Editorial: What 2013 Results Mean For Poll 2014 Scenario?

By M H Ahssan | INN Live

The results of the 2013 assembly elections in Chhattisgarh, Delhi, Madhya Pradesh and Rajasthan are out but those looking for clear pointers towards how the next general election will play out are likely to be left scratching their heads.

The Bharatiya Janata Party turned in a spectacular performance in Rajasthan and wrested the state from the Congress. It has retained Chhattisgarh and Madhya Pradesh, the latter with a significant increase in its seat share. But in Delhi, the BJP failed to properly ride the wave of anti-Congress sentiment, yielding crucial political space to the Aam Aadmi Party and falling short of a clear-cut majority.

EDITORIAL: Trouble On The LoC

The need of the hour is a multilevel engagement between India and Pakistan

The gravity of the two incidents that took place along the Line of Control earlier this week must neither be seen as a localised affair of trivial significance nor blown out of proportion as a prelude to a major escalation of tensions between the two countries. True to form, both sides have given contradictory versions of what happened on January 6 – when a Pakistani soldier was killed during an alleged Indian raid on a Pakistani army post in the Uri sector – and on January 8 – when two Indian soldiers were killed and two others injured as Indian and Pakistani troops exchanged fire at an Indian army post located near Mendhar on the Indian side of the LoC. Such incidents do occur every now and then but both sides take care not to allow matters to spin out of control. 
    
That would have been the case this time too except that the incident at Mendhar had a macabre twist to it: the body of one of the Indian soldiers killed had been decapitated. The Pakistanis have of course promptly denied that this was their handiwork. But their troops and the terrorists some elements of the Pakistani establishment support have committed similar gruesome acts in the past. Provocations of this nature naturally inflame Indian public opinion. The defence ministry has, quite appropriately, condemned the latest violation of the ceasefire line. But the need of the hour is clearly to go beyond the blame game to explore ways and means to avoid such incidents in the future. 
    
In this regard, it is imperative for both to engage with one another at various levels: political and diplomatic, military and intelligence. At present, a hotline exists between the DGMOs of the two countries. But that is clearly not enough. A wider dialogue can, at the very least, check avoidable misunderstandings. It could of course achieve much more. New Delhi would surely want to know, for example, if the much-advertised shift in the Pakistani army’s strategic thinking – one that focusses on internal threats to that country’s security and not on India – is for real. A litmus test would be the swift conviction of alleged plotters of the terror attacks in Mumbai. 
    
Meanwhile, exchange visits by scholars and artistes, businessmen and pilgrims can help create, as the Aman Ki Asha experience attests, an atmosphere that is conducive to the resolution of some of the less intractable issues bedevilling India-Pakistan ties and, in the bargain, expand the peace constituency in both countries.

Defiant Bharti On AAP: First Sign Of Political Suicide?

By Newscop | INN Live

Somnath Bharti has every reason to be a worried man. His midnight shenanigans in Khirki extension, when he led a mob into the home of four Ugandan women, accusing them of being part of a 'drugs and sex' racket and then barging into a police station demanding their arrest without a warrant, have caused outrage across the spectrum, uniting disparate elements who usually agree to disagree on everything. 

Is Regulating Social Media Campaigns Overreach To ECI?

By Saurav Datta (Guest Writer)

Robust scepticism, that indispensable tool for informed, intelligent navigation through a world increasingly embracing polarisation, remains conspicuous by its absence in the current political discourse in India. The tidal wave of unstinted, blind support is emblematic of not only political parties and their ideologies, but also characterises the polity’s susceptibility to fads. This susceptibility gets manifested into gigantic follies when policy prescriptions and elaborate political strategies are drawn up on the basis of supposed trends which are mostly nothing but hot air.

Congress Will Stand Exposed If Withdraws Support To AAP

By Kajol Singh | INN Live

As the Aam Aadmi Party was preparing to from the government, the Congress has dropped a bomb, with sources saying that the party may withdraw support to the AAP. Congress leader Janardan Dwivedi said there were differences of opinion within the Congress about supporting AAP, and the party was seriously considering withdrawing support.

While the AAP had never wanted support from the party, it decided to take support after Congress said the support was 'unconditional'. However, the Congress had later denied offering unconditional support. So, will it work against the grand old party's interest if it withdraws support? 

NaMo, A Model Of Ruthlessly Ambitious 'King Aurangzeb'

By Zamir Kamil | Delhi

Who could imagine that Aurangzeb and Narendra Modi would have some things in common? But life surprises. To begin with, both are Gujaratis at least by birth. Aurangzeb was born in the town of Dahod, 200 km from Ahmedabad. Modi's birthplace is Vadnagar, 100-odd km away. Aurangzeb loved the town of his birth and three years before his death, instructed his son, the governor of Gujarat, to take special care of it.

