Archive for Globalization and Neoliberalism
Civil Society and Democratization in India
This chapter is an attempt to understand the emergence of civil society in India as a response to the rolling back of the state from social welfare. The chapter begins with an overview of the recent challenges before Indian democracy and moves on to discuss how civil society organizations used the various traditional media like folk dance, popular songs, street plays and other popular methods to spread awareness and to bring development through the empowerment of common people. It argues that the macro and mainstream universalistic media and communication was unable to capture the fragmented realities and social problems of the rural life for which civil society called for a micro and particularistic media to address the issues in rural society. Through the example of Mazdoor Kishan Shakti Sangathan (MKSS) in Rajasthan, the chapter also discusses the role of civil society organizations in enhancing democratization, especially the Right to Information Act in ensuring good governance in society.
Power and Contestation
Nivedita Menon and Aditya Nigam (2007) Power and Contestation: India since 1989, London: Zed Books.
Power and Contestation, written by two well-known political theorists-cum-activists in India, presents the most up-to-date and comprehensive chronicle of India’s political history since 1989. Combining post-nationalist, feminist and new left perspectives, the authors candidly illustrate how the power of capital and nation in post-1989 India has constantly been contested in public and political discourse.
Narrating the political transformations and changing state–society relations in India in the last two decades, the authors argue that India post-1989 has witnessed a significant departure from its foundational principles such as Nehruvian socialism, secular nationalism and the principles of non-alignment. Although global factors like the ‘end of the Cold War’ and neoliberal reforms have significantly influenced developments in India, the authors argue that it was primarily the ‘internal conflicts and logics’ that propelled these transformations in India (p. 2). With the decline of the Congress party and the regionalization of Indian politics, the issue of caste has re-emerged in the political sphere. The ‘mandalization of politics’ (p.16) and the increasing political mobilisation of the lower caste has not only challenged the hegemony of the upper castes but also significantly influenced the imperatives of electoral politics in India. Secularism, a key political principle which traditionally provided considerable psychological and political security to religious minorities, has been under vigorous attack with the rapid rise of Hindutva politics manifested in the demolition of Babri Mosque in 1992 and the ‘state-sponsored massacre of Muslims in Gujarat’ in 2002 (p. 51).
Globalisation and neoliberal economic reforms, as updated incarnations of the old idea of development and modernisation, have dispossessed people, disrupted communities and destroyed their cultures and livelihoods without offering them any viable or dignified alternatives. As a response, various non-party political formations and grass-roots movements or what the authors call ‘new left’ movements have emerged to contest the exclusive and exploitative logic of global capital and its local ally the nation/state. The conflicts in the north-east and Kashmir region have also challenged the ‘idea of India’. Although global capital has helped the Indian nation to secure a place in the world, the authors conclude that ‘in India, as elsewhere in the world, the contestations to the power of Capital and Nation are so many, so varied, and so relentless’ (p. 181).
Since the book is written from the ‘new left’ perspective, it captures only one aspect of India’s transformation since 1989. Despite this, the strength of the book is its numerous recent examples and candid analytic style, which make it an admiral contribution to the Zed Books series on ‘Global History of the Present’ and a rich resource for anyone working on India.
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@ Sarbeswar Sahoo, Political Studies Review, Vol. 7, No. 1, January 2009
Making Aid Work?
Abhijit Vinayak Banerjee (2007) Making Aid Work. Cambridge, MA: MIT Press. 170pp, £9.95, 978 0 262 02615 4
Abhijit Vinayak Banerjee’s Making Aid Work provides an excellent forum to discuss the problems engulfing international development aid. It argues that the ineffectiveness of foreign development aid is primarily due to “institutional laziness” (p.7). Banerjee argues that international donor agencies, NGOs and multilateral institutions do not pay much attention to the impact and “cost-effectiveness” (p.16) of a program and are often “unclear about what they should be pushing for” (p.21). Building on the drugs evaluation model, Banerjee argues that “randomized trials… are the simplest and best way of assessing the impact of a program” (p.10). Although “randomized trials are not perfect” (p.11), argues Banerjee, they provide “hard evidence” (p.113) and “spur[s] innovation by making it easy to see what works” (p.122).
