China and economic stagnation in Europe and America is making the West increasingly uncomfortable. While China is not taking over the world militarily, it seems to be steadily taking it over commercially. In just the past week, Chinese companies and investors have sought to buy two iconic Western companies, Smith field Foods, the American pork producer, and Club Med, the French resort company.

Europeans and Americans tend to fret over Beijing’s assertiveness in the South China Sea, its territorial disputes with Japan, and cyber attacks on Western firms, but all of this is much less important than a phenomenon that is less visible but more disturbing: the aggressive worldwide push of Chinese state capitalism. By buying companies, exploiting natural resources, building infrastructure and giving loans all over the world, China is pursuing a soft but unstoppable form of economic domination. Beijing’s essentially unlimited financial resources allow the country to be a game-changing force in both the developed and developing world, one that threatens to obliterate the competitive edge of Western firms, kill jobs in Europe and America and blunt criticism of human rights abuses in China.

Ultimately, thanks to the deposits of over a billion Chinese savers, China Inc. has been able to acquire strategic assets worldwide. This is possible because those deposits are financially repressed savers receive negative returns because of interest rates below the inflation rate and strict capital controls that prevent savers from investing their money in more profitable investments abroad. Consequently, the Chinese government now controls oil and gas pipelines from Turkmenistan to China and from South Sudan to the Red Sea.

Another pipeline, from the Indian Ocean to the Chinese city of Kunming, running through Myanmar, is scheduled to be completed soon, and yet another, from Siberia to northern China, has already been built. China has also invested heavily in building infrastructure, undertaking huge hydroelectric projects like the Merowe Dam on the Nile in Sudan — the biggest Chinese engineering project in Africa and Ecuador’s $2.3 billion Coca Codo Sinclair Dam. And China is currently involved in the building of more than 200 other dams across the planet, according to International Rivers, a nonprofit environmental organization.

China has become the world’s leading exporter; it also surpassed the United States as the world’s biggest trading nation in 2012. In the span of just a few years, China has become the leading trading partner of countries like Australia, Brazil and Chile as it seeks resources like iron ore, soybeans and copper. Lower tariffs and China’s booming economy explain this exponential growth. By buying mainly natural resources and food, China is ensuring that two of the country’s economic engines urbanization and the export sector are securely supplied with the needed resources.

In Europe and North America, China’s arrival on the scene has been more recent but the figures clearly show a growing trend: annual investment from China to the European Union grew from less than $1 billion annually before 2008 to more than $10 billion in the past two years. And in the United States, investment surged from less than $1 billion in 2008 to a record high of $6.7 billion in 2012, according to the Rhodium Group, an economic research firm. Last year, Europe was the destination for 33 percent of China’s foreign direct investment.

Government support, through hidden subsidies and cheap financing, gives Chinese state owned firms a major advantage over competitors. Since 2008, the West’s economic downturn has allowed them to gain broad access to Western markets to hunt for technology, know how and deals that weren’t previously available to them. Western assets that weren’t on sale in the past now are, and Chinese investments have provided desperately needed liquidity.

This trend will only increase in the future, as China’s foreign direct investment skyrockets in the coming years. It is projected to reach as much as $1 trillion to $2 trillion by 2020, according to the Rhodium Group. This means that Chinese state-owned companies that enjoy a monopolistic position at home can now pursue ambitious international expansions and compete with global corporate giants. The unfairness of this situation is clearest in the steel and solar- panel industries, where China has gone from a net importer to the world’s largest producer and exporter in only a few years. It has been able to flood the market with products well below market price and consequently destroy industries and employment in the West and elsewhere.

THIS is the real threat to the United States and other countries. However, most Western governments don’t seem to be addressing China’s state driven expansionism as an immediate priority. On the contrary, European governments dealing with their own economic crises see China as a country that can help, either by buying sovereign debt or going ahead with investments in their countries that will create jobs.

The Chinese state-owned company Cosco currently manages the main cargo terminal in the biggest Greek port, Piraeus, near Athens a 35-year concession deal. And China’s sovereign wealth fund, C.I.C., took a 10 percent stake in London’s Heathrow Airport in 2012, as well as a nearly 9 percent stake in the British utility company Thames Water. The state-owned firms Three Gorges Corporation and State Grid are the main foreign investors in Portugal’s power-generation sector, and C.I.C. also bought a 7 percent stake in France’s Eutelsat Communications.

In the Greek port the Chinese have been able to triple capacity, amid local unions’ criticism of worsening labor conditions. It’s too early to measure China’s impact in the other investments, but the fact that Chinese companies are able to invest in sectors that are closed or restricted for European firms in China says a lot about how minimal Europe’s leverage with China is.

Take Germany, which accounts for nearly half of the European Union’s exports to China. It’s highly unlikely that Berlin would make unfair competition the cornerstone of its China policy. Moreover, the lack of leverage and leadership in Brussels means that the union is unable to take firm action to force China into adopting measures that would level the playing field or guarantee reciprocity in its domestic market. The only exception is the United States, which seems to be addressing the issue by pushing forward the Trans Pacific Partnership, a regional trade association that is seen by critics in Beijing and elsewhere as an American led policy to contain China. The club is thought to be restricted to countries that meet high American standards on issues like free competition, labor and local regulations would allow the arrival of thousands of low wage Chinese workers.

The Arctic territory didn’t have too many alternatives. No other country is in a position to become Greenland’s strategic partner for its future development, given the business risks involved in the Arctic region and the scale of the investment needed in a territory bigger than Mexico but without a single highway. An American oil company couldn’t have handled the task alone. The Chinese state capitalist system, by contrast, allows multiple state owned companies to work together, making it possible for the China National Petroleum Corporation, for instance, to extract oil while China Railway builds basic infrastructure.

Greenland’s leaders accepted China’s terms because they likely believed these costly projects might never go ahead if the Chinese didn’t get involved; only China has the money, the demand, the experience and the political will to proceed. Moreover, there are not enough skilled workers in Greenland for such projects, so the Greenlandic government made an exception to the law, allowing Chinese laborers to earn less than minimum wage figuring that local residents would benefit from new infrastructure and royalties.

China’s deep pockets, as well as its extensive labor force and unlimited demand for natural resources, made all the difference, and accordingly Greenland was prepared to pass tailor made legislation to meet Chinese needs. Even Denmark, which holds authority in Greenland in areas like migration and foreign policy, decided not to interfere.

IT is even happening in progressive bastions like Canada. President Obama’s refusal thus far to approve the Keystone pipeline project has made Prime Minister Stephen Harper’s conservative government turn to China to secure an export market for Canadian crude oil reserves. The Calgary based oil industry has lobbied Mr. Harper to adopt a new diversification strategy that includes the construction of a controversial pipeline to western British Columbia, despite strong opposition from environmental groups, the First Nations aboriginal communities and the public. In the meantime, Canada also signed a Foreign Investment Promotion and Protection Agreement with China, which gives remarkably generous investment protection to the Chinese.

With China in the center of debates over FIPA and the west coast pipeline, Canada’s government then approved the takeover of the Canadian energy giant Nexen by the Chinese state owned oil firm Cnooc. The $15.1 billion transaction was China’s largest foreign takeover.

Closer economic ties have had political side effects; the Harper administration now seems much more cautious in criticizing China’s human rights record. Given that Canada was until very recently one of the fiercest voices on China’s handling of dissidents, this is not only a remarkable 180-degree turn, but also a clear indication of how China’s economic influence can push the political agenda to the sidelines, even in the West.

In Australia, Chinese accumulated investment inflows at the end of 2012 surpassed $50 billion. The trend is striking: Chinese direct investment in Australia in 2012 increased 21 percent from 2011 levels to reach $11.4 billion, making it an important player in Australia’s mining industry. Australia’s trade portfolio remains highly diversified, but the Chinese share is growing rapidly.

China has also become the biggest investor in Germany (in terms of the number of deals), surpassing the United States. Chinese companies are looking for companies that, like Putzmeister, have a technological edge and have become world leaders in niche markets. Those takeovers also allow them to absorb Western know how on branding, marketing, distribution and customer relations. Others are more opportunistic. Faced with recession, struggling European firms like Volvo quickly welcomed Chinese partners who were ready to inject capital and take full control.

The loans that Beijing is giving worldwide are even more significant, in dollar terms, than direct foreign investment. These loans include $40 billion to Venezuela and more than $8 billion to Turkmenistan in recent years. China’s policy banks (China Development Bank and Export Import Bank of China) are the key institutions supporting China’s “Go global” strategy, as they provide billions of dollars in loans to foreign countries to acquire Chinese goods; finance Chinese-built infrastructure; and start projects in the extractive and other industries.

This is clearest in countries where the West claims to link its aid to human rights and good business practices. Chinese loans have been crucial in countries like Angola that have faced threats of a cutoff in financing from Western creditors, the World Bank and the International Monetary Fund. Ecuador, Venezuela, Turkmenistan, Sudan and Iran have all faced such difficulties, and China has stepped in without political or ethical strings attached. Chinese statistics reveal little about these loans, but a study by The Financial Times showed that, between 2009 and 2010, China was the world’s largest lender, doling out $110 billion, more than the World Bank.

It is important to remember what is really behind China’s global economic expansion: the state. China may be moving in the right direction on a number of issues, but when Chinese state owned companies go abroad and seek to play by rules that emanate from an authoritarian regime, there is grave danger that Western countries will, out of economic need, end up playing by Beijing’s rules.

As China becomes a global player and a fierce competitor in American and European markets, its political system and state capitalist ideology pose a threat. It is therefore essential that Western governments stick to what has been the core of Western prosperity: the rule of law, political freedom and fair competition.

