UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 55-ii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

Foreign Affairs Committee

 

 

South Asia

 

 

Wednesday 22 November 2006

Lord Meghnad Desai, Martin Wolf, Victoria Schofield, Professor Sumantra Bose

Evidence heard in Public Questions 52-91

 

 

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Oral Evidence

Taken before the Foreign Affairs Committee on Wednesday 22 November 2006

Members present:

Mike Gapes, in the Chair

Mr. Fabian Hamilton

Mr. John Horam

Mr. Eric Illsley

Mr. Ian Liddell-Grainer

Sandra Osborne

Mr. Greg Pope

Sir John Stanley

________________

Examination of Witnesses

 

Witnesses: Lord Meghnad Desai, retired Professor of Economics and Director, Centre for the Study of Global Governance, London School of Economics, and Martin Wolf, Associate Editor and chief economics commentator, Financial Times, gave evidence.

Q52 Chairman: Good afternoon. Gentlemen, thank you for coming. We are, as you know, conducting an inquiry on South Asia, and clearly both of you have a lot of knowledge and expertise on one of the most important developments, which is the rapid economic growth that India is experiencing at the moment and the rise of India in that sense. Could you give us a sense of how that has impacted on the global economy and the implications of that for the United Kingdom?

 

Mr. Wolf: I would argue-to be provocative-that so far the impact of India's rise on the global economy is fairly modest, but it is potentially very large. I qualify that by saying that it is important to remember some of the magnitudes involved. At current prices, which are relevant for the actual market impact, the Indian economy is only 40% of the size of the British economy and it is about the same relative to the Chinese economy-it is very considerably smaller. Its exports are roughly equivalent to one sixth of those of China. Although the openness of the Indian economy, measured by trade ratios, has somewhat more than doubled over the last 10 to 12 years, it is still, relative to China, a closed economy. Trade ratios are less than half the Chinese ratios, which are, admittedly, exceptionally high, and the absolute level of exports remains well below those of sizeable G7 countries such as ourselves or France, let alone leaders such as Germany, the US or Japan.

India has been opening and its exports have grown a great deal-they are growing faster than the economy-but it is still a relatively closed economy. In other words, most of the activity is domestically oriented, and its impact on the world through trade in general has been relatively small. That is strikingly true-you may want to come to this point later-of manufactured exports. The same applies to inward foreign direct investment. India remains a relatively small recipient of inward FDI, again compared with China-the ratio is something like 10:1.

Now let me mention the areas in which India clearly has had a significant effect already. The most important, as we all know, is information technology services, which have grown with astonishing speed. Again, however, it is important not to exaggerate their scale. Interestingly, India's exports of all commercial services are still smaller than China's, although the ratio is much closer than it is for merchandised trade. Clearly, the existence of Indian IT services has been a significant and, I think, largely beneficial competitive force in the world. It is the low-cost marginal producer of basic IT services, and that sets the prices in quite a number of areas. That sector is growing at phenomenal speed and can be expected to continue to do so.

The other interesting area, which has arisen very recently, is outward investment by Indian companies. The Indian corporate sector is relatively developed compared with China's. After the adjustment to the opening, it seems to me that it has developed quite interesting overseas investment strategies. Of course, the case of Tata and Corus is in our minds, but there has been a lot of investment in the region. So I would say that India's impact is nascent but not yet really significant.

I did not mention-perhaps I should-that it is one of the factors, although again not a decisive factor, in the tightening of the world's oil markets. India's growth path is nothing like as resource-intensive as China's-India's consumption of oil is only about one quarter of that-but the growth is very rapid.

As for the impact on the British economy, I have discussed the obvious areas. As we have seen, there is an interesting investment, although it is small in relation to other sources of investment. It is already included in call centres, so it is already significant in IT services and could become more so. However, it is important not to exaggerate its present impact.

Lord Desai: Let me start by saying that, although you say South Asia, you mean India. South Asia is more than India. It covers Pakistan, Bangladesh, Nepal and Sri Lanka. The rest of South Asia is much more under par than it could be because of a lot of local political troubles. Sri Lanka especially could be a very prosperous country, but it has had civil law for 25 years. Bangladesh is a troubled democracy for reasons that are entirely personal and familiar, but to some extent the divisions in South Asia are holding it back from what it could be because in terms of population, it is larger than China. That is my first caveat.

Secondly, the lack of negatives is even more important than the present and positive. Forty years ago, we were worried whether India could feed itself. We were worried about the fact that India loomed large at a cost to the global community with its famines and deaths. India has come a long way from there, especially during the past 15 years. We shall probably deal later with the many problems that remain, but to me the interesting part about India is that, given its access to the English language, its similar property rights and its legal structure, it could adapt, change and grow more rapidly because some of the transition problems are less in India than in China.

That said, India is admirable in terms of what it has done for itself rather than the impact that it has had on the global economy. Unlike China, India depends much more on domestic demand than it does on exports for its growth, so it is a domestic demand driven market. Also unlike China, as Martin Wolf said, it is driven very much by its own resources with foreign direct investment playing a very small part. Perhaps India is an exporter of capital, but I look forward to when India is an importer of capital. It is about the third largest investor in the United Kingdom so, from that point of view, the way in which the UK economy has to look at India in terms of size is so far not very big, but let us look at all the synergies that are available. For example, the India international film awards in Yorkshire next year will be much more important. Those sorts of connections with India will be much more important with us than anywhere else.

Q53 Chairman: Do you think that the diaspora has played an important role in the transformation to which you refer?

Lord Desai: Absolutely. In a sense, I think that the India diaspora is both the diaspora that came from India itself and the diaspora that came from east Africa. By and large, the diasporas have done very well economically and integrated very well into the structure. Those people maintain the context, whether in respect of financial and cultural interests.

Even as I speak, a South Asia investment and trade seminar is taking place in St. James. I spoke there this morning. If a diaspora could get together here, it would be a good way in which to tell the South Asian native Governments to behave better than they are behaving towards each other, but that is my dream. We could really have a great weapon in a diaspora.

Mr. Wolf: I mentioned the specific issue of IT services. It is quite clear that the growth of the Indian IT services industry has been fuelled significantly, though not solely, by the acquisition of knowledge and technology by Indian nationals working abroad-particularly in the United States. Very close connections have been created, particularly between Indian businesses and what may broadly be defined as American IT businesses. Those connections are, to a significant extent, personal.

 

Lord Desai: I have one other observation. In the 1950s, when I was a young student, our ambition was to go into the Indian administrative services. The best that one could do was to go into the civil service. Now, the best students do not go for government jobs at all; they go abroad, or they go into the financial services markets. One can see the presence of the diaspora both in London and New York-very bright young people abroad, who have had access to education and who are doing fantastic jobs.

Q54 Mr. Horam: Let me for the moment leave aside Lord Desai's dream of the South Asian community getting its act together, and concentrate solely on India. Current rates of growth have been quite high-regularly 6, 7 or 8% a year. Will that continue in the immediate future? Are there concerns about the current account deficit and so forth?

 

Mr. Wolf: India has a very modest current account deficit in relation to GDP. I think it is a little more than 2%. I have the figures here.

Q55 Mr. Horam: 3.5% actually, I think.

 

Mr. Wolf: I think it was £25 billion. I can get the exact numbers, but let us say it is 3%. The economy is growing at anything between 6% and 8% a year, and that may substantially increase with FDI, provided things do not get messed up. There are very substantial reserves of well over £100 billion, which is nothing like China's but is still very substantial. Given those factors, I do not regard the current account deficit as a significant threat. The internal debt of the Government is a more interesting question and we could perhaps discuss it, but I do not regard external debt as a problem. It is not like the situation in 1991. As a share of GDP it is more or less the same as ours, and our economy is growing at a quarter of the rate. India could probably grow out of it fairly easily.

As a general proposition it is entirely appropriate to say, and all theory should suggest, that fast-growing developing countries should be expected to run current account deficits, though that is not happening in east Asia, of course. It just means that they are net importers of capital, and we should expect that. China is a huge and fascinating anomaly-it has become the world's largest net capital exporter despite being the world's fastest growing economy-but that is completely unique in history. That remark is a footnote, however. I do not regard the current account deficit as a problem. I tend to be one of those who are slightly more pessimistic in the sense that, as you probably know, there is a vigorous debate at present among economists in India-the people involved-on whether the trend growth rate in India is 6% or 8%. I tend to the view that the rate is more plausibly closer to 6% than to 8%, though it has been 8% in recent years.

The main reason for that view is that, if the rate were 8%, that would imply an extraordinary, though not completely unique, efficiency in the use of capital. The investment rate in India is not much more than half that of China, and although I am prepared to accept that the investment return and the efficiency with which capital is used are higher, it is difficult to believe that it is going to be that much higher on a sustained basis. The population is favourable and is not a constraint, but despite what many people say the same will be true of China for the next 25 years, so that is not a big difference.

If India were to sustain 8% growth on an investment rate of about 25% of GDP, that would be extraordinary, and I tend to think that 6% is safer. That is the sort of number that my friend Shankar Acharya-the longest-serving Government of India chief economic adviser-has suggested is right. Others believe it to be higher, but I strongly believe that 6% is sustainable indefinitely. There is an enormous catch-up potential in the country; its GDP per head of purchasing power is about a tenth of that of the world's leaders and about half that of China. There is a tremendous catch-up potential. They are not really using many of their opportunities in manufacturing, most notably their competitiveness-if they improve policy a little, it is potentially very considerable in significant areas of economic activity-and they have the domestic demand engine which comes from their huge size.

