Successful launch of IRNSS 1A: A new milestone in Indian Space Programme

The successful launch of Indian Regional Navigation Satellite System (IRNSS) 1A from Satish
Dhawan Space Centre, Sriharikota, on July 1 opened a new page in the history of Indian space
programme. Indian Space Research Organisation (ISRO) Chairman K. Radhakrishnan has
congratulated the team and said, with this successful launch, India had entered a new era in space
applications.

In the midnight launch, Indias workhorse Polar Satellite Launch VehicleC22 (PSLVC22) lifted
off at 11.41 pm on Monday night carrying the indigenous IRNSS -1A. The satellite was successfully injected
into a sub geosynchronous transfer orbit, which has a 284-km perigee (nearest point to the Earth) and
20,650 km apogee (farthest point from the Earth).

With the increasing role and importance of satellite navigation systems in both military as well as civilian
point of view, the IRNSS-1A launch can be considered as an important milestone in Indian space
programme. The IRNSS project would provide India with an independent regional navigational satellite
system. The IRNSS has wide ranging civilian and military applications and possession of such advanced
navigation system is very crucial for a country like India, from both economic and strategic point of
views.

This article provides an in-depth understanding about the IRNSS in the present context.

ABC of Satellite Navigation System
Identification and observation of the location and movement of a person/object/vehicle are called
location positioning and navigation. These two activities play a very vital role in different civilian and
military activities. Think about identifying the whereabouts of the stranded pilgrims in recent floods in
Uttarakhand, or tracking a moving ship in the high seas, or army spotting the movements of the enemy at
the countrys border, or even finding the address your friends new residence on your mobile phone or
tablet. All these are positioning and navigation-based activities. Today, the satellite navigation systems
have emerged as the prominent navigation systems.

A satellite navigation system is a system of satellites that provide autonomous geo-spatial positioning
of a person or object. Satellites determine their location (longitude, latitude, and altitude) to within a few
metres using time signals transmitted along a line-of-sight by radio from satellites. Receivers calculate the
precise time as well as position, which can be used as a reference.

The position accuracy of NSS would be based up on the capacity of navigational equipment that is
deployed on the satellites and their geometrical condition in the orbits. For example, while IRNSS could
provide accuracy of better than 10 meters throughout Indian Landmass and its satellites can come up with
better quality signals based on their position on the orbits.

Generally global coverage for each system is generally achieved by a satellite constellation of 2030
Medium Earth Orbit (MEO) satellites spread between several orbital planes.

Based on their range of coverage, satellite navigation systems can be divided into Global Navigation
Satellite System (GNSS) and Regional Navigation Satellite System (RNSS). While the GNSS
would have full global coverage, the RNSS would have limited coverage intended for specific area.

For example, the US NAVSTAR Global Positioning System (GPS) and Russian Globalnaya
Navigatsionnaya Sputnikovaya Sistema or Global Navigation Satellite System (GLONASS) are the
examples of GNSS. Indeed they are the only two operational GNSSs in the world. Indias IRNSS and
Japans Quasi-Zenith Satellite System (QZSS) are the examples for RNSS.

There is another technical variant of satellite navigation system, which is called Satellite-based
Augmentation System (SABS). This system also takes the support of satellites; however, its basic
function is not to provide location positioning data, but to strengthen the signals of source NSS through
the use of additional satellite broadcast messages. The SABS augmentation improves the quality of signals
of the source NSS. The SABSs are commonly composed of multiple ground stations, located at accurately-
surveyed points. The ground stations take measurements of one or more of the GNSS satellites, the
satellite signals, or other environmental factors which may impact the signal received by the users. Using
these measurements, information messages are created and sent to one or more satellites for broadcast to
the end users.

Wide Area Augmentation System (WASS) of the USA, European Geostationary Navigation Overlay
Service (EGNOS) of Europe, GPS and Geo-Augmented Navigation System (GAGAN) of India and the
QZSS of Japan are some of the examples of SABS.

NSS and SABS are not completely exclusive to each other; a single system can conduct the duties of both -
the NSS and SABS. For instance, QZSS is both an RNSS and an SABS.

Need for independent navigation system
Satellite positioning has emerged as the most reliable navigation system in the world and its applications
are manifold. Success of the NAVSTAR GPS of the US, the worlds first GNSS, has demonstrated the
power of satellite navigation system to the world. The GPS has hundreds of thousands of U.S. and allied
military users for its secure GPS Precise Positioning Service and tens of millions of civil, commercial and
scientific users for its Standard Positioning Service.

The US claims that it provides all GPS civilian signal services for free of cost to anybody from any part of
the world. However, the super power would not provide guaranteed access to GPS in hostile situations.
The US government can block GPS signals whenever it wants and this leaves other countries vulnerable
during the times of hostilities and difference with the super power.

This concern has prompted the major countries across the world, including India to develop their own
satellite navigational systems. The commercial success of GPS is another incentive for other countries to
start their own global positioning systems.

Satellite navigation systems of the world
So far, the USA, Russia, European Union, China, Japan, and India have their satellite navigation systems.
While Russia has built its GLONASS and made fully operational, the other countries have been building
their systems still, with parts of them being accomplished and operational already.

Here are the details of those systems -
The US has started its NAVSTAR GPS project in 1973 to overcome the limitations of previous navigation
systems. The project was created and implemented by the US Department of Defense. The GPS was
originally planned to run with 24 satellites. Since then the system has modernised thoroughly and
presently operates with 31 satellites.

The GPS, which became fully operational by 1994, has revealed the vast possibilities that satellite
supported navigation systems can offer to the consumer segment. It has become a byword for locational
positioning systems across the world and the most popular of GNSSs. The civilian uses of GPS include
astronomy, cellular telephony, cartography, disaster management, emergency services, fleet tracking,
vehicle tracking, aircraft tracking, GPS for mining, recreation, robotics, surveying and telematics, among
others.

Emulating itself, Russia has built GLONASS as an answer to American GPS. GLONASS consists of 24
satellites and has full global coverage. For its association with the project, India has acquired both military
and civilian access to this system and it is the only country that has access to the military section of this
GNSS. GLONASS is finding increasing acceptance in different quarters of the world. It is being clubbed
with GPS for improved signal clarity. The GLONASS has become fully operational since October 2011.

European Union has started its own GNSS i.e. Galileo, due to the difficulties of complete dependence
on the US GPS and doubts about plausible development of Russian GLONASS. According to the Galileo
project official website, almost 6-7 % of EU GDP, which is about 800 billion Euros, depends on satellite
navigation. This economic reason also has prompted the EU to opt for its own GPS. Galileo consists of 30
navigation satellites. The launch of first two satellites took place in October 2011 and the system would be
operational at full by the end of 2019.

China is presently developing its own BeiDou Navigation Satellite System (BDS), which is a GNSS.
The Chinese navigation system project can be divided into two parts, and has two separate constellations
of satellites. The first constellation forms the BeiDou Satellite Navigation Experimental System or
BeiDou-1, which is a regional navigation system. It consists of three satellites and they mainly cover China
and its surrounding areas. BeiDou-1 has been offering navigation services, mainly for customers in China
and neighboring regions, since 2000. The second constellation is an extension to BeiDou-1 and is known
as BDS or Compass navigation system. It is a global navigation system and consists of total 35 satellites.
BDS became operational in China since December 2011, with 10 satellites in use. The project is expected
to be completed by the end of 2020.

Japans QZSS is a proposed three-satellite RNSS and SABS. It is targeted at mobile applications, to
provide communications-based services (video, audio, and data) and positioning information, which
would be receivable within Japan. The first satellite Michibiki was launched on 11 September 2010 and
full operational status of this RNSS is expected by 2013. In March 2013, Japan has decided to add one
more satellite to this system.

The structure of IRNSS
The IRNSS consists of two segments viz. - space and ground segments. India will have full control
over the system with the all components of space segment, ground segment and user receivers being built
in India.

The space segment comprises 7 navigation satellites, in which three of them would placed in geostationary
orbit and remaining four would be positioned in geosynchronous orbit. The seven satellites revolve in the
orbits in such a way that all of them would have continuous radio visibility with Indian control stations.

The IRNSS is expected to become fully functional by the end of 2015. Each satellite payload consists of
three extremely accurate rubidium atomic clocks and electronic equipment to generate navigational
signals.

The space segment comprises 7 navigation satellites, and expected to become fully functional by the
end of 2015. The satellite payloads would consist of atomic clocks and electronic equipment to generate
navigational signals. The seven satellites revolve in the geostationary orbits (GSO) in such a way that all of
them would have continuous radio visibility with Indian control stations.

The ground segment includes a Master Control Centre (MCC) located at ISROs Deep Space Network
(DSN) at Byalalu near Bangalore and 21 ranging stations located across the country to provide data for the
orbit determination of the satellites and monitoring of the navigation signal.

While the MCC and some of the ground stations track and estimate the satellites' orbits and ensure the
integrity of the network (IRIM), the other ground stations will monitor the health of the satellites with the
capability of issuing radio commands to the satellites (TT&C Stations). The MCC would estimate and
predict the position of all IRNSS satellites, calculate integrity, makes necessary ionospheric and clock
corrections and run the navigation software. In pursuit of a highly independent system, an Indian
standard time infrastructure would also be established.

The system is intended to provide an absolute position accuracy of better than 10 meters throughout
Indian Landmass and better than 20 meters in the Indian Ocean as well as a region extending
approximately 1,500 km around India.

The total cost of the project is expected to be 1,420 crore (US$ 240 million), with the cost of the ground
segment being 300 crore (US$ 51 million) and each satellites costing 125 crore (US $ 21 million).

Usages of IRNSS
The IRNSS is an independent regional navigation system, which would be under complete control of
Government of India.

The system would provide two services, with the Standard Positioning Service open for civilian
use and the Restricted Service, encrypted one, only for authorised users of the military.

The civilian usages include Terrestrial, Aerial and Marine Navigation, Vehicle Tracking and Fleet
Management, Integration with mobile phones, Precise Timing, Mapping and Geodetic data capture,
Terrestrial navigation aid for hikers and travelers and Visual and Voice navigation for drivers. This service
envisages several applications for commerce, banking, telecommunication, automobile, transportation
and banking sectors.

Disaster management is another area which benefits heavily from this regional navigation system. For
example, right after full commencement of GLONASS, Russia launched two projects in 2010: the
introduction of a single helpline number (112) for all rescue services, medical and police services in
emergency situations. The creation of an emergency response system in case of car accidents (ERA-
GLONASS) is the second, which will become operational throughout Russia by 2014.

In civil aviation sector, India has already mooted an SABS project i.e. GPS and Geo-Augmented
Navigation System (GAGAN). It is a regional SABS, which is being implemented for Airports
Authority of India by the ISRO, for the upgradation of air traffic management across the country. GAGAN
improves the accuracy of NSS receivers by providing additional reference signals. This in turn shall
improve the accuracy in landing and takeoff of the flights, which means better air safety and more profits
to airliners. The experience of GAGAN is expected to be utilised in the future operations of the IRNSS.
The location positioning services thus have innumerable applications in civilian sectors.

The IRNSS also provides encrypted location positioning services to the Indian defence
forces, like the GPS does to the US military. Tracking of the enemy movements in both sides of the
boarders and missile tracking and targeting could two important military applications that IRNSS could
provide. Possession of own NSS also gives thrust modernisation of Indian military communications.
Though India has free access to military services of Russian GLONASS, it would be always imperative for
a country of Indias stature to have its own encrypted location positioning services as it cannot entirely
depend on any other country, howsoever friendly the other country is, for such vital requirement.

IRNSS -1A
IRNSS-1A is the first three satellites which revolve in geostationary orbit of the IRNSS space segment. The
weight and height of the satellite are 1,425 kg and 1.5 meters, respectively, and has 10 years of mission life.

IRNSS-1A is the first of the seven satellites constituting the IRNSS space segment. The weight and height
of the satellite are 1,425 kg and 1.5 meters, respectively, and has 10 years of mission life.

The 1A was injected into orbit by PSLVC22 in its XL format. The XL launch vehicle would have bigger
strap-on motors than the general PSLV vehicle and this format is used when huge satellites are to be
placed in the orbits.

Payloads - IRNSS-1A carries two types of payloads Navigation Payload and Ranging Payload. The
navigation payload will transmit navigation service signals to the users. Its signals consist of a Special
Positioning Service and a Precision Service. The navigation payload will use L5 band and S band for
transmission of its signals. A highly accurate Rubidium atomic clock is a part of the navigation payload of
the satellite.

The ranging payload of IRNSS-1A consists of a C-band transponder which facilitates accurate
determination of the range of the satellite. The satellite also carries Corner Cube Retro Reflectors for laser
ranging.
Lift-off Mass 1425 kg
Physical
Dimensions
1.58 metre x 1.50 metre x 1.50 metre
Orbit Geosynchronous, at 55 deg East longitude with 29 deg inclination
Power
Two solar panels generating 1660 W, one lithium-ion battery of 90 Ampere-Hour
capacity
Mission Life 10 years
Launch date Jul 01, 2013
Launch site SDSC SHAR Centre, Sriharikota, India
Launch vehicle PSLV - C22a
Source: ISRO Website

PSLV-C22
The PSLV-C22 has four stages, in which a solid propellant named Hydroxyl Terminated Poly Butadine
(HPTB) was used in the first and third stages and a liquid propellant named Unsymmetrical dimethyl
hydrazine + 25% Hydrazine Hydrate (UH 25) in its second and fourth stages. Nitrogen Tetroxide (N2O4)
was used as oxidizer. In the fourth stage, Mono Methyl Hydrazine (MMH) was used as the propellant and
Mono Methyl Hydrazine (MON-3) as oxidizer.

The PSLV used for the launch of IRNSSS-1A is called PSLV- XL and this is the fourth time such a
configuration is being flown, the previous three being PSLV-C11/ Chandrayaan-1, PSLV-C17/ GSAT-12
and PSLV-C 19/ RISAT-1 missions. The length of PSLVC22 vehicle is 44 meters, weight 320 tonnes
during the lift off.

FDI
What is FDI?
Foreign Direct Investment is the investment which is done in productive assets and participation in the
management of the company as the stake holders by a company which is based in one country, into a
company based in another country. Recently the cabinet said OK for 51% FDI in multi-brand retail sector
& 100% FDI in single brand. Foreign Investment in India is governed by the FDI policy announced by the
Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. RBI also
issues notifications which contains the Foreign Exchange Management (Transfer or issue of security by a
person resident outside India) Regulations, 2000 and had been amended many times. The Ministry of
Commerce and Industry, Government of India is the nodal agency for motoring and reviewing the FDI
policy on continued basis.

Ways of investment?
The investing company may make its overseas investment in a number of ways - Joint Ventures, merger,
Franchising, Sourcing of Supplies from small-scale sector, Cash and Carry whole sale trading, Non-Store
Formats, Strategic Licensing Agreements, either by setting up a subsidiary or associate company in the
foreign country, by acquiring shares of an overseas company.
The foreign retail chains will need to make very expensive real estate investments which may or may not
be feasible in the long run.

Who are the target group for FDI?
The people who prefer going to shopping malls instead of kirana shops constitute not a sizable percentage
and who belong to affluent, upper middle and middle class. As such there is no immediate threat to the
kirana shops or small venders, as they have their own share of customers with whom they share a special
relationship.