Editorial: Will it be different this time?

By M H Ahssan

Should we believe the promises politicians make to us this time around? Whatever it is you want the government to do about terrorism, begin by asking who will do it, and how.

The terrorist attacks on Mumbai, resulting in tragic loss of lives among innocents and bravehearts, have thrown up some very predictable emotions. There is an outpouring of determination among some sections of the public that terrorism shall be defeated at all costs. There is despair at continuing government indifference. There is opportunism among opposition parties to point fingers at an evidently failing government. There is worry that our security agencies are just not up to the job of defending this country pre-emptively. There are also 'solutions' being proposed by analytical Indians outside the government -- from common citizens to corporates to retired officials and more. And, there is also rising anger at Muslims.

If India remains true to its model so far, a few days from now these emotions will be diluted, and on the way to being forgotten along with many others. But, we hear, there is some reason to think that this time, 'things will be different'.

The argument goes thus: Too many people got to witness this terrorism live, in ways that were simply not possible in earlier attacks. They were, in some sense, witness to the heroism and martyrdom of those who served, and equally to the absenteeism and opportunism of those who hid. This high 'involvement' (if one can use such a word to describe bystanders, that too on television, computer and mobile screens) is what makes 26/11 different, say some of our opinion-makers. For the first time, India had a chance to look deep inside itself, and really see how unprepared we are to face down such challenges. And therefore we will react.

Perhaps. But that's easier said than done.

Intelligence without systems
Our systems of governance, especially the way we find, staff and train positions within government are so broken that it would be wishful to believe that we can construct a rapid and robust response to terror in the way that some Western countries have done during the last decade.

Without systematic response mechanisms, intelligence can only be of limited value. Indeed, in the current case itself, 24 hours after the seige ended, the clearest evidence emerged that the Mumbai attacks could have been foiled by Indian security forces. ATS chief Hemant Karkare, who was killed in the seige had reportedly already warned city hotels that an attack was likely - in part because intelligence reports had recorded a reconnaissance operation of the hotels to be targeted. Even though some security arrangements at the Oberoi and Taj had been tightened recently, one report in The Hindu revealed security was lifted on complaints of 'inconveniences'. Mumbai Police have also been quoted as saying they were already stretched and did not have the specialised man-power to provide the security needed to hotels to defend against an attack.

Here's worse. RAW had reportedly intercepted a satellite phone call on 18 November indicating that planned movement along the sea route from Karachi to Mumbai. RAW had alerted the Indian Coast Guard and the Navy. And even as they mounted a search in the seas between Karachi and Mumbai, the terrorists, apparently noticing this, had hijacked an Indian fishing vessel, dumping their own boat. It isn't clear why the failure to find the vessel did not result in Indian authorities assuming that terrorists could still have landed in on the coast.

All of this indicates one thing. This siege and it's protracted 60-hour battle was not the result of a substantial failure of intelligence itself. It is the failure of governmental-response to knowledge of threats and continuing evidence of a casual attitude within state-governments in the handling of threats. One law enforcement official has been quoted in the DNA, without being named, that there are no methods to grade and prioritise action on threat advisories received from intelligence agencies. And since local officials receive such advisories regularly, they do not have a way to determine which ones to act on.

In India, most public systems tend to break down at the local level, even if 'national' systems are relatively well-run by otherwise competent officials. The first line of counter-attack against a terror strike, as we saw in Mumbai in first few hours of 26 November, was a weak, stretched, and unprepared local police force. By the time the NSG landed, 10 hours of precious time had be lost. Central governments have not bothered to work with state governments to setup elite tactical squads that can be rapidly mounted and deployed to prevent attacks, especially with evidence of something imminent.

In intelligence itself, there is more work to do. By the government's own account, we need to improve our intelligence gathering and this is not one of those things that can be done in weeks. We need to develop technological sophistication to gather, understand, grade and manage mountains of data - an exercise that has barely begun in most state governments. Don't forget that state governments, not the Centre, must carry much of the load for whatever is promised now.

Election promises won't work too
Another answer to the question 'why will it be different this time?' has been making the rounds: any government that does not act even in the face of such grave provocation and danger to its citizens will surely lose votes.

This 'votes will be lost' theory is a cruel joke constructed by our chattering class, mostly upon itself. It is the promised vengeance of a lot of people who don't themselves vote, but claim to understand the motivations and biases that bring others to the voting booth every few years. Pause for a minute and think through all the things that need to be done now, and imagine the various points along the way where governments could falter or - as is more likely - lose interest.

Even without the much-needed comprehensive reform to the police force, here's a small sample of the things needed - pass tougher laws, post elite forces such as the NSG in major cities, locate state government decision-making in acting on terror warnings in a single office that is held accountable and has to explain each warning that is ignored, bring in skilled persons at market pay into the departments, remove cronyism in career management within government, and assess progress using independent bodies.

