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The Economy of British India – with Angus Maddison

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Angus Maddison is a world-renowned economic historian who is famous for his work on estimating the past GDPs of modern economies by different measures. I won’t go much details into his original work, but the pieces he wrote about Indian subcontinent are worth-reading. In this post, I will try to delve into his assessment of British rule in India (read the Mughal one also). Just to remind you, I am an Indian and Angus Maddison is a British national – so a difference in narratives (bias?) could be present in my write-up.

The Elitist British

The biggest change the British made in the social structure was to replace the warlord aristocracy by an efficient bureaucracy and army. In the first generation, British tried to Westernize India – introduced English education, tried out a few Social efforts and tried to modernize infrastructure. But soon they changed their course. Having failed to Westernize India, the British established themselves as a separate ruling  caste. They did not inter-marry, their kids grew up in separate schools and they socialized with separate clubs where “native” population was absent. Maddison compares –

“The British ruled India in much the same way as the Roman consuls had ruled in Africa 2,000 years earlier, and were very conscious of the Roman paradigm.

One of the positive sides of the whole thing was that the British never tried to settle down in India and remained low in number. This resulted in low taxation but Maddison described that it benefited the middle class and land-lords but not the bottom-of-the-pyramid peasants.

“There were only 31,000 British in India in 1805 … In 1911, there were 164,000 British … In 1931, there were 168,000. … The British had inherited the Moghul tax system which provided a land revenue equal to 15 per cent of national income, but by the end of the colonial period land tax was only 1 per cent of national income and the total tax burden was only 6 per cent. … Most of the benefits of the lower fiscal burden were felt by landlords, and were not passed on to the mass of the population. In urban areas new classes emerged  under British rule, i.e. industrial capitalists and a new bourgeoisie of bureaucrats, lawyers, doctors, teachers and journalists whose social position was due to education and training rather than heredity. In the princely states, the remnants of the Moghul aristocracy continued their extravagances – large palaces, harems, hordes of retainers, miniature armies, ceremonial elephants, tiger hunts, and stables full of Rolls Royces.”

The System of Exploitation

The main aim of British exploitation was to remit money to Britain. Again, as per Maddison, there were two phases of it. The British East India company had nothing but a short-term-profit-maker attitude while the British Kingdom had a long-term-rent-seeking approach. For example, Robert Clive, the East India Company General took quarter of a million pounds for himself as well as a jagir worth £27,000 a year. (worth mention comment from Maddison – British did not pillage on the scale of Nadir Shah, who probably took as much from India in one year as the East India Company did in the twenty years following the battle of Plassey.)

Comparatively, later on, the remittances became more smooth and systematic –

“the Viceroy received £25,000 a year, and governors £10,000. The starting salary in the engineering service was £420 a year or about sixty times the average income of the Indian labour force … Under the rule of the East India Company, official transfers to the UK rose gradually until they reached about £3.5 million in 18566, the year before the mutiny. In addition, there were private remittances … By the 1930s these home charges (i.e. remittances) were in the range of £40 to £50 million a year …  (also) About a third of the private profit remittances should therefore be treated as the profits of colonialism. “

Moreover, the Govt of India, which always ran fiscal surplus over the British Kingdom, ran into debts due to spurious reasons. Further, during the World Wars, Govt of India “gifted” (joke!!?) millions of pounds from its reserves to the British Govt. Maddison describes –

“In spite of its constant favourable balance of trade, India acquired substantial debts. By 1939 foreign assets in India amounted to $2.8 billion, of which about $1.5 billion was government bonded debt … (during World Wars) there were two ‘voluntary’ war gifts to the UK amounting to £150 million ($730 million). India also contributed one-and-a-quarter million troops, which were financed from the Indian budget.”