They can achieve economies of scale internally, so unless they mess up in a rather big way or there is some disaster such as a war with Pakistan that turns nuclear-something horrendous-I think that 6% is very plausible; and then we can discuss how much further north of that it could go. I tend to think that they need significant further reform to be confident of hitting 8%, but I regard 6% as pretty solid by now; that is more or less what they have been achieving for most of the last 20 years-and without much difficulty during the last

five.

 

Lord Desai: I am more optimistic about that than Martin, but on the balance of trade deficit I had a hard time explaining to Peter Shore why there was not a sterling crisis when the trade deficit is so large nowadays. The capital markets are compensating for trade deficits. I think trade deficits loom less large nowadays. In terms of what Martin said, in my view China savings rates are absurd; and given what Chinese savings rates are plus the FDI flow, China's growth rate is not good enough, because if you think of, say, 45%, that is about 2 or 3 percentage points-

Q56 Mr. Horam: What is China's growth at the moment?

 

Mr. Wolf: About 10%.

 

Lord Desai: If you say about 45% and if you get 2 or 3 percentage points as FDI, at 48% you are only attaining a growth rate of 10% or 11%, whereas India has 29% saving, with Government mis-saving 2 to 3 percentage points and hardly any FDI, so with 25% or 26% you are achieving a 6% to 8% growth rate. So in terms of capital outward ratio, there are two caveats. China has invested a lot in infrastructure. It is very capital-intensive. When you go to Shanghai, you realise it-all those roads and the maglev-

Q57 Chairman: Have you been on it?

 

Lord Desai: They have spent millions of pounds preparing for the future. India has been reluctantly pushed forward in its infrastructure development, and is not doing too fast a job on it. That is one reason why the capital outward ratio is lower in India than in China.

One more thing is calling for greater efficiency. In the last six or seven years, the private sector has played a much bigger role in India's economic growth than traditionally. The private sector is realising its full competitive potential. It tends to be much more efficient with capital than the public sector. The shift from public to private sector increases capital efficiency, and you have a reluctance to go too much into infrastructure. But that is temporary; sooner or later India will have to come clean about infrastructure. That is the only reason why I can see the growth rate not increasing much faster. India has to make more policy changes; India has the potential for much higher growth.

Q58 Mr. Horam: You say that India will eventually have to invest in more infrastructure, but what sort do you mean? Will it be schools?

 

Lord Desai: Mending roads, ports and airports, and communications.

 

Mr. Wolf: I regard power as the most important. There are chronic shortages; but, even worse, probably the biggest single source of capital inefficiency in the private sector is the need of virtually all companies of more than a tiny size to have their own generators. Basically, it is a self-generation system. That is a significant overhead cost and a huge waste of capital. One could have said this at almost any time during the last 25 years, but it has become a very big problem. It is probably the sector that they will find most difficult to reform, for reasons that we can discuss if you want.

 

Lord Desai: There is also the question of power theft. In the best houses in Delhi, people divert power and do not pay for it. So major reform of the power sector is needed. Those are India's big infrastructure needs.

Q59 Mr. Horam: Just looking at the figures on the size of the service sector, I am astonished to see that this year it makes up more than 50% of gross domestic product-industry is 27% and agriculture, 22%. That is astonishing. We have been talking recently about development models-that is an unusual one.

 

Lord Desai: The reason is that India chose a manufacturing strategy-a stagnating sector. Indian manufacturing and the expanding public sector-it is called the organised sector-is labour-intensive. Given the labour laws, there has been very little extra employment in that sector. Until the last five or six years, the private sector was very much constrained. India's manufacturing sector is at the high value added, capital-intensive end, rather than low and medium-tech. In my view, India's biggest need is for much more rapid manufacturing growth at the low and medium-tech end than has been the case so far, for which I have been arguing in India. India needs to change those proportions, not by neglecting services, but by giving manufacturing a much larger proportion. It can do that only by having something like a 15% growth in manufacturing per annum, which is feasible.

Q60 Mr. Horam: Is that an objective of Government policy, or something that you just hope will happen naturally?

 

Lord Desai: There has been some rhetoric from India's Prime Minister about the need for rapid manufacturing growth, because if they are going to get people off the land-about 40%-where are they going to go? They will go into low-tech manufacturing. What other jobs could there be outside agriculture? India has failed deliberately to take that option. That needs to be corrected.

 

Mr. Wolf: Let me add to that. You were talking about something very important. India's economic structure and development path is unique. It is anomalous, but because it is in such a huge country, perhaps it is an exception that proves the rule. It is unique. It has seen a period of relatively fast growth and I think that it is the only significant economy ever in which services have grown faster than manufacturing.

In addition, the service sector is much less labour-intensive than one would normally expect. That has to do with the fact that skill-intensive services have become such a big factor. There is a very interesting International Monetary Fund paper co-authored by its chief economist, who is himself Indian, of course, which discusses the extraordinary skilled labour intensity of the service sector. So although it is large in GDP terms-more than half, as you said-its share of employment is less so. Agriculture, which has a very small share in GDP-less than 20%-has a much higher share of employment. That is to do with the point that Meghnad made about poverty and growth.

That raises a question about development and sustainability. I tend to think that a structure in which manufacturing and services grow at roughly the same rate of probably 9% or 10% a year, and agriculture at 2% or 3%, is sustainable. However, it does not-this is one of the points that the IMF paper makes very clearly-generate employment opportunities for the vast bulk of the population. Employment in those two sectors has grown incredibly little. I shall provide two figures: organised manufacturing-manufacturing by medium and large scale businesses that record their employment figures-employs only about 6 million out of a labour force of 600 million. In the IT services industry-I am talking about recognised and well-known firms and businesses-that figure is a little more than 1 million.

Q61 Mr. Horam: IT services is only 1 million?

Mr. Wolf: A little more than 1 million.

Q62 Mr. Horam: Out of a total labour force of 600 million?

Mr. Wolf: Defining the labour force in India is of course a term of art, but at the very least, it is probably 600 million or so.

Of course, those numbers are all debateable because they rest on Indian statistics and definitions. I do not want to go through them, but everybody who looks at them will agree that employment growth has been an enormous problem in India and has not worked as well as GDP growth. That is to do with the relative lack of labour intensity in the growth of services and, in particular, manufacturing, and the relatively slow growth of manufacturing. In this sense, the manufacturing growth needs to be higher. You asked what could be done to change this. The short answer is that there would have to be change in a number of policies that affect the relative costs of producing labour-intensive manufactured products in India compared with east Asian countries. The most obvious competitors are China and Vietnam.

The major costs relate to subjects of which I am sure you are aware: the reservation policy to the small-scale sector-a lot of products are reserved to the small-scale sector and so cannot be produced on a competitive scale; the labour laws, which make it extremely difficult for medium and large-scale businesses to adjust the size and structure of their business rapidly, as it is essential to do in such businesses-we need only to consider Chinese companies in this sort of area; the power sector, which we have discussed and where there is a significant handicap; and the whole infrastructure and ports business, which is unbelievably important if you are going to be in export-oriented, labour-intensive products where you have to turn stuff around really quickly. China has wonderful ports and India does not.

So, India would have to do a lot of things to accelerate the process. Most people do not think that that will happen. Thus, it is reasonable to assume that the structure will remain as it is, but it is a peculiar one. My view is that it is an important constraint not only on the ability to get to 8% growth but, more importantly, on the ability to spread the benefits of this growth more broadly.

Q63 Mr. Hamilton: That dovetails into my question, which I think the witnesses have partly answered between them: to what extent are the labour laws preventing significant growth in employment from occurring and therefore contributing to the huge poverty that still exists? Why is India still so poor?

 

Lord Desai: I draw an analogy between the Indian employment structure and the Indian caste system. The best jobs are reserved for the best people, and they are restricted in respect of organised sector employment and public sector employment. Such jobs are inflation-proof, tenure-proof and so on, but they are for very few people. The labour laws restrictions, which are done for all sorts of good reasons, have meant that in India it is difficult ever to close a factory down. They make it impossible to go bankrupt, to sack anyone and or to close a business down.

Q64 Mr. Hamilton: So what happens if you go out of business?

Lord Desai: You have to go on being involved and there are all sorts of elaborate legal procedures to go through before you can shut your business down; the lack of an exit strategy is the most absurd thing in the world. It has meant that while there has been some movement to go around the law by starting factories that are just below the size where the labour laws start biting, you do not realise economies of scale and you remain quite non-competitive in terms of exports. India's manufacturing growth in what is called the informal sector is haphazard and is not sufficient either to make India competitive or to expand employment very much.

There is a big battle about these labour laws. The Government's left-wing partners are the biggest opponents of any relaxation in labour laws, because the people who are in the best jobs are the most trade-unionised people. They are a powerful political lobby. Many people, including Martin and I, have been urging the Government to reform the labour laws and to try to find ways around the situation, but there has been little movement on that. India has bound itself in self-imposed chains by sticking to those labour laws. That means that lower down, people are in the much worse and much less well-paid jobs, where health and safety requirements are not satisfied. There is a hierarchy of increasingly worse jobs for the poorer and poorer people.

Q65 Mr. Hamilton: So are you suggesting that if the labour laws were changed and brought into line with most of the western capitalist world, we would begin to see a relief of some of the poorest areas? Perhaps Mr. Wolf could come in on this.

Lord Desai: Absolutely.

Q66 Mr. Hamilton: Martin Wolf said earlier that growth is about 6%, or perhaps a little more, and could carry on indefinitely. Few countries in the western developed world have that kind of growth rate. In fact, most of us would be jealous of that growth rate, but I should have thought that it would produce quite a lot of employment and thus relieve quite a lot of poverty.