Why only India?
India has a population of nearly 1.2 billion, and many countries feel it as most alluring and thriving retail
destination. Liberalization of trade policy and loosening of barriers and restrictions to the foreign
investment in the retail sector of India, have made the FDI in retail sector quite easy and smooth. India
being a signatory to World Trade Organisations General Agreement on Trade in Services, which include
wholesale and retailing services, had to open up the retail trade sector to foreign investment. In 1997, FDI
in cash and carry (wholesale) with 100 percent ownership was allowed under the Government approval
route. It was brought under the automatic route in 2006. 51 percent investment in a single brand retail
outlet was also permitted in 2006. India being an open economy with skilled workforces and good growth
prospects tend to attract larger amounts of foreign direct investment among other growing and emerging
markets.
Advantages of FDI:
1. There would be increase in revenue to the state exchequer in the form of taxes
2. Counties which have shortage of funds for developmental activities would find it beneficial if they
go for FDI thereby improving the country's "shunned sectors" -- infrastructure and logistics. So in
order to grow faster and compete with the other countries foreign investment would turn out to
be very fruitful.
3. There would be increase in employment opportunities
4. All multi brand products are available under one roof and there would be greater range and
variety of products for sale and increased consumer choice
5. Competitive spirit and good managerial skills would be introduced in the country
6. Festival discounts would be available to the people
7. Many under developed and developing countries will be benefited with the introduction of FDI.
8. Best corporate and management practices would be introduced in the country
9. Better usage and utilization of natural resources
10. Helps in bridging infrastructural gaps (especially rural infrastructure) and technological hiccups.
11. Services at large would be benefited to people belonging to urban and semi urban areas
12. There would be improvement in the quality standards
13. Acceptance of credit, debit and Sodexo cards also encourage the purchases in big shopping malls
14. Permitting foreign investment in food-based retailing is likely to increase the capital flow into the
country.
15. Usage of latest technologies in the farming sector can improve farmers income (by reducing
wastage of agricultural produce, enabling them to get better prices) & agricultural growth thereby
lowering consumer prices inflation.
16. By selling their goods directly to the foreign players would help the farmers in getting
remunerative prices by their produce therefore reducing the long chain of intermediaries or
middlemen.
Disadvantages to FDI:
1. Multi national companies require high investment, infrastructure facilities, packaging costs,
advanced security system, high maintenance costs and very high variable cost of operation. And
may be in the long run incurring huge losses.
2. Many fear that a time would come when these MNCs making direct investments start dictating
terms over the company into which the investment is made may influence the political system in
the country. And many politicians felt allowing FDI in retail will push the country towards
economic slavery
3. Small vendors and hawkers feel that these big giants would badly affect the domestic industry,
thereby affecting their livelihood.
4. The items which these Multinational companies introduce in the market are beyond the
competitive capacity of the small venders.
5. Multi National Companies (MNC)s could generate meager employment opportunities that is to
for selected professional people. Farmers would be affected due to monopolization of the MNCs,
competition, loss of entrepreneurial opportunities and self employed indigenous retailers who
provide employment to many will be forced to close down their shops as they unable to face the
highly unhealthy competition from the MNCs
6. Due to increase in multi brand products and increased purchasing power people are introduced to
a new kind of lifestyle which they are not used to may force to change their lifestyle which may
affect their future economically.
7. Unlike in America where the shopping malls are in the outskirts of the city and the family shops
for a month and it is considered as a family activity. Whereas in India food items are purchased in
small quantities as many do not have adequate money to buy for a month nor do they have
massive storage facilities at home. Unlike Americans, Indians do not drive miles and do bulk
purchasing.
In what way FDI is beneficial to farmers?
The Indian Farmer and Industrial Alliance (IFIA), a joint venture of the Consortium of Indian Farmers
Associations (CIFA), recognized the potential benefits of eliminating middlemen and has expressed its
support for opening the retail sector to foreign investment.

Views against the FDI :
1. Small traders feel they will not be able to withstand the competition. self employed indigenous
retailers who provide employment to many will be forced to close down their shops, unable to face
the highly unhealthy competition from the MNCs
2. Some felt that the government should impose a blanket ban on foreign retailers from entering
into retail trade
FDI in Retail Sector
What is Retail sector?
In 2004, The High Court of Delhi defined the term retail as a sale for final consumption in contrast to a
sale for further sale or processing (i.e. wholesale). The Retail Industry is the sector of economy which is
consisted of individuals, stores, commercial complexes, agencies, companies, and organizations, etc.,
involved in the business of selling or merchandizing diverse finished products or goods to the end-user
consumers directly and indirectly. A retailer is involved in the act of selling goods to the individual
consumer at a margin of profit. Thus, retailing can be said to be the interface between the producer and
the individual consumer buying for personal consumption.

According to the Investment Commission of India, the retail sector is expected to grow almost three times
its current levels of $250 billion to $660 billion by 2015. The Indian Retail Industry is the 5th largest
retail destination and the second most attractive market for investment in the globe after Vietnam as
reported by AT Kearneys seventh annual Globe Retail Development Index (GRDI), in 2008 Retail sector
contributes to maximum percentage of employment after agriculture. In spite of the recent developments
retail sector is assumed to possess huge growth potential. The retail industry is mainly divided into:-

1) Organised and
2) Unorganised Retailing

Organised retailing- refers to trading activities undertaken by licensed retailers, that is, those who are
registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail
chains, and also the privately owned large retail businesses. In India 97% of the business is done by
organized sector.

Unorganised retailing - refers to the traditional formats of low-cost retailing, for example, the local kirana
shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement
vendors, etc.

What is FDI in Multiple brand retail?
Multiple brand retail means selling the same product under different brand names. FDI in multi-brand
retailing should be carefully monitored as there are chances that if left alone it can directly impact a large
percentage of population and would ultimately deepen the gap between the rich and the poor. So in order
to ensure development, it can be stipulated that a percentage of FDI should be spent towards building up
of back end infrastructure, logistics or agro processing units, and reconstituting the poverty stricken and
stagnating rural structure with at least 50% of the jobs in the retail outlet should be reserved for rural
youth.

What is FDI in Single brand retail?
FDI in Single brand retail means that a retail store with foreign investment can only sell one brand. i.e. if
a foreign brand want to sell its product in India then it has to sell its product with the same name rather
using a new name. The main motive to introduce such a policy was to enable Indians to spend the money
on the same goods in India which they spend on shopping abroad.
Allowing 100%FDI in single brand retail would be of twin benefit to both the forging player and the
Indian businessman as the foreign investor would develop knowledge and understanding of the Indian
market. Whereas the Indian businessman would get to know about the global best management practices,
designs and technological knowledge.

Advantages of Mom-and-Pop Retail outlets:
1. Small kirana stores all available at almost every street in villages and cities and both seller and
buyers share a special bondage because of proximity in living in same area which is absent in the
big shopping malls.
2. Kiranas are patronized by the local folks due to personalized human touch which is not available
in the malls as they possess more of business oriented approach.
3. Items can be purchased in small quantities
4. Due to acquaintance with the people in locality the kirana shops allow credit for certain periods of
time.
5. These outlets are a place of discussions for many people
6. Large Bargaining Power is available whereas in malls there is no scope for bargain.
7. Not much of an investment is needed and can be established every where. Even in the front yard
of the house a shop can be established whereas malls cannot be established every where as they
need big space.
8. Less manpower is required, less infrastructure and shops are generally established at a walk able
distance.
9. These are generally run by people of low income groups and it is a good source of self employment
and an avenue for employment generation.
10. There would be long operating hours, strong customer relations, convenience and hygiene.
Disadvantages of Mom-and-Pop Retail outlets:
1. Not much of range and variety of goods are available resulting in less choice
2. Generally kirana stores are small and there is no scope for a good ambience
India and the Global Financial Crisis What Have We Learnt?
By all accounts the 2008/09 crisis has been the deepest financial crisis of our times. It has taken a
devastating toll on global output and welfare. Arguably, the fundamental causes of all financial crises are
the same - global imbalances, loose monetary policy and high levels of leverage driven by irrational
exuberance. In that respect, this crisis has been no different.

5. Where this crisis has been different, however, is in its manifestation. Most recent crises had occurred in
individual emerging economies or regions, and they were, at their core, traditional retail banking or
currency crises. The countries in trouble could be rescued by multilateral interventions; besides, the
advanced countries provided a buffer for trade and financial support. In contrast, this crisis originated in
the most advanced economy, the United States, and hit at the very core of the global financial system.
With virtually no buffers to fall back on, the crisis rapidly engulfed the whole world. Much to their dismay,
emerging market economies too were soon pulled into the whirlpool.

How was India hit by the Crisis?
India was no exception. We too were affected by the crisis. Output growth that averaged 9.5 per cent per
annum during the three year period 2005/08 dropped to 6.8 per cent in the crisis year of 2008/09.
Exports that grew at 25 per cent during 2005/08 decelerated to 12.2 per cent in the crisis year (2008/09)
and declined by 2.2 per cent in 2009/10. In the pre-crisis years, we had capital flows far in excess of our
current account deficit. In contrast, during the crisis year, net capital flows were significantly short of the
current account deficit and this put downward pressure on the rupee. The exchange rate depreciated from
` 39.37 per dollar in January 2008 to ` 51.23 per dollar in March 2009.

Notwithstanding our sound banking system and relatively robust financial markets, India felt the tremors
of the tectonic shocks in the global financial system. The first round effects came through the finance
channel by way of sudden stop and then reversal of capital flows consequent upon the global deleveraging
process. This jolted our foreign exchange markets as well as our equity markets. Almost simultaneously,
our credit markets came under pressure as corporates, finding that their external sources of funding had
dried up, turned to domestic bank and non-bank sources for credit.

By far the most contagious route for crisis transmission was the confidence channel. For weeks after the
Lehman collapse in mid-September 2008, everyday there was news of yet another storied institution
crashing. In this global scenario of uncertainty, the lack of confidence in advanced country markets
transmitted as hiccups to our markets too. The net result was that all our financial markets - equity, debt,
money and foreign exchange markets - came under varying degrees of pressure. Finally, the transmission
of the crisis through the real channel was quite straightforward as the global recession that followed the
financial crash resulted in a sharp decline in export demand for our goods and services.

Why was India hit by the Crisis?
There was dismay in India that we too were affected by the crisis, and this dismay arose mainly on two
counts. First, the exposure of our banks to toxic sub-prime assets was marginal and their off balance sheet
activities were limited, and so, the argument went, we should not have been affected by a financial sector
crisis that originated from these causes. Second, Indias growth is driven by domestic demand and a drop
in external demand, it was contended, should have caused no more than a small dent in output growth.
Yet the crisis hit us, and did so more ferociously than we thought possible. The reason for this is
globalization: India is more integrated into the global system than we tend to acknowledge. Let me
illustrate that point with some broadbrush numbers.

Indias two way trade (merchandize exports plus imports), as a proportion of GDP, more than doubled
over the past decade: from 19.6 per cent in 1998/99, the year of the Asian crisis, to 40.7 per cent in
2008/09. Note that global trade declined by 11 per cent in 2009 as a result of the crisis in contrast to a
robust average growth of 8.6 per cent during the previous few years 2004/07. Such a sharp collapse in
world trade had an impact on our export demand demonstrating that our trade integration was quite
deep.

If our trade integration was deep, our financial integration was even deeper. A measure of financial
integration is the ratio of total external transactions (gross current account flows plus gross capital
account flows) to GDP. This ratio had more than doubled from 44 per cent in 1998/99 to 112 per cent in
2008/09 evidencing the depth of Indias financial integration. In sum, the reason India was affected by
the crisis, despite mitigating factors, is its deepened trade and financial integration with the world.

Managing Globalization
What the experience of the crisis demonstrated clearly was the power of globalization. Globalization is a
double edged sword; it opens up incredible opportunities but also poses immense challenges. India surely
benefitted from opening up to the world but had also incurred costs on that count. The challenge for
India, and indeed for all Emerging Market Economies (EMEs), is really to minimize the costs and
maximize the benefits of globalization.

Lessons of Crisis
A lot is being written about how this crisis has been too important to waste, how we should learn the
lessons of the crisis and apply them in a Schumpeterian creative destruction mode. Some people have,
however, questioned the wisdom of drawing lessons even before the crisis is fully behind us. When Zhou
Enlai, former Chinese Prime Minister, was asked what he thought of the French Revolution, he said it was
too early to say. Historians who take a long view may agree with Zhou Enlai but practical policy makers do
not enjoy that luxury. So, let me use the opportunity of this platform to draw out eight big picture lessons
of the crisis.

Lesson 1: In a globalizing world, decoupling does not work
The crisis challenged many of our beliefs, and among the casualties is the decoupling hypothesis. The
decoupling hypothesis, which was intellectually fashionable before the crisis, held that even if advanced
economies went into a downturn, EMEs would not be affected because of their improved macroeconomic
management, robust external reserves and healthy banking sectors. Yet the crisis affected all EMEs,
admittedly to different extents, bringing into question the validity of the decoupling hypothesis.

15. Some analysts argue against such an outright dismissal of the decoupling hypothesis and suggest a
more nuanced evaluation. Recent IMF research2 in fact illustrates that the transmission of distress from
advanced economies to EMEs took place in three distinct phases. The first phase runs from the time early
signs of the crisis appeared in mid-2007 till the Lehman collapse in September 2008. During this period,
the growth performance of EMEs outshone that of advanced economies indicating decoupling. The
second phase, starting with the Lehman collapse till the first quarter of 2009 was one of recoupling when
advanced economies pulled EMEs too into the downturn. The third phase started in the second quarter of
2009 when EMEs started recovering from the crisis ahead of advanced economies suggesting a shift once
again to decoupling.

So, have EMEs decoupled from the advanced economies? The answer has necessarily to be nuanced. A
useful way to visualize decoupling in the wake of the crisis is to distinguish between trend and cycle
decoupling. Trend decoupling is reflected by the widening gap between the trend rates of growth of
EMEs and of advanced economies. This is evidently owing to the growing weight of domestic factors,
mainly consumption, in the EMEs growth process. However, given that there is still significant
integration between the two groups of countries, cycles are still coupled. From a lessons perspective,
what this means is that EMEs should focus on strengthening domestic drivers of demand and instituting
automatic stabilizers to buffer themselves against cyclical shocks from advanced economies.

Lesson 2: Global imbalances need to be redressed for the sake of global stability
No crisis as complex as this has a simple or a single cause. In popular perception, the collapse of Lehman
Brothers in mid-September 2008 will remain marked as the trigger of the crisis. At one level that may well
be true. Indeed, I can visualize future text books in finance dividing the world into before Lehman and
after Lehman. But if we probe deeper, we will learn that at the heart of the crisis were two root causes -
the build up of global imbalances and developments in the financial markets over the last two decades.
And received wisdom today is that these two root causes are interconnected, and that financial market
developments were in a sense driven by the global imbalances. Global macro imbalances got built up
because of the large savings and current account surpluses in China and much of Asia in wake of the East
Asian Crisis a decade ago. These were mirrored by large increases in leveraged consumption and current
account deficits in the US. In short, Asia produced and America consumed. Between the US consumption
boom and the Asian savings glut, there is a raging debate on what was the cause and what was the effect.
Regardless, the bottom line is that one was simply the mirror of the other and the two share a symbiotic
relationship.

And how did these imbalances build up? The answer lies in globalization - globalization of trade, of labour
and of finance. The world witnessed a phenomenal expansion in global trade over the last three decades;
global trade as a proportion of global GDP increased from 34 per cent in 1980 to 51 per cent in 2007, just
before the crisis hit us.3 Globalization of finance was even more prolific, especially over the last decade.
For the world taken together, the ratio of foreign assets and foreign liabilities to GDP rose from 133 per
cent in 1994 to over 300 per cent in 2008.4 The impact of globalization of labour was by far more striking.
Emerging Asia added nearly three billion to the worlds pool of labour as it integrated with the rest of the
world over the last two decades thus hugely improving its comparative advantage. Together, the three
dimensions of globalization - trade, finance and labour - helped emerging Asia multiply by a factor its
exports to the advanced economies. The result was large and persistent current account surpluses in the
Asian economies and corresponding current account deficits in the importing advanced economies.

