#46 'Can’t We Make a Ganesha Idol from Clay?'

How to Send a Message to China, National Security Planning for COVID-19, Why we import Ganesha idols from China, and more

Jun 28, 2020

This newsletter is really a weekly public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?

PolicyWTFs: Pesticide Ban Update and Why Ganesha isn’t a Vighneshwara in Indian Policy Making

This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?

— Raghu Sanjaylal Jaitley

An update.

On May 31, we had written about the ban of 27 generic and widely used pesticides by the ministry of agriculture. Remarkably, the list included Malathion, a ‘blue triangle’ pesticide, that’s used to kill locusts at a time when we were in middle of a locust invasion. More remarkably, the union government was procuring 53,000 litres of Malathion at the same time when it was banning it.

It was a PolicyWTF for the ages.

Things haven’t been quiet since. Let’s pick up the story from where we left. Shortly after, on June 2, the chemicals ministry wrote to agricultural ministry calling the ban sudden and highlighting its negative impact on exports. On June 10, the agriculture ministry lifted the ban on the exports of these pesticides. It also extended the date to submit comments on the notification from 45 days to three months. Now, the Association of Sustainable and Holistic Agriculture (ASHA), has accused the chemicals and fertilizers ministry of selling out to the industry lobby.

There’s so much to learn here about public policy in India. First, the ban on the pesticides in May 2020 was based on an expert committee report of Dec 2015. It takes four and a half years for recommendations to turn into a policy. A fine example of speed in policymaking. After all these years when the guidelines were put out, another ministry of government objects to it immediately. Was the ban decided by agriculture ministry without consulting the most obvious ministry (chemicals and fertilizers) in the government? In four and half years, did no one in the agriculture ministry think – since we are banning pesticides, maybe we should ask chemicals ministry what they think about it? Also, if they missed consulting the most obvious ministry, what are the odds other stakeholders outside of the government were sought for their views. Is there such a thing as stakeholder mapping among the policymaking tools used by the government?

Finally, we have also got a well-meaning advocacy group into the mix. I’m afraid I see the path to Supreme Court and another four and half years before we see the end of this.

Ghar wapasi for Ganesha

Of course, we will talk about Ganesha idols. FM Nirmala Sitharaman on Thursday spoke for crores of Indians:

Ganesha idols made of clay have been traditionally bought from the local potters during Ganesh Chaturthi festival every year, she said.
“But today, why even Ganesha idols are imported from China..why such a situation...can’t we make a Ganesha idol from clay, is it the situation?” she asked.

It is indeed ‘the situation’. And whenever we are confronted with ‘the situation’, we seek shelter at the feet of our parampujya teacher, Prof Arthananda Ilyich Smith-Hayek (AISH). For those who came in late, Prof AISH is a shuddh desi economist and a veritable sangam of three key economic streams – Neoclassical, Marxist and Austrian. Over to him.

Prof AISH: There are so many things to say about ‘the situation’ as described by our FM. Let’s look at them:

China didn’t start making Ganesha idols because they heard an aakashvani about Indians wanting Ganesha with Chinese characteristics. It is important to remember here – countries don’t trade between themselves; people do. Some years ago, a trader in India asked if China can make so many things cheap, can’t they make Ganeshas too? This trader knew his market. Clay Ganesha idols costing Rs. 1000 each would draw 200 customers who could afford them. That’s a market size of Rs. 2 lakhs. But if Ganesha idols were priced at Rs. 200, he reasoned 2000 customers would buy them. That would double his market to Rs. 4 lakhs. Lord Ganesha will forgive me for saying this but demand for his idols is elastic in this great land of ours. So, the trader placed his order with his Chinese partner who started making Ganesha idols with Indian characteristics. If there are Indian makers of Ganesha idols today who can match China’s prices, this trader will go to them. Else, if he’s forced to sell only clay idols that are made in India at Rs. 1000, the market will shrink back to Rs. 2 lakhs because the demand for Ganesha is elastic. That will be bad for the trader and also customers who can’t afford a clay Ganesha costing Rs. 1000
Now, you will ask the obvious question. If we support our makers of clay Ganesha, won’t they become competitive over time. The answer is not quite. First, clay Ganesha making is a labour-intensive process unlike the mass manufacturing of moulded PoP Ganesha. This means a single worker in China can produce a thousand Ganeshas every hour while a worker in India will struggle to make ten. Second, our laws don’t encourage scale. We love small-scale industries in the mistaken belief they are good for small manufacturers. They are not. Ganesha, diyas, agarbattis (which the FM also mentioned) are all categorised in the laghu udyog category. If we have to compete with China, we have to reform every single factor of production (land, labour and capital) and simplify our laws. The industry needs Vighneshwara (another name of Ganesha; the remover of obstacles) to help solve the Ganesha problem. If we did that, we would have comparative advantage on many of these products. So, the answer to the problem of Ganesha with Chinese characteristics is with the FM, not with the traders. The traders should be asking questions of the FM about Ganesha.
There is this common belief that we should import only things we lack the know-how to make. The rest we should make ourselves. That explains the FM’s words: “why such a situation...can’t we make a Ganesha idol from clay.” This is so far away from economic reasoning that I don’t know where to start. People trade based on their comparative advantages. The net outcome of trade is positive for both parties. I don’t employ someone to help me with household chores because I’m perplexed by the science behind mopping or dusting. I trade with them because I can use my time more productively elsewhere.
Lastly, many years ago (before I turned into a professor), I worked for an Indian company that ran a helpdesk in Bangalore. My client was a global tech major based in the Bay area. We used to help their employees and customers with minor things like password reset. To be sure, this great tech company and its employees knew how to reset passwords. They had outsourced it to us because they had better things to do. Over a period of seven years, we moved from password reset to order management and finally managing sales effectiveness for them. Over time, we didn’t want to do password reset anymore because its revenue realisation was low. So, they moved it to another vendor in Philippines. Our revenues from the client went up by 9X and the market cap of the client increased by 3X in those years. Among the many lessons from this story, I would like to highlight only one. China is no longer interested in making low-value goods at scale. They are moving up the manufacturing value chain that improves factor productivity and gives better realisation. Like my company did. We should be competing with them there than trying to make Ganeshas and agarbattis at sub-optimal scale.

India Policy Watch: How To Send China A Message?

Insights on burning policy issues in India

— Raghu Sanjaylal Jaitley

“We must do something that sends a message to China.”

There is near unanimity in India on this line. The differences start when you start defining the ‘something’. To paraphrase that famous Galbraith remark, whatever is true in India, the converse is also true. More charitably, we have a diversity of views on what we must do to send a message. Also, because this is India, there is also another factor to consider. What is it that we must not do to send a message to China? This is a non-trivial consideration for two reasons. One, we score self-goals with regularity as any historical analysis of our foreign policy will reveal. So, we must be clear on what constitutes a counterproductive ‘doing something’ that we must avoid. Two, we have hordes of partisans behind our popular PM who will choose to do something because either its easy or it serves domestic political interests instead of sending China a real message. This is an unfortunate reality today.

What we will do here is take the four axes on which we should be framing our message to China, what we should be doing on them and what we must avoid doing. Spoiler alert: we are way ahead on what we must avoid doing.

The four axes are national security, geopolitical cooperation, psychological operations (PsyOps) and economic response. The weakest axis to send a message is through economic response. We have covered the economic dimension of the India-China relationship in previous editions (here and here). We will focus on the other three here.

First Axis: National Security

The realist position here is China won’t stop threatening our sovereignty and territorial integrity. The orchestrated manner of its actions across the LAC suggests this is not a local skirmish. China is sending a message and showing India its place. India can’t be dependent on others to respond to a direct provocation. So, on the national security axis, India has to send a message it can also make life difficult for China and act towards it. China is acting like a bully. The more you placate it, the bolder it gets.

Let them know two can play this game.

How to send this message?

One option is to raise the stakes in the South China sea along with other countries that find China’s pursuit of its strategic interests coercive and hegemonic. There is strategic alignment of long-term interests with them and India has a long history of sailing these waters while respecting the sovereignty of the south-east Asian littoral states in the region. Vijay Gokhale, former ambassador to China and foreign secretary, has made an eloquent case for South China sea being India’s business in The Indian Express.

We won’t be able to trouble China overnight. But a steady drumbeat of our actions in this area will not be music to Chinese ears. This must start immediately. Nitin Pai of Takshashila writes about this in The Print:

“India should have done this in 2010, but it’s still not too late. We must immediately increase naval operations east of the Malacca Straits and follow up with a rapid tri-service expeditionary capability in the Indian Ocean Region. This should grow into an expeditionary command. Instead of informal summits with Chinese President Xi Jinping, Prime Minister Narendra Modi must meet the leaders of Vietnam, Indonesia, Singapore and Timor-Leste. The defence relationships we have built with many Southeast Asian countries over the years can be quietly utilised.”