They must not think shortsightedly. Giving up on our commitment to human rights, or being compliant in the face of rapacious state capitalism, will hurt Western countries in the long term. It is China that needs to adapt to the world, not the other way

Courtesy New York Times

The world’s biggest electorate goes to the polls soon but the 700 million voters won’t decide who runs India. Instead they will elect 543 representatives, belonging to a score or more of parties, who after much horse- trading will then pick a leader. Of course in parliamentary democracy there is no direct election for the prime minister.

The paradox for India is that the casting votes belong to the unelected. India’s political parties are mostly family run – famously, India’s ruling Congress Party is Gandhi personal property.?The issue of ownership was dramatically illustrated in 2004 when Sonia Gandhi crisscrossed the country as the Congress party’s prime ministerial candidate.

When she unexpectedly won, Mrs Gandhi stepped aside for her loyal aide Manmohan Singh – a respected economist who has never won an election – to take office. A shrewd operator, Mrs Gandhi retained power, wielded from behind the throne. The exceptions to politics as family business are the two major opposition parties – the Bharatiya Janata party and the communists. But faceless men operating in the shadows decide the leaderships of these par ties.

The BJP cannot easily pick a leader not approved by the central command of the Hindu nationalist movement, the Rashtriya Swayamsevak Sangh, and the communists take their orders from an unelected politbureau. Because members of political parties cannot stake a claim to the leadership of the major national par ties (the Congress and the BJP) in India, people leave and create their own outfits drawing support from regional power bases. The other option for ambitious politicians is to start up on their own – scooping up votes from the disenchanted. This strategy works best on the local level. The self-styled champion of the lowest castes, Mayawati is essentially a provincial politician, albeit in India’s most populous state, Uttar Pradesh.

Mayawati’s rise is remarkable given that she hails from the deepest trenches of Indian society: the untouchable caste. Although the Indian constitution abolished untouchability essentially barring the lowest castes from wells and temples – it is rampant in village and small-town India.

However, Mayawati is a troubled figure, mired in claims of corruption and an out sized cult of personality that would embarrass an eastern European communist. Her only political ideology appears to be the pursuit of power.With half a million villages and 60% of people living off the land, India’s politics are rural and often very local. Corruption in politics and the inability of the poor to get a better deal remain concerns. But from the ground up it is the lack of roads, water, electricity and schools as well as complex caste issues that dominate politics.

This again makes the national parties, who are run from the top down, appear irrelevant. Unless they have exceptional local candidates, the big ticket draws are the party leaders who, thanks to India’s linguistic diversity, often cannot mobilize people in their own language. These trends have an unyielding logic. Since 1989, no single party has been able to run India. As national parties shrink, the space is filled by regional parties. With an ever-proliferating array of parochial politicians, the only way to gain power is to compete for votes locally and co-operate nationally to gain power.

The last two governments, both of which lasted a full term, have been anchored by the two national parties. However most think that their executive strength has been sapped by bickering between partners. The caravan of Indian government moves only as fast as its slowest member – which is very slowly indeed.

This year could see the rise of a third force, a grouping of smaller regional parties who would bandy together to form a government. This would only happen if the two national parties lost so heavily they could no longer dominate the parliament. Only the communists and perhaps Mayawati could win big enough to provide the third front with the numbers for government. Because it would be collection of regional interests, settling big national questions is likely to take longer than it does today.

– Randeep Ramesh

Voters Kept It Simple

Karnataka elections results are along predictable lines, many opinion polls and exit polls have scored right on seats prediction. Congress has emerged as the winner, BJP has been demolished and Janata Dal (Secular) refuses to be written off. The national parties were eying big in Karnataka primarily to consolidate platform for up coming Lok Sabha elections, off course Congress won and BJP facilitated the victory. First, there is no sweeping sentiment; Congress has won by a slim margin in the 224 seat house and that is therefore no endorsement of its brave assertion of ‘we survive everything’.

Second, national issues had little bearing, and like most states Karnataka voted on the basis of factors that affect the daily lives of the people things like governance and civic amenities. BJP state leadership and its central leadership has messed up the government right from on set of its formation of its first government in any southern state. Yeddyurappa, Reddy brothers in Bangalore and Anant Kumar and Venkya Naidu in collaboration of their god father’s in Delhi has delivered worst government in any BJP state ruled state of India.

Third, even if Congress would have us believe it, the elections cannot be seen as a victory of Rahul Gandhi, who took some time out to campaign in the state. In the same vein, the results should also be viewed as a wakeup call for Narendra Modi for he has a long way to go before he is accepted as a national leader. Even though he campaigned only briefly, the BJP fared poorly in all the regions he visited like central and coastal Karnataka or Bangalore. Salman Khurshid lost no time in saying, “Message for Modi is that there is no Modi.” That may be an overstatement but not entirely out of place. Amidst all this, one factor has remained a constant over the decades. HD Devegowda remains pertinent to state even in his loss and his legacy is being carried forward by his younger son HD Kumaraswamy. Devegowda has always amazed with his hunger for power after all how many will accept being chief minister after having been the prime minister once and with his instinct to remain relevant.

But the joker of the elections this time was clearly BJP rebel BS Yeddyurappa, whose breakaway Karnataka Janata Paksha, was possibly one of the main factors for BJP’s terrible showing. Yeddyurappa ate away at the party’s roots after having single handedly won the first southern bastion for the BJP and also significantly fragmented the Lingayat vote bank, even if he managed no significant political victory for the KJP. In a sense, except taking comfort from sweet revenge, he did more harm to others than good to himself. It is a repeat of UP BJP story wherein Kalyan Singh was pushed out of the party and UP BJP has never recovered from the stock. Now even when the Kalyan Singh is back to BJP several times, or Yeddyruppa will surely be back with BJP in the near future, the damage is done. What Yeddyurappa did to the BJP, JD(S) has done to some extent to the Congress. It has nibbled away at its vote bank in areas like Mysore where the electorate had punished it earlier for its betrayal of the BJP. While the Congress has won by 2:1 ration in urban cities, JD(S) damaged it in rural parts.

As far as region wise outcomes were concerned, Congress made small gains in Bangalore where it managed under 50% of the seats, while JD(S) has gained significantly. Mumbai Karnataka has possibly been the best success story of the Congress. This is obviously where Yeddyurappa has had maximum impact on the prospects of the BJP. The Congress has also regained in the northern region of Hyderabad Karnataka, but has fared worst in the Southern part of the state where JD(S) has made most gains. The 2008 results got swapped in the western and coastal regions, where Congress wrested most of the seats BJP had won last time.

Interestingly, while an indicted Yeddyurappa, who also bears the ignominy of being the first chief minister of India to go to jail, had the ability to dent his former party, the tainted Reddy brothers have received a drubbing in Bellary. Also while Lakshman Savadi, who was one of the three MLAs caught watching pornography in the Assembly, won, his co-accused colleagues CC Patil and Krishna Palemar thankfully lost.

Considering the mixed fate of these tainted politicos there can be no certain verdict on how the moral question pans out. But it is precisely moral high ground that BJP chose to take after the picture from down south became clear. Overall, despite the victory, Congress should ideally not be in a celebratory mood and there is no reason for them to gloat about their triumph in the south. What they must accept is that Karnataka elections are neither a positive verdict on the scam soiled government at the Centre nor a defeat of the BJP ideology, as asserted by PM Manmohan Singh. If anything Karnataka elections are about what factionalism can do to a corruption riddled party, which cares little for governance issues. And if that is the reading, Congress better watch the wall for results in 2014 though with a rider that Congress despite corruption allegations has looked a unit under Sonia Gandhi.

Report filed by Diwakar Shetty from Bangalore Bureau

The agitation against the Koodankulam Nuclear Power Plant has been running as a TV reality show for weeks now. The news-starved visual media has reduced the Koodankulam nuclear plant - a national investment of Rs 13,000 crore and just about to start - to a day-matinee-night show. The Koodankulam theatre is plagiarised on the Anna Fast model for media to hype it. The media too obliged and packaged it as hapless villagers fighting for their right to live. For long, it had winked at the scriptwriters, directors and actors behind the show. But does the media know - or not - that Koodankulam is no isolated event? And that the goals and mission that drive it link it to the stir that is on for almost two decades in the distant and remote West Khasi Hills in Meghalaya against uranium mining? The scriptwriters, directors and actors behind both have a common mission. The Koodankulam stir blocks the building of a nuclear plant for India. The West Khasi Hills agitation prevents the building of nuclear arsenal for India. Who are the directors and actors and what is their mission?

See what nuclear technology means to India. India needs nuclear power and nuclear weapons. There are, in the world, 22,000 nuclear bombs, 8,000 actively targeted at one another's perceived enemy. China has some 240 bombs targeted mostly at India. Pakistan has some 80 bombs targeted only at India. India has 100, less than a third of both. No one deeply concerned for India can even remotely undermine nuclear technology for power or weapons. On the other side, our energy security, heavily import-dependent, is at risk. We, a sixth of humanity, remain a burden on the world. Shamefully. We import oil, coal and gas. Our energy imports is $100 billion a year. Of which, coal imports, now 100 billion tons, alone cost $5 billion; it will reach $45 billion in 2020, $250 billion by 2050.

We today produce 1,50,000MW of electricity. We need to raise it, by over six times, to 9,50,000MW, by 2030. This is not doable through imported fuel. It needs no seer to tell us that, in the long run, we need indigenously fuelled power. For which a prime candidate is nuclear power.