The chain of causation from these imbalances to the financial crisis is interesting although not obvious. As
Asia accumulated savings and simultaneously maintained competitive exchange rates, the savings turned
into central bank reserves. Central banks, in turn, invested these savings not in any large, diversified
portfolio but in government bonds of the advanced economies. This in turn drove down risk free real
interest rates to historically low levels triggering phenomenal credit expansion and dropping of the guard
on credit standards, erosion of credit quality and search for yield, all of which combined to brew the crisis
to its explosive dimensions.

It is argued that if the US Fed had refused to supply the incipient demand for liquidity in the late 1990s
and early 2000s, higher interest rates could have prevented the borrowing boom and the follow on
widespread deterioration of financial standards and the subsequent melt down. But this also would have
meant lower growth in the US and the rest of the world. The short point is that even as macroeconomic
imbalances should not be allowed to proliferate, it is necessary to balance the need for global economic
growth against the disruptions which follow the unwinding of such imbalances.

So, where do we go from here? The G-20 is now actively engaged in the challenging task of redressing
structural imbalances in the global economy. At their Pittsburgh Summit in September 2009, the G-20
leaders agreed on a Framework for Strong, Sustainable and Balanced Growth and committed to a
Mutual Assessment Process (MAP) which is a peer review of each countrys progress towards meeting the
shared objectives underlying the framework. Recognizing that global imbalances which had narrowed
during the crisis started widening again in the exit phase, driven mainly by the uneven recovery around
the world, the G-20 resolved that promoting external sustainability should be the focus of the next stage
of the MAP and entrusted this task to a Framework Working Group (FWG). India is privileged in co-
chairing, together with Canada, the FWG for managing the task of developing the indicative guidelines for
assessing and addressing persistent global imbalances. The FWG has adopted a two-stage approach: a
limited number of indicators will guide the initial assessment process, while a broader set - including
qualitative ones - will be used in the second stage to inform an in-depth external sustainability
assessment. The success of this initiative is critical for redressing the problem of global imbalances.

Lesson 3: Global problems require global coordination
The crisis demonstrated the interconnectedness of the world through trade, finance and confidence
channels. What originated as a bubble in the US housing sector soon snowballed into a crisis and radiated
in two different ways - first, in a geographical sense, from the US to other advanced economies and then
to the rest of the world; and second, in a sectoral sense, from housing to all productive sectors. Even as
each country started dousing the fires on its own, it was soon realized that the effort was in vain and that
global coordination is a necessary condition for managing a global crisis.

From that perspective, the London G-20 Summit in April 2009 will go down in history as a clear turning
point when the leaders of the world showed extraordinary determination and unity. Sure, there were
differences, but they were debated and discussed and compromises were made without eroding the end
goal - that is to end the crisis. This resulted in an agreed package of measures having both domestic and
international components but all of them to be implemented in coordination, and indeed in
synchronization where necessary. The entire range of crisis response measures - accommodative
monetary stance, fiscal stimulus, debt and deposit guarantees, capital injection, asset purchases, currency
swaps - all derived in varying degrees from the G-20 package.

Now, as we exit from the crisis, there are concerns and apprehensions that the vaunted unity that the G-
20 had shown during the crisis is dissipating. But might it also be a tad unrealistic to expect the degree of
unity shown in managing the crisis to also be shown in addressing peace time issues? The focus of G-20
now is to flesh out the agenda for economic and financial restructuring at national and international levels
so that the world can prevent, or at any rate minimize the probability of, another crisis of the type we have
gone through. Differences of opinion, when the agenda is so broad, are not only to be expected, but may in
fact have a positive influence in determining what is collectively optimal.

The common thread running through the entire G-20 agenda is the need for global cooperation in solving
our most pressing problems of today. The crisis has taught us that no country can be an island and that
economic and financial disruptions anywhere can cause ripples, if not waves, everywhere. The crisis also
taught us that given the deepening integration of countries into the global economic and financial system,
uncoordinated responses would lead to worse outcomes for everyone.

The global problems we are facing today are complex and not amenable to easy solutions. Many of them
require significant and often painful adjustments at the national level. Because short-term national
interests conflict with globally optimal solutions, it is quite understandable that there are differences of
views within the G-20. We must remember though that in a world divided by nation-states, there is no
natural constituency for the global economy. At the same time, the global crisis has shown that the global
economy as an entity is more important than ever and that global coordination to solve global problems is
critical.

Lesson 4: Price stability and macroeconomic stability do not guarantee financial stability
The years before the crisis were characterized by steady growth and low and stable inflation in advanced
economies and rapid growth and development in EMEs. The so called Great Moderation prompted a
growing consensus around the view that the best practice in monetary policy framework is the pursuit of a
single target (price stability) by means of a single instrument (short term policy interest rate). The success
of the Great Moderation fortified the argument that price stability is a necessary and (a nearly) sufficient
condition for economic growth and for financial stability. Central bankers believed they had discovered
the holy grail.

That sense of triumph was deflated by the unravelling of the crisis. As the global financial sector came to
the brink of a collapse even in the midst of a period of extraordinary price stability, it became clear that
price stability does not necessarily guarantee financial stability.

Indeed the experience of the crisis has prompted an even stronger assertion - that there is a trade off
between price stability and financial stability, and that the more successful a central bank is with price
stability, the more likely it is to imperil financial stability. The argument goes as follows. The extended
period of steady growth and low and stable inflation during the Great Moderation lulled central banks
into complacency. Only with the benefit of hindsight is it now clear that the prolonged period of price
stability blindsided policy makers to the cancer of financial instability growing in the underbelly.

A dominant issue in the wake of the crisis has been the role of central banks in preventing asset price
bubbles. The monetary stance of studied indifference to asset price inflation stemmed from the famous
Greenspan orthodoxy which can be summarized as follows. First, asset price bubbles are hard to identify
on a real time basis, and the fundamental factors that drive asset prices are not directly observable. A
central bank should not therefore second guess the market. Second, monetary policy is too blunt an
instrument to counteract asset price booms. And third, central banks can clean up the mess after the
bubble bursts. The surmise therefore was that the cost-benefit calculus of a more activist monetary stance
of leaning against the wind was clearly negative.

The crisis has dented the credibility of the Greenspan orthodoxy. The emerging view post-crisis is that
preventing an asset price build up should be within the remit of a central bank. Opinion is divided,
however, on whether central banks should prevent asset bubbles through monetary policy action or
through regulatory action. On one side, there is a purist view questioning the efficacy of resorting to
monetary tightening to check speculative bubbles. Opposed to this is the argument that a necessary
condition for speculative excesses is abundant liquidity, and that controlling liquidity which is within the
remit of monetary policy should be the first line of defence against irrational exuberance. No matter how
this debate settles, a clear, if also disquieting lesson of the crisis is that price stability and macroeconomic
stability do not guarantee financial stability.

Lesson 5: Micro prudential regulation and supervision need to be supplemented by macro prudential
oversight The crisis has clearly demonstrated that a collection of healthy financial institutions does not
necessarily make a healthy financial sector. This is because there are complex interconnections in the
financial sector across banks, other financial institutions, markets, and geographies and a problem in any
part of the system can rapidly transmit through the system, cascade across layers and develop into a crisis.
Systemic safety can also be jeopardized by procyclicality. As the crisis demonstrated, there is a strong
collective tendency among financial entities to overexpose themselves to the same type of risk during an
upturn and become overly risk averse during a downturn. Importantly, individual institutions, and indeed
microprudential oversight too, fail to take into account the spillover impact of the actions of the rest of the
financial system on them. This raises the paradox of the fallacy of composition. What is good from an
individual institutions point of view can become disruptive, and even destructive, if all institutions act in
a similar way.

That a bubble that started in the US housing sector snowballed into a major crisis is a vivid illustration of
the risks arising from the interconnectedness of the global financial system and the risks of procyclicality.
The lesson clearly is that as much as microprudential supervision is necessary, it needs to be
supplemented by macroprudential oversight to prevent systemic risk building up.

Macroprudential oversight requires both analytical sophistication and good judgement. Regulators need
to be able to analyze the nature and extent of risk and be able to make informed judgement on when and
what type of countercyclical buffers they must impose. Both type I and type II errors - imposing buffers
too early out of excessive caution or delaying imposition of buffers till it is too late to avert an implosion -
can be costly in macroeconomic terms.

Lesson 6: Capital controls are not only unavoidable, but advisable in certain circumstances
As EMEs started recovering from the crisis earlier than advanced economies, they also began exiting from
the crisis driven accommodative monetary stance ahead of the advanced economies. This multi-speed
recovery and the consequent differential exit have triggered speculative capital flows into EMEs resulting
in currency appreciation unrelated to economic fundamentals. This poses complex policy management
challenges. Currency appreciation erodes export competitiveness. Intervention in the forex market to
prevent appreciation entails costs. If the resultant liquidity is left unsterilized, it could potentially fuel
inflationary pressures. If the resultant liquidity is sterilized, it puts upward pressure on interest rates
which not only hurts competitiveness, but also, in a curious variation of the Dutch disease, encourages
further flows.

Capital inflows far in excess of a countrys absorptive capacity could pose problems other than currency
appreciation. Speculative flows on the look out for quick returns can potentially lead to asset price build
up. Also, in the current juncture, one of the driving forces behind hardening commodity prices in recent
months is the excess liquidity in the global system which has possibly triggered financialization of
commodities.

Quite unsurprisingly, the old debate about whether capital controls are a legitimate policy option has
resurfaced again. This debate has traditionally frowned on moderation. Critics maintain that capital
controls are distortionary, largely ineffective, difficult to implement, easy to evade and that they entail
negative externalities. On the other hand, supporters of capital controls argue that controls preserve
monetary policy autonomy, save sterilization costs and tilt the composition of foreign liabilities toward
long-term maturities and ensure macroeconomic and financial stability.
The debate on capital controls resurfaced after the Asian crisis of the mid-1990s, especially as one of the
root causes of the crisis was the open capital accounts of the East Asian economies. However, as the Asian
economies recovered in quick order, regained their export competitiveness and started building up
external reserves for self-insurance, the debate was not pursued to its logical conclusion, and the
orthodoxy that capital controls are undesirable persisted.

The recent crisis has, however, been a clear turning point in the worldview on capital controls. Notably,
the IMF put out a policy note in February 2010 that reversed its long held orthodoxy that capital controls
are inadvisable always and everywhere. The note has referred to certain circumstances in which capital
controls can be a legitimate component of the policy response to surges in capital flows. The World Bank
and the Asian Development Bank Outlook - 2010 too echoed these views.

A useful way of assessing the capital account management of an EME is to draw a distinction between
strategic and tactical controls. Strategic controls would involve defining a long term policy indicating
the inter se preference, or the hierarchy of preferences as it were, across different types of capital flows
and the controls that will be deployed to operationalize that policy. Strategic controls give stakeholders a
clear and predictable framework of rules to make informed choices and to manage risks, and they give
policy makers sufficient levers to calibrate the flows; in essence they define the boundaries of the playing
field. Tactical controls, on the other hand, introduce barriers into the playing field itself. They are
deployed opportunistically to stem a surge in inflows or outflows. By their very nature, tactical controls
introduce a new element of uncertainty into the calculations of both domestic and foreign stakeholders.
Indias approach to capital account management is typically strategic. For example, we have an explicitly
expressed preference for long term over short term flows and equity over debt flows, and we have used
both price based and quantity based controls to operationalize this policy. We have, of course, periodically
recalibrated elements of the strategy in pursuit of capital account liberalization. An important lesson from
Indias experience is that even with relatively large swings in capital flows during the crisis, the pressure
to use tactical controls did not build up because the strategic controls provided automatic buffers.

Even as we debate what EMEs should or should not do to manage excess capital flows, we should
remember that to the extent that lumpy and volatile flows are a spillover from policy choices of advanced
economies, managing capital flows should not be treated as an exclusive problem of emerging market
economies. How this burden is to be shared raises both intellectual and practical challenges. The
intellectual challenge is to build a better understanding of the forces driving capital flows, what type of
policy instruments, including capital controls, work and in what situations. The practical challenge is the
need to reach a shared understanding on a framework for cross border spillovers of domestic policies in
capital-originating countries, and the gamut of policy responses by capital receiving countries.

Lesson 7: Economics is not physics
A few months into the crisis, the Queen happened to be at the London School of Economics and asked a
perfectly sensible question: how come none of the economists saw the crisis coming. The Queens
question resonated with people around the world who felt that they had been let down by economics and
economists. As economists saw their profession discredited and their reputations dented, the economic
crisis soon turned into a crisis in economics.
What went wrong with economics? It now seems that by far the most egregious fault of economics, one
that led it astray, has been to project it like an exact science. The charge is that economists suffered from
physics envy which led them to formulate elegant theories and models - using sophisticated mathematics
with impressive quantitative finesse - deluding themselves and the world at large that their models have
more exactitude than they actually did. Admittedly, in a limited sense there may be some parallels
between economics and physics. But similarity in a few laws does not mean similarity in the basic nature
of the academic discipline. The fundamental difference between physics and economics is that physics
deals with the physical universe which is governed by immutable laws, beyond the pale of human
behaviour. Economics, in contrast, is a social science whose laws are influenced by human behaviour.
Simply put, I cannot change the mass of an electron no matter how I behave but I can change the price of
a derivative by my behaviour.

The laws of physics are universal in space and time. The laws of economics are very much a function of the
context. Going back to the earlier example, the mass of an electron does not change whether we are in the
world of Newton or of Einstein. But in the world of economics, how firms, households and governments
behave is altered by the reigning economic ideology of the time. To give another example, there is nothing
absolute, for example, about savings being equal to investment or supply equalling demand as maintained
by classical economics but there is something absolute about energy lost being equal to energy gained as
enunciated by classical physics.

In natural sciences, progress is a two way street. It can run from empirical findings to theory or the other
way round. The famous Michelson-Morley experiment that found that the velocity of light is constant led
to the theory of relativity - an example of progression from practice to theory. In the reverse direction, the
ferocious search now under way for the Higgs Boson - the God particle - which has been predicted by
quantum theory is an example of traversing from theory to practice. In economics, on the other hand,
where the human dimension is paramount, the progression has necessarily to be one way, from empirical
finding to theory. There is a joke that if something works in practice, economists run to see if it works in
theory. Actually, I dont see the joke; that is indeed the way it should be.

Karl Popper, by far the most influential philosopher of science of the twentieth century, propounded that
a good theory is one that gives rise to falsifiable hypotheses. By this measure, Einsteins General Theory
was a good theory as it led to the hypothesis about the curvature of space under the force of gravity which
indeed was verified by scientists from observations made during a solar eclipse from the West African
islands of Sao Tome and Principe. Economics on the other hand cannot stand the scrutiny of the
falsifiable hypothesis test since empirical results in economics are a function of the context.

The short point is that economics cannot lay claim to the immutability, universality, precision and
exactitude of physics. Take the recent financial crisis. It is not as if no one saw the pressures building up.
There were a respectable number of economists who warned of the perilous consequences of the build-up
of global imbalances, said that this was simply unsustainable and predicted a currency collapse. In the
event, we did have the system imploding but not as a currency collapse but as a melt down of the financial
system.

We will be better able to safeguard financial stability both at global and national levels if we remember
that economics is a social science and real world outcomes are influenced at a fundamental level by
human behaviour.

