Conflict, technology and economic development

In the dream world John Lennon imagined, ‘Imagine there’s no countries, it isn’t hard to do, nothing to live or die for, and no religion too’ there would be no need for spending on defence, would there? Last year, the world spent $1.8 trillion on defence, money that would, alternately, have been spent on development. That is a utopian wishlist.

But political leaders sadly ratchet up, instead of down, tensions that lead to conflict, and develop ever more dangerous technology they believe will give them an edge in case of war. So, while the US developed fifth generation stealth technology for its F35 aircraft, that can remain undetected even while capable of detecting and destroying enemy aircraft BVR (beyond visual range), Russia developed arguably the best anti-missile system, S400, which can intercept incoming missiles and has been ordered by India. Both countries are also developing hypersonic missiles which are unstoppable.

Unmanned drones have been another technological development that aids in asymmetrical warfare. Tiny Yemen is accused of using drones to set afire Saudi oil production facilities that purportedly took out half the production. Now the US is blaming Iran for it and has imposed sanctions.

It is hypothesised that the damage is not as much as being made out to be. Fear of damage to 50 per cent of production capabilities would have driven crude oil prices to a level that would make the Saudi Aramco IPO a success; but a minimal damage would not lead to a sharp spurt.

So, within the paradigm of conflict and technology there is a layer of fake news.

Several countries, including India, are facing an economic slowdown and most have excessively high levels of debt taken to fund capex growth. Some of the sectors facing a demand slowdown in India are autmobile, real estate, and steel, among others. The Finance Minister has, erroneously, laid the blame for the auto slowdown on millennials, who prefer using shared services such as Uber/Ola than buying a car. This is logic stretched to breaking point. The truth is that the industry is not globally competitive and, with import tariff protection, not innovative enough.

A BMW 320i costs, in German, post discount, €31,500, or ₹24.78 lakh). A top of the line Mahindra XUV500 costs ₹19.74 lakh. The difference is ₹5 lakh whereas the German car is much superior. Labour costs in Germany are, at €31.4/hour, some 32 times higher than Indian labour costs. Domestic industry is not innovative enough and high import tariffs allow them the advantage of charging more; a reduction in sale price would spur demand.

Another big bane for economic ennui is that we live in an Animal Farm where some animals are more equal than others. Last week we had news of five State governments passing laws under which the State governments would pay the income tax dues of their ‘poor’ chief ministers. Use of this adjective to describe politicians raises eyebrows beyond the hairline.The periodic tax filings of senior politicians, and their ‘successful’ offsprings reveal how, using (tax free) agricultural income, they show growth in annual income that would make the performance of a Warren Buffett pale in comparision. No thought of farmer distress or impending suicide in these cases.

The urgent need is to provide jobs. Roof-top solar can provide 80 million jobs, according to the book ‘Game India’. The government should announce attractive feed-in tariffs for those generating solar power on their roof-tops and supplying surplus (after their own needs) to the grid, with a 20-year PPA. Why doesn’t the government try this? When politicians learn to serve national interests instead of their own, and when the polity stops spreading disharmony and encouraging the Military Industrial Complex, the world will be a better place.

The writer is India Head — Finance Asia/Haymarket. The views are personal.