The actual development of pre-emption and response strategies, and the ability to train and deploy forces repeatedly and reliably is the real work. Much of that is yet to be done, despite the continuing terror strikes of the past few years. As we write this, analyses and comparisons are already emerging about how the J&K police had to create a counter-force to pushback on Fidayeen attacks, with some success. Still, anyone who has seen the inside of our state governments -- both people and processes -- would know the huge gulf we have to cross to thwart - not just put down once the firing has begun - acts of terrorism.

Still, let us say on some of these matters, politicians, sensing the mood in the country, make promises. You tell me - how much of this change will happen merely because the UPA-Congress government today promises to do something, or the BJP promises something different?

Momentary seriousness or real change?
Fighting terrorism with a strong hand has become a necessary response to the reality of our lives. But actually doing so will take time, and great diligence.

Secure cities are not merely about keeping terrorists down, although that is hard enough. They're also about keep citizens moving up - socially, economically, culturally. Socio-economic divides and tensions in India are such that pools of exploitable minds are everywhere, with the evidence of their disenfranchisement all around them. It will require building bridges across communities, strengthening roles within government, and most importantly, subjecting public promises to real accountability.

However, the political system we have neither promotes nor rewards such work. Ask yourself this? When was the last time in any public meeting government officials (bureaucrats and politicians alike) were made to admit to failures that were avoidable, to explain why they failed and were not allowed to get away with a 'Chaltha hai?' or a 'We are looking into it' or a 'We have appointed an inquiry committee'?

Given that, what should we reasonably believe? That we are about to show the gravitas to invest in this? That the public will reward statesmanly promises with the coming months with faithfulness at the voting booth? No. Neither the current spurts of seriousness amidst citizens nor statesmanship amongst politicians will do.

Patriotism, nationalism and determination -- which are now at a visible high in the country after 26/11, and rightfully so -- will only take us so far. If you're looking for signs of real change in government, keep an eye on processes, not events and pronouncements. Look for accountability on responding to terror vested in one office or even one person, as opposed to being fragmented. Whatever it is you want the government to do to the terrorists, begin by asking who will do it, and how. And keep telling yourself that we can never have great success in isolated areas.

Srinivasan To Dalmiya: BCCI Done Nothing To 'Fix The Rot'

By M H Ahssan / Hyderabad

At Sunday’s meeting of the BCCI in Chennai, when it seemed that N Srinivasan would have to bow to the inevitable and resign as board president, he pulled out the oldest trick in the book: a pose of injured innocence. “I have been under terrible pressure,” Srinivasan evidently told the meeting, which had been convened in the context of allegations that his son-in-law and Chennai Super Kings principal Gurunath Meiyappan had been involved in the betting and spot-fixing scandal that has enveloped the IPL.

Makeover Experts 'Mirrors Salons', In A Class Of Its Own!

From 3Marks PR Services, Hyderabad

Celeb stylist Vipul Chudasama and Dr.Vijayalakshmi Goodapati, Owner of Mirrors Salons and Academy are coming together to give Hyderabad a glam and glitz makeover. 

According to a press statement, Vipul Chudasama will be available at Mirrors from today onwards. This is a remarkable opportunity for the style-conscious Hyderabadis who travel all the way to Mumbai, London Paris or New York for that perfect haircut-they just have to walk into 'Mirrors Salons' at Jubilee Hills and Madhapur in Hyderabad and get a makeover befitting a Hollywood star. Get ready to become the cynosure of all eyes!

Editorial: Is Arvind Kejriwal Dangerous For Indian Politics?

By M H Ahssan | INNLIVE

Who is more dangerous for India – Arvind Kejriwal or Narendra Modi? This is a question that India needs to answer. But a recent article titled ‘Arvind Kejriwal: The Most Dangerous Man In Indian Politics’ has ventured to supply a one-sided answer to this question. The title is as catchy as it is misleading if not subversive. 

The ensuing ‘analysis’ is sadly not borne out by facts but relies on obfuscation and rhetoric. The tragic outcome is that many pertinent facts have been buried beneath the rubble of unsubstantiated allegations and sinister accusations. On the whole the article is an anti-Kejriwal diatribe disguised as an intellectual treatise.

While conferring on Modi the respectable halo of a “firebrand Hindu nationalist”, the writer goes on to indulge in pure speculation and sweeping generalizations about Kejriwal and other AAP leaders.

Tribute: Legendary Editor 'Vinod Mehta' Passes Away At 74

In November, the veteran journalist spoke to INNLIVE about his life and work. 

This was probably his last interview. Veteran editor Vinod Mehta passed away after a lingering illness at the age of 74. Over his long career, he had been editor of The Sunday Observer, The Indian Post, The Independent, The Pioneer and Outlook magazine.