Now, compare the environmental and human risk in thermal and nuclear power. The risk in one is the merit of the other. Experts say that a 1,000MW coal power plant causes annually 400 deaths by air pollution and climatic change. Nuclear energy does risk accidents - but once in decades - just four accidents in 60 years, involving 66 direct and 4,000 related deaths. It is far less risky compared thermal power. Air accidents kill some 1,000 persons in the world annually. Traffic accidents killed 1.14 lakh people in 2007 in India alone. Yet to think of banning coal, nor air or automobile travel will be laughable. The balance sheet of nuclear energy is thus superior, less risky, and more clean. Why do some brand nuclear power as evil? Now see how do we produce nuclear power and also weaponise India.

Now uranium drives our nuclear programme. Our minimal uranium reserves are mainly located in Khasi Hills in Meghalaya, Jaduguda in Jharkhand and Tummalappalle in Andhra Pradesh. Global uranium trade is political, controlled by the Nuclear Suppliers Group (NSG). The NSG sells uranium only to an approved country and its nuclear reactors are subject to NSG supervision. India signed a loaded nuclear treaty with the US only to win the NSG approval to access imported uranium. As on now, fourteen of our twenty-two nuclear reactors are subject to global supervision. Only the unsupervised eight are usable for producing nuclear weapons. India can import uranium from the NSG for its nuclear power reactors, but import is only a short term answer, and costly for a country of our size. To fuel large nuclear power plants and for energy security, we cannot rely on imported uranium for long. Ultimately it has to be indigenous fuel. Fortunately, we have the world's largest deposit of thorium, an alternative to uranium and the nuclear fuel of future. We are perfecting the technology to use thorium for producing power. But, till that happens, we need to mine indigenous uranium, first, to reduce the dependence on imports for our nuclear power programme and, next, for operating the eight reactors to produce nuclear weaponry. The two facts are self-evident. And now lift the veil and see the common faces behind the two-decade-old Khasi Hills agitation against uranium mining and the agitation against the Koodankulam nuclear power plant - that is against nuclear India itself.

That the Koodankulam stir is the show of the Catholic Church has become out, but a bit late. Neutral media reports now confirm that S P Udaykumar, who leads the agitation, stays with the parish priest Father Jaikumar at Idinthakarai village; Fr Jaikumar openly supports the stir; Fr Thadyuse, the priest of the church in Koodankulam, too is forthright in his support; Fr S Peter, priest at the popular St Antony's Church in the coastal village Ovary, sends his flock to partake in the relay fast at Idinthakarai; local Christians priests confirm that the Bishop at Tirunelveli supports the stir. The church hierarchy is therefore fully at it. According to reports, trans-port, cash and biriyani are provided to mobilise protesters and they are motivated to throw stones at the maintenance officials of the plant to force its closure. Remove the church, the agitation will stop.

Now see the face behind the agitation in the Christian -majority Meghalaya, which has a sixth of India's uranium reserves. Not a kilogram of uranium has been mined out of Meghalaya since 1990, thanks to 20-year long agitation by Khasi Hills students against mining it. The church in Meghalaya is backing, actually organising, the students. Violent incidents, blockade, picketing, huge rallies, setting fire to government offices and paralysing government marked the agitation And who talks for the agitators? The archbishop of Shillong, Dominic Jala. Take the church out, there will be no stir. Even the uranium reserve in Jharkhand is at risk. A huge tribal campaign, with NGOs patronised by the church backing it, is thwarting uranium mining in Jharkhand.

QED: The campaign against mining uranium in Meghalaya and against the Koodankulam nuclear plant is by the same directors and actors with global links and money. Their target is nuclear India. They are driven by a geopolitical agenda to de-nuke India. But they actually nuke India.

(Views expressed are those of the author only)

The writer is a well-known commentator on political and economic issues.

Army confirms Chinese buildup along India border

LADAKH: The Indian army has long voiced concern over the depth and pace of China's military modernisation, especially in its infrastructure bordering India. On the Line of Actual Control at Demchok in South-East Ladakh, signs of that modernisation on the China side were visible.

Lt General Ravi Dastane, Army Commander, Leh said, "We are watching it closely, it's a capability they are building, it also has a military implication." Colonel SK Sheoran said, "Before 2008 they were 35km behind Demchok, now a platoon strong is deployed in the Zorawar Hill."

In contrast, infrastructure in Ladakh is non-existent. All military and civil vehicles move along dirt trails similar to the mule tracks of the 1962 war. Commander, Fuk-Che Anil Chaudhary said, "Whatever roads are there, gravel surface or natural surface are adequate for moving of military vehicles however better developed roads would add impetus to our own preparation."

Add to that the constant surveillance from Chinese observation posts. New roads are now being laid behind hills that block China's view but progress is slow. In many cases environmental clearances have delayed road building. Air support is hampered by the lack of airfields. The army admits that advanced landing grounds in Fuk-Che and further north in Chushul are too close to the Line of Actual Control to be of use in a conflict. The Air force is trying to get the NYOMA airfield operational but it will take time.

The army does not expect conflict with China in the near term. But power struggles in Beijing within a leadership in transition could have echoes in distant Demchok.

China and India at War: Study

Contemplates Conflict Between Asian Giants

There are plenty of reasons why China and India won't go to war. The two Asian giants hope to reach $100 billion in annual bilateral trade by 2015. Peace and stability are watchwords for both nations' rise on the world stage. Yet tensions between the neighbors seem inescapable: they face each other across a heavily militarized nearly 4,000km-long border and are increasingly competing against each other in a scramble for natural resources around the world. Indian fears over Chinese projects along the Indian Ocean rim were matched recently by Beijing's ire over growing Indian interests in the South China Sea, a body of water China controversially claims as its exclusive territorial sphere of influence. Despite the sense of optimism and ambition that drives these two states, which comprise between them nearly a third of humanity, the legacy of the brief 1962 Sino-Indian war (a humiliating blow for India) still smolders nearly five decades later.

And it's alive on the pages of a new policy report issued by the Institute for Defence Studies and Analyses in New Delhi, an independent think tank that is affiliated with India's Ministry of Defense. "A Consideration of Sino-Indian Conflict" is hardly a hawkish tract-it advocates "war avoidance" - but, by spelling out a few concrete scenarios of how conflict may look between the two countries, it reveals the palpable lack of trust on the part of strategists both in New Delhi and Beijing. The report applauds long term Indian efforts underway to beef up defenses along the Chinese border, but warns that Beijing may still take action:

In future, India could be subject to China's hegemonic attention. Since India would be better prepared by then, China may instead wish to set India back now by a preventive war. This means current day preparedness is as essential as preparation for the future. A [defeat] now will have as severe political costs, internally and externally, as it had back in 1962; for, as then, India is yet again contemplating a global role.

While a lot of recent media attention has focused on the likelihood of Sino-Indian clashes at sea, the IDSA report keeps its scope trained along the traditional, glacial Himalayan land boundary, referred to in wonkish parlance as the LAC, the Line of Actual Control.

Since the 1962 war, China and India have yet to formally resolve longstanding disputes over vast stretches of territory along this line. Those disputes have resurfaced noticeably in recent years, with China making unprecedented noises, much to the alarm of New Delhi, over its historical claims to the entirety of the northeastern Indian state of Arunachal Pradesh - what the Chinese deem "Southern Tibet." The Chinese even rebuked Indian Prime Minister Manmohan Singh for having the audacity of visiting the Indian state during local elections in 2009.

Not surprisingly, it's in this remote corner of the world that many suspect a war could kick-off, particularly around the historic Tibetan monastery town of Tawang. India has reinforced its position in Arunachal with more boots on the ground, new missile defenses and some of the Indian air force's best strike craft, new Russian-made Su-30 fighters. After decades of focusing its army west against perennial threat Pakistan, India is tacitly realigning its military east to face the long-term challenge of China.

The report speculates that China could make a targeted territorial grab, "for example, a bid to take Tawang." Further west along the LAC, another flashpoint lies in Kashmir. China controls a piece of largely uninhabited territory known as Aksai Chin that it captured during the 1962 war. Indian press frequently publish alarmist stories about Chinese incursions from Aksai Chin and elsewhere, playing up the scale of Chinese investment in strategic infrastructure on its side of the border in stark contrast to the seeming lethargy of Indian planners. Part of what fuels the anxiety in New Delhi, as the report notes, is the threat of coordinated action between China and Pakistan – an alliance built largely out of years of mutual antipathy toward India. In one mooted scenario, Pakistan, either with its own forces or terrorist, insurgent proxies, would "make diversionary moves" across the blood-stained Siachen glacier or Kargil, site of the last Indo-Pakistani war in 1999, while a Chinese offensive strikes further east along the border.

Of course, such table-top board game maneuvers have little purchase in present geo-politics. Direct, provocative action suits no player in the region, particularly when there's the specter of American power - a curious absence in the IDSA report - hovering on the side-lines.

Intriguingly, the report seems to dismiss the notion that China and India would clash in what others would consider obvious hotspots for rivalry; it says the landlocked Himalayan kingdom of Bhutan would likely be treated as a neutral "Switzerland", while Nepal, a country of 40 million that entertains both Beijing and New Delhi's patronage, is more or less assured that neither of its big neighbors would risk violating its sovereignty in the event of war.

Moreover, the IDSA seems to rule out either side encouraging or deploying proxies in more clandestine struggles against the other. The restive border regions on both sides of the LAC are home to resentful minority populations and more than a few insurgent factions. India and China - unlike Pakistan - have little precedent in abet-ting militant groups and strategists on both sides would be wary of fanning flames of rebellion that no one can put out.