 

Lord Desai: Let me give you an example. China doubled its manufacturing labour force between 1983 and 2003. In 20 years, its manufacturing value added went up eightfold and the labour force doubled. India has achieved nothing like as great a growth in manufacturing. If it were to achieve that, as I was saying before, the relatively unskilled manual workers who are currently on the land could be put into factories. That is the oldest form of development that we have known.

India has bypassed that way. That is why we have vast underemployment in rural areas and a lot of urban underemployment as well. They are not finding the jobs that they could have in decent factories and so on because the labour laws prevent any firing if they are hired. If you cannot fire, you will not hire.

 

Mr. Wolf: Let me add a few points. Some data in one of the columns that I was re-reading today, for obvious reasons, reminded me that a study-I think by the World Bank, but I am not absolutely sure-found that in the 1990s, economic growth averaged 6.5% and employment growth averaged 1%. That is an extraordinary discrepancy. The implication, of course, is that productivity is growing very fast. Part of that is good-productivity should grow fast-but part of it is clearly substitution away from labour and toward human and physical capital.

That relates to your point about labour laws. I think that there is more to it than labour laws, and I will come to the other things, but essentially, what India has is a pretty extreme version of a dualist labour market. That is to say, there is a relatively small modern segment that, if you threw in the public sector, probably employs something like 5% or 6% of the labour force on wages and in conditions that we would not necessarily regard as particularly satisfactory-at least the wages-but that are extraordinarily favourable compared with what people outside it enjoy. This is the essence of the dualist model: those who are insiders are completely protected against pressure from the outsiders.

To reinforce Meghnad's point about bankruptcy, according to the World Bank's report "Doing Business", an interesting comparative study of business conditions, bankruptcy in India takes 10 years if everything goes well. It is, I think, the slowest in the world. You can check that, but it was the case in last year's report. I have not looked at this year's report.

It is important to stress that although I think that creating a more unified labour market would be very beneficial in India and would accelerate growth in the modern sector, there are other significant reasons why it is difficult to generate labour-absorbing growth on the scale needed. India still has, although it is improving, a very considerable illiteracy problem, much larger than China's. The standard statistics suggest that literacy is about 65% in the population as a whole and less than 50% in women. Obviously, in modern factory work, it is really quite important that people can read basic things. China's literacy rates seem to be much closer to universal. They are not universal, but considering that you have to learn 2,500 characters to be literate in China, it is quite incredible that they have managed it. It is one of the great achievements of modern China; it is staggering.

Secondly, India-although this is not unique to India, and China has it too-has an enormous regional problem. That is to say, those areas of the country, which probably contain close to half the population, where growth is slowest, the incubus of the caste system is most pernicious and illiteracy is highest are also the areas that have the highest birth rates. There is a real problem in absorbing the population which, as it were, is burgeoning where growth is not.

Such problems would exist anywhere in such a gigantic country. Getting rid of the labour laws would not suddenly transform those huge social problems and the fact that the population is still growing rapidly. It is 6% growth, but it is only something like 3.6% or 3.7% achievable per head; you have to remember that the population is still growing. In that context, absorbing all the people into jobs is very hard anyway. I would argue that changes in labour laws, in labour restrictions, and other things that would accelerate the growth of the modern manufacturing sector would be an important help. It is a necessary condition for improvement; whether it is sufficient on its own to transform the situation that you describe is open to question. There are a lot of other things, and anybody who observes the Indian economy, and above all India's own economists and policy makers, would agree that there are other enormous issues.

Q67 Mr. Hamilton: I shall raise one minor technical point, if I may. You mentioned, Lord Desai, that it can take, if you are lucky, 10 years to go into bankruptcy. Can you explain that? In the UK, if you go out of business and are insolvent, the banks just shut you off. You have no money to pay your wages and no income, and you literally have to stop trading. What happens in India? Do the banks just carry on paying, or who pays the wages-the Government?

 

Lord Desai: As far as I can guess, you have to go on paying compensation to the workers if you are not actually running a factory. Yes, you have to go to banks and go on borrowing, because you are not legally allowed to shut down a factory and actually sack workers until you have satisfied a number of requirements across a number of different Government agencies and satisfied them that you really are bankrupt. If you say that you are bankrupt, you are thought to be lying, so you start from that. I have heard of the experience of a friend of mine who belongs to an older Delhi textile family. Just to clear the land on which their factory stood-it had been shut down-and rebuild on it took them 21 years.

 

Mr. Wolf: Just to clarify, in the old days-I do not know whether this still happens; I believe that it does not-the Indian Government simply took over such companies. There was a very large number of companies that were referred to as the "sick industries." Much of the textile industry fell into that category. Those companies were permanently kept in being and they were a tremendous problem because they were a dead-weight on the market. My understanding-I am not an expert on this-is that that policy no longer exists to the same degree, so a company can die. Of course, the jobs disappear if a company actually dies, but you cannot restructure it. You cannot restructure the assets, sell off or go through a normal bankruptcy procedure. You have extreme inflexibility in exit. What you certainly cannot do-this is the crucial point-is lay off workers while you are still a profitable concern. Once you have a worker in the organised modern sector, you can buy them out, and lots of very profitable companies do buy people out, which is quite expensive, but actually laying off workers is enormously difficult. For that reason, starting a company in areas in which such flexibility might be necessary is very risky for an entrepreneur. That does not apply to the IT services industry, which is growing at 30% or 40% a year anyway and does not want to lay anybody off, so it is not a huge issue. But in many sectors-clothing is an obvious example in which the east Asians have done very well-that sort of flexibility does not exist, short of the collapse of the business. That is obviously not something that an entrepreneur wants to contemplate.

 

Lord Desai: The other interesting thing about India is that it had one of the best textile sectors at the time of independence. It was a globally competitive sector but Government regulations made it sick and shut it down. Now, with the multi-fibre agreement, there is a lot of scope for expanding textile imports, but India is already hurt.

Q68 Mr. Illsley: This "not closing the companies" bit is very appealing to new Labour, obviously. We go from the sublime to the ridiculous-we have the easiest country in the world in which to close down businesses.

I move from the incredible area in which there is a need for labour law reform to a couple of points on the economic reforms that have already been introduced by the coalition Government. A couple of examples are the economic zones and the common VAT system across the states, which is not universally accepted. How successful have those reforms been?

My next question is on a suggestion that has been put forward by an Indian academic, Gucharan Das. It is totally at odds with what you have been saying, Lord Desai. He coins the phrase of a "green revolution" in agriculture to put resources into the rural sector. He is talking about encouraging private capital to move from urban to rural and to use the land, the natural resource of India, rather than the lower end manufacturing growth that you suggested. He appears to be talking about addressing the agricultural sector and getting improvements there. Is there any benefit in that, as compared with your suggestion? Is that sensible or does that need to be addressed?

 

Lord Desai: India had a slow growth pattern for 15 years, roughly towards the end of the 1990s, because agricultural growth was substantially lower than growth elsewhere. I have not seen agricultural growth rates of 7, 8, 9 or 10%. I do not see how, even given phenomenal resources, Indian agriculture could be made to grow at those rates. What is happening right now is that there is some diversification in terms of horticulture, market gardening and things like that. But eventually my calculation would be that there is no reason to starve agricultural resources, but that is not going to be a way out in terms of employment generation. You do that to alleviate the rural poverty of those who will stay on the land. You are going to get a lot of people off the land. There is no economy in the world that has 60% of its people on the land and earning wages comparable to urban wages.

People say these nice things about agriculture because it looks nice and you are being friendly to agriculture and so on. But it is an excuse for not doing what obviously needs to be done, can be done and has been done elsewhere. And it is not our concern. Depending on what kind of green revolution it is, if it is demanding of water, power and, say, chemical fertilisers, there will be a horrendous problem in terms of both environmental effects and the environmental lobby. The first green revolution was very good for India. It lifted the food surplus constraint on Indian growth. India has plenty of food there. That is not a problem. The current need is to raise incomes in agriculture. It involves either the number of people, or, hopefully, increasing production fantastically. I am sceptical about that.

 

Mr. Wolf: May I comment briefly on something very provocative? Even most supporters of the present Government would not argue that they have been a great reforming Government, for very deep reasons. I certainly feel that the important reforms that set India on its present growth path were the forms that occurred in the two or three years after 1991-the June 1991 crisis. There have been subsequent moves broadly in the right direction, but pretty modest ones. There has been further trade liberalisation, which I think has been important in accelerating trade growth.

This Government have begun to be quite sensible in bringing the private sector into the infrastructure-airports, for example. That is beginning to let the domestic modern sector into retailing, which is potentially quite significant in India. But the reform process has been pretty slow under both Governments, because of the vested interests at stake. They did a lot after 1991, because they were responding to a significant crisis, and that accelerated reform, and Manmohan Singh, as Finance Minister, and the then Prime Minister seized that opportunity.

The special economic zones-the free trade zones-are, in my view, completely irrelevant in the Indian context. They are too small. They are small gesture politics. It is far more important that the liberalisation of trade more broadly occurs, which will allow them to exploit opportunities in trade better because they are getting inputs at world prices. One of the most important reasons for the acceleration of Chinese export growth is that China can get inputs. Its exports at world prices are very input dependent.