The problems of foreign aid, as recognized by Banerjee, have been universally agreed upon by several economists and policy makers. However, his arguments on lazy thinking and randomized experiments have received skeptical responses. Many have rejected his accusations that the international donors are not pursuing impact evaluation and cost-benefit analysis. Banerjee’s argument is very limited and ambiguous. His academic training in economics influences much of his thinking on macro level quantitative experimentation, ignoring the dynamics of power relations at the grassroots level. He also fails to explain the idea of randomized experiment in a clear manner. His emphasis on laziness (not filling up a form) that is grounded on a particular example from Pakistan does not really apply to regular NGO functioning. As Mick Moore has rightly argued, development agencies are “staffed and run by expressive intellectuals” who are “skilled in performing the key functions of the contemporary aid business: producing position papers and strategy documents and managing inter-agency coordination meetings” (p.43).
By placing the emphasis on institutions, Banerjee has failed to address the “politics” of development and international aid, which often has created a “culture of dependency” at the grassroots level. Banerjee is also unable to understand that the problem of foreign aid is not primarily due to “institutional laziness” but the result of a rationalized and active institutional effort to depoliticize development and to create what James Ferguson (1990) has called an “anti-politics machine”. Nevertheless, Banerjee’s arguments have generated numerous pertinent issues and discussions related to the aid regime. His concluding essay has brilliantly addressed the machine like character of development policy making. The structure of the book is innovative, although the forum discussions are regrettably brief.
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This review has been published by Sarbeswar Sahoo in Political Studies Review, Vol. 7, No. 1, January 2009
The Politics of Tribal Resistance in Orissa
Why does collective resistance occur where they do and how are the actions and options of social movement agents shaped by and also impact on social structures? What inspires and empowers people to resist and to reveal the character and spirit of the cultural expressions of resistance? In short, what is the ‘politics’ of (tribal) resistance in Orissa? Addressing these issues, the paper makes three basic arguments – Firstly, the ‘fear’ of the uncertain future, and the cultural meaning attached to the geographical notions of ‘place’ provide important perspectives in understanding the relations of power, domination and the politics of collective resistance. Secondly, the threat of material interest serves as an organizing principle in politicizing identity and interest groups against the outside authority. And finally, the magnitude of resistance intensifies when the grievances of the people are treated in an unresponsive and oppressive manner.
Individualism – Man’s Right to Exist for his Own Sake
Has man any right to exist if he refuses to serve society?
Thousands of years ago the first man discovered how to make fire. He was probably burned at the stake, he taught his brothers to light. But he left them a gift they had not conceived. And he lifted darkness off the earth. Throughout the centuries, there were men who took first steps down new roads armed with nothing but their own vision. The great creators, the thinkers, the artists, the scientists, the inventors stood alone against the men of their time. Every new thought was opposed; every new invention was denounced. But the men of unborrowed vision went ahead. They fought, they suffered and they paid, but they won. No creator was prompted by a desire to please his brothers. His brothers hated the gift he offered. His truth was his only motive. His work is his only goal. His work, not those who used it; his creation, not the benefits others derived from it; the creation which gave form to his truth. He held his truth above all things and against all men. He went ahead whether others agreed with him or not, with his integrity as his only banner. He served nothing and no one. He lived for himself, and only by living for himself was he able to achieve the things which are the glory of mankind. Such is the nature of achievement.
Man cannot survive, except through his mind. He comes on earth unarmed. His brain is his only weapon, but the mind is an attribute of the individual. There is no such thing as a collective brain. The man who thinks must think and act on his own. The reasoning mind cannot work under any form of compulsion. It cannot be subordinated to the needs, opinions or wishes of others. It is not an object of sacrifice. The creator stands on his own judgment. The parasite follows the opinions of others. The creator thinks; the parasite copies. The creator produces; the parasite loots. The creator’s concern is the conquest of nature. The parasites concern is the conquest of men. The creator requires independence. He neither serves nor rules. He deals with men by free exchange and voluntary choice. The parasite seeks power. He wants to bind all men together in common action and common slavery. He claims that man is only a tool for the use of others that he must think as they think, act as they act, and live in selfless, joyless servitude to any need but his own.