 Where Maddison differs

Maddison differs quite a bit on the topic of Industry. He countered arguments of R.C. Dutt, R Palme Dutt and Nehru on de-industrialization (i.e. the decline of the old handicraft industry without the compensating advance of modern industry) of India with his set of facts. He accepted the facts that the Mughals did have a large industrial base and with British rule and policies it died. But added an important quote –

“Oversimplified explanations, which exaggerate the role of British commercial policy and ignore the role of changes in demand and technology, have been very common and have had some adverse impact on post-independence economic policy”

Maddison argued that the Mogul Indian industry were to produce luxury goods for aristocrats. But after British rule begun, the higher echelons of Indian society were flipped upside down. The British officers and native “copycat” Zaminders had little attraction on the traditional Indian handicrafts. Instead they developed taste of British merchandise. Furthermore, with social changes in Europe, there were a decline in demand of handicrafts overall (not only Indian but also other European ones as well).  Along with that, cheap and better quality textile from Britain occupied Indian market. Maddison agreed that the above incidents probably threw a lot of Indians out of job but he adds that the per-capita textile consumption doubled due to cheap British imports. He explains –

“the displacement effect on hand-loom weavers would have been smaller than at first appears. The hand-loom weavers who produced a third of output in 1940 would have been producing two-thirds if there had been no increase in per capita consumption.”

But he, in the end, agreed that India was the net loser on textile industry due to long term colonial effects –

“In time, India built up her own textile manufacturing industry which displaced British imports. India could probably have copied Lancashire’s technology more quickly if she had been allowed to impose a protective tariff in the way that was done in the USA and France in the first few decades of the nineteenth century, but the British imposed a policy of free trade. British imports entered India duty free, and when a small tariff was required for revenue purposes Lancashire pressure led to the imposition of a corresponding excise duty on Indian products to prevent them gaining a competitive advantage.  … If India had been politically independent, her tax structure would probably have been different. In the 1880s, Indian customs revenues were only 2.2 per cent of the trade turnover, i.e. the lowest ratio in any country. In Brazil, by contrast, import duties at that period were 21 per cent of trade turnover.”

So the fundamental issue was on the “free-trade” without preparedness but not the British policies.

In fact Maddison threw light into a few different aspects of Indian industries. Britain used India as their Asian export Hub and that resulted in Indian industrial gain.

“By the time of independence, large-scale factory industry in India employed less than 3 million people as compared with 12 1/4 million in small-scale industry and handicrafts, and a labour force of 160 million.56 This may appear meagre, but India’s per capita industrial output at independence was higher than elsewhere in Asia outside Japan, and more than half of India’s exports were manufactures.”

So, even though Indian industry was small, it was better off most of its Asian counterparts. However, the industry relied on mostly British skilled workers to fill in the upper ranks and that (along with protective policies) led to a demise of Indian industries post-Independence.

Conclusion

Overall, as per Maddison, British urban economy was better off the Moghul one. It was more productive, modern and focused on  entrepreneurship. On the other hand, the condition of villages worsened because of “extractive” Zaminders, population increase and reduced per-capita land availability. The book overall is a fascinating read and I will probably write up another post to follow up on my evaluations and criticisms of Angus Maddison.

The primary resource – Class Structure and Economic Growth: India & Pakistan since the Moghuls (1971) by Angus Maddison.

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Written by Diganta

February 7, 2013 at 12:40 am

The Economy of Mughal India – with Angus Maddison

with 4 comments

I read a couple of chapters of Angus Maddison who described Indian economy and its pitfalls quite vividly. Angus Maddison is a world-renowned economic historian who is famous for his work on estimating the past GDPs of modern economies by different measures. I won’t go much details into his original work, but the pieces he wrote about Indian subcontinent are worth-reading.

In short, both Mughal and British empire were significantly “elitist” and “extractive“, i.e. from power to money – everything was in the hands of a few. Contrary to the widespread belief in India, the common mass lived a little above the sustainability level and were hit by periodic natural calamity and crop-failures. The system or the economy in general was built to grind the common people into de-facto slavery. In this blog-post, I will focus on the Mughal rule (read the British one also).

The Elitist Mughals

To start with the Mughal system, Maddison notes –

“India had a ruling class whose extravagant life-style surpassed that of the European aristocracy.It had an industrial sector producing luxury goods which Europe could not match, but this was achieved by subjecting the population to a high degree of exploitation. Living standards of ordinary people were lower than those of European peasants and their life expectation was shorter.”

To expose the elitism in Indian society, he notes that the major export items those India had at that time were “salt-peter (for gunpowder), indigo, sugar, opium and ginger” but the import items were nothing but silver, gold and other precious stones. This highlights that on the national level, India exported items produced by ordinary populace where they imported items for elites only. Maddison went on the compare the European standard of living with the Indian ones –

“In spite of India’s reputation as a cloth producer, Abul Fazl, the sixteenth-century chronicler of Akbar, makes reference to the lack of clothing in Bengal, ‘men and women for the  most part go naked wearing only a cloth about the loins’. Their loincloths were often of jute rather than cotton. In Orissa ‘the women cover only the lower part of the body and may make themselves coverings of the leaves of trees’. They also lacked the domestic linen and blankets, which European peasants of that period would have owned.”