Let me just talk about agriculture. First, I should like to give some data. Between 2000 and 2004, India's agriculture grew by just 2% a year in real terms, against 3.4% in China, according to World Bank figures. Agricultural growth has been slow and is a big problem for the incomes of much of the population, but I broadly agree with Meghnad that the growth in agricultural output in an economy in which most food goes to domestic demand must obviously be related to the rate of growth in demand for foodstuffs. Non-foodstuff agriculture is not so important in India. It produces some cotton, which is not a huge crop, but its basic crop is foodstuffs.

We know from one of the best-known economic propositions, which goes back to the 19th century, that in a growing economy when the demand for agricultural products-foodstuffs-rises above subsistence level, it grows more slowly than the economy as a whole. At the margin and as people become better off, they spend less on food and more on other things. That is a sign of prosperity. India is already at the level at which that is certainly the case for most people. That relationship suggests that the demand for agricultural output will not grow anything like as fast as the economy, so if India manages to accelerate the growth rate of foodstuffs dramatically-it will be very difficult-it will have to think about a rapid increase in exports.

The world market for agricultural products, particularly many of those produced in India, is not good, partly because of the sort of problems that smashed up the Doha round. It is related to liberalisation. I do not foresee India having the resource base to be an agricultural food exporter on a huge scale. It is a large country, so exports would have to be on a huge scale to make a difference.

By and large, agriculture is a trading sector in terms of development and growth when one gets beyond the subsistence sector, and that is normal, as Meghnad Desai pointed out. Clearly, agriculture could do better than it has done, and it is reasonable to try to improve its efficiency and to increase growth, or India will become too dependent on imported food, which it has avoided so far.

Essentially, in a large country, unless it expects to become extraordinarily open, any model of growth must be reasonably balanced, and that means that agriculture tends to grow more slowly than other sectors and agricultural incomes rise because labour transfers elsewhere from agriculture. Given the sheer scale of the agricultural labour force, it is inconceivable that that model will not apply in India, which means simply that it must generate additional jobs elsewhere. There is no way round that, even if it does very well. Part of what happens when improving productivity in agriculture is that labour is freed to work elsewhere without reducing agricultural output. That is an important part of the development process.

Q69 Mr. Illsley: So economically, is not that idea a complete non-starter?

 

Mr. Wolf: Well, all I am saying is that this is the desire to find one lead sector. India is too big to have one lead sector, so it is important to say that it cannot be led by export-led growth, because it is too big and it cannot be led by manufacturing alone. It needs a balance among those activities. Industry and agriculture have been too weak, but services have been wonderful. One cannot possibly imagine that agriculture alone will increase India's growth.

Q70 Mr. Illsley: A few years ago, we were told that China's growth rate had to be, in simplistic figures, 7 or 8%-it may be 10% now-in any year simply to accommodate the number of people coming into the labour market. Presumably the same applies in India, and I think that you mentioned 6 to 8% and that the work force increased by only 1%.

 

Mr. Wolf: Because the growth pattern was so extraordinarily non-labour intensive and the implied productivity growth was so high, without changing that-it must change through the sort of policies that we are discussing-I would guess that the labour force is probably growing by around 2.5 to 3%. I do not know the exact figures, but given India's demography and the past bulge in fertility, employment must grow, at the very least, by around 3% a year.

For employment to grow 3% a year, given past patterns, growth probably has to be sustained at 8% a year at least. To start really cutting into the backlog of excess labour underemployment in agriculture-particularly family labour and all the rest of it-growth would probably have to be around 10%. That is not unfeasible in India, but it would take a lot of change to achieve it. Given that, I should have thought that most people would agree that it is desirable to increase the employment intensity of growth as well. That is a very big theme in India, and it touches on education, the cost of labour in the modern sector and all the other big policy issues that we have discussed. Almost anybody looking at India now would argue that employment creation is not an area in which things are going as well as one would like.

Q71 Sandra Osborne: To what extent do you feel that the bureaucratic and inefficient administration of India, along with corruption, is an impediment to economic development, and what can be done to change that?

 

Lord Desai: This may sound heretical, but I do not think that corruption is an obstacle to growth. China is fairly corrupt, and it is growing very fast. The whole Asian experience is to be corrupt and deliver. African corruption does not deliver, but that is another story. Some of the corruption is basically division of the spoils between the very rich, and who cares about that? The corruption that really matters is the petty corruption that prevents people from starting businesses such as shops and stalls. That is the big obstacle to people who want to get on. India is one of the most politicised societies there is. It is deeply democratic and everything is politicised, so every job-such as that of a policeman-is a political patronage job. It is very hard to sack anybody or to have them up for corruption, although everybody talks about that. There are some enormously efficient, young, innovative public servants, and there is a lot of visible corruption. The thing about India is that, given all that, somewhere along the line it has managed to double its growth rate.

Q72 Sandra Osborne: So it has grown in spite of the public sector rather than assisted by it.

 

Lord Desai: Yes. It is a cost that people just carry. For example, the special economic zones are devices designed to milk business men for party political finance; they are land scams. They are so small that they can have no serious economic impact. The local government gives an SEZ to a local business man, who passes on a large sum of money-say 100 million rupees-to the party fund. I am sceptical; I tend to discount that sort of thing. It is a cost that you carry, and you get used to it.

 

Mr. Wolf: I am going to disagree. The question is interesting. At what stage and in what way is there corruption? There is a famous joke in India about why the IT sector did so well, having come from nowhere. The joke is that it did so well because the Government had no ministry for it. It is correct that in India, perhaps more than in any other successful, developing country, the more neglect there is the better. The crucial thing that happened in the early 1990s-it started under Rajiv Gandhi in the 1980s-was that the Government stopped getting in the way. They had had a very elaborate system-the most elaborate that I have ever come across-to stop businesses doing things. It was astonishing; that is what the structure was designed to do. Then they stopped stopping them, and that made a big difference, given that India is still a very poor country with tremendous potential for improvement in productivity and growth, starting from a low level. Its GDP per head is probably only one tenth of that of the world leader in purchasing power parity, and there are lots of skilled and able people, so you would expect it to grow once you stopped getting in the way. That is the first point.

Secondly, the inefficiency of the public service, broadly defined, which is shown in things such as the failure to provide infrastructure and deliver basic services, is quite an important constraint. That relates it to the politics, and there you get a real understanding of corruption. Meghnad talked about the power supply. Many state governments in India have been elected on the proposition that power should be provided to farmers free-I mean, literally, free. You can imagine the consequences. Is that a corrupt deal? I should regard it as a corrupt deal, but you could regard it as just politics. It is a strange politics, but it is politics.

On the question of how far corruption itself is an obstacle, there are two big points. The evidence from analysis in development economics is that corruption is an obstacle-other things being equal. Other things can offset it, and by and large rich countries are less corrupt than poor ones, for very good and obvious reasons. It is a chicken and egg thing. As countries get richer, people find corruption less tolerable. It happened in this country and in many other developed countries. People can earn a decent living other than from being corrupt officials. That is an important change. One thing we misunderstand is how important it is to live in a society where it is possible to earn a decent living other than from being a corrupt official-in many countries, half the decent income-earning opportunities fall into that category-and it is one reason why corruption diminishes over time.

Meghnad made an important point; it depends on how corruption works. In China, as I understand it from discussions with people, a corrupt local party boss takes a share of the spoils. You buy him off and give him a share once you set up your company, but once you have done that, you get the service. It delivers; it works. It is an overhead, but not a giant overhead. Once he has agreed, his lower officials do not get in the way.

India's is a much more competitive form of corruption. There is a complicated administrative structure. Getting things through the legal system is a famous story in India, and you may have to bribe everyone all the way down the chain. That may mean a lot of people.

 

Lord Desai: Much more democratic corruption.

 

Mr. Wolf: It is a much more democratic, competitive, open system of corruption. Everyone is for sale, instead of just a few bosses. In the literature, there is a lot of theorising about how corruption works.

Many people would argue that the first form of corruption, monopolised corruption, is less inefficient than competitive corruption. You can see why that might be. Even though the standard measures of corruption, which you can look up on the World Bank indices, show that India and China are similar, the impact of corruption is different because its fine structure is different. India's corruption is more pernicious. That argument is plausible, but it is difficult to demonstrate.

It is reasonably clear that there needs to be an enormous amount of growth in India: improved opportunities for people to earn money outside the public sector, accompanied by a big transformation of the public sector. The public sector needs to be much smaller and its staff much better paid. Everybody knows that it has at least two or three times as many people as it needs, and that they are paid far too little. It is a pretty good recipe for corruption. That huge political and economic problem will not be solved soon, so India will have to grow as it does now. If it could sort out the public sector, which the Prime Minister himself said was the biggest priority, it could grow much faster.

 

Lord Desai: One great anomaly of Indian politics today is that the Prime Minister is known not to be corrupt. We have not remarked on how the Indians say that he is the only non-corrupt person in politics. It implies that everybody else is corrupt, but nobody talks about that.

Q73 Sandra Osborne: May I take you back to power, which you have highlighted as a problem? I understand that the Government are talking about selling off stakes in power companies. Do you see that as a positive and think that the possibility of privatisation or public-private partnerships will improve power infrastructure?

 

Mr. Wolf: I have not followed the very latest developments-although Meghnad may have-but my understanding is that there has been a lot of discussion over a long period regarding privatisation in this sector. One of the most interesting examples of that was the Indian Government's policy in the early to mid-1990s of trying to get in private sector providers of power under guarantees from central Government. That happened because the problems are at state level-I should have mentioned that power is a state-level issue under the Indian constitutional arrangements as that is one of the reasons why central Government finds it difficult to fix.

