BJP in J&K

The Bharatiya Janata Party (BJP) has done well to hold a conclave of its national leaders in this city. Its national office-bearers have met and they have also addressed a largely attended public meeting at the Parade Ground. Any such interaction between a national political party --- in this case the main opposition in the country--- and the local inhabitants should be welcomed. An exercise like this is to mutual benefit. Much of what the BJP leaders have said, however, is a familiar rhetoric which represents both their strength and weakness in this sensitive state: abrogation of Article 370 of the Indian Constitution guaranteeing special status to J&K, complete integration with the Union, discrimination against Jammu and Ladakh regions, rejection of slogans like autonomy, azadi or self-rule and so on and so forth. The party has thus once again sought to appeal to the popular sentiments in and around this city, as it has done in the past. This gives it electoral edge in a specific area although its effort is to create an impression that it cares for the entire Jammu's aspirations. With the passage of time it has also focussed on the Ladakh region and has eventually got a shot in the arm in the trans-Himalayan Leh district with almost the whole of the Ladakh Union Territory Front (LUTF) joining it. Its accretion in strength in Leh is not to be judged in the light of the results of the Ladakh Autonomous Hill Development Council (LAHDC) elections for which there are quite a few other reasons which we have already discussed in these columns. The BJP while trying wholeheartedly to identify with this State has in reality ended up confining itself to parts of this province. Thus it shows its chinks. It thinks of the State as a whole as one entity but in practice its actions and utterances are heavily pronounced in favour of a part of it and a segment of its population.

It is self-explanatory when a party claiming to speak for the entire State is conspicuous by its absence in the Kashmir region (its only credible face Tika Lal Taploo was shot by the militants in September 1989). In the absence of ground base it was not able to take advantage either of former Prime Minister Atal Bihari Vajpayee's stirring "hand for friendship" speech in Srinagar in April 2002. While in power as the leader of the National Democratic Alliance (NDA) at the Centre it has not fulfilled any of the promises like about abrogating Article 370. Its argument is that so far it has been compelled to accommodate the sentiments of its coalition partners. In other words it wants to convey that it would implement its agenda as and when it controls the Centre by itself. Of late, some of its leaders are trying to make a distinction between the separatists and ordinary citizens across the Pir Panjal. Their idea obviously is to send a message that they care for the people at large in the Valley.

For them to carry conviction they will have to mend their overall political discourse which is largely the same as it was even before the emergence of armed secessionists on the scene. The party's gains in the 2008 Assembly polls were confined to this region, more precisely mostly to this district. These were neutralised with the Congress convincingly bagging the Jammu Lok Sabha seat later. For the BJP that aspires to come to power in New Delhi on its own it may well be worthwhile to consider whether it helps to pursue a lop-sided policy to the exclusion of any region or segment of population. How are they being different from a political class that wants the protagonists of regional aspirations in Jammu to go away, if they wish, with their "two and a half districts" (reference to Hindu-dominated areas before the reorganisation of administrative units) or who treat Buddhist-dominated Leh district as a matter of just " two Assembly seats?" No party gains by building regional and religious barriers while being in the opposition which it needs to dismantle after gaining power but finds it impossible to do so.

Words not enough

If words are bullets Pakistan President Asif Ali Zardari may have already won the battle against terrorism. Who will not be inspired by his latest assertion against terrorism? He has declared, in the wake of a supposedly woman suicide bomber killing 45 persons in its tribal areas: "We are at war with terrorists and shall fight them to the last man and make Pakistan secure for ourselves and the future generation." He has referred to Sri Lanka's fight against Tamil Tigers expressing a similar resolve to defeat who wanted to take over Pakistan through the barrel of the gun and by imposing their brand of Islam. Time and again earlier also he has made identical statements. He has described "terrorism as an epidemic, a cancer inside Pakistan that we will wipe out." Very rightly he has labelled the terrorists as "cowards." One of his notable quotes is: "The day will come when all these people (terrorists) will bow before you…Those who are shedding the blood of Muslims in Pakistan are not Muslims. No religion allows them to indulge in such acts." There can't be two opinions that as an ally of the United States, Pakistan is waging a relentless battle against the terrorists in its tribal regions adjoining Afghanistan. It is inviting retaliation in the process. The latest killings are a case in point. A woman bomber is said to have blown up herself in the midst of seekers of help at a distribution centre of the World Food Programme (WFP) at Khar, the main town of Bajaur district.