So the common people perished where the wealthy had it all. While average Indians didn’t have cloth to wear on, the Indian muslin were famous in Europe and was noted for aristocracy.

The health condition of common people was equally bad. Indian population almost stagnated for about 2000 years –

“Kingsley Davis has suggested that mortality rates in India were high enough to offset the very high fertility rates, so that there was little increase in population in the 2,000 years preceding European rule.”

The System of Exploitation

There lies the hierarchy and Maddison got it correct. The Indian system worked through the caste hierarchy and the agro-income from the lowest strata of the society used to bubble up as taxes to the upper elites.

“The revenue of the Moghul state was derived largely from land tax which was about a third or more of gross crop production, i.e. a quarter or more of total agricultural output including fruits, vegetables and livestock products which were not so heavily taxed … Total revenue of the Moghul state and autonomous prince-lings and chiefs was probably about 15-18 per cent of national income. By European standards of the same period this was a very large tax burden”

Not only the taxes were high, the tax money were used mostly in “consumption expenditure of the ruling class”.  Maddison further notes that the Jagir system in India was not hereditary and the Jagirs were posted from place to place. So, he “had an incentive to squeeze village society close to subsistence”. The village society was very docile and governed by the rules of caste. That was the primary reason why India was smoothly ruled by outsiders for years as Indians were more concerned about their “karma” as per their “caste” and not to sidestep it for a larger or revolutionary role in the society. One notable absence, as per him, was that Indians rarely tried to take up sea-trade as part of their profession since “religious beliefs inhibited foreign travel and commercial development by Hindus”. Furthermore, caste stagnated the society to new ideas and technology unless they are imposed from the rulers –

“In spite of extensive contact with foreigners, India did not copy foreign technology either in shipping or navigation, or in artillery and military organization, and this is one of the reasons it was conquered by Europeans. “

On the other hand the revenues from this exploitation channels were put in to the “hoarding precious metals and jewels and “construction of palaces and tombs”. The total land-irrigation work undertaken was as little as 5% of the total fertile-land.

On the brighter side though, Maddison mentioned that religious institutes in India did not consume as much money as it did in Europe.

Conclusion

In summary, in spite of a few glitches (I would discuss those later), Maddison probably got to the closest to the reality. There are very few Indian scholarly articles that could now-a-days confirm that Indians on an average were richer than the Europeans or the Arabs at the same time. The perils of elitist economy would be felt sooner than anyone expected – during Industrial revolution. The major Indian produce – things such as muslin – were dependent on aristocrats to buy. In a world where mass-production was much more important than elite products – Indians were bound to lose the trade war. Moreover, the producer lived in perils and he had little incentive to innovate or take his production scheme to the next level. All things necessary to produce a failed state were gathering mass under the lavish Mughal aristocracy. The myth of rich Mughal India is thus just another myth.

The primary resource – Class Structure and Economic Growth: India & Pakistan since the Moghuls (1971) by Angus Maddison.

Written by Diganta

February 4, 2013 at 11:57 pm

Bangladesh and its trade imbalance with Asia

with one comment

I tried to collect a few statistics on how Bangladesh fares against other Asian countries in terms of trade balance. This is my follow up article on India Bangladesh trade imbalances. In my previous article I tried to analyze the reason behind the trade imbalance against Bangladesh. The World Bank report provided valuable insight into the same matter.

The statistics shows that Bangladesh runs huge trade deficit against almost all Asian economies. It definitely includes industrial powerhouse Japan and Korea, rapidly developing India and China and even underdeveloped countries such as Myanmar and Nepal. While I considered only 25 top countries in the order of trade volume, I am sure similar statistics would prevail with most of the other Asian countries. Here’s a quick look at top 15 trading Asian countries in terms of export and import (2009), in Euros :

Bangladesh Export-Import against other Asian countries

Bangladesh Export-Import against other Asian countries

So, how big is the trade imbalance? Even though there’s an argument saying Bangladesh exports are hampered by restrictive policies or Non-Trade-Barriers of all these countries, it’s difficult to digest that all these countries adopt similar policies against Bangladesh.