Look at history! Everything we have, every great achievement has come from the independent work of some independent mind. Every horror and destruction came from attempts to force men into a herd of brainless, soulless robots without personal rights, without personal ambition, without hope, or dignity. It is an ancient conflict. It has another name – the individual against the collective. Our country, the noblest country in the history of men was based on the principles of individualism – the principle of man’s inalienable rights. It was country where a man was free to seek his own happiness. To gain and produce, not to give up and renounce; to prosper, not to starve; to achieve, not to plunder; to hold his highest possession, a sense of his personal value and as his highest virtue his self-respect. Look at the results! That is what the collectivists are now asking you to destroy as much as the earth has been destroyed.
I am an architect. I know what is to come by the principle on which it is built. We are approaching a world in which I cannot permit myself to live. My ideas are my property. They were taken from me by force, by breach of contract. No appeal was left to me. It was believed that my work belonged to others to do with as they pleased. They had a claim upon me without my consent that it was my duty to serve them without choice or reward. Now you know why I dynamited Cortlandt. I designed Cortlandt, I made it possible, I destroyed it. I agreed to design it for the purpose of seeing it built as I wished. That was the price I set for my work. I was not paid. My building was disfigured at the whim of others who took all the benefits of my work and gave me nothing in return. I came here to say that I do not recognize anyone’s right to one minute of my life nor to any part of my energy, nor to any achievement of mine, no matter who makes the claim. It had to be said. The world is perishing from an orgy of self-sacrificing. I came here to be heard in the name of every man of independence still left in the world. I wanted to state my terms. I do not care to work or live on any others. My terms are a man’s right to exist for his own sake.
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@ This is translated from a video on “Fountain Head”.
Globalization, Social Welfare and Civil Society in India
Globalization is being understood differently by different people. Fukuyama (1992) has referred it as the “end of history”, which established democracy as “the only legitimate and viable alternative to an authoritarian regime of any kind” (Huntington, 1992, p. 58). Where as, political theorists like Ohmae (1995), considering the vulnerabilities of the nation-states, have pronounced the “end of the nation-state”. Though it remains as an empirical question to see whether nation-states have lost their significance or not, one thing is clear that the existing state-society relationship in developing countries have undergone metamorphosis due to the policies of liberalization, privatization and globalization.
Following a historical analysis of the state-society relationship in India, the paper seeks to analyze the effects of globalization on Indian civil society. It argues that civil society during the colonial and early post-colonial period remained confined to the English educated upper caste elites and the subaltern populations were excluded from the public sphere because of the virtues of modernity and the paternalistic policies of post-colonial state and ruling elites. The decline of the moderate state and the Congress system in mid-1970s and the policies of globalization and the rolling back of the welfare state in mid-1980s transformed the state-society relationship and brought incongruous implications for civil society in India. The apparatus of the state became pluralized and several non-governmental organizations (NGOs) and people’s movements emerged to take up issues affecting the lives of poor and marginalized.
The paper concludes that though globalization has radicalized civil society activism and expanded its sphere over the past few years, in the process, it has turned civil society into a site of increasing class war, widespread violence and growing unfreedom. If civil society has to achieve freedom, democracy and social justice, it needs to move beyond its middle class orientation and transform itself as a more inclusive and more right based sphere of political activism.
Why Civilizations cannot Climb Hills?
Prof. James C. Scott, a professor at Yale, was a visiting professor at the Institute of Development Studies in Roskilde University in Denmark. Presenting his research on Southeast Asia, he spoke about Why Civilizations cannot Climb Hills on 29 April 2008. He argued how states stop when they come to hills and presented the history of non-state spaces. According to him, the history of agriculture in Southeast Asia is of 8,000 years. The history of homo-sapiens is 200,000 years and the history of homo-sapiens in Southeast Asia is 50,000 years. He also argued that most of human experience has been state-less. Population and production in Southeast Asia was dispersed.