It is not surprising that the Taliban has claimed the responsibility for the attack warning of more of them in the days to come. There is no way the terrorist organisation will mend its way. It is for Mr Zardari and his government to review their strategy. They must understand that the Taliban has started getting support from the Kashmir-centric militant outfits that their official establishments have nurtured in the past. They must also heed to concerned serious observers in their own country who are cautioning against such deadly linkages. These observers are worried that the genesis of any incident of terrorism anywhere in the world is being traced to their homeland. It is an image they want to get rid of. This is possible only if the Zardari-led Islamabad drops its selective approach and believes that terrorism is terrorism to be uprooted lock, stock and barrel.

Kabul to Kashmir

IN AND AROUND J&K
By D Suba Chandran

During the last couple of months, numerous interesting events are taking place in the Af-Pak region, which may have long term implications for India's security, in particular to J&K. There is no need to have an alarmist approach or get panicked, but as a community, it is always better to analyze and forecast what is likely to take place, and how it would impact the security of our region.
The following events in the recent months need to be analysed, from an Indian perspective. First and foremost the Lisbon Summit in November 2010; in the NATO summit, Karzai made it public, that he would like to be the final arbiter of security in Afghanistan, along with the governance process. As of now, most of the security operations are being undertaken by the international forces, led by the NATO inside Afghanistan. In fact, on many operations, there is a clash between the security forces and Karzai administration. For example, on the issue of night raids, there was a public display of differences between Karzai and Obama.
Besides, the military operations, most of the relief activities by international donors are distributed directly, with less or no inputs from the local administration. For long the Karzai administration has been wanting that they should be the primary agency for the distribution of relief materials. More than the question of sovereignty and better management, the administration wants to pocket as much as they could; precisely, for this reason, the international donors do not want to distribute the aid through the administration. Corruption runs deep in Karzai's administration. However, in November 2010, during the Lisbon summit, the NATO has agreed to stick to the 2014 deadline, and withdraw from Afghanistan. One would expect, that as a result, the donors would also like to withdraw and keep the aid to a minimum.
Second, during the first half of December 2010, Obama finalized is "Afghanistan Review" for the year, and made his approach public. Obama's review consider the following as primary objectives: the US presence in Afghanistan is not secure the country from each and every threat that the Afghans may face; and that the nation building project should be undertaken by Afghan themselves. To rephrase it rudely, what Obama has underlined is that the nation building and security of Afghanistan is not an American headache anymore and that the Afghans should take care of their own business.
Obama's review also makes it clear, that the primary target of the US is al Qaeda and not the Taliban. Obama repeatedly talks about the dismantling and disrupting of the al Qaeda, but his review is relatively silent about the American approach to the Taliban. What this implies is, that the US is targeting primarily the al Qaeda and is willing to negotiate with the Taliban. This in fact is not new; for the last couple of years, a section within the US has been talking about the existence of a "moderate Taliban" with whom the US and Karzai could do business with. The idea of "moderate" or "good" Taliban initially emerged from Pakistan, which the US has caught hold of. It makes sense for Washington to prepare for a loose alliance between Karzai and Taliban, and leave Afghanistan as early as possible. All that Taliban needs to promise is, that in case of their return, they would not support the al Qaeda. Pakistan seems to be the primary sponsor of this idea, which the US has got hooked into.