Lesson 8:
Having a sense of economic history is important to prevent and resolve financial crises Let me finish with
the last lesson that is on a larger canvas - that having a sense of economic history is important to prevent
and to resolve financial crises. In their painstakingly researched book, This Time is Different: Eight
Centuries of Financial Folly, Kenneth Rogoff and Carmen Reinhart argue that every time a crisis occurs
and experts are confronted with the question of why they could not, based on past experience, see it
coming, they would argue that past experience was no guide as circumstances had changed. Yet this this
time is different argument does not hold. Reinhart and Rogoff put forward impressive evidence showing
that over eight hundred years, all financial crises can be traced to the same fundamental causes as if we
learnt nothing from one crisis to another. If only teaching in economics had included a study of economic
history, perhaps we can avoid repeating history, never mind as a farce or a tragedy.
Changing Inflation Dynamics in India
The headline wholesale price index (WPI) inflation averaged 9.6 per cent in 2010-11 as compared with 5.3
per cent per annum in the previous decade. Similarly, the average consumer price inflation, measured by
the consumer price index for industrial workers (CPI-IW), was even higher at 10.5 per cent in 2010-11 as
compared with 5.9 per cent per annum in the previous decade. Moreover, this elevated level of inflation
also persisted through the first quarter of 2011-12. In response to inflationary pressures, the Reserve Bank
has raised the policy repo rate 11 times bringing it up from a low of 4.75 per cent in March 2010 to 8.00
per cent by July 2011. It is expected that inflation should come down towards the later part of this year.
Why has inflation been so high and persisted for so long? This is the theme of my talk today. In my
presentation, I propose to address the following questions: Is India an outlier among major countries in
terms of recent inflation performance? Has the inflation process changed? What are the causal factors
global and domestic as well as supply and demand? I will conclude with some thoughts on managing the
inflation dynamics on the way forward.

Is India an outlier in the inflation performance among major countries?
It is important to appreciate the global backdrop in which we are experiencing a resurgence of inflation
now. In the last decade, inflation was low, both in advanced countries as well as in emerging and
developing economies till the global financial crisis unfolded. Consequently, global economy got into a
recession and global output declined by 0.5 per cent in 2009. However, global output growth rebounded
to 5.0 per cent in 2010.

As the global economy recovered from the worst effect of the global financial crisis, inflation picked up in
emerging and developing economies. This was because the global recovery was largely driven by emerging
market economies (EMEs) what was termed as a two-speed recovery a faster growth in EMEs
accompanied by a slower growth in advanced economies. As output gaps closed, there was increasing
inflationary pressure in EMEs, particularly in Asia. According to the International Monetary Fund (IMF),
consumer price inflation in developing Asia almost doubled from 3.1 per cent in 2009 to 6.0 per cent in
2010 and is projected to be around the same level in 2011. Latest data suggest that inflation in rapidly
growing BRICS remains elevated.


Global factors
With recovery, global commodity prices rebounded given the higher level of commodity intensity of
growth in EMEs.
There was also an element of financialisation of commodities given the global excess liquidity. Crop loss
due to adverse weather conditions in many parts in the world coupled with increased diversion of
foodgrains towards biofuel exerted added pressure on global food prices. Thus, global commodity prices
including food prices rose sharply. For example, the IMF Commodities Index rose by 24 per cent in 2010
on top of an increase of 43 per cent in 2009. It further rose by 20 per cent in December 2010April 2011,
before moderating by about 2 per cent during JuneJuly 2011. Notwithstanding some softening in the last
few months, it is important to recognize that the current level of commodity prices is almost double of
that two and half years ago.


The increase in commodity prices has affected different countries differently depending on whether they
are net importers or exporters of commodities. India being a net importer of commodities, the adverse
impact on domestic inflation has been stronger. Inflation increased in developing and emerging
economies with a combination of closing of output gaps and sharp increase in commodity prices. In this
regard, India is not an exception. But the level of inflation in India has been high compared to those in
many EMEs. This suggests that apart from global factors, domestic factors have had a significant
influence on the inflation trajectory in India.

Has the inflation process changed?
In India, we have multiple price indices 6 consumer price indices and a wholesale price index (WPI).
While the Reserve Bank examines all the price indices both at aggregate and disaggregated levels, changes
in the WPI is taken as the headline inflation for policy articulation. Within the WPI, non-food
manufactured products inflation is considered the core inflation3.

Going by any measure of inflation, India comes out as a moderate inflation country, though occasionally
inflation crossed the double digit mark. The historical average long-term inflation rate was around 7.5 per
cent. But significantly, there was substantial moderation in inflation in the 2000s. The annual average
inflation rate was around 5.5 per cent irrespective of the inflation indices taken, whether WPI or CPI. This
raises the question: did the inflation dynamics change in the 2000s? Monthly WPI inflation data suggest
that there was a structural break around the mid-2000s with the inflation rate during the latter half being
higher.

Average WPI inflation increased from 5.2 per cent in the first half of 2000s to 5.5 per cent in the second
half. This was largely contributed by primary food inflation. In fact, the core non-food manufactured
products inflation moderated from 4.2 per cent to 3.9 per cent. What did cause the structural break in the
mid-2000s? A disaggregated assessment suggests that protein items largely contributed to this change in
trend.


Not only did the average food prices rise during the second half of 2000s but they were more volatile.

Structural food inflation
Food prices being subject to supply shocks tend to be volatile. For example, the performance of monsoon
has a significant bearing on the trend of domestic foodgrain prices. Spikes in food prices normally subside
as they are transitory. However, empirical analysis suggests that inflation in protein items has become
persistent. This suggests that protein inflation has assumed a structural character and is partly driven by
demand factors. Within the protein group, persistence was lower for pulses as well as egg, meat and fish,
but it was markedly higher for milk. Thus, the persistence of protein inflation has changed the inflation
dynamics in the latter half of the 2000s. Increase in demand for protein appears to be an inevitable
consequence of rising affluence (Gokarn, 2010). This process was further accentuated by renewed global
food price shock during 2010-11. Among the processed food items, the persistence of inflation for edible
oils was high.

International price pass-through
While the persistence of inflation on protein items has increased, it still has a relatively smaller share in
overall WPI inflation. What matters more for the overall inflation trajectory is the non-food manufactured
products inflation which has a higher weight of 55.0 per cent in the WPI. It averaged 4.0 per cent in the
2000s with a moderation in the second half. Subsequently, there has been a sharp increase in 2010-11 and
2011-12 so far. The non-food manufactured products inflation shows a major structural break towards the
middle of 2009-10 around the time the global commodity prices rebounded. This has also raised the
question: is the non-food manufactured products inflation an imported inflation?

Further, analysis suggests that industrial raw material prices also showed a structural break in early 2009
and the average price increase has been high and volatile. Moreover, the pass-through from non-food
international commodity prices to domestic raw material prices has increased particularly in the recent
years reflecting growing interconnectedness of domestic and global commodity markets.

This trend is also corroborated by corporate finance data which show that the share of raw material costs
as a percentage of both expenditure and sales has been rising.

Demand factors
Price pressures can emanate from the supply side but it will be difficult to sustain it without rising
demand. In this context, important information on recent trend in expenditure pattern and wages is
available from the 66th round of NSSO consumption survey and Labour Bureau. The average annual
monthly per capita expenditure has increased at a faster pace in the second half of 2000s as compared
with the first half, both in nominal and real terms.


While the share of per-capita expenditure in food has gone down, as could be expected from rise in
income levels, both in rural and urban centers, the dietary pattern has shifted in favour of protein items
whose share has gone up markedly in the second half of 2000s.
The sharp increase in rural consumption of protein seems to have been sustained by increase in wage
rates of the unskilled rural labourers both in nominal and real terms.
In the formal sector, company finance data suggest that the wage bill has risen at a faster rate since the
middle of 2009-10 .
As per the NSSO surveys (61st round and 66th round), nominal wage rates of skilled workers in both rural
and urban areas increased much faster in the second half of the 2000s than in the first half. While the real
wage rates declined in the first half, it increased significantly in the second half of 2000s.
There has also been added stimulus from the crisis driven fiscal expansion as the fiscal consolidation
process was reversed in 2008-09 and continued through 2009-10.
These evidences taken together suggest that sustained rise in real wages both in the formal and informal
sectors in the recent years contributed to increase in demand.

Conclusions
The recent surge in inflation has become more generalised. Food inflation, prone to supply shocks, is also
assuming a structural character given the change in the dietary habits and high demand, in absence of
adequate supply response. Sharp increase in non-food manufactured product inflation suggests that
producers are able to pass on the cost increases, given higher demand. While the persistence in non-food
manufactured products inflation is high, the persistence of food inflation has increased making the overall
inflation rate sticky. The current inflation process, therefore, is an amalgam of both supply constraints
and demand pressures.

Prolonged high inflation even if originating from supply side would give rise to increased inflation
expectations and cause general prices to rise. Poorly anchored inflation expectations make long-term
financial planning more complex with potential adverse effects on investment and growth. Moreover, high
inflation is the most regressive form of taxation, particularly on the poor. It is, therefore, important to
contain inflation and keep inflation expectations anchored so that consumers do not mark up their long-
run inflation expectations by reacting to a short period of higher-than-expected inflation.

Keeping in view the costs of inflation and the fact that high inflation is inimical to sustained growth, the
medium-term objective of the Reserve Bank is to bring down inflation to 3.0 per cent consistent with
Indias broader integration with the global economy. In this direction, monetary policy aims to contain
perceptions of inflation in the range of 4.0 4.5 per cent with a particular focus on the behaviour of the
non-food manufacturing component, which is considered as core inflation given its high degree of
persistence. Going forward, both global and domestic factors will shape the inflation outlook. With
increasing global integration, global commodity prices are having an increasingly significant influence on
domestic prices. It is expected that global commodity prices will peak in 2011 which should provide some
relief to domestic inflation scenario.

The Reserve Bank signaled the reversal from its crisis driven expansionary monetary policy stance in
October 2009. Since then, the cash reserve ratio (CRR) has been raised by 100 basis points. The policy
repo rate has been raised by a cumulative 325 basis points. As the liquidity in the system transited from
surplus to deficit, the effective tightening has been of the order of 475 basis points. Thus, the cumulative
monetary policy action would have the desired impact on inflation.

While inflation is expected to moderate towards the later part of the year reflecting monetary tightening
and likely softening of global commodity prices, fiscal policy needs to be supportive in containing
aggregate demand. In addition, there is an urgent need to address the issue of structural supply
constraints, particularly in agriculture, so that these do not become binding constraints in the long-run
hampering the task of inflation management.
Global Energy Security
I. Introduction:
OPEC :
A.Origin :
The Organisation of Petroleum Exporting Countries (OPEC) is a permanent intergovernmental
organisation which was formed at the Baghdad Conference of September 1960, by Iran, Iraq, Kuwait,
Saudi Arabia and Venezuela.

B.Members :
Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Indonesia, Libya, United Arab Emirates, Algeria and
Nigeria. Saudi Arabia is the biggest producer of oil and the dominant partner in the cartel.

C.40% Share in Global Oil Supplies :
The OPEC supplies over 40 per cent of the world|s oil need. Between them the OPEC members have
around three-fourths of the World|s proven oil reserves. Excluding Iraq OPEC has a total production
capacity of 28.7 million barrels per day (Mb/d). The global demand for oil is around 80 Mb/d.

D.OPEC's Control of Global Oil Prices :
Controlling Oil Prices by Restricting Production: Analysts point out that OPEC tries to control global oil
prices by restricting the production. When the cartel feels that the oil prices are low, the Oil Ministers of
OPEC nations impose production ceilings. Lower supplies send oil prices up. In 1973, OPEC|s squeeze on
supply of oil quadrupled oil prices almost overnight.

E.OPEC's Price Band Mechanism :
The OPEC introduced a price band mechanism that targeted a price range of $22-28 per barrel for the
OPEC basket, with automatic adjustments to quotas if the range was breached. Over the last one year, the
OPEC basket price has remained well above its stated price limits.

F.OPEC a Divided House :
OPEC has been a divided house with a big gap between advocates of production cuts and higher prices
and moderates advocating high production and low prices.

G.Limitations of OPEC|s Control Exposed :
The spurt in global oil prices exposed the limitations of the OPEC. Several members of the OPEC could
barely manage their quotas, let alone increase production to stabilise the spurt in the oil prices.

2. Non-OPEC Oil suppliers :


A.Countries with Substantial Reserves :
Russia, Mexico, Angola, Oman, Norway and Britain.

B.Russia the Largest Non-OPEC Oil Producer :
Since 1997, when Russian crude production began to pick up and its exports into global
markets began picking up, non-OPEC producers have made inroads into OPEC|s global
market share. Russia is one of the largest producers of oil outside OPEC in the world.

3. Spurt in International Oil Prices :

A.Large Increase in International Crude Oil Prices :
There has been a sharp increase in the prices of crude oil in the last few years. Annual
average crude oil prices have increased from $21.74 in 2002 to around $ 72 in 2007.
Currently the price of crude oil is hovering around $120 per barrel.

B.Reasons for Increase in the Oil Prices :

a.Increase in Demand from the US and China :
The major factors behind the increase in global demand for oil was the increase in
consumption levels in the US and China. The booming economy of China was the key factor
for increased consumption of oil by China.

b.Weak Dollar :
Analysts point out that oil prices are benchmarked in US dollars which has been
depreciating. The fall in the value of dollar robbed it of its purchasing power which
encouraged the OPEC to take a relaxed view about the situation as the cartel|s revenues
are pegged to the dollar.

c.OPEC|s Refusal to Increase Production :
One of the reasons for increase of crude oil prices in 2007 was the refusal by OPEC to
increase production to meet the rising demand.

d.Speculation :
Analysts point out that speculators made big bets on the future delivery of oil which was
one of the causes of the sharp increase in global oil prices.

e.Investment Flows into Oil :
Analysts point out that the flow of investments from pension and hedge funds into
commodities including oil have increased leading to the surge in crude oil prices.

f.Concern over Supply Disruptions from Iran :
Oil consumers are concerned about the supply disruptions from Iran which is locked in a
confrontation with the West over its nuclear programme.

g.Poor Supply from Iraq :
The oil industry in Iraq is still struggling to reach peak production after decades of war,
sanctions and under investment.

h.Cut in Supply from Nigeria :
Crude oil production has been cut in Nigeria since February 2006 due to militant attacks on
the country|s oil industry.

4. Global Economic Impact of the Rise in Oil Prices :

A.Increase in Inflationary Pressures :
According to analysts the increase in global oil prices added to the inflationary pressures in
various countries.

B.Increase in Interest Rates :
Economists point out that a mismatch between global oil price and domestic selling price
can push up the subsidy from the government and public debt which in turn can put
pressure on interest rates and reduce the capital available to more productive borrowers.

C.Slowdown in Economic Growth :
Increase in oil prices coupled with inflationary pressures will slowdown the economic growth
in these countries. The World Bank has already revised the economic growth projections in
these countries by reducing one percentage point.

D.Not a Full-fledged Oil Crisis :
Analysts point out that the current rise in oil prices is not a full-fledged oil crisis on the lines
of the 1970s and 1980s. The reasons being the developed countries are now less dependent
on oil than they were in 1979. Adjusted for inflation the crude oil prices are still below the
$101.70 peak reached in 1980, a year after the Iranian revolution.

5. OPEC to Keep the Crude Output at Current Levels:
Despite pressure from the US and other countries to increase production, the OPEC special
meeting in Vienna in February 2008 decided to keep the crude oil production at the current
levels of around 30 million barrels a day.

6. Conclusion :

A.Equilibrium between Demand and Supply Key to Price Stabilisation :
Analysts point out that global oil prices are affected by long-term factors one of which is the
equilibrium between supply and demand. Analysts point out that the oil demand has not
been responsive to prices.