By the way, one of the most famous stories that you may want to look up involves an Enron plant in Maharashtra. The story ends very messily, but the fundamental point is that you cannot privatise the staff without fixing the tariff issue. The fundamental issue is pricing and in many states-I do not know the exact proportion-the pricing is set by the state through political and regulatory processes. Those prices would not allow a private producer to cover costs. Therefore, privatisation is irrelevant as you do not get additional supply.

In addition, as Meghnad rightly says, there are staggering losses from theft and people must have the ability to prosecute thieves effectively through the courts or stop it happening in some other way. Again, you need the support of state machinery to do that, which people do not currently have. There has been a lot of discussion regarding bringing the private sector into the power sector, but unless those issues are transformed-and I do not believe that they have been-it cannot be done because, basically, it is not profitable to run a private sector power network.

The issues cannot be dealt with without the willingness to confront the most powerful power pressure group in the country: farmers. We have to understand why that is the case. In many states farmers are dependent on tube wells, which are the source of water and irrigation. The people who benefit from large-scale irrigation projects do so for free because water is not properly priced. That leads to a very strong political lobby to make sure that electricity to work tube wells is not properly priced, which in turn means that a lot of the power is free and you cannot get anywhere. There really is a big political economy problem to be solved in order to fix the power sector, which is why it has not happened.

 

Chairman: I am conscious of time as we have other witnesses. I would just like to bring in Eric Illsley and then you can put any further points.

Q74 Mr. Illsley: I have a few further questions. We have already touched on one; it relates to the idea of free power to farmers.

There has been a suggestion that as India's economy increases, a growing middle class will produce pressure for reform. However, balanced against that is the argument that because of the highly developed democracy in India, any political party can promise social protectionism, which will play well with the part of the Indian population and will militate against reform. Would you say it was the latter rather than the former?

Lastly, is the UK sufficiently engaged in trade with India or are there barriers? If so, can they be removed and are we co-ordinating our organisations well enough to get into Indian markets?

 

Lord Desai: On the first point, I think that reform has to be a consensual process in India and therefore it is slow-moving. Over the last 15 years, there has been an irreversible movement towards reform with no major setbacks or reversals, but it is slow: privatisation is slow and at each stage everyone must be brought on board and all political parties must participate in the process.

However, there has not been an articulate reform lobby that is politically powerful. It is a fairly élite lobby consisting of some of the chambers of commerce-they have only very recently become reforming as for a long time they were just supplicants for Government help-and some party intellectuals who are not sufficiently powerful to help. It is interesting to consider what happens when the Government get out of the service sector. For example, the telephone service used to be extremely corrupt. When mobiles came there was one-off initial bribery to get the licences, but now they are very glad that they privatised the operation. That kind of middle class wants more things like that, but it does not have the political clout to achieve them.

The UK is probably not doing enough. One story that I heard is that Indians who want to import technology go to America; they do not come to the UK, because the UK is no longer at the forefront of the technology that Indians want to buy. That is only anecdotal evidence. I have read the report that the House of Commons Select Committee has produced, but I do not think that anybody is sufficiently engaged. I am on some of the taskforces, but nobody is sufficiently engaged. It is not a big enough matter to the UK economy; it is a small thing.

 

Mr. Wolf: I agree with Meghnad about the reform, and the direction of reform is clear. The vested interests against it are very potent because of the fragmented nature of Indian politics. There are all the Communist parties that represent organised labour and so on, so that slows reform. The additional factor, which is very important, is that, because of the nature of the reform process and how it has worked, and the fact that India, quite rightly, has a mass democracy, the reform process has probably not brought large benefits for the majority of the population of India, although it has not brought large costs either-it is just irrelevant; people are still subsistence farmers. You have to fix that, and that is about ensuring that the development process is widely shared. The huge challenge is to use the gains to deal with these big social problems, but the direction of reform is clear.

I do not really know enough about the UK's involvement, but one of the difficult things that we have to define is the nature of our offer, and this relates to what Meghnad says. What do we offer India in terms of economic relations? Well, we offer a diaspora, which is very important, and we offer strength in financial services, which is pretty obvious. So there are areas where our companies can get in in a big way. But clearly, if you are talking about providing capital goods and modern manufacturing technology or modern IT technology, people will go to other countries; they will go to Germany and Japan for their motor vehicles and to the United States for the IT business. So we have to define our competitive advantage very carefully.

 

Chairman: Thank you, Lord Desai and Mr. Wolf. It has been a very useful sitting, and we have covered a great deal of ground. When the Committee is in India next week, we shall be better informed and we may ask more pertinent questions than we might have done. Thank you both for coming.

Witnesses: Victoria Schofield, Journalist and author of "Kashmir in the Crossfire", and Professor Sumantra Bose, Professor of International and Comparative Politics, Government Department, London School of Economics, gave evidence.

Q75 Chairman: Welcome, Ms Schofield and Professor Bose. As you know, our inquiry is looking at South Asia as a whole, but some aspects of the region are clearly particularly difficult. What we hope to get from the two of you is a deeper knowledge particularly of the Kashmir question. May I begin by asking whether you could clarify the Indian position on Kashmir? I understand that India always talks about the Simla agreement as the basis for discussions, but I should be interested to know what its attitude is to the United Nations resolutions and the whole origins of this current situation.

 

Ms Schofield: As you rightly say, the Indian position does take the Simla agreement now as the basis for negotiation, and that is to be a bilateral basis with Pakistan. Previously, prior to Simla, the international community was involved by definition, because of the UN resolutions, but the Indian Government saw the Simla agreement as an opportunity to depart from having any international mediation or, indeed, facilitation. That situation has changed slightly in recent years, but ever since 1972 their stated position was, "This is a matter between Pakistan and ourselves and we do not want any mediation at all," which was contrary to Pakistan's position; it was only too eager to have mediation.

The situation regarding the UN resolutions, from the Indian point of view, is that they are absolutely obsolete, and India has never regarded them, since 1948-49, as a basis for negotiation. The Pakistanis have suggested that India reneges on the holding of a plebiscite, but the Indian Government's position is that the agreement-the prerequisite before the plebiscite could be held-was for troops, or the invaders, so to speak, or in other words the Pakistani-sponsored troops that were in the state of Jammu and Kashmir, to withdraw. So, whereas in all publicity we see that the Indian Government considered that the UN plebiscite was no longer to be held, from their position-and it is strictly from the Indian Government's position-the arrangements for the holding of a plebiscite were never adhered to. In other words, Pakistan never withdrew its troops, so the plebiscite could not be held; but today in 2006 the Indian Government completely consider that time has move on and there is no question of holding a plebiscite and no question of following the recommendations of the UN resolutions.

 

Professor Bose: The Indian stance on Kashmir is characterised by some ambivalence, because, for the home audience in India, Indian officials tend to emphasise that Kashmir, including the "Pakistani-occupied" portion of Kashmir, is an integral part of India, with the obvious implication that the matter is settled, and was settled long ago-in the 1950s, in fact. On the other hand, for the international audience Indian leaders do say that there is a bilateral dispute with Pakistan, in which case the matter is not settled. A second dimension of ambivalence is involved, in that India still formally lays claim to the Pakistani-controlled part of Jammu and Kashmir; but at the same time, for the last 50 years, since the mid-1950s, Indian leaderships have both privately and publicly made it known that their first preference would be the conversion of the line of control in Kashmir into the formal international border with Pakistan. So a double ambivalence is involved.

There are two reasons for Indian officials' emphasis on the Simla agreement. First, the Simla agreement for the first time characterised the Kashmir dispute as a bilateral problem between India and Pakistan, rather than one necessitating international intervention by the UN or some other third party; but equally significantly, it was the Simla agreement of July 1972, negotiated between Prime Ministers Indira Gandhi and Zulfikar Ali Bhutto, which renamed the ceasefire line running through Kashmir as the line of control, and according to the language of the agreement both countries undertook not to violate that line, without prejudice to the recognised legal position of each country on Kashmir. India is very much the status quo power in the territorial dispute over Kashmir-hence the emphasis on the provisions and principles of the Simla agreement.

 

Chairman: Thank you. That is very helpful.

Q76 Mr. Hamilton: What I am confused about is that at a time when many areas of the world that are claiming independence and self-determination are getting that, through UN resolutions and international pressure, Pakistan's claim-that Kashmiris should decide for themselves what their status should be-is being ignored by India. India says, as you both rightly said, that these United Nations resolutions are now out of date. Why cannot Kashmiris have the right to self-determination when most other peoples in the world are able to do so-or have pressure put on other nations to enable them to?

 

Ms Schofield: Why, indeed? That is obviously the argument from the Kashmiri separatist point of view. But, as we know, no country gives up territory voluntarily; indeed, it is extremely rare for a country to do so. Referring to Professor Bose's comments, since the instrument of accession-the act of accession-the Indian Government's position has been that this was all decided-the Maharaja decided to accede the whole state to India-so they do not consider it necessary, because it is a question of unscrambling what has already been decided. It is a fact that the state of Jammu and Kashmir is not a heterogeneous unit.

Although a very vociferous movement has hit the international headlines since the insurgency started in 1989, it is not a movement that is endorsed or supported by all the inhabitants of the state. So, there is very much a feeling from the Indian Government that if you unscramble Kashmir, with all sorts of movements you could unscramble the whole of India. This is the stock-in-trade argument that they use, but it is not supported by the Kashmiri separatists, because they say, "No, we are different. The Maharaja only relinquished specific powers and we are still waiting to have our self-determination". So it has been for the last 60 years: one side believes one argument is valid and the other side believes that another argument is valid.