The other argument says Bangladesh has lopsided trade record against India and China. The prescribed remedy is to “fix” these two trade imbalances to get Bangladesh reduce its trade deficit. Again, if “lopsided”-ness is the solo measure of “bad”-trade, then we can look at top 25 Asian countries in terms of Bangladesh import % in total trade. To make this index more clear, the higher the number is – the “worse” the trade is for Bangladesh (i.e. more lopsided in favor of the other partner).

Bangladesh Trade - Import in Total Trade

Well, in this figure, Uzbekistan gets the top spot. Bangladesh imported 269 million Euro worth of goods while exported 2 million Euro worth of goods. In that list India comes at 11th (score of 82), just before the other neighbor Myanmar. China, which runs the highest trade surplus against Bangladesh, figures at third slot, with a score of 95, just behind Kuwait at 96. Ah, the “lopsidedness” of India-Bangladesh trade is better than at least 10 other Asian partners!!

Now, comping back to the “lopsidedness” issue. Let me dig deeper on Uzbekistan-Bangladesh trade. As per this news source –

“Bangladesh imports over 40 percent of its annual 4.0 million bales of cotton requirement indirectly from Uzbekistan, the world’s third largest cotton exporter.”

The trade between Uzbekistan and Bangladesh is normal – Uzbekistan has a lot of surplus cotton bales to export because it doesn’t have the surplus manpower to produce garments out of it. Bangladesh is always looking for cotton to keep its garments and textile industry growing with its active labor force in action. So the win-win fuels such a huge “lopsided” trade deficit for Bangladesh. The import of cotton bales from Uzbekistan enables Bangladesh to avoid importing the same from its competitors – India and China. That in turn enables the textile industry to be more competitive (import of raw materials from competitor means losing competitiveness). So, trade imbalance is not a bad thing, after all.

Should there be a concern over all these trade imbalances? There’s no fixed answer. Currently Bangladesh finances its imbalance by higher export to developed EU+US market and by remittances from Bangladeshis working all over the world (especially in the Middle-East). But, the fact that Bangladesh is running a trade deficit against less industrialized countries such as Myanmar, shows the lack of industrial presence.

There are some figures those are worse that that. Bangladesh exports goods worth of only 35 million Euro to Singapore, 24 million Euro to Malaysia and 24 million Euro to Thailand (corresponding Indian figures are 3.6bn, 1.6bn and 1.1bn Euro). All these countries are located quite close to Bangladesh and are relatively developed. There’s a good opportunity for Bangladesh to increase exports to these countries and participate in labor intensive component manufacturing industries of these nations. Similarly, Bangladesh exports 5 million Euro worth of goods to Kuwait and 4 million Euro worth of goods to Qatar. Given that these two countries have highest per ca-pita income in the region (and of the whole world too) and a large number of Bangladeshi migrants are living in those countries, Bangladesh should do more to increase its export to those.

So, there are lots of food for thought for Bangladesh policymakers in terms of trade relations. Since the center of gravity for World Trade is slowly but surely moving towards Asian countries, and given that most of the Asian countries may not need “cheap-labor” as the developed countries look for these days, Bangladesh could be in trouble if it relies too much on export to developed nations only. It certainly needs to “do more” to increase exports to other parts of Asia. Otherwise, there’s a chance to lose out in the race to globalize.

Source for Bangladesh Trade Statistics : EU Report

Written by Diganta

December 28, 2010 at 1:23 am

Revisiting Regional Cooperation

with 2 comments

After I wrote about Bhutan to become electricity exporter and the Tipaimukh controversy, the flow of events didn’t stop. One of the major initiatives in Bangladesh of late, is the effort for more regional connectivity with neighbors. It’s not only a good sign for Bangladesh, but also could usher in a new era of cooperation among South Asian nations in general.

Take example of Sheikh Hasina’s visit of Bhutan. She started negotiations with Bhutan to use Bangladesh road and ports and to import power from the same. The first one would mean a transit facility from India. And the second one is a bit more complex, import of Hydroelectricity. Both the issues are highly sensitive in Bangladesh and could anytime snowball into a topic of mass debate.