Yet what seems to stoke Sino-Indian military tensions - and grim prophecies of conflict - are precisely these feelings of vulnerability. The uncertainties posed by both countries' astonishing economic growth, the lack of clear communication and trust between Beijing and New Delhi and the strong nationalism underlying both Indian and Chinese public opinion could unsettle the uneasy status quo that now exists. Managing all this is a task for wooly-heads in New Delhi and Beijing. But don't be surprised if more reports like this one come out, drawing lines on the battlefield.

Courtesy Ishaan Tharoor via TIME

Recently the Union government sought a review of the Supreme Court's order constituting a Special Investigative Team (SIT) to probe the issue of black money stashed abroad. The government believes this is judicial over-reach, but it forgets that the courts stepped in because of executive "under-reach." It is one thing to object to a Supreme Court-appointed SIT, quite another to be SITting on your hands doing nothing.

But stashing money abroad is not just about the government not earning its share of tax revenues.

It is actually a vote of no-confidence in the country and its people.

Hence, it is financial skullduggery.

Here's the second part of our Dummy's Guide to Tax Havens and Black Money in which we explain how black money is generated and spirited away. The first part was published by First post on 3 June.

What is black money and how is it generated?

It's not the colour of the currency, for sure. Income generated by illegal means and on which no tax is paid is called black money. Corruption is one of the major causes. All corrupt acts generate black money since the receiver does not want to show it as income to the tax authorities. This is why the finance ministry's chief economic advisor, Kaushik Basu, even suggested legalizing small-time bribes since it can at least be taxed.

Domestic corruption can be retail or wholesale. The retail one is what hurts most of us. The policeman who collects a bribe when you jump a red signal, the electricity board engineer who wants speed money to fix your meter, or the RTO official who wants a payment to issue a driving licence - such situations can be multiplied a million times.

We can also call this womb-to-tomb bribery, from birth certificate to death certificate. This retail corruption is what we are up against on a day-to-day basis. And this generates huge amounts of black money, mostly in the hands of thousands of government employees. This is what is not felt in developed countries. In the US or Europe, retail corruption that affects the common man is rare.

Corruption generates black money but black money is generated even without corruption. For instance, if you do not collect the bill for your next petrol purchase you have generated black money.

Then there is wholesale corruption, which is generated through the award of road/project contracts (as in Commonwealth Games) or the issue of licences or allotment of scarce resources like spectrum (as in 2G scam). Wholesale corruption also happens in government purchases - whether it is medicine in hospitals or books in schools or aircraft for Air India or Bofors guns or coffins for defense. Corruption happens even in the private sector, but since the losses are borne by promoters and shareholders, we should not bother about that now.

Why should I bother about wholesale corruption?

Wholesale corruption does not affect us directly, but it does impact us indirectly. When A Raja allegedly made money by under pricing spectrum and allotting it to specific parties, telecom companies had to recoup the costs from somewhere - it could be through higher mobile bills or poorer quality service, or both. Also, the government loses revenue, which means less money to spend on more worthwhile projects like subsidizing the poor.

It is important to note that corruption generates black money but black money is generated even without corruption. For instance, if you do not collect the bill for your next petrol purchase you have generated black money. If you visit your doctor and pay him his fees without a bill, the doctor may not pay his taxes.

So the equation is corruption generates or implies black money but black money does not imply corruption.

Where is this black money kept?

Unlike what is shown in Bollywood films, black money is not kept in cupboards or suitcases - though some if it may well be kept there. Black money is usually kept in circulation by using it to finance informal trade and commerce - usually at a higher interest rate than what banks charge.

For instance, we estimate that only 30 percent of retail trade financing is done by banking institutions. The remaining money comes from money-lenders - a good portion of it from black money. Actually, domestic black money is a hidden reserve and it may also be beneficial in some ways as it finances economic activities. Also, black money circulates faster than white money, which slows down as it passes through the banking and taxation loop.

But black money distorts resource allocation since people with huge amounts of it will use it to build spas at home or buy Italian marble for the verandah or gold-plated bathroom fittings. The economy thus tries to cater to this profitable demand instead of what the bulk of the people need.

Moreover, black money is also stored in real estate, which is one reason why we are finding everything unaffordable in the property market.

If black money is useful here, how did it land up in tax havens abroad?

There are several reasons for keeping wealth abroad clandestinely. They can be broadly categorized as vegetarian and non-vegetarian reasons/purposes. The illegal wealth itself can be classified as veg or non-veg. The veg reasons for keeping wealth abroad include tax evasion, and keeping some dollars abroad for meeting expenses when you travel abroad or for your child's education or daughter's honeymoon.

The non-veg money is accumulated for terror financing or gun running or drug money or flesh trade. (Disclosure: I am a vegetarian and so I am categorizing these purposes in this fashion.) The former is illegal but less harmful compared to the latter. The government needs to approach the issue in different ways in tackling these two segments of black money. We will elaborate it later. Let us first look at the veg segment first, and how it emerged.

Why did so much black money get generated?

In the sixties and seventies, tax rates used to be very high in India. At the margin it was more than 90 percent in many years. This meant that for every Rs 100 earned in the upper-income brackets, more than Rs 90 would go as taxes. Hence rich persons began to accumulate wealth abroad to avoid such "usurious" taxes.

The high levels of taxes were the result of "Nehruvian socialism" which felt that the rich should be soaked to improve the lot of the poor. The latter did not happen, but such policies "improved" the ability of tax officials to extract money as bribes from the rich and encouraged the latter to look out for secretive jurisdictions to store their wealth.

Foreign exchange controls were also so stringent that businessmen found they could not afford to stay in decent hotels when travelling abroad for business. They could not send their sons and daughters to get an Ivy League education. Hence the need to maintain dollars abroad - often in tax havens.

But it is the second broad category - namely the non-veg - that is insidious and dangerous. It is not only about lost taxes, but also about what kind of nefarious activities it may be financing, including possibly terrorism and gangsterism.

India's restrictions on gold holdings and high customs duties created an entire class of smugglers who brought in gold illegally from Dubai. There were smugglers not only in gold, but any luxury item that was banned or too expensive to import (including electronic gadgets at one time). This is how Nehruvian economics created crime syndicates which, over time, metamorphosed into financiers of terror, a la Dawood Ibrahim.

How does the money go out of the country?

One of the important mechanisms is called "trade mispricing". When an exporter under invoices (underprices) his goods, the difference is paid by the importer abroad in a Swiss account, or any tax haven. One can also over invoice imports. Let's say a US exporter sells us a piece of machinery worth Rs 100 crore for Rs 110 crore. In this case, a higher amount is remitted from India, enabling the exporter to pay us the excess back in a tax haven.

Black money is also generated in defence deals. In the Bofors case, a commission was paid for the deal when the Indian policy was that no commissions could be paid? Who got the money?

Then there are hawala transactions. At the criminal level, you can merely hand over a sackful of rupees, and the courier will deliver dollars somewhere abroad - obviously at an exchange rate that is significantly higher than the official one.

But hawala transactions can also be done by the ordinary well-to-do. Let's say you want to finance your father's operation abroad. You can ask you friend in Dubai to bear the cost, in return for paying the equivalent amount in rupees to his sister in Hyderabad. This does not look like a criminal thing to do, but legally it is no different from the illegal hawala deal.

R Vaidyanathan is professor of finance at IIM, Bangalore

In India, one cannot talk about public service without raising the issues of corruption, lack of transparency and accountability. Without raising esoteric issues on ethics, I would like to focus attention on practical measures to combat corruption and increase transparency and accountability in all facets of public services.

Mark Twain once said, "Everyone talks about the weather, but no one does anything about it". Corruption has become one such topic of conversation, with few in the establishment or outside really doing something to curb it. The fight against corruption is too important to be left to a few formal institutions or politicians. The people at large have enormous stakes in clean public life and corruption-free services. Experience all over the world showed that determined initiatives with public support can and will succeed in curbing corruption and cleansing the system effectively.

As many scholars like Robert Wade have pointed out, most corruption at the citizens' level is extortionary, and people have often no choice when faced with the dilemma of having to lose much more in the form of lost money, time and opportunity, not to speak of anxiety, harassment and humiliation if they did not comply with demands for bribes. The only silver lining is, everyone, including those in positions of influence is a victim and no one seems to be exempt from these extortionary demands. We seem to have achieved the ideal of socialism through equal treatment of all citizens in terms of extortionary corruption! With the advent of economic liberalization and delicensing of most industry, the nature of corruption is now undergoing a major transformation. The one-time grand corruption on large private projects - notably in power and other infrastructure sectors - has now become quite common. An even more alarming trend is the shift of corruption from licensing and permits to more dangerous and pernicious areas of sovereign functions of state like policing. The increasing nexus between hardened criminals, rogue policemen and corrupt politicians is one such example. It is clear that the state's gradual withdrawal from economic activity does not automatically eliminate corruption. Many more practical and institutional initiatives are needed to successfully curb corruption.

It is in this context that civil society's role is critical. Enlightened public opinion and informed and collective citizen assertion are the very basis of any successful fight against corruption.

In my opinion, there are three broad areas of action to combat corruption involving the state and the civil society. The first is active citizen assertion to curb corruption as illustrated by the examples cited above.

There are several rules and procedures whose only impact on the public is extortionary corruption. There is need for a comprehensive review of the regulatory functions and procedures in every department and agency, with three objectives:

1. a) Identify unnecessary regulations and repeal them
2. b) Improve, simplify and make trans-parent procedures in respect of those regulations and services still relevant
3. c) Specify levels of responsibility for each official in the heirarchy, so that accountability becomes real and mean-

For example, widespread petty corruption was eliminated by repeal of the Hackney Carriages Act in mid 70's when cyclists were exempted from obtaining licenses. Similar steps could be taken in respect of all private motor vehicles now. A body of experts from government and civil society should be set up to undertake this complex but vital exercise of deregulation and simplification of rules and procedures. The government would be inclined to take it up as it is politically popular. What is required is the momentum to break the inertia which funding agencies can provide.

