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Addressing India’s Literacy Challenge

The Frontline

Addressing India’s Literacy Challenge
A brief discussion with Sourav Banerjee, India Country Director for Room to Read, a global non-profit organisation whose mission is to tackle the problem of childhood literacy across the developing world

Investing in the New India Story

The Investor

Investing in the “New India Story” – our detailed thoughts on the opportunity and challenges of investing in India

The Big Picture TEST, Metrics

The Big Picture TEST, Metrics

Robust trade growth and a reduction in retail inflation driving strong growth in India despite a slight reduction in manufacturing. China’s manufacturing activity expanding at a slightly lower pace than previous months, but exports and imports registering growth.

Last Month Through China’s Eyes

Last Month Through China’s Eyes

China’s constitutional amendment, prospects of a trade war with US, China’s role in North Korea sanctions

This Month Through India’s Eyes

This Month Through India’s Eyes

US$2bn bank fraud highlights reform need at state owned banks in India, regional Indian elections drive BJP mandate, Calls for Indian intervention in Maldives crisis

Pointing to the Future

Pointing to the Future

Shifting power in the Indo-Pacific, India’s and Asian responses to US protectionism, Xi Jinping and a newly assertive China, How international hegemony changes hands

Big News

Big News

India May Move WTO against US on Duty Hike, Macron Visits India, Key Regional Party Quits India PM Modi’s Alliance, China Allows Xi to Remain President Indefinitely, Kim Jong-un Visits Beijing, US Imposes Sanctions on China, Stoking Fears of Trade War.

March 2018

 

Media coverage in India in March was focused on a combination of economic and political affairs, with the alleged c.US$2bn fraud perpetrated by two billionaire jewellers against Punjab National Bank, the outcome of the recently concluded state elections in North East India, and the political developments in Maldives all receiving attention.

c.US$2bn Fraud Alleged by Punjab National Bank

In late February, India’s second largest state-owned lender, Punjab National Bank (PNB), alleged that two billionaire jewellers – Nirav Modi and Mehul Choksi – and their group companies conspired with employees of PNB to defraud the bank by c.US$2bn.  These allegations and their subsequent fall out were covered extensively by most Indian publications, with columnists weighing in on the causes of the alleged fraud, and its wider implications on India’s banking sector.

The Hindu argued that the alleged fraud took place on account of poor internal controls within PNB, and its inability to keep up with the various methods that are employed to perpetrate banking fraud.  “A key element of the scam is the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a messaging network that connects banks and other financial institutions across the world.  Among other things, a bank that is part of SWIFT can use the system to convey credit instruments called letters of undertaking (LoUs) to other banks located overseas.  An LoU is simply a request made to another bank in the SWIFT network to loan money to a client… PNB’s internal information systems were not seamlessly linked to SWIFT. It is claimed that the huge fund transfers made via SWIFT to Mr. Modi’s companies by a few PNB employees went undetected for many years… SWIFT has been gamed by miscreants on a number of occasions. In 2016, there was a cyber-heist of $81 million from Bangladesh’s central bank. Russia’s central bank recently reported that $6 million was stolen from a Russian bank last year by exploiting the SWIFT system. Even the Reserve Bank of India stated this week that it had privately warned Indian banks about the prospect of misuse of SWIFT at least three times since August 2016.”

An opinion article in Live Mint argued that the causes of the alleged fraud were deeper than just banking controls.  It argued that cultural issues within state-owned banks, and more specifically, a lack of adequate whistle-blower protection that prevent banks from being made aware of occurrences of fraud.  “For most public-sector banks (PSBs), [the lack of resistance to approving bad loans] is a cultural issue, inseparable from the lack of corporate governance…  At the root of the governance problem in such banks is the way transfers and promotions are done across all layers.  Bank officers at different levels are routinely blackmailed to toe the line of their proximate bosses—if they do not look after or look into certain accounts favourably, they run the risk of being transferred to a place not to their liking and/or miss the next promotion.  Typically, the managing director drops a hint to the concerned general manager for sanctioning a loan or a general manager implicitly tells a deputy general manager or an assistant general manager to do so. This system of dropping hints and tacit influence for loan approvals percolates down the line. This is done verbally, over phone, without any paper trail.  If such requests are not respected, the junior officer may lose the next promotion or get transferred to a remote place where his family would hate to relocate, and his career would take a beating.  Only those officers who do not care for such occupational hazards stick to the rules and keep the banks going.  Most get sucked into the system, which breeds corruption.”