Third, for the last one year, Pakistan has made amazing stride into Kabul. Pakistan has succeeded in removing the anti-ISI interior minister of Karzai and the equally anti-Pak Afghan intelligence chief during 2010. Both Amruallah Saleh and Hanif Atmar has been asked to resign by Karzai; the primary demand for their resignation came from the ISI, as they stood in between Pakistan's approach to stitch a coalition between Karzai and the Taliban. It was no coincidence, that there were multiple meetings between Pasha (the ISI Chief), Gen Kayani, Karzai and the Huqqani network.
Besides the above interaction, Pakistan and Afghanistan have signed two important agreements during the last six months. First, was the Transit and Trade agreement between the two, followed by the signing of Turkmenistan-Afghanistan-Pakistan pipeline. Pakistan seems to be determined to bring Afghanistan under its sphere of influence.
Now, what do the above three developments mean for the regional security? How would they affect India, J&K in particular?
It seems crystal clear, that the American exit, along with the international troops is likely to happen sooner than later. Though, there have been reports of the US leaving a small Special Operations Group and a team to operate the Drone attacks, it is al Qaeda specific. If there is collusion between Karzai and the Taliban, or the latter taking over Afghanistan, it seems acceptable to the US. To conclude, a Taliban takeover in Afghanistan seems to be an eventual outcome, than a possibility.
Given the failure of Karzai's administration and the level of corruption, there is hardly any support for the existing government. Neither the Afghan security forces, nor the legal institutions are strong enough to provide security or justice to the Afghan. As a result, there is hardly a constituency inside Afghanistan today, which will support for Karzai and totally oppose the Taliban. In fact, the Taliban would be even welcome, as they will be able to provide a sense of security and quick justice, which neither the Afghan security forces nor the legal institutions are capable of, in the given environment today.
What this effectively means is, an Afghanistan under Taliban's direct control, or an indirect influence. The primary question, from an Indian perspective will be: what this would mean to the Taliban in Pakistan, and how Islamabad and the ISI are likely to handle the emerging role of Taliban (led by the TTP and Punjabi Taliban)?
Taliban in Afghanistan is unlikely to satisfy and remain only in Afghanistan. Given the strong linkages in the FATA and what is happening in Balochistan (remember - Mulla Omar is now believed to lead the Quetta Shura), the Taliban would like to come into Pakistan's heartland. As a result, both Punjab and Karachi, where they have their franchisees, are likely to become increasingly violent. A sectarian war, including attacks on Sufi Islam is likely to increase within Pakistan.
Pakistan will have two options to pursue, in this eventuality. Either to take on the Taliban within Pakistan; or to divert them. What will Islamabad and the ISI do? Will they fight the Punjabi Taliban, who is comprised of members of the Jaish-e-Mohammad, Sipah-e-Sahaba and others from within Punjab? Or, will they be diverted into India, especially J&K? Despite the pressure from India, after the Mumbai attacks, the Lashkar network in Pakistan remains intact, because the ISI has kept them primarily as a militant weapons against India.
Our security forces and the society need to forecast this threat, and what this would mean for the security situation in India, J&K in particular.
(The author is Deputy Director, Institute of Peace and Conflict Studies (IPCS), New Delhi)