Apart from these and other deregulation efforts, citizens need effective tools for collective action. Right to information on all matters of governance with very few specific, limited exceptions in the interest of national security etc., should be enshrined in law. Article 19 of the Constitution and several Supreme Court judgments recognize right to information as a fundamental right. We need to codify this right by law, and evolve fair and objective procedures for its enforcement. The recent draft legislation of Government of India leaves much to be desired. There are too many vague exemptions; no penalties are provided for non-compliance, and there is no independent appeal mechanism. A sensible, citizen-friendly law needs to be quickly enacted and strictly enforced.

For some years now, Citizen's Charters are being released by various departments. A true Citizen's Charter should fix responsibility on individual public servants, specify performance standards, and provide compensation to citizens for delays. No Citizen's Charter conforms to these standards. As a result, these charters are full of shibboleths and pious intentions without any impact on corruption or quality of services. Under pressure, Govt of Andhra Pradesh has recently released a Citizen's Charter in respect of certain municipal services, and probably for the first time in India a compensation of Rs 50 a day for delay in services is provided for, and this amount is to be recovered from the public servants responsible for delay. Another such citizen's charter for panchayats covering twenty services, and providing for a compensation of Rs 10 per day's delay is on the anvil. We need such effective charters for all public services with compensation and clear penalties for non-performance.

Similarly Wards Committees need to be constituted in accordance with the letter and spirit of Article 243-S of the Constitution, and these Committees serving small areas of about 25000-50000 population should be empowered to collect municipal taxes and pro-vide basic services. Such local accountability will reduce corruption. Wherever stake-holders of public services can be clearly identified, they should be legally empowered to take responsibility for those services. These and many other simple, practical steps will promote transparency and accountability and give citizens the required tools for effective action against corruption.

The second broad area of action is in respect of tightening the anti-corruption laws and creating independent and effective agencies to curb corruption. The 161st report of the Law Commission made valuable recommendations in respect of the Vigilance Commission and CBI. The Supreme Court in Jain Hawala Case gave specific directives and suggestions. Sadly, the Union government is still to act. And we understand that the 'Single Directive', by which prior permission of the government is required to investigate charges against officials of the rank of Joint Secretary and above are sought to be restored by law. We need independent, honest and fearless agencies to fight corruption. The Law Commission recommendations should be accepted and a law should be enacted. The CVC and Vigilance Commissions in States, which have been created by executive orders in 1964 in the wake of Santanam Committee report should be given statutory status and given freedom to act. Lok Pal Bill has now been pending for over three decades, and even where Lok Ayukta’s exist in States, they have no effective role. We need to create strong anti-corruption agencies modelled after Hong Kong's successful Independent Anti-Corruption Commission until 1997. Penalties for corruption should be made far more stringent as proposed by the Law Commission in its 166th report. Anti-corruption and crime investigation must be insulated from partisan political control. Without such fair, impartial, independent and strong agencies, there will be no real success in increasing the risks of corruption and minimising the rewards.

Finally, we should all recognize that the roots of corruption lie in the exorbitantly high, illegitimate and illegal election expenditure. Our estimate is that about Rs 7000 crores is spent in a block of five years for the Parliament and State Assembly elections. In most constituencies, the actual election expenditure is several times the ceiling prescribed by law. Much of this expenditure is not only illegal, but is also illegitimate, and is incurred to buy votes, bribe officials and hire hoodlums. This unaccounted expenditure necessitates a tenfold return to the political class, which in turn results in a hundredfold extortion by the bureaucracy, leading to Rs 700,000 crore corruption in five years. The citizens pay a much heavier price on account of anxiety and uncertainty. If we wish to curb corruption, we should together launch a movement for electoral and political funding reform. We are now building alliances across the country for a people's movement for democratic reforms. Electoral funding reform should be the center-piece of our strategy to fight corruption.

In recent times, the political and governance system has shown signs of sensitivity responding to this challenge. Five major initiatives have been taken in the past one year. The Election Commission responded to years of informed advocacy on improvements in voter registration, and has decided in principle that post offices will be the nodal agencies for voter registration. This will make the voter registration process citizen-friendly and accessible, making it easy to curb polling irregularities, and along with voter identity cards will make it difficult to indulge in bogus voting. The disclosure norm put in place, forcing candidates for elective office to file affidavits revealing their criminal antecedents, if any, and the financial record of family members, is a step in the direction of promoting transparency and better candidate choice. The amendments to the RP Act, 1951, incorporated in September, 2003 are by far the most far-reaching legislative provisions reforming our political campaign finance. All contributions for political activity, individual or corporate, will not get 100% income tax exemption. All contributions of Rs 20,000 and above will be disclosed to the public. The infamous Explanation 1 under Section 77 of the RP Act, 1951, which made non-sense of the election expenditure ceilings has been repealed. Most important, free time can now be allotted in private electronic media, including cable networks, recognized parties and candidates for political campaigning. This will drastically cut down campaign costs, and alter the very nature of elections in future.

The fourth reform enacted is the amendment to the Tenth Schedule of the Constitution, thus altering the anti-defection provisions. Through this amendment, no split in a legislature party is recognized, and all members violating a whip will be disqualified. Finally, through the 97th amendment of the Constitution, the size of the Council of Ministers has been pegged at 15% of the membership of the lower house, thus reducing distribution of minister-ships, and meeting the longstanding demand for reform.

All these reforms will certainly help improve the political process, and make it easy for honest persons to raise resources for legitimate campaigning purposes. However, in India, much of the election expenditure is both unaccounted and illegitimate, leading to a vicious spiral of corruption.

In a well-functioning democracy, the political process ought to find answers to such governance problems. It is through the process of elections that a democratic choice is exercised on solutions to be adopted for various governance problems. Every election holds a promise for peaceful change. People in India have been voting for change time and again. But the political process is locked into a vicious cycle, and has become a part of the problem. There are six factors complicating the political process, perpetuating status quo. First, election expenditures are large, unaccounted and mostly illegitimate. For instance, expenditure limit for assembly elections in most major states was Rs 600,000 until recently, when it was revised to Rs 1 million. In reality average expenditure in most states is several multiples of it, sometimes exceeding Rs 10 million. Most of this expenditure is incurred to buy votes, bribe officials and hire musclemen. Such large, unaccounted expenditure can be sustained only if the system is abused to enable multiple returns on investment. Rent-seeking behaviour is therefore endemic to the system.

Most of this corruption is in the form of control of transfers and postings, which in turn sustains a system of retail corruption for a variety of routine services, regulatory functions and direct transfer of resources through government programmes. Large leakages in public expenditure, and collusion in contracts and procurement are extremely common. The economic decision-making power of the state is on the wane as part of the reform process. But as the demand for illegitimate political funds does not decrease, corruption shifts to the core areas of state functioning, like crime investigation. Robert Wade studied this phenomenon of corruption, and described the dangerously stable equilibrium that operates in Indian governance. This vicious chain of corruption has created a class of political and bureaucratic 'entrepreneurs' who treat public office as big business.

Second, as the vicious cycle of money power, polling irregularities, and corruption has taken hold of the system, electoral verdicts cease to make a difference to people. Repeated disappointments made people come to the conclusion that no matter who wins the election, they always end up losing. As incentive for discerning behaviour in voting has disappeared, people started maximizing their short-term returns. As a result, money and liquor are accepted habitually by many voters. This pattern of behaviour is responsible for converting politics and elections into big business. As illegitimate electoral expenditure skyrocketed, the vicious cycle of corruption got further strengthened. With public good de-linked from voting, honesty and survival in public office are further separated.

Third, this situation bred a class of political 'entrepreneurs' who established fiefdoms. In most constituencies, money power, caste clout, bureaucratic links, and political contacts came together perpetuating politics of fiefdoms. Entry into electoral politics is restricted literally, as people who cannot muster these forces have little chance of getting elected. While there is competition for political power, it is often restricted between two or three families over a long period of time; parties are compelled to choose one of these individuals or families to enhance their chances of electoral success. Parties thus are helpless, and political process is stymied. Absence of internal democratic norms in parties and the consequent oligarchic control has denied a possibility of rejuvenation of political process through establishment of a vicious cycle.

Fourth, in a centralized governance system, even if people wisely use the vote, public good cannot be promoted. As the citizen is distanced from the decision-making process, the administrative machinery has no capacity to deliver public services that are cost-effective and of high quality. A climate that cannot ensure better services or good governance breeds competitive populism to gain electoral advantage. Such populist politics have led to serious fiscal imbalances.

Fifth, fiscal health can be restored only by higher taxes, or reduced subsidies or wages. The total tax revenues of the union and states are of the order of only 15 percent of GDP. Higher taxation is resisted in the face of ubiquitous corruption and poor quality services. Desubsidization is always painful for the poor who do not see alternative benefits accruing from the money saved by withdrawal of subsidies. A vast bureaucracy under centralized control can neither be held to account, nor is wage reduction a realistic option.

Sixth, elected governments are helpless in changing this perilous situation. As the survival of the government depends on the support of legislators, their demands have to be met. The legislator has thus become the disguised, unaccountable executive controlling all facets of government functioning. The local legislator and the bureaucrats have a vested interest in denying local governments any say in real decision making. The vicious cycle of corruption and centralized, unaccountable governance is thus perpetuated.