The other option is to go for a tit-for-tat response along the points of Himalayan border where India has a tactical advantage. This could lead to localised small-scale confrontation, but the message would be clear to China. This far and no more with your salami slicer. China has repeatedly made light of the status quo along the LAC and not giving a firm response in the same theatre continues to embolden it. The notion that China is a significantly bigger military power overlooks two realities in assessing power balance. One, it is relative strength in a combat zone that counts not the overall strength. Else, every battle would have been won by the larger military power. China can’t bring to bear its entire strength to the LAC at Ladakh without endangering its interests on its other fronts. Two, China also can’t afford a war now. It has over-extended itself in flexing its muscles, Xi Jinping has domestic compulsions and both the countries are nuclear powers. India has to bring a touch of unpredictability in its actions to earn respect and fear from the other side.

How not to send this message?

Unfortunately, so far, we have sent out messages that has helped the Chinese narrative starting with the PM’s statement that there was no intrusion. The clarification that followed made things clear as mud. The MEA has repeatedly called the intrusions as ‘obstruction of patrolling’. Chinese state media have used this ‘no intrusion’ to paint India as the aggressor. The other messaging mistake is the anodyne statement from the government that the armed forces have been given “full freedom” to respond in an “adequate and proportionate manner” to any hostile act in accordance with their judgement. What does this mean in the specific context? This is a political cop-out.

We need to respond to hostile acts that threaten our sovereignty. There has to be a political directive to the forces that should spell out the intent to pay back China in the same coin. This needs to be publicly stated for the message to be sent. Repeating tired old clichés does nothing. Lastly, we need to come to terms with the revisionist nature of the Chinese state and put an end to the propitiating stance we have taken over the years with little reciprocation. Brahma Chellaney has chronicled the history of our appeasement in The Project Syndicate with this telling conclusion:

“Modi has himself to blame for this state of affairs. With his excessive personalization of policy and stubborn strategic naiveté, he has shown himself not as the diplomatically deft strongman he purports to be, but as a kind of Indian Neville Chamberlain. Unless he learns from his mistakes and changes his policy toward China, India’s people – and territorial sovereignty – will pay the price.”

Second Axis: Geopolitical cooperation

India has been reluctant to pitch its tent in any geopolitical camp in the name of strategic autonomy. Now, the raison d'être of autonomy is the ability to act freely in time of need. What use is this if we can’t leverage the global mistrust and anger against China for our benefit when we need to push back China? India has to enhance its range of tactical options against China that can be used as bargaining chips for any future escalations.

How to send this message?

There is a window of opportunity now to pursue an anti-China rhetoric in alliance with leaders who have their own reasons to hold China accountable. The bilateral virtual summit that PM Modi had with Australian PM Scott Morrison is a good example of this. The Mutual Logistics Support Agreement (MLSA) between the two countries that allows reciprocal use of military bases and India’s support of Australian interests in South China sea (Operation Gateway) are steps in the right direction. India should also invite Australia for the annual Malabar naval exercise.

Indonesia and Vietnam offer similar opportunities. Bilateral virtual summits with them that strengthens the existing comprehensive strategic partnerships with a specific focus on accelerating defence cooperation will be timely. There are emerging areas of overlapping interests with these countries in space programmes, cooperation on helping companies shift their global value chains (GVCs) from China and cyber intelligence. Further, India should make pointed reference for its support of their territorial claims – Indonesia’s position on Natuna Islands and Vietnam’s on Parcel and Spratly Islands.

This is also the time to deepen the relationship with Taiwan. There are multiple fronts of partnership that can be pursued short of recognising Taiwan. We should not shy away from them. India has strengthened its ties with Japan over the years. Taiwan and Japan have a long history of hostility with China. India must pursue a tri-party alliance that covers economic and strategic interests with them.