The debate on transit and the Asian Highway is a long-standing one. If Bangladesh gets transit into Bhutan (and subsequently Nepal), almost no rational reason remains from their side not to grant the same to India. The transit facility through India should be reciprocal in nature. As a limited time activity, Bangladesh also has agreed to allow India to import all heavy equipments for proposed thermal power plant in Tripura through Ashuganj port. Sooner or later, there would be a pressure to get other parts open too. Interestingly, this Tripura power plant is proposed to be a joint venture between India and Bangladesh (first of its kind). Bangladesh would invest in it and subsequently would receive a share of its electricity. If the reports of Shamokal is true, then Bangladesh is going to talk to India about sharing electricity from Nepal’s mega hydro-electricity plans – reportedly 5000 MWs out of 46000MW proposed with matching investments upfront.

Relating to one recent controversies, the steps taken by Bangladesh Govt. definitely weaken the hard-line stance suggested by some politicians in the Tipaimukh controversy. The Tipaimukh dam would have generated electricity and controlled flood to some extent but also would have damaged environment. Now, Bangladesh is getting engaged into a joint venture in the same North-Eastern grid to import power. The other power import agreement with Bhutan and plans for the same with Nepal is definitely a tacit approval of Hydro-electricity.

It can be remembered, like all manipulations of natural resources, hydro-electricity also has it’s down-side on riparian population and environment. A lot of developed nations has already expressed opinions against it. During Tipaimukh controversy, people against it pointed to the environmental hazards due to it. However, the same is true about hydro-power in Bhutan and Nepal too. If hydro-power import starts, it will weaken the stance that they will stand against environmental damage at any cost. Rather this places Bangladesh in the developing world league, who views development as a must-have, even if it comes at the cost of environment. Interestingly, some people, who argued against Tipaimukh are welcoming the import of electricity. They should soon choose one of the paths in order to maintain consistency.  Or, they should mention clearly that the problem is due to in project location (India) and they won’t be worried about similar developments in Bhutan or Nepal.

So, how close are the dams in Bhutan and Nepal compared to Tipaimukh? The Torsa river flows 100km inside India (the land distance of 50km only) from Bhutan before it reaches Bangladesh, compared to 200 km distance of Tipaimukh and Bangladesh border. The 336 MW Chukha and 1020 MW Tala Hydropwer projects are in this region. As per reports, there are no Environmental impact assessment at all for these projects. Under the mega plans of Hydro-power generation, Nepal has economically exploitable 42,000 MW power resource out of which 10,180 MW is in Koshi river basin. The proposed high dam on Koshi river would be built approximately 300-350 km away from Bangladesh border. Besides, all major tributaries of the Ganges are from Nepal. A massive scale hydro-power drive in Nepal would alter seasonal flows in the Ganges and could have major environmental side-effects in downstream Bangladesh, especially in Baor area. So, the effects that were expected in Tipaimukh, are also to a major extent true for these projects.

The steps taken by Sheikh Hasina shows what cooperation can kick off. The enthusiasm she has injected into the moribund co-operation agenda of India-Bangladesh-Bhutan-Nepal, should be matched equally with the other side of the border. The pro-development choice is common and normal in a region plagued by poverty and the cooperation is in the right direction to get rid of that.

Written by Diganta

November 17, 2009 at 8:58 pm

Asian Highway in Bangladesh and India Revisited

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I remember writing about Asian Highway issues long back. The situation has changed quite dramatically from then. Bangladesh has joined AH Network despite the little benefit has been promised. A lot of experts has mentioned that Bangladesh won’t get anything from this highway. It is partially true. Bangladesh could have had more to gain if the route through Chittagong to Yangoon was approved.

I came across a nice article in the Daily Star today that discusses highs and lows of Bangladesh decision to get out of the project and then reconsidering it. There are a couple of places Bangladesh could ask for alternative routes – first one is to avoid Tamabil and to join the route through Karimganj-Silchar.

Asian Highway in North East India

Asian Highway in North East India

The blue line is what the Asian Highway would look like right now. The red line was what was proposed initially by India and the UNESCAP. The Bangladeshi expert, who was interviewed by the Daily Star mentioned that Bangladesh actually chose the blue line as AH route among the alternatives. From any common sense, that defeats the purpose. The red line mostly goes through plains and the blue one through hills. The road length, as obvious from the map, is 400km longer through the blue line.