This vicious cycle can be addressed by three fundamental systemic reforms:

1. Political party reform: Political recruitment has suffered a great deal, and bright young people are no longer attracted to politics. Centralized functioning of parties is imposing enormous burden on leadership to manage the party bureaucracy, leaving little time for evolving sensible policies or governance. Party leaders are helpless in candidate selection, and the choice is often between Tweedledum and Tweedledee. An important reform to improve the quality of politics and restore credibility would be a law to regulate political parties' functioning, without in any way restricting leadership choice and policy options. A law needs to be enacted to regulate political parties in four key aspects.

Membership and disciplinary action would be a crucial focus area ensuring internal party checks. Leadership choice by regular, secret, democratic ballot is the second key feature. This will be accompanied with formal processes to challenge the party leadership without fear of retribution. The third suggested reform would be transparency and public auditing of party funds and expenditure. Finally, choice of candidates for elective office to be decided by members or their elected delegates through secret ballot. The provisions can be similar to Article 21 of German basic law and federal law to regulate parties.

1. Proportional representation: The first-past-the-post (FPTP) system that India has adopted led to several distortions, given the passage of time and ingenuity of legislators. Politics of fiefdom at constituency level has forced the parties to rely on local strongmen. As a result, the political parties and independent candidates have astronomical election expenditure for vote-buying and other illegitimate purposes. This has led to a significant weakening of the party platform and ideology, reducing elections to private power games. In many states, national parties have been marginalized where their voting percentage falls below a threshold. Following from this, regional parties have occupied center stage in several pockets, holding larger interests at ransom.

All these failings find expression in bigger and long-term predicaments. The inability of all political parties to attract and nurture best talent is the primary issue. Difficulties of minority representation leading to ghetto mentality, backlash, and communal tension form another facet of the problem. Lastly, leadership is undermined by permanent reservation of constituencies (or regular rotation) in order to provide fair representation to SCs. The solution to this flawed system is adoption of mixed system of election combining FPTP system with proportional representation. This will be broadly based on the German model. The key features of the suggested system are as follows:

The overall representation of parties in legislature will be based on the proportion of valid vote obtained by them.

A party will be entitled to such a quota based on vote share only when it crosses a threshold, say 10% of vote in a major state, and more in minor states.

50% of legislators will be elected from territorial constituencies based on FPTP system. This will ensure the link between the legislator and the constituents.

The balance 50% will be allotted to parties to make up for their shortfall based on proportion of votes.

Eg 1): If the party is entitled to 50 seats in legislature based on vote share, but had 30 members elected in FPTP system, 20 more will be elected based on the party list.

Eg 2): If the party is entitled to 50 seats based on vote share, but had only 10 members elected in FPTP system, it will have 40 members elected from the list. The party lists will be selected democratically at the State or multi-party constituency level, by the members of the party or their elected delegates through secret ballot.

There will be two votes cast by voters - one for a candidate for FPTP election, and the other for a party to determine the vote share of the parties.

It needs to be remembered that PR system can be effective only after internal functioning of political parties is regulated by law. Otherwise, PR system will give extraordinary power to party leaders and may prove counterproductive. However, the PR system has one more advantage, which needs to be reiterated. PR system, more than FPTP system, ensures better representation of women in legislatures.

1. c) Direct election of Head of government in States and Local Governments: The other systemic reform that is needed to isolate the executive from unwanted influences, as has been pointed out, is to ensure direct election of Head of Government in States and Local Governments.

As election costs have skyrocketed, candidates spend money in anticipation of rewards and opportunities for private gain after election. Legislators perceive themselves as disguised executive, and chief ministers are hard-pressed to meet their constant demands. Postings, transfers, contracts, tenders, tollgates, parole, developmental schemes, and crime investigation - all these become sources of patronage and rent-seeking. No government functioning honestly can survive under such circumstances. While the legislators never allow objective and balanced decision-making by the executive in the actual functioning of legislation, their role has become nominal and largely inconsequential. This blurring of the lines of demarcation between the executive and legislature is one of the cardinal features of the crisis of our governance system.

Therefore, separation of powers, and direct election are necessary in States and local governments. At the national level, such a direct election is fraught with serious dangers. Our linguistic diversity demands a parliamentary executive. Any individual seen as the symbol of all authority can easily become despotic, given our political culture. But in states, separation of powers poses no such dangers. The Union government, Supreme Court, constitutional functionaries like the Election Commission, UPSC, and CAG, and the enormous powers and prestige of the Union will easily control authoritarianism in any state. This necessitates adoption of a system of direct election of the head of government in states and local governments. The fundamental changes suggested find mention as under:

The legislature will be elected separately and directly while the ministers will be drawn from outside the legislature. The legislature will have a fixed term, and cannot be dissolved prematurely except in exceptional circumstances (sedition, secession etc.) by the Union government. The head of government will have a fixed term, and cannot be voted out of office by the legislature. Any vacancy of office will be filled by a due process of succession. The elected head of government will have no more than two terms of office. Even though these changes may not be panacea to all evils in the present structure of legislature and executive, it will certainly encourage more healthy and vibrant democracy and democratic processes. Further, clear delineation of functions between Union and States, and among various tiers of local governments is also a necessary condition for a vibrant democracy. It is only a true federal structure that can ensure unity in this multi-ethnic and multi-religious society.

To sum up, four broad strategies are required to curb corruption. First, we need comprehensive electoral reforms to make funding transparent and accountable, to curb criminalization and polling irregularities, to eliminate political fiefdoms and transform politics from big business to public service, and to ensure that honesty and survival in public office are compatible. Second, we need to empower local governments and stakeholders in a way that there are clear links between citizens' vote and public good, taxes and services, and authority and accountability. Third, we need instruments of accountability in the form of right to information, citizen's charters, independent crime investigation and independent anti-corruption agencies. Fourth, we must increase the risks of corrupt behaviour to an unacceptable level by ensuring speedy justice, exemplary punishment and confiscation of assets.

This is clearly a vast agenda for action. But it is both necessary and possible. The recent economic reforms have certainly helped promote competition and reduce corruption through license-permit-quota raj. But the incentive structure in our governance structure is still perverse. Our political system has inexhaustible appetite for illegitimate funds. The supply of such ill-gotten money in economic sphere is dwindling on account of economic reforms. But the demand continues unabated in the face of unchanging political rules of the game, thus forcing open newer, and more dangerous avenues of corruption. The telgi stamp scam, the organized leaks of CAT and other examination papers, the brutal murder of Satyendra Kumar Dubey, and the sting operation exposing the corruption of a judge in Gujarat are all not accidents. Corruption is now shifting into more dangerous areas from where the state cannot withdraw, and criminalization of our politics, economy and society is on the rise. Organized crime and systematic abuse of office are flourishing. These require serious institutional responses.

The time for action is now. The national mood is ripe. People are disgusted with endless corruption and are restive. The business class, which was earlier happily paying bribes to get favours in return for monopoly and assured profits is now realizing that corruption in a competitive world kills industry. The unprecedented agitation (2001) of small industrial entrepreneurs in Andhra Pradesh against the extortion of Central Excise officials is a sign of increasing resistance to corruption. Politicians are increasingly recognising that the present chain of corruption is unsustainable. Many nations went through phases of high corruption. They eliminated corruption through systematic, effective, practical steps. The proactive steps of the High Court of Bombay to remove 150 corrupt judges, followed by similar steps in Rajasthan and West Bengal show what can be accomplished with determination and good sense. We Indians are no more venal and corrupt than the rest of the world. We only created conditions in which honesty is not adequately rewarded, and is in fact discouraged. Corruption is not only left unpunished, but is rewarded consistently and extravagantly. We need to alter this state of dangerous equilibrium feeding the cycle of corruption. The people are ready for fundamental changes. What we need are practical steps to empower citizens and make public servants accountable. People are ready to act. What we need are tools for informed citizen assertion. I am confident all of us here and else-where have the vision, will and courage to take those practical and enduring steps required to launch an all-out struggle against corruption. There is no room for cynicism or despair. The task is big, but achievable. As Margaret Mead said "Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever did". In this war we will surely succeed. But what we need is fewer words and more tangible action.

The Anna Hazare phenomena that recently shook the nation is a growing reflection of the popular mood of the nation. India is at a crossroad wherein some structural adjustments in the governance can lead to tremendous growth of the nation.

The writer is Editor-in-Chief

Since the 1960s for over three decades, probably the most influential non-official individual resident in India was Ottavio Quatrocchi, an Italian who had the blunt demeanour of an Australian rather than the charm that the people of that ancient civilisation are justly known for. Nearly 70 key projects were sanctioned during this long period to companies that "Mr Q" was considered to favour, especially Snam-Progetti. Those officials who dared to sanction contracts to companies other than the few favoured by Quatrocchi found their careers in India ended, including Cabinet Secretary P K Kaul, who was shunted off to Washington before completing his term in office, after a contract was won by another company instead of Snam. The then Petroleum Secretary, A S Gill, who was in line to be Cabinet Secretary found his career at an end after this decision was taken, and the minister concerned was swiftly removed from his post, as were others who dared take decisions other than those believed to have the backing of "Mr Q" What the source of the power of this Italian fixer is remains obscure.

However, none of his political allies could save his career in India once his name was outed in the scandal involving the purchase of Bofors guns in 1986. A year later, Swedish radio claimed that about $65 million had been paid as bribes to get the contract (peanuts in this day and age), and the Swiss authorities established that "Mr Q" was one of the beneficiaries. The Central Bureau of Investigation asked that his passport be impounded. Instead, on the recommendation of the minister looking after the CBI, Quatrocchi was allowed to fly out of India on 29 July 1993 to the safety of Kuala Lumpur. Since then, he has depended on his family members to ensure that contact be retained with influential individuals in India, a task that they have done so well that even today, he is among the few who can "get almost anything done" through the Government of India, including ensuring the return of the money that the investigating authorities say was a bribe paid to secure the Bofors contract. While other governments seek to confiscate the money stashed illegally away by the powerful, the Manmohan Singh government returned it to "Mr Q" a few years ago.