In 2012, he was promoted to the ceremonial post of editorial chairman of the Outlook group. That was two years after he published the Radia tapes story in Outlook magazine.

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Editorial: Telangana Conundrum

Devolution of powers and second States Reorganisation Commission needed at this hour.

With Union home minister Sushilkumar Shinde’s month-long deadline for a decision on Telangana expiring, the separate statehood demand has reached a critical point. Having previously promised a Telangana state – to be carved out of Andhra Pradesh – the Congress-led dispensation at the Centre is caught between a rock and a hard place. There is no denying that the Congress’s electoral success over the last two general elections was in large part bolstered by its performance in Andhra. Hence, splitting up the state was never going to be an easy decision. Even the Justice Srikrishna committee set up to study the statehood demand listed six options to deal with the vexed issue. 
    
The Congress’s current political arithmetic in Andhra is tricky. If it doesn’t grant Telangana, it could be politically wiped out in this region. On the other hand, the rise of Jaganmohan Reddy and his YSR Congress will anyway hit the party in the other Andhra regions – Rayalaseema and coastal Andhra. It is not surprising then that the Congress leadership is slowly moving towards the statehood option. The logic being that granting Telangana would at least hold the party in good stead here. However, the creation of a Telangana state would also embolden other statehood demands across the country. From Gorkhaland in West Bengal to Vidarbha in Maharashtra the call for smaller states will only grow louder, stoking Telangana-like agitations elsewhere. 
    
One solution to the problem could be greater devolution of administrative powers to local bodies. Apart for cultural and historical factors, one of the main grievances driving the Telangana movement is the overall lack of development in this region. Granting greater autonomy and empowering local bodies is one way to ensure that the fruits of development get evenly distributed, and satiate regional aspirations. That said, given the plethora of statehood demands, there is also an urgent need to form another States Reorganisation Commission (SRC). 
    
In 1956, the first SRC had reorganised states along linguistic lines. However, more than five decades later, the idea of linguistic identity forming the basis of statehood has become outdated. Today the demand for smaller states is increasingly driven by socio-economic aspirations. A second SRC would do well to study these factors and pronounce its verdict on the viability of the statehood demands. This would also guard against fringe movements holding the Centre and the idea of India to ransom.

Editorial: Engage Pakistan

By M H Ahssan

New Delhi must not allow the hysteria of the Indian chattering classes — indulging in war-mongering against Pakistan since the Mumbai terror strikes — to overwhelm its diplomacy.

More so now after Pakistan President Asif Ali Zardari has reiterated to US secretary of state Condoleezza Rice that Islamabad would take “strong action against any Pakistani elements found involved in the Mumbai attack”.

New Delhi should, however, realise such apparent show of solidarity by Washington cannot be any substitute for direct engagement with the democratically-elected leadership of Pakistan. It should share concrete evidence with Islamabad directly.

It must also check the propensity of a section of its officialdom to deliberately leak premature probe findings to the media in a bid to score a few ‘patriotic’ brownie points. Most important, the Indian government must have the patience to wait for Islamabad to act once evidence has been provided to it.

It would be dangerously delusional on New Delhi’s part to think that a sovereign state such as Pakistan would respond exactly how India wants it to. Such impatience could escalate the current crisis into a full-blown Indo-Pak military conflict.

That would give the Islamists just what they want — much-needed respite from the heat they face from Pakistani forces which would be relocated to the Indian border. Worse, it would help pro-Islamist elements within the Pakistani military-intelligence establishment to gain lost ground.

Most disturbing, an Indian attack on Pakistan would compel the liberal sections of that country’s population to close ranks with Islamists. The problem in Pakistan is that the legitimacy its legislative leadership commands is rather scarce. The stranglehold the traditional elite has had on the socio-political process and national institutions has rendered them inequitable.

Islamist fundamentalism has, in such circumstances, stepped in to give marginal sections of the country some chimera of agency. But the Indian political class would need a new vision if it is to grasp this regional predicament in its totality. This vision must, instead of making an ideological fetish out of national sovereignty, envisage fundamentalist terror as something that threatens the modern social continuum of south Asia, not just India.

Eye Opener: The Unfortunate Enduring Saga Of Organ Sales In India

By M H AHSSAN | INNLIVE

A surgeon navigates the complex social and ethical arena in which illegal organ donations thrive.

Back in 2004, in an editorial for theIndian Journal of Medical Ethics on a kidney transplant racket, I began by saying, "In our scandal-prone Indian public life, one scandal distinguishes itself by the amazing regularity with which it hits the headlines every few years.

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MEDIA BOSS: WHOSE 'NEWS' ARE YOU WATCHING TODAY?

By M H Ahssan / Hyderabad

Television news in the southern part of the country has largely become the preserve of the various political dynasties, with a glut of channels acting as mouthpieces of the owners rather than objective news broadcasters. INN brings us the true picture. 