It has been very difficult, because the Indian Government will, as we know, not be subjected to force from any third party. Many countries can suggest that they allow the Kashmiris the right of self-determination, but the Indian Government are not about to do so if they feel that the outcome will be a demand for secession of all or part of the state.

 

Professor Bose: Just to add to that, it is not just India that has given up on the plebiscite, so to speak. Kofi Annan visited the sub-continent a few years ago, in 2000 I believe, and publicly said that the 1950s Security Council resolutions calling for a plebiscite under the supervision of the United Nations are unenforceable and essentially defunct. In 2004, General Pervez Musharraf also said that the plebiscite option is now obsolete and some alternative route to resolving Kashmir has to be found.

There is another catch. The Pakistani sponsorship of the plebiscite is very legalistic, and there is nothing wrong with that. The Pakistani understanding of the plebiscite has always been that it should be limited to two options: India or Pakistan, the two sovereign states. However, there is a considerable segment of the population in the disputed territory of Kashmir, on both sides of the line of control, more in certain regions than in others, to be sure, whose understanding of self-determination is actually an independent or sovereign Kashmir as a first choice. The official Pakistani understanding of the plebiscite-self-determination through democratic expression of the free will of the people-does not accommodate this widespread understanding of self-determination that is prevalent among the population of Kashmir, in both Indian-controlled Kashmir and Pakistani-controlled Kashmir. So, the waters are rather muddy here.

Q77 Mr. Hamilton: Some Pakistani Kashmiris, especially in this country, blame the British Government of the 1940s for this mess. Do think that that is now irrelevant as well?

 

Ms Schofield: Clearly, it is time to move on, but it is a very emotional argument that is, in the current climate, a very powerful argument for disaffection against Britain and the British Government and, consequently, for the disaffection and alienation that we see in Britain by British Muslims today. Although we should say it is time to move on, I would say that among a certain segment of both Kashmiris and British Pakistanis who support the Kashmiri position of requiring self-determination, the British role should not be overlooked; it should be evaluated and considered, obviously with a view to being able to move on.

As we know, the Government, as we saw in 1997 when Robin Cook made certain statements about Britain's role, were roundly snubbed by the Indian Government, so there is no question of Britain actually being able to move in and assume a neo-imperial role in this respect. It is valid to know the history, which clearly indicates that this issue was left unresolved at the time of partition without sufficient understanding that leaving a large territory that geographically abuts both India and Pakistan and has both Muslims and Hindus is a massive bone of contention, as it has proved to be these past 60 years.

 

Professor Bose: Blaming the former colonial power is an easy way of scoring debating points and it exists in all sorts of erstwhile colonial territories-Cyprus, for example-and many other places. But it is not a major issue in Kashmir or in the sub-continent more generally. In fact, I have heard a greater sense of grievance being vented against other external parties such as the United Nations for not insisting on the plebiscite, or the United States for not taking advantage of its superpower status to do something. What that something is, is open to question and debate.

Q78 Mr. Pope: Most of the problem spots of the world appear to have been ruled at one time by Britain, so it is an emotive point. Do you feel that Pakistan is under an imperative to try to resolve the issue of Kashmir? Over the last 15 years two democratically elected leaders of Pakistan have been deposed, almost directly as a consequence of problems in Kashmir. The huge spending on defence and the armed forces in Pakistan clearly has some effect in distorting the Pakistan economy. I should have thought that in those circumstances it would be a top priority to try to resolve this issue amicably, in one way or another, in the short term. Could you give me your views on that, please?

 

Ms Schofield: You are right. It is clearly a running sore, especially from an intellectual perspective. It costs a lot of money and in a way means that Pakistan cannot get on with its life and relations in South Asia. It is a logical area to move forward on. But large segments of Pakistani society have an emotional attachment, and in a way it is a vicious circle, because the Government play to those emotional attachments. Their domestic community is expecting something more on Kashmir than merely giving up after 60 years and accepting what they refused to accept in 1948-49. In other words, the line of control is the international frontier, which makes it very difficult for any Government.

That said, the Government of President Musharraf has made some remarkable progress-I say that having first spoken to President Musharraf about Kashmir in 2000. At that point, he was adamant that the UN resolution and the plebiscite should be upheld and his learning curve has been very steep and swift. He is determined that it is in Pakistan's interest to resolve the issue. But there has to be something for that community to hand out.

There is also the argument that Pakistan's only real enemy, so to speak, is India. What, then, do you do with the Pakistan army? Fortunately, or unfortunately, its attention has now shifted and there is occupation for the Pakistan army in Afghanistan. While you may say it is eminently sensible to solve Kashmir, previously the argument was that the Pakistan army which is really the guiding force behind whatever happens in Pakistan, be it a civilian or a military government, will not let it happen because they would effectively be out of a job. These undercurrents are also at play.

 

Professor Bose: Kashmir has been Pakistan's secret national cause since 1947, and there is a wide and prevalent irredentist view about it among both the élites and the masses in Pakistan. At the same time, it has become increasingly clear that an indefinite conflict or indefinite state of confrontation with India over the Kashmir issue is not a serious strategic option for Pakistan. Pakistan is caught in a bit of a cleft stick, if that is the correct expression.

Q79 Mr. Pope: What do you think the prospects are for the peace process and dialogue over the coming year? If there are elections in Pakistan in 2007, will they make it more difficult to move the peace process forward? You said that the issue plays well with parts of the Pakistan populace. Will that constrain President Musharraf in the two elections?

 

Ms Schofield: We are getting into a very interesting scenario in relation to Pakistan. It is clear that President Musharraf wants to stay, and intends to do so. The presidential elections will most likely come first so that he can ensure that he stays in power. If he does, that will obviously influence the outcome of the Assembly elections, so it could well be more of the same, which would mean more of the same peace process.

The lobby that is opposed to the peace process-it is mainly the orthodox lobby, which believes that Musharraf has already given over too much on Kashmir-will not hold much sway, especially at election time. The danger is that a very discontented member of the lobby manages to get to Musharraf before or immediately after the elections and the whole apple cart is upset. We really do not know what will happen. There is always a danger. Musharraf has supporters, but he also has detractors who are unhappy about the rapprochement with India for the reason that Professor Bose gave: it has been part of Pakistan's irredentist policy always to be fighting for Kashmir.

Overall, the process is almost leaving aside a resolution for Kashmir; we are now talking about solutions rather than resolutions. In this electronic age and the new age of South Asian politics, the average Pakistani, like the average Indian, wants the peace process to move forward. Borders can no longer be sealed. Twenty years ago, one could impose a news blackout and seal borders, but such things are impossible with the internet and e-mail. Indeed, the younger generation want to get together. There are many aspects on which Pakistan and India can co-operate; hence the peace process will work towards the cultural, social and educational exchanges that they all want. If that is tied in with who will actually be running Pakistan, it should be more of the same.

I am not sure that we will see a resolution, as it were. The process will just continue ticking over. Unless Musharraf suddenly feels that he has to play the strong man and make a demand of the Government of India-he indicates every so often that he is getting discontented with not moving forward-we will probably have more of the same over the next couple of years.

Q80 Mr. Pope: That is quite interesting. It was my assessment that the situation is almost static, but that there will be small steps forward. So buses being able to cross the line of control is a welcome move, but there will not be any historic shift in the medium term, will there?

 

Ms Schofield: No, I do not think so. In a way, it would almost be dangerous if there were, because if it were too dramatic, it could be quickly reversed. Musharraf says that he is allergic to the line of control, and the Government of India imply that the line of control is the only acceptable solution as far as they are concerned. Siachen is a possible element.

Q81 Chairman: We will come on to that. Do you want to add anything, Professor Bose?

 

Professor Bose: There are two problems with the current peace process. First, there is not that much by way of tangible progress. Sure, there are certain cross-embassy links: there is the recent joint anti-terror mechanism, although we will have to see how that goes. But there is really no definite decisive forward movement on the issue of Siachen, for example, which has been hanging fire-that is probably not the most apt term-for the past couple of years at least. There is no sign of a resolution to that in sight.

The Indian preference is to drag out the peace process as much as possible. By contrast, the Pakistanis are eager for swift results. There is a chance of Pakistani restlessness and impatience piling up and leading to a loss of faith in the peace process as a whole. The second problem, which I allude to briefly for the moment, is that the substantive positions on what a solution to the Kashmir dispute could look like are very far apart.

For example, Musharraf keeps talking about what would amount to a joint India-Pakistan condominium of Kashmir, an idea that has been around for the past 50-plus years. That implies a direct Pakistani role in what is today Indian-controlled Kashmir, and that is unacceptable to the Indians. They would be phobic to any development of that nature. Those are the two problems there already.

Q82 Sir John Stanley: May I ask you both whether Britain has any worthwhile contribution to make to try to move the two countries towards a settlement of the Kashmir issue? Do you think that our past is against us and we should be keeping out of it, or should we be speaking out loud and clear? If so, what do you think we should be saying to the two Governments?

 

Ms Schofield: Britain does have a role if one considers Kashmir as a humanitarian issue. That is where Britain has already played an important role, although not necessarily formally with the Government. British commentators have highlighted human rights abuses on all sides. They have studied the situation with the militants and the Indian army and the situation in Pakistan-administered Kashmir.

A watchful eye is helpful. As I say, at Government level it is extremely difficult because, interestingly, the Pakistani Government would very much appreciate British mediation, but only if it pushed Pakistan's position. It would not appreciate British mediation if that said, "You are best off with the line of control". As we have heard, it is a muddle because one country will say one thing on the one hand and want another thing on the other. Clearly, Pakistan would only want help.