Quint, a leading digital publication in India, went one step further.  Rather than pinpoint banking controls or culture as the primary reason for this fraud, a column on the website pointed the finger to crony capitalism.  “[Large borrowers] are essentially responsible for a bulk of the bad loans of the banks in India… Bank loans to large industrial borrowers formed 59 percent of the bad loans, even though the total lending by banks to such borrowers formed only around 30 percent of the total loans given by banks… As Noble Prize winning French economist Jean Tirole writes in his book Economics for the Common Good: The state often fails. There are many reasons for these failures. Regulatory capture is one of them. We are well aware of the friendships and mutual support that create complicity between a public body and those who are supposed to be regulating it… While it would be unfair to suggest that the RBI, which regulates banks in India, is pally with corporates, it would be totally fair to say that Indian politicians are pally with Indian corporates. This is where the problem for public sector banks in India lies. While giving out retail loans, the managers running public sector banks can make the correct lending decisions, but the same cannot be said when they carry out corporate lending, given the political pressure that prevails on many occasions. In this scenario, it is worth asking whether all the 21 public sector banks in India should actually carry out corporate lending and put public deposits at risk, over and over again? This is a discussion that we should be having as a nation right now, and the mainstream media should facilitate it.”

Elections in North East India

In the recently concluded state assembly elections in three North Eastern states of India – Tripura, Nagaland and Meghalaya – the Narendra Modi-led BJP performed well, winning handsomely in Tripura, while also improving on its previous performance in Meghalaya and Nagaland.  The outcome of these elections was scrutinised by the Indian media, with political columnists opining on the impact of these elections on the BJP and India’s political landscape as a whole.

NDTV interpreted the election results as a significant feat for the BJP, particularly within the context of next year’s general elections.  “The conquest of the North East is significant – the states account for 24 Lok Sabha seats which will prove extremely handy in the general election as the BJP tally will invariably slip in its strongholds of north and central India where it has reached saturation.  The BJP can now also claim that it has ideologically vanquished the Left and this victory came after years of ground work by the faithful RSS cadres.  Ironically, the BJP has had to be flexible about ideology in the North East but Shah and Modi are completely pragmatic.  Electoral victory is all and it is a zero sum game.  The North East wanted a change and opted to give the BJP a chance. The Congress, which barely fought the elections, was not even a remote contender. It is inexcusable for any party to take such a lackadaisical approach to elections and the voters sensing this punished the party. Shah today spoke of Karnataka as the next victory for the BJP and if the Congress continues its lacklustre run, evident in the lack of decision-making in Madhya Pradesh where elections are due in December, expect Shah to eat them for electoral breakfast… While the general elections are still wide open, Shah and Modi have displayed an awesome war arsenal.  They don’t just want a “Congress-mukt Bharat” (an India without the Congress Party), they want an “opposition-mukt Bharat” (an India without an Opposition Party).”

Quint too lauded the BJP’s success and attributed its growing strength in the region to effective management of the poll process.  “There was a time when assembly elections in the far-flung northeastern corner of India would hardly merit national attention.  However, the BJP has changed that by storming into territories hitherto off-limits to saffron forces, with a formidable display of election muscle in this year’s polls in Tripura, Meghalaya and Nagaland.  The results from these states have not only reinforced the daunting power of the BJP’s lean mean poll machine, but they have also exposed the flabby nature of the challenge from two pillars of the opposition, the Left and the Congress.  Both crumbled as the Modi-Shah juggernaut rolled into the northeast, with some artful backroom maneuvering and the heady promise of change… The emergence of the BJP as a central pole in northeastern politics is a historical shift.  This is seen largely as a Hindu party and a dominant Hindi-speaking north Indian force. Yet, today, it has found acceptance in states that do not belong to this cultural and religious paradigm.  There is a powerful signal in this to smaller regional players across the country, outside the Hindi heartland, where the BJP may have to scout for allies to shore up its numbers for the 2019 polls.”

Interestingly, a column in Business Standard struck a different tone, downplaying the BJP’s electoral gains in the North East and instead highlighting the broader slide in the party’s recent political dominance.  ““Yes, the BJP won Tripura handsomely. But it won neither Meghalaya, where it got two of the 60 seats, nor Nagaland.  The Congress was decimated in Tripura and Nagaland, and emerged the single-largest party in Meghalaya…  The BJP has put some thought into its strategy to continue celebrating its Tripura win, and form coalition governments in Meghalaya and Nagaland.  It needs to restore the impression of invincibility that it had managed to create after its victories in Uttar Pradesh and Uttarakhand in March 2017…  The past few months have not been very good for the BJP and the Narendra Modi government.  There have been sustained farmer and trade union protests, and the government has had to try to reach out to farmers.  The Modi government’s claims on providing jobs have been punctured as well. It is seen to have failed to deliver on its promise of creating 20 million jobs a year.  Additionally, the Punjab National Bank fraud has punched holes in its claims of providing corruption-free governance. The BSE Sensex has lost over 2,500 points from the high of 36,283 on January 29 to 33,746 points on Monday. Electorally, the news had not been upbeat until Tripura election results. The BJP won Gujarat, but it looked as if it was handed a scare.”