A joke in Tamilnadu one has heard several times is about how Tamilians ensure they get the right news.

Trade falls victim to Mumbai attack

By Syed Fazl-e-Haider

Increased tension following the terrorist attack in Mumbai last month, which killed nearly 200 people in India's financial capital, has set back attempts to improve near moribund trade between close-to-bankrupt Pakistan and India.

Proposed secretary-level talks on enhancing trade ties between the two countries scheduled for this month in Islamabad have been postponed for an indefinite period, even as Pakistan denies direct involvement in the attack on civilians by gunmen. Ministerial-level talks that had been scheduled to be held in New Delhi on December 2had already been postponed.

Heightened hostility between the two neighbors in the wake of the Mumbai attacks comes after four years of improved bilateral trade, albeit from an almost non-existent base. The scope for further growth is glaringly obvious. For example, India, the world's biggest tea producer, wants to triple tea exports to Pakistan, the world's third-biggest buyer. In the other direction, Pakistan aims to capture more of the cement market in India's still expanding economy.

India, which exports about a quarter of its annual 800-million kilogram tea output, "Planned to boost sales to Pakistan to more than 20 million kilograms in the next three years ... from 5.47 million kilograms in 2007," Basudeb Banerjee, chairman of the state-run Tea Board of India, said after the attack, according to Bloomberg. The target may not be met after India blamed "elements" within Pakistan for the assaults, he said.

India is seeking to diversify from traditional markets, including Russia, where demand for tea and other commodities has declined because of the credit crisis.

India is the most feasible cement market for Pakistan, where companies have already completed adding capacity to reap possible benefits from India's rising demand for the commodity. Islamabad is committed to export about 100,000 tons of cement per month to India.

Pakistan offers India the most competitive transportation charges compared with other overseas sources in the region and Delhi has shown a willingness to take in the maximum that it can from Pakistan through sea and land routes by abolishing countervailing duties and additional customs duties on cement imports.

Before the Mumbai attack, the two countries had undertaken negotiations to remove bilateral trade barriers, which have increased the cost of doing business and led to trade being routed through Singapore, Hong Kong and elsewhere. Direct trade between India and Pakistan is not more than US$250 million a year of a total bilateral trade worth $2 billion.

The two countries were looking to raise bilateral trade to $10 billion a year after trade talks resumed between the two neighbors in 2003. The bilateral trade balance is strongly in favor of India, which exports 75% of the total and imports only 25%.

The outlook for improved cross-border links will severely diminish if Pakistan reacts to challenges that is was involved in the Mumbai attacks by diverting troops from the Afghan border to its border with India, a prospect Pakistani President Asif Ali Zardari has sought to diminish,

"Non-state actors wanted to force upon the governments their own agenda but they must not be allowed to succeed," Zardari reportedly told Indian Prime Minister Manmohan Singh by telephone.

A New York Times analysis last month argued that Zardari's background would act in favor of improved ties, not least because his financially beleaguered country has had to turn in the past month to the International Monetary Fund to help it pay off international creditors.

"A businessman at heart, Mr Zardari understands the benefit of strong trade between India and Pakistan. Now on life support from the IMF, Pakistan would profit immensely from the normalization of relations," the New York Times said.

The most immediate barrier to trade has been inadequate cross-border transport facilities. The two sides, still deeply suspicious of each other after a number of wars and armed clashes since they became independent of British rule in 1947, have agreed to allow trucks to move within about one kilometer of each other's border and to build truck terminal facilities. Pakistan has developed one such terminal at Wagha, on the Grand Trunk Road between Amritsar in India and Lahore in Pakistan, with space for about 100 vehicles. India has yet to construct a comparable facility on its side of the border at Attari.

Progress is more apparent in sea-going trade, after Islamabad and New Delhi in late 2006 signed a shipping protocol allowing flagships of both the countries to carry third-country cargo from each other's ports, restoring direct shipping links between the two countries after 35 years. Pakistan also added 202 more items on its list of imports allowed from India.

Reflecting the lost opportunities caused by continued hostility, Malik Sohail Hussain, vice president of Pakistan's National Traders Alliance, said trade and commerce should not be made victims of politics, and confrontational postures would hurt both Pakistan and India, according to the country's Business Recorder newspaper. "Bilateral trade is less than $1.5 billion while it should have been $10 billion," Hussain quoted as saying. "The standard of living of the people of the sub-continent cannot be enhanced without bilateral trade and we cannot live in tension or by ignoring each other."

While Pakistan is having to defend itself against claims that is helping to perpetrate terrorism outside its borders, it has suffered numerous attacks at home, particularly since the coalition government that took power early this year stepped up the fight against extremists in tribal areas near the Afghanistan border. Among them, at least 60 people died in a suicide attack on the Marriott hotel in Islamabad in September. In the first week of December, a bomb blast in Peshawar in North-West Frontier Province killed at least 22 people and wounded 80.