The interesting comment in the interview was the reason behind such a decision. Mr. Rahamatullah (ex-Director of UNESCAP) says –

“I heard some communications ministry top policymaker saying: “Since India has offered this route, it must have some deep interest in it, so we can’t go for it.””

On Dhaka-Chittagong-Gundum-Myanmar route (roughly shown here, wrote about it before), he noted that in future if Bangladesh can convince Myanmar, it could be included in AH route. It is unlikely that it would be treated as AH1, since Myanmar does not have interest in it. India is almost 10 times bigger business partner of Myanmar and it is reasonable for them to look for faster access to India. He also told that Myanmar already have good roads in that direction since the second largest city of Myanmar (Mandalay) is connected through it. However, for a country like Thailand, the proposal of Bangladesh should be more suitable.

But I disagree with him where he says joining AH Network does not mean allowing transit to India. While he is legally correct, it’s understandable that India won’t allow foreign traffic to Bangladesh till it reciprocates with a transit deal. Hence, sans transit deal the Asian Highway would be a mere domestic route for Bangladesh. There is a bigger problem to convince other member states why Bangladesh doesn’t allow transit to India. Bangladesh is a signatory of WTO. WTO treaty clearly mentions mutual transit for each of its member states.

The Article V of WTO treaty states (paragraph 2) that –

“There shall be freedom of transit through the territory of each contracting party, via the routes most convenient for international transit, for traffic in transit to or from the territory of other contracting parties. No distinction shall be made which is based on the flag of vessels, the place of
origin, departure, entry, exit or destination, or on any circumstances relating to the ownership of goods, of vessels or of other means of transport.”

To clarify what transit means, the Havana charter of WTO negotiations states that –

“”a movement between two points in the same country passing through another country was clearly ‘in transit’ through the other country within the meaning of paragraph 1.””

India-Bangladesh transit is merely the same as the above, it connects two points in India via a route through Bangladesh. As a least developed country (LDC), Bangladesh gets sufficient time to fulfill its commitments towards WTO. Currently, Bangladesh ministers “officially” say that their roads are not good enough to handle the additional volume of trade. Once the Asian Highway is operational, this logic would hardly work. Interestingly, Bangladesh joined WTO in 1995 when BNP led alliance was in power. Ironically, the same BNP led alliance is against the transit deal till date. I doubt they overlooked this article.

Mizoram to Sittwe proposed route

Mizoram to Sittwe proposed route

For India, the AH1 is a mixed basket. In the North East region, the circuitous AH proposal should help India to improve the quality of roads as most of important regional Indian cities (Imphal, Kohima, Dimapur, Guwahati and Shilong) are connected to it. The former proposal could only have touched Silchar and Imphal. However, in it’s own interest, India should prepare the latter route also. At the same time, no route is suggested for connecting Mizoram to Sittwe – a proposed trade port to be used by India in near future. Sittwe has been developed as a port to be used by North East India at a cost of 100 million US Dollar. In next 4 years, it should be ready to use. India also did not get Myanmar to agree to Indian proposal to upgrade Stillwell road (also known as the Ledo Road), that connects India to China directly. Both India and China are quite eager for it and completed the respective section of work. Now the connector between India and China would be the Asian Highway 3, which goes through Myanmar to Kunming, China. The other important miss would be the development of Siliguri corridor, which India could have got if Bangladesh stayed out of Asian Highway. However, from international transport point of view, it would have been a disaster. Hopefully, India would get all these to be included as minor Asian Highways at a later point of time.

One nice thing about this stretch of Asian Highway is that it goes through a lot of National Parks in India. A better quality road should make way for a higher tourism revenue in North East Indian states. Not only that, they could now easily get connected to prosperous South East Asia to latch onto economic boom. In next few decades, the North East India, riding on high literacy, could turn out to be a major outsourcing destination for South East Asian Nations.

Written by Diganta

June 19, 2009 at 2:52 am

Afpak and India – The new Transit Trade Treaty

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Last week when news came about Pakistan signing transit trade treaty with Afghanistan and it will eventually enable India to send its cargo through Pakistan, I was not surprised. The Pakistan transit was a matter of time and it had to happen. It’s good that at least the negotiations have started. Hopefully, the conclusion will also be good for all of us.