B.Stabilising the Oil Prices is in the Interest of OPEC :
Finally, analysts point out that it is in the interest of the OPEC countries to keep the global
oil prices at manageable levels as higher prices will push the consuming countries into
recession, leading to reduced demand for oil and a price crash.
Transnational Gas Pipelines
1. Natural Gas the Clean Fuel of 21st Century:
Natural gas is a clean fuel and would be increasingly used in the 21st century. Gas is a mainly used in the
power sector but is also used in refining, industry and domestic consumption.

2. Natural Gas Key to India|s Economic Growth:
India does not have the gas reserves to match its growing needs. India imports 67 million cubic metres of
gas per day as part of its requirement of 150 million cubic metres (mcm) of gas per day. By 2020 India|s
demand for gas could go up to 400 mcm per day. Thus, an assured supply of gas will be the key India|s
economic growth of 8-9 per cent.

3. Transnational Gas Pipelines:
The Soviet Union constructed the first transnational gas pipelines in the 1970s to supply natural gas to
West Germany and other parts of Western Europe. Currently Russia meets 30 per cent of Europe|s gas
requirements. Currently over 100 gas pipeline projects valued at $100 billion are being implemented
across the globe.

4. Main Sources of Natural Gas are in Asia:
Analysts point out that the main sources of natural gas are in Asia. Russia|s Asian area has 27 per cent of
the world|s proven reserves, with Iran (15 per cent) and Qatar (14 per cent) following. Over 70 per cent of
the world|s reserves of natural gas are found in northern Central Asia and the Gulf.

5. Transnational Gas Pipelines to Increase in Asia with Increase in Demand for Gas:
The transnational gas pipelines across Asia are set to multiply with an increase in gas demand over the
next few years. Thus, as the energy requirements of Asia increase, the transnational gas pipelines will play
an increasingly important role in meeting these demands.

6. Advantages of Gas Pipelines:

A.Gas Pipeline the Cheapest Mode of Transportation:
There are three ways of transporting gas - by ships as Liquefied Natural Gas (LNG); through deep-sea
pipeline; or by gas pipelines on land. Analysts point out that world over, gas pipeline transportation is the
preferred mode for gas conveyance as it is the cheapest and does not entail any loss of energy in
conversion.

B.India Should Make Gas a Strategic Determinant:
Analysts point out that of the total global energy consumption in world, gas accounts for 30%. Gas will be
a key commodity in the overall context of India|s national security calculus. Gas is an eco-friendly energy
product and will play a key role in contributing to India|s energy needs from automobiles to industrial
use. India should make gas a strategic determinant.

C.Gas Pipelines will Offset the High Cost of Crude Oil:
Experts point out that in view of India|s growing energy needs, gas pipelines are seen as the best option
for India given the high cost of crude oil and petroleum products.

D.Security Risk can be Offset by Economic Gains:
Analysts point out that the security risks to gas pipelines can be overcome by an international consortium
with penalties for non-supply. The gas pipelines can bind countries through close economic ties,
improving relations and avoiding hostilities. Thus the security risks can be minimised by the gains of
economic prosperity.

E.Widen and Deepen Economic Relations in South Asia:
Analysts point out that the gas pipeline projects may in fact widen and deepen economic relations in
South Asia. They could lead to the establishment of the much needed trust and confidence among India
and its neighbours.

F.Big Confidence Building Measure with Pakistan:
Sections of Indian industry welcomed the proposed gas pipeline projects by emphasising that the projects
can act as a potential conduit for peace and a big Confidence Building Measure (CBM) between India and
Pakistan. The gas pipelines could lead to diplomatic and commercial dividends.

G.Increase Stability in the Region:
Analysts point out that the gas pipelines will bring direct and indirect benefits to the transit countries.
Thus, Pakistan and Afghanistan, which have internal insurgency problems, will benefit from the transit of
gas pipelines as it will guarantee a source of income and generate employment. This could help increasing
stability in the region.

7. Risks Involved:

A. Security Risks:
Analysts point out that gas pipelines face the security risks and require credible national guarantees.
Onshore pipelines are insecure and can be blown up by militants. Assam and Balochistan are the prime
examples. It is also pointed out that the gas supplying nations, Iran, Turkmenistan, Myanmar and
Bangladesh are not stable democracies. The transit country Pakistan has problems with India and is very
unstable. Analysts feel that given the history of Indo-Pak relations and the growing extremism in
Bangladesh, the vision of friendship through economic integration is gamble.

B. Transnational Pipelines can be Used as Political Tools:
Analysts point out that energy-rich countries are using the transnational pipelines as political leverage.
These countries use the pipelines to forge political alliances, punish enemies and extract concessions from
consumer nations.

C. High Economic Cost:
The energy-rich countries demand a higher cost for the supply of gas. Thus, the Iran-Pakistan-India
project is unable to progress further due to Iran|s demand for a higher price.

CHINA
I. Background:
1. 1949 - Formation of the People's Republic of China: On Oct.1, 1949, Mao Zedong
declared the formation of the People's Republic of China.
2. 1953-59 - Korean War - China fought the US-led UN Forces.
3. 1958 - Estimated 30 Million Chinese Died in a Famine
4. 1959 - China crushed rebellion in Tibet, Dalai Lama and followers flee to India.
5. 1962 - Sino Indian Border war.
6. 1964 - China tested its first nuclear bomb.
7. 1971 - China took Taiwan's seat at the UN as the officially recognised Government of
China.
8. 1972 - US President Richard Nixon's pathbreaking visit to China
9. 1976 - Death of Mao Zedong
10. 1978 - Deng Xiaoping became the Supreme Chinese leader
11. June, 1989 - Chinese Army crushed Tiananmen Square protests, killing many people
12. 1993 - Jiang Zemin became the President of China
13. 1997 - Death of Deng Xiaoping, Hong Kong returned to China by the British
14. 2001 - China joins the World Trade Organisation (WTO)
15. 2003 - Hu Jintao became the sixth President of China
16. 2003 - Wen Jiabao became the Prime Minister of China
17. Chinas Role in Asia-Pacific Security:
Key Role in Asia-Pacific Security: According to the US Defence Department
lasting security in Asia-Pacific is not possible without a constructive role by China. As
a nuclear weapon state, a leading regional military power and global player with
permanent seat in the UN Security Council, China plays a key role in Asia-Pacific
security.
Post-Cold War Regional Security: In the post Cold-War era, regional security is
related to stability in ties among China, the US and Japan. Worsening relations
between these countries will have their fallout on the entire region, according to
analysts.
Unresolved Territorial Disputes: There are a number of unresolved territorial
disputes in the region involving maritime boundaries and possible mineral resources.
The disputes in the region include the Spratlys Islands, the Paracels, the Senkaku or
the Takeshima islands and Russo-Japanese dispute over the Northern Territories.
Resurgence of China: China?s emergence as an economic power accompanied by
a huge military modernisation programme has made its neighbours apprehensive. In
1996 China launched missiles near Taiwan and practically stopped all shipping in the
Taiwan Straits which are international waters. The region is finding it difficult to adjust
to a resurgent China.
Counter Balance by the US: Japan and Taiwan are trying to strengthen their
alliance with the US because of China's belligerent actions. The US is consolidating
its position in the region and has argued for a beefed-up missile defence in the
region to address concerns about China.

18. Modernisation of Chinas Military:
Increase in Defence Spending: In March 2001, China announced an increase in its
defence allocation by 17.7 per cent. The enhancement marks a double-digit increase
in defence spending for the 13th year in a row. Analysts feel that the China?s
defence spending is actually much more than what is officially quoted.
Conventional Weapons: Analysts point out that in the last five years, China has
received conventional weapons, hardware and military technology worth $4 billion,
making it the ninth major receipt in world today.
Seventh Major Arms Exporter: In the last five years, China has exported arms
worth $ 2.5 billion making it the seventh major arms exporter in the world.
Enhanced Air Superiority: China?s air superiority will be enhanced by its recent
import of SU-27 SK Flanker aircraft, SU-37 multi-role aircraft, KA-31 AEW
Helicopters and others. China has also been able to obtain the design and
technology of their weapons. This has increased its air defence and offence
capabilities considerably.
Enhanced Naval Capability: China has recently acquired Kilo-class submarines,
along with deals for Sovermenny class destroyers. This shows that China?s
intentions of not confining itself to the South China Sea alone but to penetrate deep
into the Indian Ocean as well, according to analysts.
Range of Missiles: China has a range of ballistic missiles some of which carry
beyond continental" reach. Analysts point out that most of these lethal missiles are
manufactured by China?s own defence industries.
PLA being Modernised: Defence experts point out that the People?s Liberation
Army (PLA) of China is being modernised to carry out any kind of future war under
modern high-tech conditions. The largest standing army in the world has reduced
from 4.75 million in 1980s to 2.5 million in the late 1990s.
Military Modernisation to Become a Global Power: China has been carrying out
its military modernisation for the last two decades, especially after the Gulf War,
according to Defence analysts. It has carried out comprehensive military reforms and
modernisation programmes with an aim of achieving a global power status.
Shift from Land-Based Forces to Naval and Air Forces: Defence experts point
out that China has shifted emphasis away from land-based forces along the Russian
borders in favour of PLA?s navy (PLAN) and air force (PLAAF), stationed mainly in
South China.
Increase in Navy and Air Force Budget: The navy's share in China's recent
defence budget increased by 35 per cent and that of the air force by 29 per cent. The
army?s share was reduced by 29 per cent.
Deployment of Modern Defence Equipment: PLAN (navy) and PLAAF (air force)
will now deploy air refuelable fighter aircraft, the latest short and long range air-to-air
weapons, airborne early warning aircraft (AWACS), anti-submarine (ASW) and anti-
surface warfare (ASuW) platforms.
Intelligence Facility on the Coco Island: Defence analysts point out that China has
already established an extensive signals intelligence facility on the Great Coco Island
in Myanmar which is just a few miles from Andamans. This will enable it to monitor
Indian missile launches from Balasore and rocket and satellite launches from
Sriharikota.
Naval Bases in Myanmar: The Chinese navy (PLAN) is associated with Myanmar
naval bases at Munaung, Hainggyi, Katan Island, and Zadalkyi Island, according to
defence analysts. China also intends to construct a road and waterway link from its
southern Yunan province to the Myanmar port of Yangon, which will provide it direct
access to the Bay of Bengal.

19. Chinas Military Reforms:
Waging Successful battles in the Information Wars: Mr. Jiang Zemin, the
chairman of China's Central Military Commission (CMC) indicated that China is
embarking on a scientific process of military reform to wage successful battles in the
emerging era of information war.
Pruning the Strength of the PLA: There are indications that the People's Liberation
Army (PLA) may prune its strength of servicemen by 200,000 personnel by 2005.
Reinforcing Overall Combat Capabilities: The other objective was to reinforce the
army's mobility, competitiveness and its overall combat capabilities.

20. China's Foreign Policy:
A. Significant Change in China's Foreign Policy in 2006: Analysts point out
that the year 2006 witnessed a significant change in China's foreign policy,
signalling that the Asian giant was ready to accept its new status as a world
power.
B. China's Concept of a Harmonious World, a Theoretical Basis for Its
Changed Role in International Affairs: China is now acknowledging its
status as a major power in the international system, as is evidenced by the
development of a theory of international relations - the concept of
"harmonious relations". The concept of harmonious relations developed by
the Chinese President Hu Jintao encompasses the broad notions of
multilateralism, prosperity for all through common development, tolerance
and diversity, according to analysts.
C. Reasons Behind China Playing a More Active Role in International
Affairs:
Active International Role to Sustain Its Double-Digit Economic
Growth: Analysts point out that China has to play a more active role in
international affairs to sustain its booming double-digit economic growth.
China imports a large proportion of oil and other natural resources required to
sustain its economic growth. Thus, China has begun to actively engage
energy and natural resources rich countries of Latin America, Africa, and
Central Asia. These countries are also valuable as emerging markets for
Chinese products.
Stable Security Environment is Required for Sustaining the Economic
Growth: Ensuring regional peace and stability is essential for China as
economic growth can be sustained only in a stable security environment in
the immediate neighbourhood, according analysts. This can be achieved only
when China plays an active role in international affairs.
D. China's Diplomatic Success:
Resolution of the North Korean Problem: China won global appreciation for
bringing North Korea back to the negotiating table which resulted in North
Korea agreeing to stop its nuclear programme in exchange for oil and
security guarantees. China's mediatory role in the resolution of the North
Korean problem - a potential global flash point - has given it a considerable
clout in international affairs, according to analysts.
Increase in China's Contribution to UN Peacekeeping Troops and Peace
Building Fund:China increased its contribution to UN peacekeeping troops
and also pledged $3 million to the UN Peacekeeping Fund.
China also provided aid to 86 developing countries in 2006.

E. Criticism of China's New Diplomacy:
China's Military Modernisation Programme Criticised: Countries like the US
and Japan have criticised China's military modernisation programme,
pointing to the opaque nature of the programme.
China's Willingness to Deal with Corrupt and Oppressive Regimes Criticised:
Human rights groups have criticised China's willingness to deal with corrupt
and oppressive regimes in countries like Angola and Sudan. China has used
its power at the UN in defence of African countries like Sudan widely
condemned by the West.
F. China's Growing International Status Irrefutable: Analysts point out that
China has proved its growing international status by taking leadership of a
number of regional and international forums, initiating bilateral security
dialogues and military exchanges, and providing aid and technical assistance
to countries in Africa where the traditional powers like the US are cautious to
tread.

21. China's Economy:
Economic Development of China: The People?s Republic of China (PRC) is on a
path of growth marked by consistent economic growth, radical restructuring of its
State Owned Enterprises (SOEs), Industrial and Infrastructural development, growing
Foreign Direct Investment (FDI), a positive trade balance, and as a member of the
World Trade Organisation (WTO).
China has $1 Trillion Foreign Exchange Reserves: In January 2007, China's
foreign exchange reserves, the largest in the world, topped $1 trillion for the first
time. This put pressure on the Government to let the currency (yuan) become
stronger to help rein in lending and avoid the risk of inflation.
China has Doubled its National Output in Five Years: Analysts point out that
China has almost doubled its national output in five years with unprecedented
industrialisation, urbanisation and inward investment. The Gross Domestic Product
(GDP) of China is currently $ 2.7 trillion and the annual per capita income of China's
1.3 billion people exceeds $2,000, way behind that of the US ($42,000).
China Fourth Largest Economy in the World: China surpasses Britain as the
fourth largest economy in the world. The top three economies in the world are the
US, Japan and Germany. However, China is catching up with its double digit
economic growth compared to a single digit (around 4%) growth of the other leading
economies.
Fears of Economic Overheating: Investments in construction and factories in
China have increased by per cent raising concerns of overheating of the economy.
The falling prices of steel and cars indicated overcapacity in these sectors.
Majority of China's Population is Poor: Analysts point out that majority of the
population in China is poor by western standards. The National Bureau of Statistics
pointed out that 27 years of double-digit economic growth have taken the average
income of the Chinese to $2,000 making it better than Morocco, but far behind the
US, Europe and Japan.