"While the terrorists may try to derail the peace process between Pakistan and India, we should not allow them to succeed in their nefarious designs," said Pakistan's Prime Minister Yousuf Raza Gilani. Speaking at a dinner hosted for European Union heads of mission last week, he said Pakistan was ready to engage India closely to expose the hidden hand behind the Mumbai terror attacks.

Relaxed tensions in the sub-continent would certainly be to the benefit of the US.

"A rapprochement with India would permit the Pakistani government to devote more military resources to the fight against terrorists," The Washington Post said in a November 29 editorial. "The United States, in what's left of the [George W] Bush administration's term and right from the start of [president-elect Barack] Obama's administration, must continue nudging these two rivals toward cooperation. As the bloodbath in Mumbai so vividly illustrates, terrorism is not only America's enemy, but Pakistan's and India's as well."

The United States could play a role in improving trade between Pakistan and India by offering duty-free imports if one of the sub-continental countries used the other's inputs in their exportable items to the US, according to study by CUTS International, an India-based research and networking group. The study cited a scheme instituted in 1996 that allows duty-free exports to the US market from Jordan and Egypt given a minimum level of inputs from Israel in the manufacturing of these products.

Even so, while trade can help in normalizing relations between the two archrivals, expecting more peaceful relations between the two economies through trade is a dream, the report said.

BANGALORE BLAST, A TERRORIST ATTACK OR POLITICAL PLOT?

The lone blast outside the BJP office in Bangalore yesterday sparked the usual flurry of media overkill. There was the usual, knee-jerk speculation about jihadis, Islamic terror, blah blah. This is, of course, par for course these days in the aftermath of a bombing, be it in Boston or Bangalore.

What makes the recent Bangalore incident an exception, however, is that it almost instantly triggered a flurry of political name-calling — an activity usually suspended in the immediate aftermath of a suspected terrorist attack. As wildly inaccurate rumours of multiple blasts circulated online, Congress party spokesman Shakeel Ahmad shot off his Twitter mouth: “If the blast near BJP’s office is a terror attack, it will certainly help BJP politically on the eve of election.” The allegation in turned spawned its BJP mirror, ie the Congress party staged the attack to consolidate the minority vote.

Risky Business: Are Teaser Rates for Home Loans Pushing Real Estate to the Edge?

At the Indian Banking Conclave (Bancon) in Mumbai on January 12, Reserve Bank of India (RBI) deputy governor Usha Thorat warned against what she considers risky mortgage lending practices. "In the area of housing loans, teaser rates are increasingly being offered, which is a cause for concern," she said. "I hope banks are ensuring that borrowers are well aware of the implications of such rates and the appraisal takes into account the repaying capacity of the borrowers when the rates become normal."

Teaser rates were introduced by banks last year to boost demand for housing finance in a slowing economy. The first off the block was the public sector State Bank of India (SBI) with its Easy Home Loan. Launched in January 2009, when home loans were on offer at interest rates between 8.5% and 11% depending on the amount and the tenor, SBI's rate was 8% for the first year and 8.5% for the next two years. After three years, the terms are highly confusing. According to SBI, the "interest rate after three years may be fixed or floating as per the borrower's choice at the time of sanction. If the floating rate option is chosen, then the rate will be 2.75% below SBAR. If fixed rate option is chosen, then the rate will be 1.25% below SBAR prevailing on the third anniversary date from the date of first disbursement, and shall have a reset frequency of five years from the third anniversary date of the loan. Fixed interest rate shall be subject to [a] force majeure clause."

"SBAR" refers to the State Bank Advance Rate or the Benchmark Prime Lending Rate. And what is the Prime Lending Rate? Beginning June 29, 2009, it was revised to 11.75% per annum; it depends on the RBI's rate and other factors. In other words, the borrowers' monthly payments or equated monthly installments (EMI) three years from now will depend on the SBAR at that time. Little wonder borrowers are befuddled, regardless of whether they opt for fixed or adjustable rate mortgages.

"It is partially correct to state that loan terms are not fully explained to the borrowers," says Sudip Bandyopadhyay, group president of Spice Finance. "It is important to be transparent while providing loans. This does not happen in case of teaser loans." But even the banks have no clue about how much the EMI could be. It depends on the interest rate, and banks are obviously not going to talk about worst-case scenarios.

"While documentation necessarily has to be detailed, there is a strong case to be made for banks being compulsorily required to provide simple illustrations on how floating rates are pegged and what the precise implications are," says Jayesh Desai, national director (infrastructure, real estate and government services), Ernst & Young (E&Y). But it would be unfair to say that banks are taking customers for a ride, he adds.