He distinguished between the Valley and the Hill and argued that the valley has always been the sites of states – taxes, Kings, sites of war and of hierarchy. The hill has no permanent states, no permanent Kings and taxation system. It is relatively egalitarian, although it is considered uncivilized, primitive and as barbarian periphery. Hill peoples are the past of the valley people. Hill peoples don’t share the religion of the valley. Mountains remain at the fringes of civilization. People run away from valleys to hills to evade state-making – taxation, mono-cropping, etc. of the state. Hills are not barbarian periphery but they are kind of political refugees. Hill peoples are considered as tribes and tribes were the creation of states and empires. They are the people who live in the fringes of the state. In Southeast Asia and South Asia, tribes were escaping state-building where as in Africa tribes were part of the state project. The idea of nation-state has been to control the periphery and to expand the state sovereignty till the border.
Dragon vs. Elephant
In an April 20 column, I argued the case for Sino-Indian economic co-operation, suggesting the two countries had complementarities that could make such co-operation mutually beneficial (as some companies in both countries are already proving). I also dismissed any talk of comparing India to China, arguing that the two countries’ systems are so different that we simply can’t compete with China in the growth stakes. Lest some readers infer from this that i think China is superior to India in every respect, let me assure them that they are wrong.
Certainly, in absolute numbers, the Chinese are way ahead. Their export of electronic goods now tops $180 billion a year. One out of every three shoes exported in the world is made in China. They make 75% of the world’s toys. Foreign direct investment is at the level of $70 billion a year (for comparison, India gets $15 billion). Shanghai alone has nearly 4,000 skyscrapers (more than all of India, and exceeding Los Angeles and Chicago combined). China has built an estimated 60,000 kilometers of expressways in less than two decades and will soon outstrip the total length of the US highway network. Per capita income has risen nearly 10-fold since 1978 to over $6,000 a head, and the number of people living in absolute poverty has dropped from 425 million two decades ago to 26 million today. The population is almost totally literate; life expectancy is reaching developed-country levels. This year, China is expected to overtake Germany to become the world’s third largest economy, behind the US and Japan. It won’t stay Number Three for long.
Against this, though, are a number of factors suggesting that not everything is rosy in China. Economic growth has occurred at breakneck speed, but that means some necks have been broken: the human cost of development has not been negligible (population displacement, farmers thrown off their lands, villages flooded by dams, mounting pollution, low-wage labour in appalling conditions, widening disparities between the rich and the poor, an absence of human rights and few checks on governmental abuses). The Chinese have seen great and rapid improvements in their Internet access, but Beijing employs some 40,000 ‘cyber-police’ to monitor politically-undesirable activity on the Web.
Equally important, China’s success has not just been China’s; a disproportionate share of the benefit goes abroad, to the foreign companies who have set up factories in China. It has been estimated that of the $700 American price of a Chinese-made laptop, only $15 remains in China. Only four of the country’s top 25 exporters are Chinese companies, according to Forbes magazine’s Robyn Meredith, who adds that in practice, ‘Made in China’ really means ‘Made by America (or Europe) in China’. The Chinese financial system also leaves much to be desired. Where India has been running sophisticated stock markets since the early 19th century — and Indians are so skilled at doing so that they got the Bombay stock market up and running within 24 hours of the 1992 bomb blasts — China is new at the game, and not particularly adept at it.
The financial information provided by China’s companies, especially those in the large governmental sector, is notoriously unreliable, and standards of corporate governance are low. There are no world-class Chinese companies with sophisticated managers to match Tata or Wipro or Infosys. China’s capital markets are weak and its banks inefficient: the Chinese banking system carried an estimated $911 billion in unrecoverable loans as of 2006, mainly to government firms. State-owned enterprises still account for half of China’s economic assets. China has yet to master the art of channelling domestic savings into productive investments, which is why it has relied so extensively on foreign direct investment.
And the world has yet to develop any confidence in China’s legal system (where a contract still means whatever the government says it means). In other words, it still lags behind India on the ’software’ of development — not just technical brainpower or engineering know-how, but the systems it needs to operate a 21st century economy in an open and globalising world.