22. China's Increasing Defence Budget:
Annual Increase of 18 Per Cent in 2008: China's official defence budget for the year
2008 would be $57.2 billion, with an increase of 17.6 per cent over 2007. Officially,
China's defence expenditure was just 1.4 per cent of its GDP and 10 times less than
the US ($600 billion).
China Accused of Understating Its Defence Budget: The US and Japan accuse
China of understating its defence budget. According to Pentagon reports the real
defence budget of China is over $100 billion, when the overall military spending is
accounted for.
China's Army the Best-Funded in Asia: According to a Pentagon report the Chinese
army is the best-funded in Asia and third in the world after the US and Russia.
China's Defence Spending to Modernise Its Forces: The Pentagon report points to
China's efforts to increase its ballistic missile strength and modernise its conventional
forces with large defence acquisitions from abroad ranging from advanced fighter jets
to computerised information systems.
China Denies Understating Its Defence Spending: China's Defence Minister Cao
Guangchuan denied that his country has understated its defence spending by
insisting that raising the living standards of the country's poor made it impossible to
massively increase defence expenditure.

II. Current Situation in China:
1. Chinas White Paper on National Defence in 2008 (January 2009):
China committed to peaceful development and military modernisation, according to a
white paper issued by China on national defence in January 2009.
Chinas ambition basically to accomplish mechanisation [of the military] and make
major progress in information technology by 2020 and realising modernisation by
mid-21st century.
Chinas strategic guideline of active defence aimed at winning local wars in
conditions of information technology.
China aimed at developing a complete set of scientific modes of organisation,
institutions and ways of operation by 2020.
Specified Chinas long-standing policy of no first use of nuclear weapons.
Reaffirmed China's will to implement a self-defence nuclear strategy.
The Second Artillery Force is Chinas core force of strategic deterrence. In
peacetime, the nuclear missiles of the Second Artillery Force are not aimed at any
country.
The Chinese Military would take a more open approach to communicating and
exchanging with other militaries for world peace and stability.
Chinas security situation was improving steadily. The situation across the Taiwan
Straits had taken a significantly positive turn.
China was still confronted with long-term, complicated, and diverse security threats
and challenges - the threats of separatist forces of Taiwan independence, East
Turkistan independence and Tibet independence.
The US continues to sell arms to Taiwan in violation of the principles established in
the three Sino-US Joint Communiqus, causing serious harm to the Sino-US
relations as well as to peace and stability across the Taiwan Straits.
Chinas defence expenditure has remained at a reasonable level. Though defence
expenditure increased from 1988 to 2008, the total amount and per-service-person
share remained lower than those of some major powers.
China would never seek hegemony or engage in military expansion now or in future,
no matter how developed it becomes.

2. Chinese Economy:
China became the Third -Largest Economy in the World Overtaking Germany: In
January 2009, China overtook Germany to become the world?s third-largest
economy earlier than expected. The estimates for China's GDP were revised higher
with the economy believed to have grown by 13 per cent in 2007, up from an earlier
estimate of 11.9 per cent.
Chinas Economy Slowed down in 2008: China?s economic growth slowed down in
2008 with the GDP growth recorded at a seven-year-low of 9 per cent. The widening
global financial crisis affected the world's fastest growing economy.
China Declared Emergency Over Severe Drought: In February 2009, China declared
a state of emergency after the worst drought in half-a-century wiped out crops in
northern China with millions of people left without drinking water. However, China?s
wheat supply and grain security would not be influenced by the drought that had
parched more than 40 per cent of the country?s wheat land, according to the
China?s Agricultural Minister.
The rising unemployment would be the biggest challenge to Chinas economy in
2009, according to a survey conducted by China's Economic Monitoring and Analysis
Centre.

III. Conclusion:
1. India Concerned about China's Rapid Military Modernisation and Military
Infrastructure Development:
Defence analysts point out that India is concerned at China's rapid modernisation of
its 2.3 million strong People's Liberation Army (PLA).
India also remains concerned about China's military infrastructure development in
Tibet and its growing military cooperation with countries in India's neighbourhood like
Myanmar, Sri Lanka, Bangladesh, Maldives and Seychelles.

2. Sino-Pakistan Military Cooperation a Complex Challenge for India: Defence
analysts opine that the trans-border military index between India and China could
grow in favour of China in view of China acquiring new capabilities like anti-satellite
weapons. The continuing Sino-Pakistan military cooperation also presents a complex
challenge for India.
3. China Adopting a Two-Pronged Strategy to Manage its Growing International
Status:
Reassuring Neighbours of Its Peaceful Intentions: Analysts point out that China
has adopted a two-pronged strategy to manage its growing international status. The
strategy lays emphasis on reassuring the neighbours of China's peaceful intentions.
China has tried to ally the fears of its neighbours who continue to suspect the
modernisation drive of the PLA.
Modernising the PLA: The other part of the strategy is to modernise the PLA into a
military force capable of significant power projection. China has been upgrading its
nuclear arsenal to include greater number of mobile intercontinental ballistic missiles
like the DF-31A and the JL-2 submarine-launched missiles.

4. Joint Military Exercises Used as a Diplomatic Tool to Allay Criticism of the
Opaque Nature of Its Military Modernisation: Analysts observe that China has
been using joint military exercises with its neighbours as a diplomatic tool to allay
fears and criticism of the opaque nature of its military modernisation. China held joint
exercises with India in 2007 and 2008. It also conducted joint exercises with Russia
and other Central Asian countries under the Shanghai Cooperation Organisation.
China also conducted joint training with Thailand's armed forces.
5. China Emerging as Military Rival to the US - China's Military Build-Up Put
Regional Military Balances at Risk: The US is concerned at China's rapid military
modernisation. The US feels that China has the potential to compete militarily with it.
It also pointed out that China's military build-up in the last decade puts regional
military balances at risk.
6. China's Proactive Diplomacy in the New Era: Analysts point out that China has
been pushing for a proactive role in the new era under the diplomatic banner of
peace, development and cooperation. China has brought out a white paper in this
regard which emphasises the need for a long-lasting and stable international
environment of peace for China's development, which in turn, will promote world
peace and progress.
Russia
I. Introduction:
1. Russia Aiming to Regain its Global Influence and Economic Power:
Russia is currently building a market economy, has opened up to foreign investors and is trying to
integrate with the international community.
With resurgence of its economy, Russia is aiming to regain its influence and economic power,
according to analysts. With its emergence as a global energy supplier, Russia is currently playing a
positive role in addressing a wide range of issues related to energy security.
Russia has consolidated its influence over Central Asia's energy resources and increased its
strategic dominance in Europe's energy markets.
2. Parliamentary Elections in Russia (December 2007):
Putin's United Russia Party Wins the Elections: In December 2007, Parliamentary elections
were held in Russia. President Putin's United Russia Party cruised to a landslide victory with 61.4%
votes. It won 315 seats in the 450-seat State Duma (Lower House of the Russian Parliament). The
Communists came second with 11.6% votes. Seven parties failed to clear the 7% threshold to win
seats.
Putin - Vote a Sign of Political Stability in Russia: President Putin who had campaigned for
the United Russia Party hailed the victory as a sign of stability in Russia. He stressed that the
elections showed Russians would never allow their country to go down a destructive road as it
happened in some post-Soviet States. This was interpreted as an apparent reference to the West-
sponsored coloured revolutions in Georgia, Ukraine and Kyrgyzstan.
Endorsement of Putin's Leadership of the Russian Federation: The landslide victory of
the United Russia Party is an endorsement of President Vladimir Putin's leadership of the Russian
Federation over the last eight years. Under Mr. Putin's leadership Russia has restored its integrity,
economic and military strength and global influence.

3. Presidential Elections (March 2008):
End of President Putin's Term: President Vladimir Putin is to step down as per the
Constitution, which allows only two straight Presidential terms.
Deputy Premier Medvedev Nominated as the Next President of Russia: In December
2007, Russian President Vladimir Putin backed First Deputy Prime Minister Dmitry Medvedev. 42-
year old Medvedev is a law expert and is widely believed to be business-friendly.
Medvedev wins Presidential Elections: Dmitry Medvedev was elected as the new President of
Russia in March 2008. He secured more than 70 per cent of the votes. His rivals - Communist
leader Gennady Zyuganov, ultranationalist Vladimir Zhirinovsky, and Andrei Bogdanov.
Medvedev Pledged to Continue Putin's Policy: The President elect Dmitry Medvedev
pledged to continue the policy of the outgoing President Vladimir Putin.

4. Medvedev Sworn in as the President of Russia: On May 7, 2008 Dmitry Medvedev was
sworn in as the President of Russia.
5. Vladimir Putin Confirmed Prime Minister of Russia: On May 8, 2008 Vladimir Putin was
endorsed by the Parliament as the Prime Minister of Russia.
6. Terms of the President and Parliament Extended: On November 14, 2008, Russias
Parliament approved changes to the Constitution, lengthening both the Presidential and
Parliamentary terms. The Presidential term was extended from four to six years and the
Parliaments term was extended from four to five years. President Medvedev had argued that longer
terms for the President and Parliament would facilitate reforms and enhance political stability.
II. Background:
1. Sweeping Political Reform Launched by the then Russian President Vladimir Putin:
Strengthening Hold on the Provinces: On September 28, 2004, the then Russian President,
Vladimir Putin, launched a sweeping political reform to strengthen his hold on the provinces in the
face of a growing threat of Islamic fundamentalism.
Abolishing the Election of Governors by Universal Suffrage: The then Russian President
sent a bill to the Parliament abolishing the election of regional Governors by universal suffrage. The
new law enabled him to appoint Governors, subject to endorsement by regional legislatures.
Reform Prompted by Concerns over the Threat to Russias Territorial Integrity by
Terrorists:Analysts feel that the reform was prompted by concerns over the threat from terrorists
to the territorial integrity of Russia. The then Russian President called for an overhaul of the
political system to strengthen national unity in the face of terrorist attempts to provoke a
disintegration of the country.
Political Reform Criticised by the West for Undermining the Democratic Process in
Russia:The then President Putins sweeping political reform has been criticised by the West, as
well as Russian liberals as an attempt to concentrate power in the hands of the President and
undermine the democratic process.
State Control of Oil and Gas Industry: Experts point out that all decisions from exploration
policy and the sale of Russian crude are now controlled by the Government. Control of energy is
seen as a part of the then President Putins efforts to centralise power. The Government has
forbidden private interests to build oil and gas pipelines in Russia, handling state-owned pipeline
operator Transneft a monopoly.

2. Russias Pragmatic Foreign Policy:
Advancing National and Economic Interests: The then Russian President, Vladimir Putin,
stressed on a pragmatic foreign policy aimed at advancing Russias national and economic interests.
Remains Global in its Sweep: Russias foreign policy remained global in its sweep, not only by
virtue of the countrys military and political weight, but also due to its geography, according to Mr.
Putin.
Cooperation with Allies Should be Equitable and Beneficial: Russia should look for such
allies in Europe, Asia, Africa and America who recognise and respect its national interests and
cooperation with whom is equitable and beneficial for Russia, according to Mr. Putin.
3. Mr. Putins Goal:
Restoring Russias Global Influence: by making it a lynchpin of a system of anti-terror
alliances. Mr. Putin discarded the old idea that Russia must choose between East and West. Today
Russia realistically recognises what is in its interests and what isnt, according to Mr. Putin.
Alliances with East and West: Mr. Putin believed that he can anchor Russia in a system of
alliances that include India and China on one end and the US and NATO on the other, according to
Russian security experts.
III. Russias New Foreign Policy Doctrine:
1. Assigns Higher Priority to Relations with India:
Russias new foreign policy doctrine, approved by the President Dmitry Medvedev assigns higher
priority to relations with India.
The new foreign policy doctrine lays greater emphasis on political and economic cooperation
between Russia and India compared to the previous doctrine.
The new foreign policy concept paper emphasised that in deepening the strategic partnership with
India, Russia pursues the principled policy towards stronger interaction on burning international
problems and all round strengthening of mutually beneficial relations in all spheres, especially in
achieving a substantial uplift in commercial and economic ties.
2. Relations with India and China described as Strategic:
The foreign policy concept paper defines relations with India and China as Russias most
important vector in Asia.
For the first time Russias foreign policy doctrine describes relations with India and China as
strategic for Russia.
3. Call for Closer Trilateral Cooperation with India and China: The foreign policy doctrine
called for closer trilateral cooperation with India and China. It was pointed out that Russia shared
the interest of China and India in advancing effective political and economic interaction in the
Russia-India-China triangular format. The previous foreign policy doctrine had not mentioned the
triangular format.
4. The foreign policy doctrine assigned special importance to the further strengthening of the
Shanghai Cooperation Organisation (SCO).
5. Unlike the previous foreign policy doctrine, the new doctrine omits a call on India and Pakistan to
sign a nuclear test ban treaty and the non-proliferation pact.
6. Russia Maintains Its Negative Stance towards NATOs Expansion:
Russia maintained its negative stance towards the NATO expansion, in particular towards the plan
to grant Ukraine and Georgia the NATO membership, as well as towards bringing the NATO
military infrastructure closer to Russian borders in general, according to the doctrine.
Such a development would foster the emergence of new dividing lines in Europe, according to the
foreign policy concept paper.
7. US Plan to Deploy a Missile Shield in Czech Republic and Poland would Destroy the
Security System in Europe:
Detailing the foreign policy guidelines, the Russian President Dmitry Medvedev warned that the US
plans to deploy a missile shield in the Czech Republic and Poland would destroy the security system
in Europe.
Mr. Medvedev stressed that the common (security) heritage cannot survive if one of the sides
selectively destroys isolated elements of the strategic construction. He emphasised that this could
not be accepted and Russia would be compelled to react to this adequately.
The Russian President emphasised that it was extremely important to rebuff attempts to secure
interests of one country or a group of countries by sidestepping international law.
IV. Russias Current Defence Policy:
1. Modernisation of Russias Armed Forces:
Russian President Dmitry Medvedev ordered a massive upgrade of the Armed Forces in September
2009.
Mr. Medvedev asked the military commanders to come up with a plan for across-the-board
modernisation of the countrys nuclear and conventional forces till 2020 in the light of the recent
war with Georgia.
It was of paramount importance to make a realistic assessment of the military-political situation in
the world and have a clear understanding of potential threats, according to the Russian President.
The war with Georgia, which Mr. Medvedev described as Russias 9/11 had lent greater urgency to
such a review.

2. Russias Biggest War Games - The Stability-2008 (September 2008):
In September 2008, Russia held its biggest war games since the break-up of the Soviet Union.
The exercise termed the Stability 2008 involved nearly 50,000 troops and over 7,000 pieces of
heavy-war gear, including aircrafts, ships and nuclear missiles.
Russia successfully test-fired four long-range nuclear-capable missiles over the weekend in an
unprecedented show of force since the end of the Cold War.
A Topol missile was fired from a mobile launcher at the Plisetsk space centre in northwest Russia.
A nuclear Submarine test-fired the new ICBM Sineva in the Barents Sea.
Russias nuclear deterrent was in good shape and new weapon systems would be inducted in the
future, according to the Russian President.
3. Defence Spending for 2009 Increased by 27%: Prime Minister Vladimir Putin announced a
27 per cent increase in Russias defence spending in 2009, to $53 billion.