Illegitimate earnings of
insurance companies

By Dr Ashwani Mahajan

For 2009-10, the Insurance Regulatory and Development Authority (IRDA) issued a report on December 12,2010,stating that although business of private life insurance companies has witnessed a booming 19.7 per cent growth in their business in 2009-10, but a large number of policies sold by these companies in the past have either lapsed or forfeited. According to the report during 2009-10 nearly 121 lakh policies were either lapsed or forfeited. During 2008-09, 91 lakh policies were lapsed or forfeited. Report also indicates that more than 60 percent of the policies issued by private life insurance companies have lapsed or forfeited in just one year. According to statistics, this ratio of lapsed or forfeited policies was 81 percent for the largest private sector life insurance company, ICICI Prudential. During 2008-09, this ratio was only 59 per cent for this company. The ratio for different companies was ranging from 4 percent to 81 percent. This experience of insurance policies getting forfeited or lapsed is no new phenomenon. It was being observed even earlier. But in case of LIC, this ratio of lapsed and forfeited to total policies has only been 4 percent for the same year 2009-10. Whereas ratio of lapsed and forfeited to total policies has demonstrated a big jump in case of private companies, this ratio has actually come down in case of LIC from 6 percent in 2007-08 to 4 percent in 2009-10. But due to monopoly of LIC in the past, the value of lapsed and forfeited policies was around 1147 billion rupees.
Usually a person buys life insurance policy to insure his family against future risks. One can also save tax by purchasing a life insurance policy. Main objective of buying a life insurance policy obviously is saving along with insurance. In the market Money-Back, Endowment, Term Insurance and Health Insurance policies are popular these days.
Prior to 2001-02, LIC had a monopoly over life insurance business. But since 2001-02 private sectors life insurance companies were allowed to undertake life insurance business and the participation of foreign capital to the maximum of 26 per cent was also allowed. Today 21 private companies and a public sector company, that is, LIC is engaged in life insurance business.
After 2001, life insurance sector witnessed massive progress after a large scale advent of private sector companies. Initially Life Insurance Corporation of India contributed substantially and private sector companies also increased their business significantly. In the last two years we witness a negative growth in the business of LIC, while private sector companies registered a sharp increase in new business.
Report of the IRDA reveals that about Rupees 2148 billion worth of total insurance policies have either lapsed or forfeited during 2009-10. Although IRDA has not published data about the premium paid on these lapsed or forfeited policies, even if 20 percent premium paid is forfeited this would amount to be 430 billion rupees. This means that in just one year insurance companies earned a huge 'illegitimate' income from lapsed or forfeited insurance policies.
According to rules, a life insurance policy is considered to be lapsed if premium remains unpaid between 15 and 60 days from the due date. Lapse of life insurance policies is a natural process, but such a high percentage of lapse or forfeiture is not a healthy development. Experts believe that lapse ratio of more than 10 percent is an alarm signal for life insurance industry. But while this ratio has exceeded more than 50 percent for many companies, one may be forced to question the integrity of these companies. These companies blame economic slowdown for this high rate of lapse/ forfeiture, there are many who believe that the mis-selling of insurance policies by these companies is mainly responsible for this phenomenon. In order to promote their business these insurance companies try to lure customers about the so called 'benefits' of the policy, while keeping them in total dark about terms and conditions attached. In such circumstances a policy holder has only two choices, one continues with this 'wrong' policy or stop paying premium and getting this policy lapsed or forfeited. In both cases policy holder is at loss and his loss would be the gain to insurance company. If a policy holder makes a choice to let the policy lapsed or forfeited, it is in the best interest of the insurance company, because in this case responsibility of the company is completely absolved.
Obviously private sector insurance companies are not ready to accept the argument of mis-selling, and that due to this mis-selling people are forced to let their policy lapsed or forfeited. But a very low ratio of lapsed/forfeited policies in case of LIC as compared to more than 60 percent in case of private companies clearly prove this point that there is something wrong in case of private sector life insurance companies. If despite recession ratio of lapsed/forfeited policies has come down for LIC, the argument of private sector companies that recession is the reason for large scale lapse/forfeiture does not hold water.
Loot of the savings of the people by insurance companies cannot be legitimized in any manner. Publication of data by IRDA about the lapse and forfeiture of insurance policies by insurance companies is appreciable. But it seems that IRDA does not have any right to act against an insurance company suo moto. It can act only in case a policy holder files a complaint against a company. Therefore in absence of a general action, these companies keep on luring simple people to purchase their policies and are able to ultimately grab their hard earned money.
So far IRDA has been acting on the basis of the complaints by the policy holders. Up to 2010 only 8592 complaints have been filed against insurance companies with IRDA. The number for 2009-10 was 2449. This is not even 0.01 percent of the 216 lakh policies lapsed in the year 2009-10. Thus one can easily conclude that IRDA has not been able to give protection to the policy holders. In view of the large ratio of lapsed and forfeited policies, government should take stern action against erring companies. Constitution of IRDA should be amended suitably, including power to act suo moto, to save the people from this unethical business of these companies.