Samanvya Hooda makes a compelling argument for an intelligence-sharing network with Japan and Taiwan in The Print:

“India’s superior satellite reconnaissance abilities can significantly improve Taiwan’s intelligence network over China, with both countries combining resources in signals intelligence. By combining their intelligence assets and creating channels for a continuous exchange of communications, electronic, geospatial, and human intelligence, the two countries together can achieve better coverage of China than they can individually.”
“Japan will certainly be a welcome addition to this alliance, bolstering a united front against China. It would contribute an estimated 19 signals intelligence stations (possibly the third largest in the world) and an extensive underwater surveillance system, among others. India is inducting a variety of electronics intelligence, imaging, and communications satellites for better surveillance. Taiwan is understood to have some of the best human intelligence assets operating against China.”
“All three countries are on the front line of China’s aggression and face the brunt of its expansionist policies. Arguably having the most to lose from Chinese hostility, they should be the first to consolidate a containment policy. Why should there be any unwillingness to do so?”

Finally, India must embrace the Quad more openly. There is a need to signal to the countries in the region there is a liberal alternative available to countervail China’s economic and military might. The US announcement to move its troops from Europe to South East Asia to make sure it is ‘postured appropriately’ to counter China’s threats to India, Vietnam, Malaysia and Indonesia is a clear message to China. India should support this move formally and add its heft to the US presence. The possibility of a military option included in Quad must be kept on boil by India.

How not to send this message?

We have used the doctrines of strategic autonomy and strategic ambiguity to keep China in good humour for too long. These have restricted our options. Our reluctance to take a stand, find common grounds against China with other countries and our passivity has helped China. We can’t be seen debating strategic autonomy forever without any concrete action. We should choose a specific act to signal real strategic autonomy. Militarising the Quad is one such option.

Third Axis: PsyOps

If ever there was a country in post-Cold War era that was a tailor-made target for psychological warfare, it is China. It is a terribly insecure regime that limits access to free information and speech to it citizens, throws a tantrum if any country brings up Taiwan or Tibet, uses multilateral organisations to push its agenda blatantly and struts around like bully on the world stage with a fragile ego. India should be leading the efforts in an information war, propaganda and perception management against China. It is a low hanging fruit.

How to send a message?

There’s just so much to do here. And nothing has to be manufactured.

Campaigns against China’s core interests:

Organise a World Uighur Congress (online) through a local thinktank. Invite OIC representatives, prominent voices of Uighur community, Mesut Ozil and request Dalai Lama to be the chief guest
Use the Central Tibetan Administration in India to re-energise the issue of Tibetan autonomy in the west
Support and amplify the voices of Hong Kong protesters on social media. Support the Hong Kong Autonomy Act passed by the US senate that plans sanctions on China if the pass the national security bill
Strengthen bilateral ties with Taiwan with a focus on increasing trade in electronics. Join the chorus to include Taiwan in WHO for its role in containing the COVID pandemic

Strengthen perceptions about China being a threat to the liberal world:

Run concerted campaigns (through partisans in media) about Huawei, its links to the Chinese state and the strategic risk of handing over 5G rollout to it
Highlight Chinese treatment of dissidents, suppression of free press and support anti-China causes globally covertly
Track and amplify every act of IP theft and state surveillance by China like this case involving stealing technology from Micron and multiple other cases in US university campuses.
Call out blatant instances of bullying by the Chinese state – debt trap and corruption scandals that have plagued countries like Kenya, Malaysia and Sri Lanka through BRI or the illegal detention of two Canadian nationals in China to teach Canada a lesson for detaining Meng Wanzhou, CFO of Huawei and daughter of its founder Ren Zhengfei

Don’t let China off the hook for Coronavirus:

Push WHO to conduct a quick and impartial investigation on the origin and spread of virus.
Continue to highlight China’s culpability in covering up the true nature of the virus and keeping international flights open to and from Wuhan while domestic flights were stopped.
Support Trump in calling it Wuhan or China virus through unofficial channels.

How not to send a message?

There are 3 problems here:

The government has been sending confusing messages between PMO, MEA and MOD which has made China’s task easier to indulge in PysOps. It has also led to the main opposition party, Congress, use social media to lampoon the government at an unfortunate time. The government should convene the parliament, have a discussion and pass a unanimous resolution to beat back any Chinese intrusion. This will reduce the politicking and stop China from using our statements against us. Currently, it’s China’s Confucianism versus India’s Confusionism.
Soon after the Congress attack on the government, the partisans of the ruling party in mainstream and social media have given a fine demonstration of PsyOps against Congress. Everything from random MoUs, diversion of PM relief funds, false binaries and, of course, Nehru have been used to discredit a party that has 50 odd members of parliament. These energies would be useful to fight the Chinese propaganda across the many areas suggested above. Winning a perception war within India while ceding territory or hoping the usual pacifying approach will work with China is exactly the wrong message at this time
Lastly, if we want to get China out of strategic and other important sectors, we should send that message openly. We reserve the right to respond to Chinese aggression in any way we want. But we seem to prefer convoluted ways. The 100% scrutiny of import consignments from China based on ‘intelligence inputs’, the insistence that e-commerce companies put the country of origin in their products or the FDI barriers without naming China are counterproductive actions. They hurt our businesses more than China. More importantly, we seem to suggest to China we can’t take you head-on so we will do opt for these sly moves that insult everyone’s intelligence. It sends a message of weakness

To conclude, the options open for the government to send a message to China are wide-ranging. The government should focus its attention on these efforts. They will force China to rethink its approach towards territorial disputes across its borders or simply annoy them no end. It might raise the stakes, but we should be prepared to face that prospect. Others will intervene to calm things down. By then we would have truly sent a message.

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A Framework a Week + Matsyanyaaya: National Security Preparedness & Planning for COVID-19

Tools for thinking public policy

— Pranay Kotasthane

With the ongoing tensions at the LAC, it shouldn’t surprise anyone if I said that COVID-19 has a national security dimension too. But how can one think systematically about the national security risks arising out of COVID-19 or any other contingency?

My colleague Aditya Ramanathan came across a contingency planning framework on the World Health Organisation website that can help answer this question.

This framework on planning for future contingencies involves identification of four factors: developments, risks, preparedness actions, and countermeasures.
Developments are the underlying phenomena that cause risks to materialise. A single development can generate multiple risks.
Risks present potential hazards that must be identified and mitigated. (I would slightly modify this factor and add that contingencies can also generate opportunities apart from risks).
Preparedness actions are proactive steps taken in advance primarily to reduce the likelihood of a risk materialising, and secondarily to reduce its impact.
Countermeasures are reactive steps taken to reduce or contain the impact of a risk once it has begun materialising.

Applying this framework to India’s national security situation looks something like this:

You can read the entire SlideDoc here.

After parsing many national security risks through this framework, our key realisation was that we need a step jump in policing capacity to overcome the many first- and second-order effects arising from deploying police forces on the frontlines for managing COVID-19 responsibilities such as lockdowns.

In the short-term, here are a few options to achieve this aim:

State police forces to be routinely supplemented by Central Armed Police Forces and positioned in sensitive areas to prevent outbreaks of violence.
Offloading some auxiliary policing functions to the private security sector for a temporary duration.
Bringing back retired police officers on duty for functions that do not require much social interaction.

In the long-term, this event again highlights the urgent need for policing reforms and police reforms, both.

PS: This article by Rohini Swamy gives a good idea about the challenge our police forces are up against.

Quiz: Economic Growth Chronicles

Here’s a trivia for all of you from Vijay Joshi’s India's Long Road: The Search for Prosperity:

From 1950 to 2010, there have been only three countries that have had 6%+ growth for three decades or more on the run: X, Y, Z. Only Z has had a per capita growth rate of more than 8 per cent a year for thirty years. Another striking fact is that, apart from the above three countries, there has been no other country that has had per capita growth of 6 per cent a year for a continuous period of even two decades.

Identify X, Y, Z. No googling, please. You can send in your answer as a comment to this post.

HomeWork

Reading and listening recommendations on public policy matters

[Article] The press conference by the Chinese Defence ministry with their version of events.
[Article] M. Taylor Fravel in the Foreign Affairs on China’s need to project strength
[Podcast] Erik Townsend and Patric Ceresna discuss the shift from deflation to inflation that’s ‘inevitable’ with Harley Bassman
[Video] I (Pranay) tried a short video explainer in Hindi on #BoycottChineseGoods. It’s meant to be sent as a retort on Whatsapp groups buzzing with people calling you to not buy anything Chinese. Do let me know what you think of this experiment.
[Blog post] Bryan Caplan has a nice little post arguing that “most social problems are like mosquito bites”. The analogy is aimed at making the free-market prescription “governments should consider doing nothing for it can make matters worse” easier to understand.
[Podcast] Another self-promotion plug. Anupam Manur and I discuss trade competitiveness in the context of China. This is almost like a Trade101 masterclass by Anupam. So, listen in!

That’s all for this weekend. Read and share.