Thorat's statement about repaying capacity and clarity on obligations drew an immediate response from SBI chairman O.P. Bhatt. "I don't know what the RBI means by teaser loans," he told morning newspaper DNA at the same Bancon a few minutes after Thorat spoke. "It is not right to refer to the 8% home loan scheme as a teaser ... there are no hidden costs in these loans or any add-backs."

On February 5, RBI deputy governor K.C. Chakrabarty added another dimension to the debate. Talking to journalists at a seminar on infrastructure financing in Mumbai, he said: "We have no concern [about] teaser rates." In a lighter vein, he quipped: "What we are telling banks is that you should tease everyone. Don't just tease new customers; also tease old customers by charging a uniform rate for both."

Five days later, on February 10, the RBI stepped in with a circular "to make credit pricing more transparent." Beginning April 1, housing finance can no longer hide behind a wall of banker-speak. A new Base Rate system will be introduced. According to the circular, "Since transparency in the pricing of lending products has been a key objective, banks are required to exhibit the information on their Base Rate at all branches and also on their websites. Changes in the Base Rate should also be conveyed to the general public from time to time through appropriate channels. Banks are required to provide information on the actual minimum and maximum lending rates charged to major categories of borrowers to the Reserve Bank on a quarterly basis. Apart from transparency, banks should ensure that interest rates charged to customers in the above arrangement are non-discriminatory in nature."

High Interest Rate Regime
The problem for banks is that the country is moving to a high interest rate regime. The RBI credit policy announced on January 29 did not raise interest rates; it only increased the cash reserve ratio (CRR) by 75 basis points. This squeezes liquidity out of the system and helps temper inflation. But interest rates are bound to go up; the only question is when. Teaser loans could then become uneconomical for banks. To add its earlier customers to this category will make things worse. On the other hand, if interest rates rise too much, EMIs will climb, squeezing borrowers further.

Bankers say a bubble in India is unlikely for another reason. In the U.S., loans were given based on the value of the asset (the house). In India, the primary yardstick is the capacity of the borrower to repay. Besides, banks in India have been traditionally conservative about lending to individuals.

Despite the insistence of the banks that they check on borrowers' ability to repay, one key issue is how much they are paying for the home in the first place. At the height of the boom two years ago, a mid-market apartment in Mumbai had a price tag of $200,000. This tumbled to $100,000 (in some cases). Buyers who had $170,000 in bank loans suddenly found themselves with a lot of negative equity. For the banks, they would be making significant losses even if they were able to seize the property and sell it off.

Another issue most borrowers don't realize is that most loans have a Depreciation of Security clause. A buyer is expected to contribute 15% of the cost of the house or apartment -- $30,000 in the example given. If the price falls to $100,000, the bank will still finance only 85% of the current cost -- $85,000. The borrower will have to pay the shortfall ($85,000) to avoid being labelled a defaulter. (In loans where shares are pledged as collateral, this has happened very often. Banks ask borrowers to top up their securities when prices fall. If they fail to do so, they sell the shares.)

So why are banks offering teaser rates? The reason is they make money through lending, and today there are limited takers. Banks have too much money sloshing around in their coffers. According to RBI data, by November 20, 2009, personal loans were up a meager 0.7% for the year. Advances against fixed deposits were down 11.80%; on credit cards they were down 24.70%, and on consumer durables down 11.80%. The saving grace was education, where loans went up 31%, and housing, where loans increased by 7.30%. The increase in housing loans was essentially the effect of teaser rates, without which mortgage lending might have declined. Loans to the real estate sector were up 15.30%. This looks fine until compared with the 49% growth of the previous period.

In this environment, once SBI took the plunge, everybody followed suit. When SBI launched its Easy Home Loan, Deepak Parekh, chairman of Housing Development Finance Corporation (HDFC), the country's biggest mortgage lender, declared it a gimmick. A few months later, HDFC itself was offering a similar product. But Parekh continues to insist the teaser loan is "playing with fire." In an interview with business daily Mint, he said: "It's not a very healthy way of lending. It can create problems in the future, particularly if the rates shoot up. Today what we are saying is, if the rate is 8% or 8.25% for the first two years, the rate will be 9% afterwards and so the gap is very small. Suppose interest rates in India shoot up in the next three years, then what will happen? 

These are all floating rate loans and fixed only for the first two years. So, 8% interest could become 12% or even more. Then, the gap will be too much and it's a problem for the individual homeowners.... Financial innovation doesn't take time; if one does it, everyone copies. It can be done in 24 hours. Now most banks have this product." More than 20 banks and housing finance companies in India have launched some variant of the teaser loan.

Competing for Borrowers
"These loan programs have proved to be extremely popular, and any large bank would be interested in getting on such a winning bandwagon," says Anuj Puri, chairman and country head of Jones Lang LaSalle Meghraj, a real estate services firm. "In the end, a successful business entity will not steer away from taking a leaf out of the competition's book." Adds Bandyopadhyay of Spice: "I guess competition forced HDFC to follow this route. They obviously did not want to lose customers."