And then there’s politics. Whatever you might say about India’s sclerotic bureaucracy versus China’s efficient one, our tangles of red tape versus their unfurled red carpet to foreign investors, our contentious and fractious political parties versus their smoothly-functioning top-down Communist hierarchy, there’s one thing you’ve got to grant us: India has become an outstanding example of the management of diversity through pluralist democracy. Every Indian has been allowed to feel he or she has as much of a stake in the country, and as much of a chance to run it, as anyone else: after all, our last elections were won by an Italian woman of Roman Catholic heritage who made way for a Sikh to be sworn in as PM by a Muslim president, in a nation 81% Hindu.
And our largest state is being ruled by a Dalit woman, from a community once considered ‘untouchable’, who bids fair to rule the entire country if she can make the coalition arithmetic add up right after the next election. She wasn’t promoted by the Brahmin elite in New Delhi; she rode to the top on the ballots of her political base. Contrast this with Beijing, where political freedom is unknown, leaders at all levels are handpicked from the top for their posts, and political heresy is met with swift punishment, house-arrest or worse. India’s politics means its shock-absorbers are built into the system; it has endured major road-bumps without the vehicle ever breaking down.
In China’s case, it is far from clear what would happen if the limousine of state actually encountered a serious pothole. The present system wasn’t designed to cope with fundamental challenges to it except through repression. But every autocratic state in history has come to a point where repression was no longer enough. If that point is reached in China, all bets are off. The dragon could stumble where the elephant can always trundle on.
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@ Sashi Tharoor, Why the Elephant can Dance better, The Times of India, 3 August 2008.
Assassination of the Third World
THE DARKER NATIONS — A Biography of the Short-lived Third World: Vijay Prashad; LeftWord Books, 12, Rajendra Prasad Road, New Delhi-110001. Rs. 650.
Vijay Prashad opens his book The Darker Nations: A Biography of the Short-lived Third World with the affirmation that the Third World was not a place but a project, vibrant and significant. Leaders of newly-independent countries crafted an ideology and a set of institutions to bear the aspirations of their populations for another, better world.
This is a powerful account of the way in which the Third World moved to the centre stage of international politics by the beginning of the 1960s, challenged the forces of domination and by the end of the century was pushed out or to use Prashad’s term “assassinated” by neo-liberal globalisation and its powerful instruments. The Third World project and its ideologies and institutions had enabled the powerless to hold a dialogue with the powerful and try to hold them accountable. The dialogue was terminated unilaterally by the powerful.
Beginnings
Prashad traces the new political platform from the 1928 meeting in Brussels of the League Against Imperialism where the project of the Third World began to take shape. It was there that the call for the rights of the darker nations was first made. Unity of the people of the Third World came from a political position against colonialism and imperialism rather than from any intrinsic cultural or racial commonalities. But in the early stages itself, they demonstrated their ability to discuss international problems and offer considered notes on them. The platform incorporated not only a quest for enhanced status, but also for economic justice in the face of a shared condition of poverty, underdevelopment and dependence. Prashad points out how in spite of disagreements in tactics and strategy, the Third World had a core political programme around the values of disarmament, national sovereignty, economic integrity and cultural diversity.
Underlining the significance of the Bandung Spirit, the author shows how the formation of the Afro-Asian movement was an integral part of the story because it was through the relations among the main non-aligned countries that the Third World was constituted. What was meant by the Bandung Spirit was simply that the coloured people had emerged to claim their space in world affairs not just as an adjunct of the First and Second Worlds but as players in their own right.
The Bandung Spirit was a rejection of the two major policies of imperialism — economic subordination and cultural suppression. Despite its immense diversity, the Third World came to exhibit a remarkable unity of purpose in its struggle to establish a new international order, to shake off the rules and institutions devised by the old established forces and create new rules and institutions that would express the aspirations of the newly emerging forces.