The Maldives Crisis

Maldivian President, Abdulla Yameen’s decision to declare an emergency in the Maldives in late February, and India’s response (or lack thereof) also attracted significant press coverage, particularly in light of the island nation’s growing ties with China, and the geo-political implications of these growing ties.

An op-ed in Business Standard voiced concern that the Maldives’ growing closeness to China could have wider implications for the South Asia region, particularly in light of China’s on-going One Belt, One Road strategy .  “Like his predecessor, [President Yameen of Maldives] has assiduously cultivated relations with Beijing.  The extension of the emergency, especially after New Delhi expressed its misgivings and concerns, demonstrates how confident he is of China’s support.  This is India’s backyard and the dilemma New Delhi faces is not simply how it should respond to the challenge, but how the Maldives slipped away from its hug.  For India, this is a seriously worrying development, especially since it has long considered the Maldives as among its few friends in the region.  Even more worrying is the manner in which the Maldives has allowed China to make strategic inroads, much to New Delhi’s discomfiture and disadvantage.  The first real evidence was the arbitrary manner in which the airport project was handed over to the Chinese, even though the contract had been won by an Indian company.  This was followed by the opening of a Chinese embassy, the signing of an FTA and rumours that Beijing might be given the right to set up a naval base in one of the islands.  What is more disturbing is that increased Chinese presence in the Indian Ocean would mean that Beijing would control yet another important shipping lane.”

A column in the Economic Times followed similar lines, with the author highlighting concern over China’s growing influence in South Asia.  “One after the other, the countries around India are falling prey to China’s predatory economics. After Pakistan and Sri Lanka, Maldives has become the latest victim of it…  In the Maldives, where China did not even have an embassy until 2012, is now receiving large-scale investments from the Asian giant…  To begin with, Xi Jinping’s regime is upgrading an airport in the client country at a cost of $830 million.  The project also includes a 1.3-mile bridge to link the airport island with the capital and this, alone costs $400 million.  The Chinese are also building a 25-storey apartment complex and a hospital.  According to the opposition parties, with such investment projects, the tiny nation of just over 4 lakh people now has accumulated a huge debt and has to pay $92 million a year in payments to China, roughly 10 percent of the entire budget.  It is by using this debt-for-leverage model, China is finishing India’s influence in the Maldives.  Opposition leaders have accused the president of allowing Chinese to grab 16 islands and inflating the costs for personal gains.”

Finally, Live Mint, while also acknowledging closer ties between China and the Maldives, called for a stronger intervention by India.  “The Maldivian crisis thus is a defining moment for India. Will India intervene militarily, or will it allow Yameen to continue to enable China to pursue its strategic objectives in the region? Today, an Indian intervention could be dicey, not least because no legitimate authority is inviting India to send in forces. Indian paratroopers could gain effective control of Malé within a few hours.  But what would the endgame be? Amid rising Islamist influence and shifting political allegiances among the handful of powerful families that dominate the Maldives’ economy and politics, finding reliable allies committed to—much less capable of—protecting democratic freedoms would prove a daunting challenge. Moreover, even if Yameen were ousted and the country held a democratic election, it is unlikely that China’s influence could be contained.  As the experiences of Bangladesh, Myanmar, Nepal and Sri Lanka illustrate, China has outmanoeuvred India diplomatically, even when dealing with democratically elected governments. India, with its proximity and historical ties to the Maldives, may seem to hold a strong hand. But it has a lot to lose if it aggravates an already volatile political situation in its maritime backyard by intervening militarily. India’s best option is to hold out a credible threat of military action, while imposing, together with other democratic powers, economic sanctions that undercut support for Yameen among the Maldivian elite, many of whom own the luxury resorts that now have far too many empty rooms. With them on side, perhaps the international community would be able to ensure that the presidential election scheduled for later this year is fair and inclusive—and supervised by the UN. That is the only way to end the crisis and restore peace to an Indian Ocean paradise.”

 

 

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