Conversely, the Indian Government are absolutely allergic to anything that smacks of third-party mediation. However, in a case of dire distress, for example during the Kargil situation, the then President of India was only too happy to pick up the telephone and speak to President Clinton, who in turn spoke to Prime Minister Nawaz Sharif. So the situation shifts depending on what is happening.

It is clear that the Indian Government get annoyed by Britain, the United States or other countries talking about a situation that they consider part of their internal affairs. But they have slightly softened and the facilitation mode is now less unacceptable than previously-anything that breaks the log jam. But as Professor Bose says, the real conundrum is that Pakistan's and India's visions of what might be the eventual resolution of the Kashmir issue are on completely different levels at the moment.

 

Professor Bose: It is fair to say that Britain is regarded as a relatively benign influence in the subcontinent, so there would not be any great opposition per se to Britain playing a greater role of some sort, as long as that role were played very discreetly and with the utmost attention to diplomacy. I think the reason for the snub to Robin Cook some years ago was that his intervention was not perhaps as discreet and diplomatic as it could have been, hence some feathers were ruffled.

That said, my view is that Britain could play a constructive role as part of a broader, concerted, multilateral effort to push the India-Pakistan peace process along. I am talking about Britain acting in concert with other major players. What form such a multilateral effort could take is of course open to question, but I am fairly sure that without discreet but stronger international support for the India-Pakistan peace process, it will not yield dividends or results.

Q83 Sir John Stanley: Thank you. May I turn to another aspect-the Kashmiri independence parties? Could you give us your interpretation of just how strong or, perhaps, declining a force they are? How big or how little a stick do they wield as far as the Indian political system is concerned? Could you give us your perspective on the degree of influence that they exercise?

 

Ms Schofield: The movement has changed in the last 15 years. It was at its height in the mid-1990s and it really took the wind out of Pakistan's sails in terms of requisitioning a plebiscite, because there was to be no third option. This was bandied about-Pakistan would not accept the third option-but the Kashmiris themselves, once they began to get going and learnt more about their own history, said-I heard this frequently when I was in the valley-"Why should we swap one set of masters for another? If we are to be free, let's be free." This was very much in the spirit of the collapse of the Soviet Union, the creation of the five central Asian republics, the fall of the Berlin wall and so on.

There was very much a movement, but in a way it was unchoreographed. The people used to say, "We would like our azadi-freedom," but if you tried to pin them down and say, "What do you mean by freedom? Which parts of freedom?" you found that it was about defining what was meant by the state of Jammu and Kashmir. This is where even their movement came unstuck, because they began to realise that if it were put to a vote, the Buddhists of Ladakh would not necessarily vote for independence, because there are only about 130,000 Buddhists and their fear has always been that they would be swamped by the valley, hence the movement wanting their own autonomous hill council answerable to New Delhi. The Hindus of Jammu would clearly not want to be part of the independence movement. Then you have the situation in the northern areas; you have the situation in Pakistani-administered Kashmir.

So when you tried to pin people down on what they wanted, that was more difficult. It has almost been reduced down to the valley. Of course, the valley is much smaller than the whole state of Jammu and Kashmir, which begs the question whether an independent valley would be viable as we understand an independent country to be. Essentially, people have wanted not to give a definition. I have even talked with people who have said, "Let us get our independence from India first and then we will decide whether we want to be part of Pakistan or independent. Let's not put the cart before the horse. Let's not consider the endgame," but that makes things very difficult.

It is now a movement of dissent. The movement for accession to Pakistan is very, very small. The Pakistani Government might not like to admit it, but it is mainly in the border areas round Baramulla and Sopore that there are still groups that talk about becoming part of Pakistan. Increasingly, however, independence is an idealistic idea that people are not sure they will ever see realised. Even some of the pro-independence Kashmiris are suggesting that what they mean by that is good governance. This is where the idea comes from that they will warm to a soft-border idea, because then, they feel, they will have a bit of support from Pakistan. What they fear more than anything is that border being sealed and the Indian army moving in and repressing any dissent at all. It is still an unclear, uncharted movement, but it does exist.

The problem is that, because of the way the elections are set up, those people will not contest any elections controlled by the Indian Government, so it is very difficult to understand what body of public opinion is behind them. There have been no polls. The All Party Hurriyat Conference sits outside and speaks very eloquently. It is now able to travel, sits in international forums and seminars and puts forward its position on human rights and the abduction of various people but, in terms of quantifying popular support, because it has never contested elections, it is quite difficult to know exactly how much support it has.

Q84 Sir John Stanley: Professor Bose, could you give us your perspective on the independent Kashmiris?

 

Professor Bose: The Kashmiri independence movement is very factionalised and demoralised. Leaders are typically inept on both sides of the line of control, and the organisations are weak. The paradox is that independence politics is not irrelevant in Jammu and Kashmir on either side of the line of control. That is because the idea of independence still has significant popular resonance on both sides of the line of control, but, as I said earlier, more in certain regions of the disputed territory than others. It is uneven support, but it is very much there.

That is why the leaders and groups that might present the independentist tendency cannot simply be moved out of the political arena despite their obvious weaknesses. It is not entirely their fault that they are weak and disunited. They have been subject to repression and manipulation by two states, not one. It is a political point of view that needs to be taken into consideration when thinking about any settlement.

During 2004 and 2005, the main pro-independence group, the Jammu Kashmir Liberation Front, or JKLF, conducted a mass signature campaign in Indian-controlled Kashmir, limited mainly to the Kashmir valley, though not entirely. It claimed to have secured 1.5 million signatures. The valley's population is 6 million at the most, so that is a quarter of the valley's population, which is quite impressive. The petition that those 1.5 million people signed said that the people of Kashmir and their representatives should be given some sort of seat at the table in negotiating the terms of a settlement and that the peace process should not remain confined to the interstate India-Pakistan dimension.

That is a reasonable stance, I think, but it also reveals that independentists have realised-at least, some of them have realised-that their ideal scenario is unattainable. It is a fantasy, and some way out has to be found.

Q85 Chairman: Can I take that a step further? Are Jammu Kashmir Liberation Front-type politics stronger in the diaspora than in Kashmir?

 

Ms Schofield: The diaspora is a very vocal body that I think has formed many opinions in Britain. The fact is that a lot of the diaspora are not from the valley at all. They are from Mirpur.

 

Chairman: I have many in my constituency.

 

Ms Schofield: I am sure that you do. I am sure that they are all from Mirpur. There has been friction between the two groups, especially when the valley Kashmiris were not allowed to travel. On one hand, they are grateful that they have raised international awareness of the Kashmir issue, but on the other they are slightly irritated that the Mirpuris have been putting it about that they suffered. They have not suffered at all; it is the valley Kashmiris who feel that they have suffered. It is arguable that if the state were put back together again, there would be a row between the Mirpuris and the Kashmiris, who do not speak the same language. The Mirpuris do not speak Kashmiri. Isolated from the ground realities, they have been much harder on their objectives for an independent Kashmir. Once you get into the practicalities, they have been revealed.

Adding to what Professor Bose said about the JKLF and the independence movement, which clearly needs a seat at the negotiating table notwithstanding the fact that it has not participated in elections, you have the long arm of the militants. The assassination of Professor Abdul Ghani Lone was a clear indication that, when there is recognition that we actually do have to talk to the Indian Government, one loses one of one's nine lives pretty quickly. That fear always exists among the All Party Hurriyat Conference that, if they look like they are too close to negotiating with the Indian Government, they will not survive.

Q86 Chairman: What about the role of the Pakistan Government in their relationship to those groups? Do the Pakistani Government try to influence them and engage with them?

 

Ms Schofield: Very much so. They have their favourites and, currently, their favourite is the Mirwais Omar Farooq, whereas the All Party Hurriyat has now split. Indeed, the JKLF has split. It has various factions and that makes things so difficult. There is so much personality politics that it is difficult to find the coherent voice of the Kashmiri people; both Governments play on that. It is difficult to find the one spokesman. It is not even like the Palestinian situation way back, in which you felt if you were talking to Yasser Arafat that you were at least talking to the Palestinian movement. You are not quite sure who you are talking to because you will hear different things from different leaders.

With the Pakistan Government it is difficult because they have their different agendas. They have their agenda for the international community. They have their agenda for the domestic community. Notwithstanding the change in position in respect of the plebiscite-a remarkable change-they do not really want to let go of the Kashmir issue. They want to feel that they have a role to play, which is why President Musharraf is suggesting the soft-border, joined condominium. It would suit Pakistan very nicely. It certainly would not suit the Indian Government. They do care; that is part of their irredentist foreign policy movement, but there are segments among the Pakistanis who genuinely care about the Kashmiri Muslims, and play the Muslim brotherhood card and say that they are worried about what is happening to "our Muslim brethren", but I would not say that they are entirely altruistic.

Q87 Mr. Pope: I was interested in the issue of the popularity or otherwise of the notion-perhaps a romantic notion-of the struggle for independence, and how strong that is in Pakistan-administered Kashmir and whether it is linked to what you have told me. How much support is there for the insurgency in Azad Kashmir?

