostall entry points.Actively complement-ing his surface forceaction were 10 Mi-4helicopters operatingfrom Srinagar airfieldin armed helicopter andcasualty evacuationroles. Not many knowthat this was the firstoffensive action by theIAFs helicopter fleetand the story of theirinduction into Srinagar

revealed the offensivemindset of Harbaksh.Though the helicoptersonly inflicted limitedattrition on the infiltra-tors, their mere pres-ence in the skies,

Harbaksh acknowl-edged, acted as amorale booster anddelivered the coerciveeffect he wanted.Success against theinfiltrators gave himimmense confidence totackle subsequent bat-tles on the western frontwith an aggressivemindset. Foremostamong these was therecapture of Haji PirPass on August 28,1965 by 1 ParaBattalion under theleadership of MajorRanjit Singh Dayal.

When the gunsboomed in Chhamb on

September 1 and theIndian armys forwarddefences wilted underthe overwhelming fire-power of PakistaniPatton tanks, artilleryand Sabre jets,Harbaksh held firm anddemanded that hisforces counter-attackrather than hastily rede-ploy at Akhnur. It wasat his insistence that theforward defensive linerallied around Jaurianand blunted thePakistani offensive,while the main divi-sional defences werestrengthened at Akhnur.This rearguard actionallowed Harbaksh suffi-cient time to launch hisoffensive in the Lahoreand Sialkot sectors anddeflect the immensepressure building up inChhamb.

A strapping six-footerwith an intimidatingpresence, he was nei-ther as charismatic asThimayya, nor as inno-vative as Sagat Singh ofBangladesh fame.Renowned for hismeticulous attention todetail and staff checks,and a relentless belief incounter-attacks andoffence as the best formof defence, Harbakshwas more in the mouldof the German generalsof the Wehrmacht likeHeinz Guderian andGerd von Rundstedt.His operational accountof the 1965 war, WarDespatches, remains themost detailed accountof the war from anIndian army perspec-tive. By every yard-stick, he was the epito-me of good soldieringand leadership toughas nails and strong assteel.

(Courtesy: IndianExpress)

By ArjunSubramaniam

Fed and the unknownsBy BhaskarChakravorti