Marginalisation
Prashad describes the marginalisation and virtual demolition of all international institutions, oriented to or initiated by the Third World, not only by the World Bank and the International Monetary Fund (IMF) but by the U.N. itself. Two examples will suffice. The United Nations Centre on Transnational Corporations (UNCTC) was virtually suppressed. The principles and procedures produced by the UNCTC would have posed a frontal challenge to the kind of anti-Third World operations maintained by many multinational corporations. The United Nations Conference on Trade and Development (UNCTAD) which was created on the initiative of the Third World and which could at one time challenge the power of the First World global corporations was deprived of its original purpose and direction. With the creation of the World Trade Organisation (WTO), it was deemed superfluous and unnecessary and the UNCTAD in its leaner and meaner form became just a promoter of transnational corporations. In July 2000 the U.N. Secretary-General, Kofi Annan, launched an ambitious partnership with 50 of the world’s biggest and most controversial corporations thus blessing their exploitative penetration of markets in the Third World, having already buried the UNCTC’s Code of Conduct which would have effectively held them to account.
The economic development in the Third World was a complex process that involved more than just economic factors. The distorted development agenda followed by most of the Third World and the imperialist pressure faced by these states resulted in misery for millions. By the 1980s the Non-aligned Movement (NAM) was infected with the belief that economic development is a technical problem that should not be bothered with the question of the Third World. Prashad points out how the path to the New World Order has been paved with the debris of failed policies and short-sighted development programmes promoted by the World Bank, IMF and the General Agreement on Trade and Tariffs (GATT).
Nationalism
Prashad traces the evolution of nationalism in the Third World. Rejecting the idea of nationalism that emerged from Europe’s history, the Third World states had absorbed the idea of nationalism and fashioned it to suit the rhythm and demands of their various histories. But as IMF-led globalisation undermined the idea of nationalism, conservative social classes gathered together to offer an alternative vision of what is meant to be patriotic; indeed what it meant to be nationalistic. The secular nationalism of the Third World agenda withered before the rise of a cultural nationalism deeply invested in racial, religious and such atavistic differences.
Collapse
The assassination of the Third World led to the virtual destruction of the ability of the state to act on behalf of its population, an end to making the case for a new international economic order and a disavowal of the goals of nationalism. Prashad shows how catastrophic the demise of the Third World has been.
In spite of the virtual collapse of the Third World, the term is used as a self-designation of peoples who have been excluded from power and authority to shape their own life and destiny. As such it retains, as in Prashad’s description, a supra-geographic denotation, describing a social condition marked by social, political, religious and cultural oppressions that render people powerless and expendable. In this sense the Third World also encompasses those people in the First World who form a dominated and marginalised minority.
Based on prodigious research, this ambitious and wide-ranging book presents a fascinating account of the Third World, its rise and fall. Prashad’s study represents issue-based international history at its best. He weaves together the tale of Third World politics with stories about personalities, problems of revolution and social change, ideological tensions and people’s aspirations.
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@ Ninan Koshi, The Hindu, 15 July 2008
Orissa in India: An Economic Scam Brewing?
While the Government of Orissa (India) ostensibly fights opposition to the POSCO project from human rights activists and environmentalists, is there a gargantuan economic scam playing out?
The second statement in the Memorandum of Understanding (MoU) signed between POSCO and Orissa state government states:
“The Government of Orissa, desirous of utilizing its natural resources and rapidly industrializing the State, so as to bring prosperity and wellbeing to its people, has been making determined efforts to establish new industries in different locations. In this context, the Government of Orissa have been seeking to identify suitable promoters to establish new Integrated Steel Plants in view of the rich iron ore and coal deposits in the State.”
We must look at the impact of this economic venture on Orissa from a social and environmental perspective but most importantly from an economic perspective.
In the MoU, POSCO plans investment of approximately USD 12 Billion or Rs 48,000 crores. The numbers are awesome. Rs 48,000 crores could do much for a state that is faced with one of the poorest social and economic indices in the nation – in terms of literacy, health care, nutrition and mortality, earning power, etc. As part of Phase I, POSCO plans on setting up projects worth Rs 21,900 crores by 2012 and projects worth 21,500 crores as part of Phase II by 2016.
POSCO will set up an Indian subsidiary headquartered in Bhubaneswar for this effort based on 20-25 acres of land. In addition, POSCO will require 6000 acres of land for the steel project and associated facilities as well as for township development. In addition, other land may be acquired for infrastructure to transport goods between plants and to the port, for water treatment, etc.The Government of Orissa has undertaken to provide this land to the company.