 

Ms Schofield: There was a lot of support for the insurgency. The time when people really thought that there would be change was in 1990, when it really was a mass political movement. Women were out on the streets. It was a completely different genre of revolt from what it is now. The Azad Kashmiris were all for a change, but again they would say one thing, but actually mean another. Again, this is one of the incongruities of the whole issue: whereas the Pakistan Government were happily supporting the self-determination of the Kashmiris in the valley, they were not supporting-and do not support-the self-determination of the population of Azad Jammu Kashmir or Pakistan-administered Kashmir at all. Just as in the valley, no Kashmiri who is part of an independence movement party can contest the elections. It is a small population. Numbers are hard, but it is 1 million to 2 million in Azad Jammu Kashmir. While they grumble about their rights and the manipulation of the elections, they do not really think that their situation will change. They see essentially the importance of the Mangla dam and Pakistan will not give up on that, no more than it will give up on northern areas with the Karakoram highway. The most that they feel that they can push for is compensation when the level of the Mangla dam rises or falls. It really is not a movement that is comparable with the valley movement.

 

Mr. Pope: That is very helpful.

 

Professor Bose: The stronghold of pro-independence politics in Pakistani-controlled Kashmir is, of course, in Mirpur, in the southern part of Azad Kashmir-that is what you see reflected in your constituency-and to some extent also in Poonch. Although Poonch is divided, there are a lot of strongly pro-Pakistan people there too, along with independence supporters. I would say that the core stronghold of pro-independence sentiments is the Kashmir valley, on the Indian side of the line, plus certain areas of the Jammu region in Indian-controlled Kashmir adjacent to the valley that are predominantly populated by Kashmiri-speaking Muslims, as is the valley. It is important to understand that the pro-independence sentiment is as much the preserve of an ethno-linguistic community as anything else. It is to do with the sense of Kashmiri culture, history and tradition that revolves around the Kashmir valley.

Obviously, the Hindus, Sikhs and Buddhists of Indian-controlled Kashmir want no part in pro-independence activity. However, pro-independence appeals also largely fall on deaf ears among Muslims in Indian-controlled Kashmir who are not Kashmiri-speaking and part of the cultural orbit of Kashmiriness. As Victoria said, the numbers are significantly largely on the Indian side of the line than on the Pakistani side. Azad Kashmir has perhaps 3 million people at the most, and of course a significant number are in the diaspora. In the Kashmir valley there are at least 6 million, plus another 1 million or 2 million in the Jammu region who could be classed as independence supporters.

Q88 Mr. Hamilton: May I just come back to something that both of you have hinted at? How much are the forces that are struggling for independence, or believe in it and promote it, actually fuelled by a Kashmiri identity and the Kashmiri language, and how far is there an Islamic push behind it? One of the reasons why I ask that is that I have very good friends-I also have a substantial Kashmiri population in my constituency-who are Hindu Kashmiris from Jammu. They often say that when they were children-they are in their 40s now-there was no problem with Muslims, Sikhs, Hindus and Buddhists living side by side. Now that is not the case when they go back to visit home and see their parents. They blame that on the increasing Islamicisation of the independence movement. How true is that?

 

Ms Schofield: It is a development that really occurred even before the insurgency began in 1987, when the Muslim United Front, the group of political parties that contested the elections, was formed. It is a known fact that those elections were rigged and it was not able to get its candidates in. It was going to get only about four candidates in, but they were not allowed in. That is where there was more Islamic identification of the political movement. Because it was the MUF it was able to speak from the mosques. Essentially, as has happened in other countries, the political dissent that had been suppressed went into the mosques. That is where there began to be that fusion. There was a little bit of influence at that stage-they dressed in white robes and played the Islamic card.

At that point there was the exodus from the valley of the majority of the Hindu population. There were some targeted assassinations, but then Governor Jagmohan-it was a murky area, but you had got this movement out. If you speak to the JKLF now it says, "No, we are a Kashmiri movement and we want the Hindus back, we want the Sikhs to stay, we want everybody. It is for our independence." It very much tries to make clear that its movement is not a Muslim movement at all. From the outside, you get more identification of it being a Muslim movement, but it does not have the extremism and radicalism that we see in other Islamic movements. That was never part of Kashmir's make-up. It had a far more Sufistic, softer face of Islam. However, unfortunately, as the movement was radicalised with more militants coming from Pakistan and the remnants of the Afghan jihad moving over, the speech and appearance of certain elements seemed more Islamic. However, I agree with Professor Bose that the actual, genuine independence movement is more of a Kashmiri one. Equally, it does not include the Muslims of the Jammu region who do not speak Kashmiri.

 

Mr. Hamilton: Thank you. That was very helpful.

 

Professor Bose: It is difficult to get away entirely from the religious and Islamic angle, for one historical and two current reasons. The historical and sociological reason is that the Kashmir valley, for example, has been an overwhelmingly Muslim area since the 14th century-more than 95% Muslim. True, that is a certain regional variant of Islam, but Muslim none the less. That is the historical and sociological factor.

There are two current factors. First, a lot of people in Indian-controlled Kashmir, in the insurgency-affected areas, feel that they have been abused because they are Muslims by a state-India-that although it might not be a Hindu state, none the less is largely led and run by non-Muslims and whose personnel on the ground in Kashmir, in particular the security forces, are predominantly non-Muslim also. That is current factor No. 1.

Current factor No. 2 is that of course this feeling that has developed since the insurgency really took off in 1990 is very much fed and stoked by Pakistani sources and most of all by the groups of so-called Jihadist orientation which see the armed struggle in Kashmir specifically as a struggle to liberate a Muslim land and people from alien, infidel occupation.

 

Mr. Hamilton: Thank you. That is very helpful.

Q89 Chairman: On that last point, how much support comes from Pakistan, either from its Government or elements within the Government, to people involved in the insurgency?

 

Ms Schofield: Traditionally, a lot of support-it was at its height in the early 1990s. Pakistan was taken by surprise by the insurgency. Obviously, it has been looking to nab-as they themselves would say-the Kashmir valley for a long time, especially since the 1965 war. However, at that stage it was slightly dormant on Kashmir and was preoccupied with Afghanistan. In 1989 and 1990 essentially it was a people's movement, but they moved swiftly into action. Given that the line of control was not sealed by any means-as far as it was concerned, it was a porous border-there was a lot of trafficking. There were the camps in the early 1990s. Then there was a push on the Government: essentially they were exploiting terrorism. So some of the camps were closed down and they reinvented themselves.

It is very difficult. If you talk to the Pakistani Government, they will tell you that there were no camps at all, but clearly there has been sustenance and support to such an extent that a lot of the local Kashmiris complain that it has been taken over by Pakistan. There is no doubt that there was inter-fighting between the movements. The Hizbul Mujahideen, which was essentially a creation of Pakistan, wiped out a number of the leaders of the JKLF in the early 1990s. That was instrumental in the JKLF renouncing violence. When Yasin Malik was released in 1995 he renounced violence because the militant wing of the JKLF essentially had been decimated.

So it is a presence, but very difficult to quantify. The difficulty from Pakistan's point of view is that, as I said, it will say one thing to the international community, but it is an exit strategy for it-it does not want completely to rein in the militant element because it still exerts pressure on the Indian Government.

Q90 Mr. Liddell-Grainger: I want to move on to various other parts of Kashmir, outside Indian and Pakistan, that are currently controlled by the Chinese. Can you comment on the status of the Chinese-administered Kashmir areas?

 

Ms Schofield: There is no one there, so at least there are no human rights abuses. I do not see the situation ever changing. The Indian Government may not like it, but the Aksai Chin is a remote area and it facilitates China to cross from Xinjiang to Tibet. There is a stretch of road of approximately 100 miles and China took it over without India realising. India has not formally agreed to it and is currently negotiating its border with China, but it is keen to improve relations with China whose President is currently visiting India, so it is highly unlikely that India would ever say that it wants that bit back. It is a fait accompli and a facilitation because China built and controls the road, and the area is so remote.

Q91 Mr. Liddell-Grainger: You say that there is no one there, not even nomadic tribes.

 

Ms Schofield: No, it is completely uninhabited as far as I know. I wish that I had been there, but I have not. It was convenient and hospitable for the Chinese to build the road across rather than round. That is why they whacked it through before any Indians, who do not go up there, realised. Suddenly, a patrol saw the Chinese there and that was that. It is a non-issue. It seemed to be an issue when China was more supportive of Pakistan's position, but China has now neutralised itself and wants peace between India and Pakistan. It has been very reticent in any statements remotely supporting Pakistan's position. I do not think that India, with all that is going on, would muddy the water with China and insist on having the Aksai Chin back. At some point, when it sorts out the line of control, it may eventually agree to it, but no one wants to agree to anything at the moment, so it remains.

 

Professor Bose: May I respond to your earlier remarks about insurgency in Kashmir? Pakistan's support for insurgency in Kashmir is like a tap that is sometimes turned on full blast and at other times is reduced to a trickle. To the best of my knowledge, it has never been entirely shut off, but the speed and velocity has been modulated over the years. Over the past three years, direct and active support by the Pakistani military has been reduced to more or less a trickle following the 1999 and 2002 crises. However, it is difficult to deny the claims of the Indian military and the Indian diplomatic establishment that the Pakistan military have for a long time-since at least 1987-been up to their neck, or even their eyes, in supporting and even sponsoring insurgency in Kashmir. I have personal experience of insurgency-affected areas close to the line of control as well as in the interior of Indian-controlled Kashmir. It is clear that, given the sophistication and quantity of weapons and equipment that insurgent groups have, their high calibre of training, and signs of logistical support from across the line of control, a professional military establishment has been at work in supporting insurgents. That is clearly proven.

 

Chairman: I am grateful to both of you. We have had a useful discussion and I feel at least better informed about many of my constituents' views, which is interesting. It has been good preparation for our visit to the region next week when these issues will no doubt be raised in Delhi and Islamabad. Thank you very much.