Ottavio Quatrocchi was never questioned - much less prosecuted - by the Indian authorities about his shenanigans. He escaped from the country in 1993 because of a morally question-able decision taken by then Prime Minister P V Narasimha Rao, who thought he would buy peace with "Mr Q"'s friends in the Congress Party by enabling his escape. Instead, within brief months after that fateful decision, Rao began to be subjected to a barrage of attacks from Quatrocchi's friends in the Congress Party, acting through senior leaders in the government. Narasimha Rao never recovered from that stain, for from then onwards, despite the fact that he liberalised the economy, brought some stability to Kashmir by fending off Bill Clinton's repeated efforts to get India to relax its hold on the state, and established an economics-centred diplomacy in place of the Nehru construct that was based on pious platitudes. By 1994, Rao was under daily fire for the perception of corruption, with all kinds of suspicious characters coming out of obscurity to make allegations against him. After he was forced to resign as Prime Minister because of an election defeat caused by a rebellion led by followers of influential politicians known to be close to "Mr Q", Narasimha Rao was in perpetual risk of going to jail, getting freed of this Damocles Sword (in the shape of criminal cases against him) only in the final year of his life. Those who knew him well saw for themselves the fear in his eyes at the prospect of jail, a fear that paralysed him in the final decade of his life.

The Commonwealth Games scandal is Manmohan Singh's Quatrocchi moment. Will he follow the example of his old boss Rao and allow the VVIPs responsible for a scam that has been estimated to cost the taxpayer more than $4 billion in bribes to escape? If he does so, then Manmohan Singh will be finished as a credible Prime Minister. From the time that he allows the guilty of the Commonwealth Games to escape - should he do so - he will become the butt of ridicule and scandal the way Narasimha Rao was. After such public bludgeoning and umiliation, it is very likely that Congress President Sonia Gandhi will request the PM to resign, and replace him with someone known to be honest, such as Defense Minister A K Antony. Although Sonia's first choice is Home Minister P Chidambaram - because of his total loyalty to her wishes - yet in an atmosphere where the Congress Party gets pushed back to the 1987-89 period when it was clouded in corruption charges, she may have no choice but to appoint the man known as "Saint Antony" for his financial integrity. Perhaps this would be followed by appointing Finance Minister Pranab Mukherjee as President of India, after the present incumbent's term concludes in two years time.

Should the PM-directed enquiry into the scams carried out during the Commonwealth Games preparation period fail to bring those actually guilty to justice, the reputation of Manmohan Singh for integrity would be affected. After such a lapse, even should he somehow manage to hang on to the Office of the Prime Minister, each month would bring personal attacks on him. After his eventual retirement, there is no doubt that he would follow Narasimha Rao in also having multiple criminal charges filed against him, which he would have to fight all his life to stay clear of arrest and imprisonment. All this while the VVIPs actually responsible for siphoning off huge amounts of money get away. The officers close to him would also face criminal charges for being accessories or being negligent in safeguarding the public interest. It all looks like going the Narasimha Rao way of scandal and disgrace for a team that in fact is honest and sincere.

There is no doubt that the huge expenditure (of around $ 9 billion) spent on the Games has been a platinum opportunity for many. An example is a pedestrian overbridge that was built at a cost of $2 million, which col-lapsed. The Indian army was asked by the PM to build a substitute, which it did at a cost of just $175,000. A list of the prices for items bought or hired by the organizers of the Games shows that in several instances, there was a 4000% markup over the prices charged to other customers by the companies involved. A week ago, a friend mentioned that to his knowledge, six container loads of currency had been smuggled across the Indian border so as to be sent onwards to Switzerland, and that this is just a "small" part of what a particular ruling party leader made from the Games.

These days, Delhi is filled with stories about how "Manmohan Singh is conducting an eyewash" in promising to investigate the scandal. Many are angry that the PM did nothing while this flood of public money was being spent, moving into action only after the media could ignore the rot no longer. Once reports began to appear in the foreign press about the many deficiencies in the organizing of the Commonwealth Games, Indian media outlets that are known to be nervous about annoying VVIPs began to focus attention on a few organizers, notably Suresh Kalmadi, the Congress Party bigwig who is the Indian Olympic Committee chief. Kalmadi is known to follow the military discipline of his youth in always checking his decisions with higher authority, but if the media are to be believed, he acted on his own in the spending of the Games cash. This is about as believable as saying that Dr A Q Khan ran his entire network without the participation of any state player, or what General Pervez Musharraf wanted the world to believe when he placed the hero of the Pakistan nuclear bomb under house arrest.

Thus far, no criminal cases have been filed against those responsible for the many tainted decisions taken during the runup to the Games. And because none of the records was taken into safekeeping for two months after the scandal first broke in the international and then national media, those in the know say that records have been erased, while others have been replaced with different versions. Computer disks have been cleaned up and the mainframes destroyed. All in all, the stately pace of Manmohan Singh's investigation - carried out by a well-meaning but seemingly clueless Kashmiri septuagenarian - may mean that the guilty escape, which means that the full tumult of public opinion will fall on the head of the Prime Minister, who allowed the loot to go on for six years before waking up to its ramifications. Exactly as 1992-96 Prime Minister Narasimha Rao became dam-aged goods after allowing Ottavio Quatrocchi to escape from India on July 29,1993, so will Manmohan Singh be crippled after his enquiry turns out to be a farce. The way several VVIPs want it to be. On the other hand, if the guilty get punished, Manmohan Singh will enter the history books for fighting the corruption that has been a facet of life in India since the impecunious Robert Clive made a fortune from Bengal in two centuries and a half ago.

As things stand, the betting in Delhi is that the PM will be ineffective in con-ducting a probe, and will therefore be made to quit after becoming the butt of criminal charges. Should an honest man like Manmohan Singh pay such a high price - the loss of his reputation and his career - it would be a sad day for justice. Those eager for probity hope that the PM will ensure that the guilty get punished, if only just this once in a country where corruption is costing the economy more than 5% extra growth each year.

The writer is Vice-Chair, Manipal Advanced Research Group, UNESCO Peace Chair & Professor of Geopolitics, Manipal University, Haryana State, India.

MODI CLOSER TO CENTRESTAGE TO TAKE ON THE GANDHI SCION

It is official now, 2014 General Elections in India would be Rahul Vs Modi clash. Rahul Gandhi's elevation as the Congress' number 2 has heightened anticipation that the General Elections 2014 will be a personality clash between him and the BJP’s Narendra Modi. The Congress, always refuse to make comparisons between the two, dismisses it as a “media joke.”

Even as the clam-our in the Congress to declare Rahul Gandhi the candidate for Prime Minister for next year's elections reached a fevered pitch at the party's poll strategy meet in Jaipur over the weekend, senior Congress leaders quickly pointed out that the party traditionally does not name a leader. Though unoffically everybody in Congress believe that Rahul will lead party in the coming general elections.

Party general secretary Digvijaya Singh told , "The Congress party does not declare the PM candidate because we don't want to take away the right of newly-elected legislators to choose their leader. This is basic in parliamentary democracy. Therefore, we don't declare "That (Rahul Gandhi vs Narendra Modi in the 2014 elections) is a big joke made by the media," Mr Singh added.

In Jaipur, senior Congress leader and minister Jairam Ramesh said in India elections were not a contest people, but between parties. "2014 will not be a contest between Modi and Rahul. It's always party versus party," he said.

The BJP is reportedly set to appoint Mr Modi - who just registered a huge win in the Gujarat Assembly elections to get a fourth term as the state's chief minister - as the head of its election campaign committee. In that role he will be the face of the opposition party for next year's elections. Mr Gandhi has already been given similar charge of the Congress' committee for election strategy, making comparisons inevitable.

But Congress leaders cast Mr Modi as a regional satrap; Mr Gandhi, they say, is a leader with a pan-India appeal.

What Rahul Gandhi did admit in his mainden speech at Jaipur was that the Congress had failed to mentor leaders, which had cost the party dear in states which had strong individual leaders or regional parties. "The Congress party has not been able to build up reason-able leadership'...whether you see Bihar or UP or West Bengal or even Tamil Nadu we have this problem.'

Digvijay Singh added that "In Gujarat also Narendra Modi has created a cult for himself. Of course, the first casualty after Narendra Modi goes is the BJP itself, because there is no BJP there, only Narendra Modi."

Mr Singh was analysing Rahul Gandhi's much-watched first speech after he was appointed Vice-President of the Congress. Mr Gandhi asked his party men to help reverse a system in India where power was "grossly centralised" and said 40 to 50 leaders, all capable of running the country must be identified and mentored.

And an unimpressed Arun Jaitley, one of the BJP's senior most leaders, said of Mr Gandhi, "The world's largest democracy cannot be put to risk by risking ourselves in the hands of those whose actual potential we don't know, whose opinions on various subjects we do not know, whose policy regarding various issues we do not know."

For the BJP, said Mr Jaitley, "It will be tried, tested and proven ability. The best will become our leader." Mr Modi's supporters in the party say he is that man and that he should be named the BJP's candidate for PM. But the party has multiple claimants to top posts. It also has to contend with the fact that Mr Modi does not enjoy universal acceptability among partners like the Janata Dal United in the National Democratic Alliance it leads.