V. Russian Economy:
1. Plan to Shift the focus of Russias Foreign Trade from Europe to Asia, Prioritising
India and China:
Russia plans to shift the focus of its foreign trade from Europe to Asia, giving priority to India and
China.
Russias Foreign Trade Strategy through 2020 approved by the Russian Cabinet in October 2008,
called for reorienting the foreign trade gradually from the European to Asian markets.
Russia plans to step up economic ties with India, China, Iran, Afghanistan and Mongolia.
The Foreign Trade Strategy called for closer economic integration with ex-Soviet allies in the
Russia-led Eurasia Economic Union - Belarus, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan.
China and India would replace Europe as Russias main trading partners as they are the key
markets which have been growing more dynamically than the European Union, according to
Russian officials.
2. Oil and Gas will Dominate Russias Exports, however, the share of engineering goods in Russias
exports would be doubled by 2020.
3. Russia and China Signed a Deal to Build an Oil Pipeline from Siberia across the
Chinese Border:
In October 2008 Russia and China signed a deal to build an oil pipeline from Siberia across the
Chinese border.
The deal provides for the supply of about 15 million tonnes of oil per year.
4. Russia-China Trade reaches $50 Billion in 2008: Trade between Russia and China touched
$50 billion in 2008 and was projected to increase between $60 and $80 billion by 2010. Russian
Prime Minister Vladimir Putin called for switching in trade with China from dollars to roubles and
yuan.
5. Global Financial Crisis had an Adverse Impact on Russias Economic Boom: Analysts
point out that the global financial crisis has adversely impacted Russian economy boom driven by
high oil prices. The Russian economy was fast moving towards recession. However, the Russian
Government insists that the GDP would grow between 2 per cent and 3 per cent next year.

VI. Russias Relations with the US:
o Russia Welcomed US Offer to Reset Relations: In February 2009, Russia welcomed an offer by the
US to reset relations with Russia. This was seen as a sign that the former Cold War rivals could repair their
strained relations under the new US President Barack Obama.
o US Vice-President Joe Biden said that it was time to end the dangerous drift in relations between the US and
Russia.
o The US would not agree with Russia on everything, but the US and Russia can disagree and still work
together where their interests coincide, according to Mr. Biden.
o Russia announced that it would allow US supplies for Afghanistan to cross it territory to avoid Pakistan
where supply lines are being threatened by military attacks. However, Russia made it clear that only
nonlethal US supplies would be permitted across its territory.
o The US and Russia are engaged in a great game in Central Asia where Kyrgyzstan asked the US to close its
air base in that country. The future of the US air base is the symptom of deeper contest between the US and
Russia to wrest control over Central Asia.
o Russia offered that it would not install missiles near Poland if the US dropped its plans for an Eastern
European based missile defence system. The Obama Administration has so far not responded to Russias
offer.
Bangladesh
I. Background:

1. Formation: Bangladeshs history of democracy is very volatile. Bangladesh was formed with Indias help in
1971 on the ruins of what was then the East Pakistan.
2. Assassination of Mujibur Rehman: In 1975, the founder of Bangladesh, Sheikh Mujibur Rehman, was
assassinated along with 15 members of his family, in an army coup. This led to a series of coups. In its 30
year history, Bangladesh has been ruled for 16 years by the army.
3. 1991 General Elections: In 1991, the countrys first caretaker Government took over from General
Ershad, who had ruled for nine years and had to resign after a relentless agitation. General elections were
held the same year and the BNP of Begum Khaleda Zia, the widow of the slain army chief-cum President,
Gen. Ziaur Rehman, won the elections.
4. Victory for Awami League in June 1996 Elections: General elections were held in Bangladesh in June
1996. The Awami League led by Sheikh Hasina Wajed, the daughter of Sheikh Mujibur Rehman, won 146
seats in the 300 member Parliament, but fell short of a simple majority. The party received unconditional
support from the Jatiya Party led by the jailed former President, Gen. Ershad, which got 31 seats.
5. Landslide Victory for the BNP Alliance in 2001 Elections: The four party alliance led by the
Bangladesh Nationalist Party (BNP) leader Khaleda Zia won a landslide victory in the elections held in
Bangladesh on October 1, 2001. The four-party alliance led Ms. Khaleda Zia won 202 seats in the 300-
member Parliament. The ruling Awami League won 62 seats. The BNP led alliance includes the
fundamentalist parties like the Jamaat-e-Islami and Islamic Oikya Jote (IOJ) as its major partners.
6. January 2007- Bangladesh Under Emergency Rule: Bangladesh has been under emergency rule
since January 2007 after disputes between the Opposition led by the Awami League and the Ruling
Bangladesh Nationalist Party (BNP) over electoral reforms resulted in massive street protests, forcing the
cancellation of scheduled elections.

II. Parliamentary Elections in Bangladesh (December 29, 2008):

1. Landslide Victory for Sheikh Hasina-led Awami League:
o The ninth Parliamentary elections were held in Bangladesh on December 29, 2008.
o The Awami League of former Prime Minister Sheikh Hasina secured a landslide victory reminiscent of the
historic 1970 election in the then East Pakistan, that led to the birth of Bangladesh.
o The Awami League won 230 seats out of the 299 seats. The Jatiya Party of former President H.M. Ershad
won 27 seats and other Awami League allies won five seats bringing the total seats won by the Awami
League-led Grand Alliance to 262.
o The voter turnout was above 80 per cent.
o The Bangladesh Nationalist Party (BNP) led by former Prime Minister Begum Khaleda Zia won only 27
seats. Among its allies the Jamaat-e-Islami won two seats and the Bangladesh Jatiya Party one.
2. Significance of the Landslide Victory by the Awami League:
o Biggest Landslide Victory in a National Election in South Asia: Since the last two decades no alliance or
political party in South Asia has won in a free and fair national election the kind of landslide victory the
Awami League and the Grand Alliance recorded in Bangladesh in December 2008.
o The mandate gives the Awami League the power to rewrite Bangladeshs Constitution and bring about the
promised reforms.
o Verdict a Rejection of the politics of Religion, Extremism and Militancy and Endorsement of Secularism and
Religious and Political Tolerance: The crushing defeat of the BNP and its ally the fundamentalist Jamaat-e-
Islami was politically significant, according to analysts. The election results were seen as a rejection of the
politics of religion, extremism and militancy and endorsement of secularism and religious and political
tolerance.
o Larger Voter Turnout Indicative of Peoples Aspiration for Democratic Governance: Analysts point out that
the large voter turn out witnessed the ninth Parliamentary elections in Bangladesh could be viewed as a
manifestation of peoples rejection of authoritarian rule and their aspiration for democratic rule.
o Verdict Reflects the Peoples Urge for Change: The defeat of the BNP-led alliance is seen as a verdict against
the corruption and tyranny that marked its five-year rule. The young and the first-time voters were looking
for change as the BNP-led alliance was incapable of addressing vital issues.
o The Parliamentary elections were free and fair and were unusually peaceful.
3. Sheikh Hasina Sworn in as the 12th Prime Minister of Bangladesh:
o On January 6, 2009 Sheikh Hasina was sworn in as the 12th Prime Minister of Bangladesh.
o Sheikh Hasina assumed the Prime Ministers office for the second time. Her first term was from 1996-2001.
4. Zillur Rahman Elected as the 19th President of Bangladesh: In February 2009, veteran Awami
League leader Zillur Rahman was elected as the 19th President of Bangladesh by the Election Commission.
Mr. Rahman was elected unopposed.
5. Priorities of the Sheikh Hasina Government:
o During her campaign the new Prime Minister of Bangladesh Sheikh Hasina had promised to improve the
economic conditions of the people, provide better governance, quality education and carry the benefits of
information and communication technology to every village to allow the next generation to face the
challenges of the 21st century.
o Government to get Rid of Poverty: Bangladesh Prime Minister Sheikh Hasina termed poverty as the prime
enemy of the country and assured the people that her Government would fight hard to get rid of it.
o The first task of the Government would be to bring price of essentials within the reach of common people,
according the Prime Minister.
o Sheikh Hasina promised to ensure a role and participation of the opposition in Parliament and governance.
The Opposition would be allotted the position of deputy speaker and proportionately the chairmanship of
the standing committee in Parliament.
o New Bangladesh Government to Fight Terrorism: The new Bangladesh Government would involve
neighbours in working out an effective mechanism, a task force to fight militancy and terrorism for peace
and stability in South Asia.
6. Indias Reaction to the Change in Bangladesh:
o Prime Minister Manmohan Singh congratulated Sheikh Hasina for her victory in Bangladeshs
Parliamentary elections.
o The successful conduct of free, fair and peaceful elections was a reflection of the desire of the people of
Bangladesh for democracy, development and progress, according to Dr. Singh.
o The new Bangladesh Government was assured of Indias commitment to further strengthening and
deepening of relations with Bangladesh.
o Dr. Singh invited Bangladesh Prime Minister to visit India at the earliest possible convenience.
o External Affairs Minister Pranab Mukherjee would visit Bangladesh at the earliest.
7. Significance of Sheikh Hasinas Victory to India:
A. The Awami League could Lead Bangladesh towards Social Stability and Economic
Prosperity:
o India and the international community are hopeful that the change in Bangladesh will bring in stability and
economic prosperity to that country.
o The Awami League has been followed a policy of intercommunity harmony within Bangladesh and its foreign
policy has been based on regional and international cooperation.
o Bangladesh has been vulnerable to forces of religious intolerance and has witnessed a rise in terror outfits.
The Awami League Government could lead Bangladesh towards social stability and economic prosperity,
according analysts.
B. The Sheikh Hasina Government could Reverse the Trend of Providing Safe Sanctuaries to
Militant Groups Hostile to India:
o The previous BNP-led Government rarely targeted groups which were hostile to India including Islamist
terrorists who used Bangladesh as a launching base for covert actions against India, according to analysts.
o Pan-Islamist militant groups such as the Harkut-ul-Jihad-e-Islami (HuJI), which played a key role in
various terror attacks in India, and anti-India groups like United Liberation Front of Asom (ULFA), were
provided safe sanctuaries, according to analysts.
o The Awami League has been historically more pro-India than any other political party in Bangladesh.
o The Sheikh Hasina Government, which has pledged to fight against terrorism, could reverse the trend of
providing safe sanctuaries to anti-India elements.
C. Cooperation in fighting the menace of terrorism and militancy offers a new opportunity to strengthen
Indo-Bangladesh relations, especially in areas of security, according to analysts

D. India Looks for Normalisation of Political and Economic Relations:
o Indo-Bangladesh relations have witnessed many highs and lows. The period between 1996 and 2001 when
Sheikh Hasina was the Prime Minister of Bangladesh is considered as a period of good bilateral relations.
o India is looking forward to normalisation of political and economic relations with Bangladesh under the
Sheikh Hasina Government.
o Economic cooperation, especially providing greater share of the Indian market to Bangladeshs products, is
one of the best ways to improve bilateral relations, according to analysts.
E. The Return of Sheikh Hasina Government can be used by India as an opportunity to
resolve border disputes, strengthen internal security and increase trade in the region.
III. Mutiny by Troops of Bangladesh Rifles (BDR):


1. Mutiny: A mutiny means an open rebellion against authority, especially by soldiers or sailors against their
officers.
2. Mutiny by the BDR Jawans at the BDR Headquarters in Dhakas Pilkhana Area:
o On February 25, 2009 heavily armed Jawans of the Bangladesh Rifles (BDR) sprayed bullets on officers
during an annual conference at the BDR headquarters in Dhakas Pilkhana area.
o The BDR jawans killed their commanding officers after taking most of them hostage and tortured their
family members at their residences. The armed rebels took control of the BDR headquarters, killing a
number of civilians as well due to indiscriminate firing.
o The mutineers raised a number of issues including long-pending grievances over pay, welfare and benefits
and rampant corruption.
o The key issue was that of Army control over the paramilitary forces.
o Analysts believe that the revolt was not spontaneous and could be the work of vested interests within the
BDR to damage the new democratic government.
o The Bangladesh Army cordoned off the BDR headquarters.
o On February 26, the rebels surrendered following Prime Minister Sheikh Hasinas ultimatum that they
would face tough measures if they did not go back to the barracks.
o The government declared a general amnesty for the rebels.
o The rebels in districts who had sided with the BDR jawans in Dhaka also heeded to the Prime Ministers
warning.
o On February 27, 2009 Prime Minister Sheikh Hasina said that those who had committed the killings would
not come under the declared amnesty. They would be tried under law and punished.
3. Killing of Large Number Officers by Mutinous Jawans Unparalleled in the History of
Bangladesh:
o According to the Bangladesh Army estimates, of the officers present at the BDR headquarters, 63 were found
dead, 33 had survived and 72 were missing.
o The killing of such a large number of officers by mutinous jawans was unparalleled in the history of
Bangladesh, according to analysts.
o Since its independence from Pakistan in 1971, Bangladesh has witnessed 19 coup attempts and the killing of
two Presidents - Sheikh Mujibur Rehman, and his family members and the former President Gen. Ziaur
Rahman.

4. Mutiny a Critical Test for the Sheikh Hasina Government:
o The mutiny by the BDR jawans was a critical test for the newly appointed democratic government under
Prime Minister Sheikh Hasina.
o The Bangladesh Prime Minister handled the situation with calibrated firmness. The government held talks
with the rebels with a mix of accommodation and firmness that paid off. The government managed both the
mutineers and the Army and stopped further bloodshed.
o The Sheikh Hasina government declared a three-day national mourning in honour of the dead officers. The
officers were buried with state honours.
o A six-member high-powered committee headed by the Home Minister was constituted to investigate the
massacre.
o The Sheikh Hasina has vowed to fight Islamic terrorism and build a secular democracy.
o The Government has to find out the reason behind the mutiny and the masterminds behind it. Solutions
have to be found to avoid such incidents in future which had a devastating effect on the countrys future.
5. Bangladesh Army Shows Remarkable Restraint during the Crisis:
o The Bangladesh Army showed remarkable restraint during the crisis despite mounting tension.
o The Army respected the chain of command and followed the decisions of the civilian leadership.
o The Chief of Army Staff of the Bangladesh Army Gen. Moeen U Ahmed stressed on the Armys loyalty to
democracy by saying that the Armed Forces were always subservient to the government.
IV. Implications for India:


1. India Expressed Solidarity with the Sheikh Hasina Government:
o India expressed solidarity with the Sheikh Hasina government and conveyed its readiness to extend
whatever support and assistance that Bangladesh may require.
o India unequivocally condemned all efforts aimed at destabilising a democratically elected government in
Bangladesh.
2. Instability in Bangladesh has a Direct Bearing on India as It Shares a Long, Porous Border
with Bangladesh:
o Analysts point out that India shares a 4,096 km porous border with Bangladesh and instability in
Bangladesh has a direct bearing on Indias strategic interests.
o India needs to ensure that its borders with Bangladesh are secure and there is no laxity in controlling access
along the long border, only a part of which is fenced.