Historically, the trade between India and Afghanistan used to be through Khyber pass. The equation changed after India was partitioned in 1947. After that, the route was solely used by Afghanistan-Pakistan and not for Indian trade. While Pakistan said Kashmir is the reason for the denial, Indians never felt that interested in Afghanistan since their friend USSR was already there, bordering Afghanistan.

After the fall of USSR, Afghanistan went under the Taliban and India lost that advantage. Among all mistakes the Taliban regime did – a couple needs mention. They sheltered Osama bin Laden who was instrumental in 9/11 attack – we all know that. The second was the on the same date but 3 years earlier. On the September 11th, 1998, Taliban captured Mazar-i-Sharif and killed all Iranian diplomats (from Iranian Press) along with thousands of Shia Hazaras.

That brought India and Iran close for evicting Taliban and the master-plan to bypass Pakistan in India-Afghanistan trade was drawn. The UN approved attack on Afghanistan was when it started to fulfill. India-Iran jointly built a port named Chahbahar near Pakistan’s port of Gawdar. This port connects to Zaranj in Iran-Afghanistan border. It solved part 1 of the problem but the part 2 remained. There were no Highway to connect Zaranj with nearest Afghanistan city of Kandahar. Indians included that in their mission in their 1.1 billion dollar aid to Afghanistan. The construction ended and the highway was handed over to Afghanistan in January, 2009. (See image – thanks to Stratfor)

India-Iran-Afghanistan transit trade route

India-Iran-Afghanistan transit trade route

For long, US-supported Government in Afghanistan wanted to import goods from India through Pakistan. Their reasoning was simple – they didn’t want to rely on Pakistan as the sole supplier of their country. Pakistan allowed Afghanistan to use their trucks up to India-Pakistan border but did not allow them to load back to Kabul. Pakistan used to charge exorbitant fees for Afghan goods in the port of Karachi. Things changed suddenly. To be competitive, Pakistan had to reduce their customs duties in Karachi port. A lot of Afghans still see the Iranian port to be the only other option than their traditional Pakistan route to sea.

Now Pakistan had only a single option on transit – to allow India a direct transit to Afghanistan. They don’t gain by preventing it since the alternative is available. The Government took the logical step, they started negotiations. Pakistan can also gain out of negotiations, since they’ll also get access to Central Asia through Afghanistan. The latter denies Pakistan such access since the agreement is reciprocal.

India-Pakistan-Afghanista Transit Trade route (Also the Links with Central Asia)

India-Pakistan-Afghanista Transit Trade route (Also the Links with Central Asia)

I read the Pakistani newspaper the Daily Times and they put it in details.

“The memorandum signed in Washington is in fact a realization that Pakistan’s importance as a transit country for Afghanistan’s trade is virtually at an end. Giving India the right to use Pakistan’s territory for its goods going to Afghanistan will effectively undermine the importance of the alternative Chabahar route. But Pakistan will have to address the issue of trade routes in general under SAARC — the organisation has prepared an elaborate road networks project joining all the member states — and dwell a little more on the dictum that trade effectively destroys all conflict and replaces it with shared economic prosperity.”

They also seem to summerize the whole incident with a nice little sentence –

“If you don’t exploit your geopolitical importance by allowing trade routes, new trade routes tend to by-pass you.”

The above sentence is true for all major geo-political regions. The next could be India-Bangladesh transit issue – that also could be resolved by creating alternatives.

Written by Diganta

May 10, 2009 at 12:22 am

Bhutan : The Next Data Hub

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Bhutan and Electricity

For long I didn’t write about one of our neighbors – Bhutan. Of late, Bhutan has become a fast growing economy with an increase in export of electricity (earned $175 million). The economy grew as high as 22% in 2007. And, there are six giant hydro-electric projects coming up soon to take the generation capacity upto 10,000MW by 2020. The India-Bhutan co-operation could chage the entire economic scenario of Bhutan. It has a potential to produce 30,000MW of power, of which only 2000MW is generated. So, it could earn a couple of billion dollars easily with export of electricity.

[Al-Jazeera reports from Bhutan]

The Potential

If we look at world history of economic development, a few countries went up in the ladder of economic development only through exploitation of their natural resources. Most of the others actually used their resources more and more efficiently, for higher value added products and services. So, Bhutan should concentrate not only on getting more and more revenue out of electricity export, but also at making more efficient use of cheap electricity to build up electricity intensive industries.