"Banks as well as HDFC have always had variants of the teaser loan programs," says Desai of E&Y. "They always had floating loans, which were linked to prime lending rates, so you have had situations in the past, too, where interest rates start out low and then move up. Parekh's comment was probably linked to pricing loans initially below the cost of funds."

Business daily Business Standard agrees with Parekh's views about the risks of teaser rates. "Teaser rates are doubtful in themselves, but the experience of the recent global financial crisis makes them more so," the newspaper says in an editorial. "The U.S. sub-prime crisis, where defaults by a large number of home mortgage owners led to the collapse of the housing bubble, which in turn led to the overall financial crisis, was essentially a matter of those who could not afford to service a loan of a particular order for its entire life being lent funds. And this was facilitated by the offer of teaser rates which were to be reset at not-too-late a date, a provision that was part of the fine print which many borrowers initially ignored. With antecedents of this nature, teaser rates should not have been allowed (in India) in the first place. It is not clear why the regulators should have allowed this to happen even while sounding warnings that it is not a good thing. The banks' response, particularly that of SBI, is that it was awash with liquidity at the particular period when the practice was initiated and the stratagem has served its purpose. But this still leaves open the issue of quality of assets which will not be known unless the higher reset rates kick in."

Following the RBI's warnings, some banks have changed course. Two major banks, Canara Bank and Union Bank, have decided to end their teaser loan programs. Axis Bank has withdrawn the teaser loan program it had introduced as recently as January 6. Even Bhatt of SBI seems to have had second thoughts. "We will review the special home loan scheme sometime in March and see what kind of credit offtake has taken place, what kind of liquidity we have, what is the view on lending to various sectors and where we think the cost of funds is heading," he told the Business Standard Banking Round Table in early February.

Bhatt's concern is primarily the SBI's bottom line, not the borrowers' capacity to repay. Still, the two are linked because the quality of the bank's assets depends on the latter. "The points of contention are the short-term impact of low margins of teaser loans on bank balance sheets and the long-term impact on the quality of the loan books the banks build," says Bundeep Singh Rangar, chairman of IndusView, an advisory firm for multinational companies looking at business opportunities in India. "While the short-term pressure on margins is reflected in the debate between Bhatt and Parekh, the differences between SBI and the RBI stem from asset quality issues. The interest rates of such teaser loans automatically reset after the initial relief period. This resetting character of the interest rates is being compared to sub-prime mortgages in the U.S. The key difference, though, is that even these low rates are not being offered to unqualified buyers, only to people with predictable and documented incomes and repayment capacity." The consensus view is that there are dangers, but Indian banks have been much more careful. And the RBI should be able to head off the trend before banks get into serious problems.

Bubble Trouble?
Is a bubble building up in real estate prices? Opinions differ. "There is a recovery in certain pockets only," says Desai of E&Y. Agrees Rangar of IndusView: "The real estate industry is picking up, but slowly and unevenly." Bandyopadhyay of Spice, however, says that the prices of both commercial and residential properties have gone up significantly and they are close to their peaks. "The sharp increase in real estate prices during past six-eight months is definitely a cause of concern," he adds. "A calibrated approach needs to be taken by the regulator in consultation with the banks and the industry to slow down the pace, thereby ensuring more sustainable long-term growth."

The residential market is currently still largely end-user driven," says Puri of James Lang. "While there is a fresh complement of investors on the market as well, wholesale speculation such as we had seen in previous years is definitely not in evidence. It is speculators who create bubbles, not genuine investors." Adds Rangar of IndusView: "We don't believe there is any bubble in the Indian real estate sector."

Rating agency Fitch sees demand picking up but no dangers of overheating. "After a difficult period in early 2009, residential market demand picked up in the second half of 2009, as reflected by the absorption of new projects that were launched at a 25% to 30% discount versus prices during the previous peak in the second half of 2008," says a January 2010 report. "Developers reacted to the fall in demand by reducing prices and lowering unit sizes, and the focus shifted from high-value housing to the more mid-income affordable segment. Any significant increase in property prices by developers, and a tightening monetary policy, could have an adverse impact on future demand. With some recent launches already indicating an increase in residential prices, there is a risk that volumes may moderate if prices continue to appreciate." The commercial segment, says Fitch, continues to remain under pressure.

The sizzle is evident elsewhere. Nearly 20 real estate companies have lined up initial public offers (IPOs) totaling more than $6 billion. Some have already gone through and done remarkably well. During the boom of 2007, there were nine real estate IPOs. Today, only one of them has shares that trade above their offer price. Even if the homeowner has been a winner, investors in real estate stocks and speculators in property have been clear losers.