3. BDR is Crucial for Addressing Indias Security Concerns:
o Defence analysts point out that the BDR is crucial for addressing Indias security concerns as it guards the
borders.
o Clashes between the BDR and the Bangladesh Army would undermine the assurances given by Bangladesh
on Indias security interests.
o The repercussions of the BDR mutiny could lead to skirmishes on the border helping terrorists planning
attacks against India to cross over making use of the confusion between the BDR and the Bangladesh Army.
4. India Hopes the Sheikh Hasina Government would Clamp Down on the Terrorist Groups in
Bangladesh: Bangladesh was turning into a hub for terrorist groups due to rising fundamentalism and
abject poverty, according to analysts. However, with the formation of a new government under Prime
Minister Sheikh Hasina, India hopes that things would change and there would be a clampdown on jihadi
groups. India also wants to strengthen ties with Bangladesh.
5. Pakistans ISI could use the dissensions in the ranks of the Bangladesh Armed Forces for Its
own Purpose: Analysts point out that a growing concern for India is that Pakistans ISI and terror groups
like Lashkar-e-Taiba and Harkat-ul-Jihad-al-Islami have been using Bangladesh territory to launch terror
attacks against India. The trail of the 26/11 Mumbai attacks point in this direction. Fears have been
expressed that the ISI could use the dissensions in the ranks of the Armed Forces of Bangladesh for its own
purpose.
6. Issues Concerning its Own Security Forces May Hamper Bangladesh Governments Resolve
to Address Indias Security Concerns: Analysts point out that issues concerning its own security forces
could hamper the resolve of the Sheikh Hasina government to address Indias security concerns. It could also
restrict the Bangladesh governments ability to strike any deal with India on the exchange of ULFA leaders
operating from Bangladesh.
7. Bangladesh Government Identifies 12 Militant Outfits for Close Watch:
o In late April 2009 Bangladesh government identified 12 militant outfits operating in the country to closely
watch their activities.
o The Bangladesh Home Ministry was working to update the information on militancy, its patrons, funding
sources, links to political parties and international connections, according to the State Minister for Home
Sohel Taj.
o The Bangladesh government would seek cooperation from friendly countries to tackle militancy if required
and it was preparing guidelines for foreign assistance in dealing with the issues, according to the Bangladesh
State Minister for Home.
V. War Crime Trial of 1971 Liberation War in Bangladesh:


Government Appointed an Investigation Agency for War Crime Trials of 1971 Liberation War: In April
2009 the Bangladesh government appointed an investigation agency to probe the atrocities committed by
collaborators of the Pakistan Army during the 1971 War of Liberation.
Bangladesh urged Pakistan to apologise formally for alleged atrocities committed by its army during Bangladeshs
liberation struggle in 1971. According to Bangladesh officials, three million people were killed during the fight for
independence for Bangladesh which was then East Pakistan.
On November 19, 2009, the Bangladesh Supreme Court upheld the High Court verdict confirming death sentences for
12 former military officers in the assassination of Bangladeshs founding father Sheikh Mujibur Rahman in 1975.
VI. Conclusion:


1. The Landslide Victory for Awami League indicates a popular desire for political
stability: Analysts point out that the landslide victory for the Awami League in the Parliamentary elections
in Bangladesh indicates the popular desire for political stability. However, there is cautious optimism in
South Asia as political stability has proved to be as fragile in Bangladesh as in Pakistan. It remains to be seen
if the Bangladesh army completely withdraws from the governance process.
2. Challenges before the Sheikh Hasina Government: The three-fourths majority secured by the Awami
League brings in tremendous responsibility on the Sheikh Hasina Government in Bangladesh, according to
analysts. The challenges facing the new Government include the following:
o Climate change
o Rising militancy
o Economic problems
o Large population
o Weak administrative structure
o Periodic natural calamities
o Uniting the politically divided country
Indo-US Relations
Introduction:

1. New Level of Maturity in Indo-US Ties: India's relations with the US have reached a new level of maturity
where both sides can live with their differences without their fundamental friendly good relations being
affected adversely. Indo-US relations have never been better, with bilateral exchanges in every area,
including peaceful uses of nuclear energy.
2. Basic Shift in US Policy towards India:
o Offer for Cooperation in Civilian Nuclear Technology: The Indo-US Civil Nuclear Agreement gives
India access to civilian nuclear technology which was denied to India for three decades. Analysts point out
that this goes well beyond what was being considered under the Next Steps in Strategic Partnership (NSSP).
o Defence Cooperation Agreement: The US has also offered a defence cooperation agreement with India
that includes joint production. Analysts point out that such a provision is provided only to close allies of the
US like South Korea and Turkey. This is seen as unprecedented in Indo-US ties.
o Institutional Means to Convert Aspects of NSSP into Tangible Projects: The US has also offered
India the institutional means to convert aspects of the NSSP, including economic cooperation and provision
of space technology, into tangible projects.
o The US Wants India to Become a Great Power: The US has emphasised time and again that it wants
India to become a great power and sees on threat in India taking such a role. This was conveyed to India's
Prime Minister by the US Secretary of State, Condoleezza Rice, during her visit to India in March 2005.

3. Reasons Behind the US Desire to Make India a Major Power:
o Relations with India Need to go Beyond NSSP: The US has come to the conclusion that relations with
India should go beyond the NSSP. Therefore the US announced that it would help India in its efforts to
become a world power in the 21st century.
o Recognition of India's Growing Power: Analysts feel that the US has developed a new respect for India
as growing power on account of its nuclear tests, its high economic growth, its achievements in the IT sector
and its good export performance.
o Wants a Balance of Power in Favour of Freedom: Analysts point out that the US feels that the
current world order is not conducive to US security interests. Thus, the US wants a "balance of power in
favour of freedom". India fits into this equation perfectly. The US feels that India's partnership will be crucial
in shaping the international order in the 21st century.
o China Factor: Analysts opine that the US is not comfortable about the rise of China and is therefore
encouraging India to maintain the balance of power in the region as well as in the world.

4. Broader Indo-US Strategic Relationship: Indo-US relationship is being transformed from a bilateral one to a
strategic partnership, according to the then US Ambassador to India, David C Mulford. The US is in favour
of a decisively broader strategic relationship to help India achieve its goals as one of the world's great multi-
ethnic democracies. The vision embraces cooperation on a global strategy for peace, defence, energy, and
economic growth.
5. Shared Common Values and Interests: Mr. Mulford pointed out that Indo-US relationship is based on
shared common values and interests. Both sides work together closely in countering terrorism, share the
view that extremist governments have no place in the international system, cooperate in fighting HIV/AIDS,
and work together to build stronger economic relations.

The US Secretary of State Hillary Clintons Visit to India (July 18-21, 2009):

1. First Visit to India as Secretary of State: The US Secretary of State visited India from July 18-22,
2009. This was her first visit to India after taking charge as the US Secretary of State. She was the highest-
ranking member of the Obama Administration to visit India.
2. Three Hi-Tech Agreements Finalised during the Visit:
a. End User Monitoring Agreement (EUMA):
India has been signing an end-user monitoring agreements (EUMA) for all dual-use and high-
technology purchases from the US since 1984. All high-tech deals, military or civil had separate
EUMA clauses.
The current End User Monitoring Agreement (EUMA) finalised during US Secretary of State
Hillary Clintons visit is an umbrella agreement with the US to skip deal-to-deal hassles. It is seen
as the harbinger of greater defence cooperation.
As per the agreed EUMA text, the US can physically inspect defence equipment and technology sold
to India, but the time and place of verifications would be decided by India. This would avoid on-site
verification.
The US insists that countries acquiring sensitive military technology from it do have an end user
pact.
b. Technology Safeguards Agreement (TSA) - An End User Agreement in Space
Sector: The new Technology Safeguards Agreement signed by the US Secretary of State Hillary
Clinton and Indias External Affairs Minister S.M. Krishna would cover launches involving satellites
owned by the US government or academic institutions or by third country space agencies and
universities which have US equipment on board. Since the components and satellites would have to
be integrated with ISROs launch vehicles the TSA would provide for monitoring by the US to
ensure against diversion or misuse of equipment.
c. Science and Technology Cooperation Agreement was also signed by Indias External Affairs
Minister and the US Secretary of State.

3. Joint Statement:
a. Defence Cooperation:
The two sides reaffirmed their commitment to the early adoption of a UN Comprehensive
Convention against International Terrorism, which would strengthen the framework for global
cooperation.
Defence cooperation envisaged under the Defence Cooperation Framework Agreement of 2005
would be prioritised.
Agreement to move ahead in the Conference on Disarmament towards a non-discriminatory,
internationally and effectively verifiable Fissile Material Cut-off Treaty (FMCT).
A high-level bilateral dialogue to close gaps on achieving global nuclear non-proliferation and
cooperation to prevent nuclear terrorism.
Consultations on nuclear fuel reprocessing arrangements and procedures to start from July 21,
2009.
b. New Architecture of Strategic Dialogue:
Discussions would take place on exchanging views on reforming the UN Security Council, the G-8
and the G-20 so that these organisations and groupings reflect the world of the 21st century in
order to maintain long-term credibility, relevance and effectiveness.
c. Economics and Trade:
Commitment to Open Trade and Investment Policies: The Statement noted that as G-20
members, India and the US had pledged to work together with other major economies to foster a
sustainable recovery from the global economic crisis through a commitment to open trade and
investment policies.
Both Sides committed to facilitate a pathway forward on the WTO Doha Round.
Pledged to cooperate to preserve the economic synergies, to increase and diversify bilateral
economic relations and expand trade and investment flows between the two countries.
Negotiations for a Bilateral Investment Treaty would be scheduled in New Delhi in August 2009.
Resolved to harness the ingenuity and entrepreneurship of the private sectors of both countries
with the newly-configured CEO Forum.
d. Education:
Both sides affirmed the importance of expanding educational cooperation through exchanges and
institutional collaboration.
Agreed on the need to expand the role of the private sector in achieving this.
e. Science & Technology:
The two sides concluded a Science and Technology Endowment Agreement and signed a
Technology Safeguards Agreement (TSA).
Both sides welcomed Indias participation in the Future Gen Project for the construction of the first
commercial scale fully integrated carbon capture and sequestration project and in the Integrated
Ocean Development Project, an international endeavour for enhancing the understanding of Earth
and Ocean dynamics and addressing the challenges of climate change.
Agreed to form working groups to focus on new areas of common interest - nano-technology, civil
nuclear technology, civil aviation and licensing issues in defence, strategic and civil nuclear trade.
f. Energy and Climate Change:
Both sides to intensify collaboration on energy security and climate change.
Efforts to be made to increase energy efficiency, renewable energy, and clean energy technologies
through the India-US Energy Dialogue and a Global Climate Change Dialogue.
Bilateral S&T Collaboration to Support Transfer of Technology in Areas of Mutual
Interest:Agreement to launch a process of bilateral scientific and technological collaboration to
support the development, deployment and transfer of transformative and innovative technology in
areas of mutual interest, including solar and other renewable energy, clean coal and energy
efficiency and other renewable areas.
Commitment to Work Together for Positive Results in the UNFCCC Conference on
Climate Change: Both countries affirmed their commitment to work together with other
countries, including through Major Economies Forum (MEF), for positive results in the UNFCCC
conference on Climate Change in Copenhagen in December 2009.

g. Deepening Indo-US Relations:
a. Five Pillars of New Architecture of Indo-US Strategic Dialogue: The US
Secretary of State Hillary Clinton highlighted five pillars that would form part of the new
architecture of strategic dialogue with India as follows:
Strategic Cooperation
Energy and Climate Change
Education and Development
Trade and Agriculture
Science & Technology
b. Strategic Dialogue to be Taken Forward by Five Working Groups:
Strategic Cooperation Working Groups - address non-proliferation, counter-terrorism,
and military cooperation.
Energy and Climate Working Groups - continue the energy dialogue and initiate
discussions on action to address climate change.
Education and Development Working Groups - seek to enhance cooperation in education
and initiate discussions on womens empowerment.
Economics, Trade and Agriculture Working Groups - continue discussions on business,
trade and food security.
Science & Technology Working Groups - explore new areas for cooperation in leading
technologies, and in addressing health challenges.
c. Agreement signed for creating $30-million endowment to be used for joint research and
development, innovation and entrepreneurial and commercialisation activities in science
and technology.
d. India pledged to designate two nuclear energy park sites in the country for development by
US companies.
e. India and the US intend to launch the third phase of their relationship by expanding the
ambit of dialogue to include an annual meeting between the External Affairs Minister and
Secretary of State and involving non-governmental figures and organisations.
f. India-US Strategic Dialogue to be launched in 2010 would focus on wide range of bilateral,
global, and regional issues, continuing programmes now being implemented and taking
mutually beneficial initiatives that complement Indian and US development, security and
economic interests.
g. US Does Not Oppose ENR Technology Transfer to India: The visiting US
Secretary of State Hillary Clinton said that the recent G-8 resolution on curbing transfer of
nuclear enrichment reprocessing technology does not apply to India. She pointed out that
the US had just completed a civil nuclear deal with India. So if the ENR technology
transfer is done within the appropriate channel and carefully safeguarded, as it is in the
case of India, thats appropriate.
h. Prime Minister Manmohan Singh accepted US President Barack Obamas invitation to
visit the US on November 24, 2009. This would be the first state visit under the new
Administration.
h. Criticism of the End-Use Monitoring Agreement (EUMA) between India and the US:
. Opposition Charge - Intrusive Inspections of Sensitive Defence Installations
would Compromise the Countrys Sovereignty: On July 21, 2009, Opposition
parties in the Parliament charged that the US the Government had compromised Indias
sovereignty by allowing intrusive inspections of sensitive defence installations under the
End-Use Monitoring Agreement (EUMA) with the US.
a. Government - No Question of Diluting Countrys Freedom, EUMA an
Agreement between two Sovereign States Relating to High-End Defence
Purchases: The External Affairs Minister S.M. Krishna made identical statements in
both Houses of the Parliament as follows:
The EUMA systematises ad hoc arrangements for individual defence procurements from
the US entered into by previous governments.
The EUMA would henceforth be referred to in letters of acceptance for Indian
procurement of US defence technology and equipment.
There was no question of the Government diluting or bartering away the countrys
freedom or sovereignty, as it was an agreement between two sovereign States relating to
high-end defence purchases.
Conclusion:
9. Agreements Signed between India and the US during the Visit of the US Secretary of
State to India would have a Long-Term Impact on Bilateral Relations:
Analysts point out that the agreements finalised and signed between India and the US during the
visit of the US Secretary of State Hillary Clinton to India would have a long-term impact on bilateral
relations.
The EUMA could be the harbinger of greater defence cooperation between the two countries as
India can now access cutting-edge US technology and the US companies can enter Indias market.
The TSA in the field of non-commercial use of space was also very significant as it was an umbrella
agreement that was likely to dispense the individual licensing by the State Department.
Both sides agreed to undertake more collaborative projects in different fields, including energy and
trade and agriculture.
The quality of implementation of these agreements would be under scrutiny in both countries as
evident from the protests from the Opposition in the Parliament, according to analysts.
10. The Obama Administrations Resolve to Implement the Indo-US Civil Nuclear
Agreement in both Letter and Spirit is Significant: The US Secretary of State reiterated the
Obama Administrations resolve to implement the Indo-US nuclear deal both in letter and spirit.
She emphasised that the US would not withhold transfer of attendant reprocessing and enrichment
technology (ENR). This was significant as the implementation of the Indo-US nuclear deal would
help India access world-class nuclear power technology and boost up Indias energy security.
11. Need for a Continuing Structured Bilateral Consultative Mechanism to Deal with
Terrorism in the Region: Defence analysts point out that if the Indo-US partnership is not to be
influenced by the United States relations with Pakistan and if both are to have a mutually agreed-
upon strategy to face the common threat of terrorism, there needs to be continuing structured
bilateral consultative mechanism to deal with terrorism in the region. This needs to be separate
from the annual Strategic Dialogue.
12. India and the US have Common Interests in the Evolving Balance of Power in
Asia: Former US Deputy Assistant Secretary of State for South Asia, Teresita Schaffer said that
India and the US had common interests in the evolving balance of power in Asia - in energy
security, maritime security, climate change and peaceful and harmonious rise of China. There was
an opportunity for both countries to reshape the global non-proliferation system in the wake of the
Indo-US Civil Nuclear Agreement.
13. Issues over which India and the US Differ:
Climate change - India is firm on not adopting a cap on emissions because it is not a significant
polluter and economic growth is its priority. On the other hand the US wants a commitment from
India on emission cuts.
Outsourcing
NPT
CTBT
Approach towards Iran
14. Indo-US Relations More Secure Than Ever Before: Analysts point out that despite a few
irritants, the Indo-US relations seem more secure than they have ever been. It is pointed out that
there seems to be greater connectivity between the political leadership which has led to the
expansion of the relations.
15. India Should Continue to Follow an Independent Foreign Policy: Finally, analysts
opine that a close working relationship with the US should be a priority in Indias
foreign policy. At the same time India should continue to follow an independent
foreign policy retaining its freedom of options to exercise multifarious choices to
meet its national interests.