Given this context, I am not at all surprised to read (source1, source2) that big MNCs are setting up Data centers in Bhutan. Along with this, there are proposals to have Data Disaster Recovery Center (can be another form of Data center), BPO and other kinds of Software Development activities. The Bhutanese news media has hailed these proposals and rightly suggested that Bhutan has potential to become the cyber hub of Asia.

“Given Bhutan’s surplus power, it could be a data center for a lot of Asian countries, and all IT Indian companies. Data Centers are places where large power intensive computers are set up with the conditions of power, connectivity and stability. ”

“Microsoft expressed interest to help Bhutan in terms of education and possibly to set up data centres”

From wiki –

“A data center is a facility used to house computer systems and associated components, such as telecommunications and storage systems. It generally includes redundant or backup power supplies, redundant data communications connections, environmental controls (e.g., air conditioning, fire suppression) and security devices.”

I searched online to find that there are a few basic prerequisites of a place to be successful as a Data center location. And, as per experts, the key component of the prerequisite is the cost of power. It is noted that

“According to AFCOM’s 2005 survey of its members, data center power requirements are increasing an average of 8% per year.”

Furthermore, Gartner has already predicted that –

“By 2008, 50 percent of current data centers will have insufficient power and cooling capacity to meet the demands of high-density equipment … Traditionally the power required for non-IT equipment in the data center (for example, cooling, fans and pumps) represented about 60 percent of total annual energy consumption. As power requirements continue to grow, energy costs will emerge as the second highest operating cost in 70 percent of worldwide data center facilities by 2009.”

No wonder that Bhutan can provide green, cheap and reliable power supply for data centers. More interestingly, Bhutan is a cooler and pollution-free country than the locations having most of the data centers. This will significantly reduce the cooling cost for equipments.

The next important thing is the security. Bhutan does have a very low crime rate and ranks high in Global Happiness Rankings. It is also located in between two future powers – India and China – which enables it to have secured borders with little investment in defense.

The missing things should not stand in the way. Bhutan is yet to be connected through Fiber Optic cable since it is a landlocked country. But, bordering West Bengal is going to have a submarine cable landing station very soon. The station, in Kanthi, is approximately 600km away from Bhutan. If the demand increases, a higher bandwidth cable can bank in the shore of Bengal to cater to the data centers. Bhutan is well-connected with India (550kms away from one of the Indian Metro city – Kolkata), but it needs better connectivity with China, Singapore and the Western world. To begin with, there are indeed no local talent pool available, but it will grow with time. Indian IT professionals can work in Bhutan to keep the data centers running. Marriage of cheap power with cheap skilled-labor can create win-win situation for India and Bhutan. Although Bhutan is located in the Earthquake belt, there has not been much damage due to earthquake till date. To kick start the whole process, the Government of Bhutan can announce a tax holiday for setting up data centers in Bhutan. The government has roped in McKinsey, a consultancy firm, to see how Bhutan’s potential could be converted into opportunities.

The Advantage Asia Paradigm

In the next century, most of the world will be digitized, i.e. most of the information will be stored as digital information. As each human being has some data (payroll, human resource, election, survey and even personal emails) for himself/herself , the amount of information is directly proportional to the population density of a region. India, China and South-East Asia have already started digitizing most of the information, Bangladesh is going to follow soon. Given all the potential Bhutan has, to convert itself into the data-hub for Asia, we can also see how Asia will gain out of Bhutan.

As Bhutan is located (follow the arrow mark) very close to one of the most dense world population, an increased digital activity in the region will translate into the demand of data center capacity in Bhutan. Right now, most of the data centers are located in USA, so it takes longer to retrieve data and send it across the network half way through the globe.

As we talk about the network, we can understand what happens when a undersea cable is broken in Egypt or Algeria. Bhutan, even before it has a live data center, can offer the Asians the facility to backup sensitive data as a part of disaster recovery.

Conclusion

As the supply of Indian service professionals reduced the service cost, the factories in China reduced the cost of commodities across the world making it affordable for poorer people to live with dignity, Bhutan can contribute with cheap power to decrease the cost of hosting data. It can be a giant step towards globalization of data. It’s a win-win game for Bhutan and the rest of the world.

Photo Courtesy – GRIDA.

Written by Diganta

December 31, 2008 at 1:55 am

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