Easy loans are a burden on poor

By Dr Bharat Jhunjhunwala

Five star microfinance company SKS Microfinance has successfully issued share at a good premium. This company provides small loans to the poor. Borrowers can buy buffaloes or do other businesses with this capital or they can meet their immediate needs such as that of daughter's wedding without having to take loan from the moneylender at a hefty rate of interest. Such loans are considered helpful for poverty alleviation. These are preferred instruments of inclusive growth. But improvement in incomes of the poor is not necessary. Instead these loans can lead to even more exploitation and poverty.
Simple logic tells us that lower interest rates will lower the cost of production of the poor households and be beneficial for them. However, this assumes that the price of their produce will remain unchanged. This may not be true. Say there were 10 buffaloes in a village which produced total 100 liters of milk a day. MFIs lent money at low rates of interest to some households and they purchase five more buffaloes. The total number of buffaloes in the village went up to 15 and the total milk produced increased to 15 liters. Now the village will have to find a market for this larger quantity of production. The supply of milk in the nearby town will increase which will lead to lower prices. A new equilibrium between supply and demand will be established at lower price. This will be clearly beneficial to the urban consumers. On the other hand, the impact of the loans on the poor households is not certain. They gain from low interest rates but loose due to lower prices of milk. It is possible that the loss due to decline in prices may be more than the gain from lower interest rates. Further, the loss due to decline in price occurs to all farmers of the village, including those who have made no borrowing. Thus the total loss to the producing community is more.
Now consider a different process of development. Say the price of milk sold in polypacks in the market was Rs 20 per litre. Of this, the dairy companies were paying Rs 15 to the producing households. They were also importing some powdered milk because the quantity of milk available in the domestic market at Rs 15 was not sufficient to meet their requirements. Now let us say the Government increased the import duty on imported milk powder by Rs 2 per kg. That would force the dairy companies to increase the domestic price of milk by Rs 2 per litre. In consequence the purchase price would also increase and the farmers will now get Rs 17 per kg. A new equilibrium will be established at higher price and lower quantity. The impact of this policy on the producer households is clearly positive. They will get higher price for their produce. On the other hand, the impact on the consumer households is negative since they have to pay higher price for milk.
The impact of the loan-led development process is surely positive for the urban consumer and uncertain for the rural producer household. The impact of the demand-led development process is clearly positive for the rural producer household and negative for the urban consumer. Therefore, we should follow the latter policy insofar as the objective is removal of poverty of the rural households. The Government should identify commodities being produced by the poor households and raise taxes on imports and big companies that are producing competing goods.
It makes no difference if the loans are provided to the poor producer households at lower interest rates of 12 percent against 24-30 percent being provided presently. The cost of production of the poor household will be reduced but this may yet not lead to higher income because the fall in price of the produce may be equally steep.
This aspect of loan-led development process is almost never recognized in the literature. At a workshop on rural finance held at IIM Ahmedabad in September 2004, Mr. V Leeladhar, CMD, Union Bank of India said, "There is an urgent need for shifting from a minimalist approach of offering only financial intermediation to an integrated approach of providing enterprise development services like marketing support with direct linkage between borrowers and buyers." Mr. Rama Reddy, President, Cooperative Development Foundation, Hyderabad said, "Unless microfinance is tuned with livelihoods in production, manufacturing, and service sectors, it would not be able to deliver anything. It will make more and more people indebted because of an easy access to credit." Samar Datta, Professor at IIM Ahmedabad said, "Even if we increase credit by 15 times, the borrower can possibly absorb provided we empower him to sell his product and services. Therefore, we need to have the system of linkages in place before we venture into more directions from the state." These specialists emphasize the linkage between loans and productive activities, which is well justified. But that is not sufficient. It is also necessary that policies be put in place to ensure that the prices do not fall due to competition from cheap machine-made production-domestic or imported.
The first requirement is to put in place policies for increasing the prices of goods produced by poor households. If prices are right, many poor households will find ways and means to buy the necessary productive assets. This should be the mainstay of the development process. This can be complemented with cheap loans, marketing linkages and other facilitating efforts. To give cheap loans etc. in absence of price support policies is like putting oil in fire. The poor households are already suffering from low prices. They get additionally burdened with debt-lured by low rates of interest. Unfortunately the Government-both central and states-are putting more emphasis on provision of cheap loans. This can only be explained by their desire to provide relief to the urban consumer at the cost of the poor producer household.