In a show of good intentions, the MoU also notes that:
“The Government of Orissa appreciates that the Company will be a responsible corporate house with a high involvement in employees’ welfare and social development.”
The Oriya community is thus thrilled at the prospect of a major multinational investing in setting up the biggest iron and steel project in Orissa which will not only bring in an unheard amount of investment into the state but also provide for jobs and townships to help develop the people of the state. The Government of Orissa must be proud for having pulled this off.
And yet, there has been significant hue and cry on this deal. Environmentalist crying about a waterfall that could die – who cares about it when people are dying from starvation! Hills and scenic beauty will disappear – who cares if it provides stable livelihoods to a significant fraction or Orissa’s people. Even the discussion on the Ridley turtles seems ridiculous from this perspective. The people of Orissa seem justified in arguing that similar penalties were paid in the development of Maharashtra, Karnataka or other more developed parts of India or the world – so why complain now that we are doing the same. And that is a fair argument.
It is also fair to truly understand the details of this economic benefit that Government of Orissa believes will come to Orissa.
The Direct Economic Component
As part of the initial deal, POSCO has promised a flat rate of royalty at Rs 27/tonne of iron ore to the Government of Orissa (for ore with at least 62% iron content). This results in less than Rs 1620 crores to Government of Orissa over time of the contract of 600 Million Tonnes.
The current global market rate of iron ore is over USD100/tonne. In December 2007, the market was at USD 120/tonne. By this rate, 600 million tonnes of iron ore (that POSCO would mine) at greater than 62% iron content would result in Rs 240,000 crores. Wow! We suddenly realize that POSCO has effectively been given this ore free. Accounting for mining costs and the total investment package (less than 10% of the costs) the people and the state of Orissa are getting less than 1% of open market price of iron ore.
This is not a special deal for POSCO – similar (though smaller) deals are in the works with Tatas, Vedanta, Jindal, etc. Why is the Government of Orissa (and the Central Government) pursuing such deals? People in the business point to the strength of special interest groups and the mining lobby and that all political parties have received their dues from the lobby. Processes are encumbered with corruption – every truck load mined needs to pay the local MLA Rs 500 and a similar amount goes to the party coffers.
For all the excitement among the Oriya community, there have been few demanding accountability from Government of Orissa – why is the Government of Orissa is selling the ores at less than 1% of the global price. Surely, more money coming into the state coffer will be more helpful for people, will lead to more development?
After detailed analysis, some groups have demanded that the Government of Orissa set the royalty at 50% of market price, and that if the iron ore were to be converted to steel outside the state, the royalty be 80%. Even at this high a royalty, POSCO will be profitable. While Government of Orissa argued that this would allow other states to undercut Orissa and get a better deal, critics have suggested that these states form a coalition, like Organization of the Petroleum Exporting Countries (OPEC), to set prices. Such a coalition including the 5 states of Chattisgarh, Jharkhand, Orissa, Karnataka and Rajasthan is underway. Chief Ministers from these states met with the Prime Minister of India, on 19th of December and demanded a 20% royalty down from public demand of 50%. The Central Government of India haggled and is considering a royalty of 7.5-10%. The Government of Orissa seems too readily satisfied with this suggestion.
Such pressure does make the state respond. Now the state of Orissa will receive Rs 18,000 to 24,000 Crore in royalty (if this is made binding) as opposed to 1620 crores as per the earlier plan.
What reasons force these governments to undersell minerals at >90% below market prices? The state government has been very unwilling to provide details of the transactions, with the Government of Orissa initially claiming that disclosing such details of public funds went against confidentiality agreements (unless there are security threats, democratic governments globally have provided details of deals with private agencies). Why should Government of Orissa, with an annual budget of 4500 crores, let go 108,000 crores or 3600 crores per year for next 30 years and be satisfied with 600 crores/ year? (50% of 216,000 crores the price of 600 MT of Iron Ore at last year’s prices)
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@ Sandip Dasverma & Sanat Mohanty, The Seoul Times, Friday, 4 April, 2008