The Indian media is confused on Rahul Gandhi's core leadership traits. N Ram former Editor-In-Chief, The Hindu, said, "Rahul Gandhi's programme lacks essential details. We don't know what he stands for. Of course, he wants change, but change for what end? Rahul has supported welfare measures but on and off sporadically, looks instrumental. He's an obsessive organisational man, believes in grassroots organisation. That's good."

"Here is a person whose position cannot be challenged, above the fray, who'll allow the rest of the minions to create systems. The question of his position of how he got there is not going to be asked," said senior journalist and columnist Swapan Dasgupta.

During the debate, IBN18 Editor-in-Chief Rajdeep Sardesai also added that Rahul faced a tough task of rehabilitating the Congress. "The problem is that Rahul Gandhi faces a tough task of rehabilitating the Congress which is facing a crisis of organisation, of electability. So he gave a good critique and pulled them out of denial, but it is to be seen whether he can walk the talk."

AND THE CHALLENGES

Bumpy road ahead for Rahul Gandhi

10 things the Gandhi scion must focus on, to assert his role as a leader of his party... and of the masses

Has he given any fresh food for thought to the party leadership at Chintan Shivir in Jaipur? Or was it just old wine in a new (read emotive) bottle? Has Rahul Gandhi done anything tangible to alter the grand old party's style of functioning? Stupid, it was a speech!

The newly-elected vice president of the Congress delivered his speech against a backdrop of persistent complaints that few knew what he stood for. For years, he displayed an aloofness and disinterest that drove Congressmen to the edge of despair. Rahul concluded his speech by saying, "For me, the Congress party is now my life." It obliquely admits the worries expressed earlier about Rahul having made up his mind to be in public life.

The biggest problem of the Congress is: it is once reformist, but twice shy. A handful of senior leaders in the Congress is convinced that reforms can bring forth electoral gains. There is no effort made to persuade the people of India, especially those in rural areas, that economic reforms will also bring to them welfare, that wealth-making can be every Indian's dream. The cold rationality of economic reforms can be connected to the emotions of the people. This requires a change of mindset, not the system.

At present, India's oldest political party has nothing credible and convincing to offer the people of the country. It has no message to take to the people. The Congress is still directionless in policy matters. Here is a classic example: Congress boss Sonia Gandhi's call to end nepotism from the same stage on which her son was crowned a day earlier. With general elections about one year - or maybe a little more - away, will India take mother-son duo rhetoric seriously? His powerful surname and relative youth make him the Congress' main hope for elections in 2014.

Shantanu Bhattacharji takes off the blinkers and shows Rahul Gandhi the bumpy road ahead ...

• The 42-year-old leader has to establish a disconnect between the party's old-school outlook and the larger aspirations of today's assertive youth force. Congress workers want political heavyweights to lead the party in Madhya Pradesh, Bihar, Uttar Pradesh, Andhra Pradesh and many more other states.
• The corruption that has reached the highest levels in the Congress surely belongs to a bigger league.

The refusal of party and government to acknowledge this fact has been made worse by their arrogance towards the common citizenry.

Rahul must showcase some big-bang punitive actions against the corrupt.

• Rahul Gandhi also faces a potential adversary in Narendra Modi, should the saffron party project him as its prime ministerial candidate. He still seems somehow stuck in the image of a youth leader discovering India rather than one ready to lead it.

Modi has proved to be an able administrator. Rahul has a number of failures in his political career and has been at the receiving end not only from the opposition but even UPA allies.

He has failed as a strategist, which was visible during 2012 Uttar Pradesh assembly polls where he campaigned aggressively. In Bihar too Rahul proved to be a dampener. However, the Hindutva poster boy has superbly projected himself as the 'messiah' of 'development'.

• The party cannot regain its lost glory without winning back the backward classes, Dalits and tribals, especially in Hindi heartland. Any drastic policy change will further antagonise the party's traditional vote bank.
• Rahul needs an immediate image makeover. He must be seen as a no-nonsense politician. The days of identity politics were not over and he can even learn the art of social engineering from US President Barack Obama. Opportunities have presented themselves to Rahul in the past couple of years but he failed to grab them. When Sonia Gandhi went overseas for treatment of a serious ailment, he might have taken charge and confronted the anti-graft campaigners such as Anna Hazare and Arvind Kejriwal. It is high time to take the bull by the horns.
• The leader of the young brigade in the Congress needs a scalpel and not a cleaver, to cut the credibility crisis facing the party thanks to corruption scan-dals and perceptions of inefficient governance. A central theme as well as a slogan needed before the 2014 general election that would encapsulate the party's emphasis on welfare and employment generation, on the lines of Indira Gandhi's famed Garibi hatao. He has to explain to the aam aadmi the reasons for the ceaseless rise in the prices of essentials, unpopular decisions such as the LPG subsidy cap, and the eruption of so many corruption scandals.
• To galvanise the rank and file, the party must stop giving prominence to turncoats. Loyalists feel that leaders defecting from other parties are too readily given official posts or election tickets. Those who came from outside and occupied key positions in the Congress include P Chidambaram, Jaipal Reddy, Sanjay Nirupam, Mohan Prakash and Raj Babbar.
• Rahul reminded the party - and the country - of the personal losses suffered by the Nehru-Gandhi family. It may prove counterproductive as focusing too much on tragedies can invite charges of exploiting such issues. "… power is poison… " it will keep the urban voters wondering as at what length he will go to personally lead a government if and when the opportunity presents itself before the party again.
• Experts say he has an urge to improve the lives of poor Indians, but no real idea of how to do so. He must show some hardcore skills as a leader before campaigning starts in 2014. He must set short and long-terms goals for the party and for himself, as well. It should select 250-300 winnable constituencies and devote disproportionate resources for them.
• Rahul has many challenges and the clock is ticking fast towards the May, 2014 general polls. He has to act as an interface between party workers across the country, strike up a bond with present and future UPA allies and justify every action the Manmohan Singh government takes under a grim economic situation and coalition compulsions.

It's a cliché: nothing succeeds like success and Rahul's future depends on the party's success in winning the coming assembly polls in nine states, keeping workers' motivation high and bringing an element of moral value in every UPA-Congress action. To just think in Jaipur is not enough.

By Prakhar Mishra Political Editor / Inputs from Business standard & International press.

Q What is Rajnath Singh’s biggest challenge,Congress or BJP’s inner fight?

A To expose Congress misrule that led to internal security threat, corruption, inflation & destruction of agri economy of the country.

Q You are pitted against next generation leadership of Congress as Rahul Gandhi has just taken over the party command, how BJP will reach out to young voters of India specially when we have 65 % population under 40 years ?

A We have sufficient pool of young leaders, best trained and intellectual disposition.

Q For Rajnath Singh surely UP is the single most challenge to stamp your authority over your organisation, government (if elected in 2014 ), share your plan and vision to win caste ridden UP state from the clutches of OBC led SP and SC led BSP party machine?

A Kalyan Singh entry in the party will bring tremendous change in the electorate mathematics of the UP political land scape. People are tired of Mayawati & Mulayam Singh brand of politics, all are looking towards BJP to offer development oriented politics.

Q Your views on saffron terror as described by Home Minister?

A Congress is desperately looking to polarize minority votes hence Home Minister has given this statement. BJP will strongly oppose it in the Parliament & street to expose Congress and irresponsible Home Minister. Saffron Terror is a myth, created by Congress for political survival.

Q Personally, you would like to project an individual as prime minister candidate (early BJP projected Atal ji to win elections)?

If yes, Narender Modi can be the dark horse? A At an appropriate time, we will surely present the most acceptable face.

– Prakhar Prakash Mishra, Political Editor – Opinion Express, in conversation with Shri Rajnath Singh

US President Barack Obama's budget aimed at rebuilding the country's economy, emerging 'from the worst recession in generations', looks at India as 'one of the most important and promising emerging markets in the world'. Obama's proposed $3.7 trillion spending plan for 2011 hopes to 'win the future by out-innovating, out-educating, and out-build- ing our global competitors and creating the jobs and industries of tomorrow', according to the White House.

'India is one of the most important and promising emerging markets in the world, and represents a tremendous opportunity for US firms to expand their output of goods and services,' the budget proposal presented Monday said. 'On the margins of the president's trip to India in November, trade transactions were announced or showcased exceeding $14.9 billion in total value with $9.5 billion in US export content and that would support an estimated 53,670 jobs,' the White House noted.

These cross border collaborations, both public and private, un- derpin the expanding US-India strategic partnership, contributing to economic growth and development in both countries, it said. Notable examples include the sale of commercial and military air- craft, gas and steam turbines and precision measurements instrumentation. The budget proposals said the emergence of a global market place that includes the growing economies of China, India and other developing counties creates an opportunity for America to export US goods and services to new customers.

'With 95 percent of the world's customers as well as the globe's fastest growing markets beyond our borders, we must compete ag- gressively to spur economic growth and job creation,' the budget said.Obama's third annual budget says that it can reduce project- ed deficits by $1.1 trillion over the next decade, enough to sta- bilise the nation's fiscal health and buy time to address its longer- term problems, the New York Times said citing a senior adminis- tration official.

Two-thirds of the reductions that Obama claims are from cuts in spending, including in many domestic programmes that he sup- ports.Among the reductions for just the next fiscal year, 2012, which starts Oct 1, are more than $1 billion from airport grants and nearly $1 billion from grants to states for water treatment plants and similar projects. Public health and forestry pro- grammes would also be cut. With Republicans in charge of the House, Obama's budget is more a statement of his priorities and philosophy than an actual template for federal spending and tax policy, the Times noted.

(Arun Kumar can be contacted at arun.kumar@ians.in)