Thursday, March 29, 2007

Al Mamlakah

I recently finished reading a book by As'ad Abukhalil about the Kingdom of Saudi Arabia (which has the resounding Arabic name Al-Mamlakah al-'Arabiyya as-Sa'ĊĞdiyya). My knowledge of the middle east is sketchy and has been focused on Israel and Palestine, thanks to persistent arguments I had with Jewish and Israeli friends some years ago. I have been meaning to find out more about the other countries in the region and broad histories such as the popular one by Arthur Goldschmidt and the relatively obscure one by Yahya Armajani helped a little. Abukhalil's book, titled 'The Battle for Saudi Arabia' is more narrowly focused and is about the modern history of Saudi Arabia. Abukhalil, a professor of political science in the US, is a modern, progressive thinker. He has very little sympathy for the Saudi monarchy, the Wahabbiyah brand of Islam, or for the political setup of the kingdom. He makes no attempt to feign the air of neutrality so favored by academics. In fact, his blog, Angry Arab, says it all. It's a pity that its comments sections are destroyed by hateful bigots.

The book provides a short and succinct history and explains the connections between the monarchy and the religious establishment. In addition, it has many interesting bits of information. A family tree of the ruling clan helped me sort out the Sauds, the Faisals and the Fahds. As the note at the bottom of the tree states, it is incomplete, since Abd Al Aziz Ibn Saud, the founder of the modern kingdom, had 39 sons and many daughters. Abukhalil quotes a source to tell us that Abd Al Aziz married "no fewer than 135 virgins" and kept a large number of concubines, though he decided "to limit himself" to two new wives a year after some point. [ A chronic wed-better, as a joke I heard a long time ago had it. ] Apparently his son and successor, Saud, outdid him in the matter of progeny by fathering 53 sons and 54 daughters.

According to this Al Jazeera story, the royal family has about 25,000 members, with thousands of princes though only 200 of them are considered influential. Abukhalil notes that one of the princes revealed to the New York Times in 2001 that the men in the royal family are given an annual salary of $180,000 for their entire lives. The family considers the entire kingdom and its resources to be its patrimony. A substantial chunk of the oil revenue is cornered by the princes.

The Saudi kingdom was established following World War I, thanks to much help from Britain over the years, whose strategic calculus at that time made it expedient for it to support Abd Al Aziz Ibn Saud. The discovery of oil in the 1930s allowed the pre-modern political arrangement to survive. The critical dependence of the world on oil allowed it to get stronger. Today, the monarchy is as entrenched as ever. Its military expenditure is of the order of $ 25 billion per year.

Today's Saudi Arabia has a strong fundamentalist culture, with harsh punishments, the oppression of women and the religious police enforcing virtue and preventing vice. There are hints of dissatisfaction and dissent, from tribal groups, the Shia minority, and from religious extremists. This does not get much world attention for various reasons. The media in Saudi Arabia are of course all officially controlled, but Abukhalil maintains that the Saudis have bought or co-opted most of the Arabic press and writers. Negative references to the monarchy or to Wahabbiyyah are apparently hard to find. No wonder Al Jazeera is banned in Saudi Arabia.

This book has helped me to think about the Arab world with some more clarity. I was aware that thinking of it as a monolith was a big mistake, but the ways of making distinctions was a bit unclear to me. Here is how I look at it now. The phrase "Arab world" is a poor description, since it merely refers to the vast area where people speak Arabic. The Arabian peninsula is quite distinct in its religious culture and in its social and political arrangements from the Levant (Syria and Lebanon) or from Egypt. Indeed, it is not similar to Iraq either. Even on the peninsula, Yemen is clearly quite different from Saudi Arabia. The Gulf kingdoms are similar to Saudi Arabia politically, in that they are monarchies supported by oil wealth, but their societies and cultures are much more relaxed. Dubai is looking more and more like Las Vegas on steroids, as I discovered during a brief stay in the UAE in December 2005.

Just realizing (a) that most Saudi oilfields are in the east and (b) that the Gulf sheikhs all have very similar cosy political setups helps explain why the US is keen and able to keep a big military foothold in the Persian Gulf. This also explains the membership of the Gulf Cooperation Council (which excludes Yemen), its fear of its big Shia neighbor from across the water and the recent report of a defense spending binge, where it was claimed that member states had a "shopping list of arms worth more than $60 bn".

Thursday, March 01, 2007

India's budget

Until fairly recently, India's annual budget exercise used to be anticipated eagerly. The Indian government had a big role to play in the economy and the budget could often make life more (or less) unpleasant for millions of Indians. The impact of the budget on the economy is not as dramatic as it used to be, both in perception and reality. Reporting conventions though, have not changed very much: an arbitrary list of new taxes, sops, subsidies and measures are reported, with barely any context or overall picture. Here is an extract from such a list published under the headline "Highlights of Union Budget":

* Employee Stock Options brought under Fringe Benefit Tax

* Excise duty on petrol, diesel reduced from 8% to 6%

* Specific duty on cigarettes increased by 5%;

* Specific duty on beedis raised from Rs 7 to 11 per Thousand for non-machine made and from Rs 17 to 24 per Thousand for machine made

* Duty on pan-masala not containing tobacco reduced from 66 to 45 per cent

You can of course go to the source of all the budget data for India if you want more information. This very useful one-page summary is the best place to find some overall context. The following table uses a little bit of additional data as well:
(Rs., billion) 2005-06 (Actual) 2006-07 (Est.) 2007-08 (Budgeted)

Receipts 3597 4293 5296
Expenditure 5061 5816 6805
Deficit 1464 1523 1509

Interest payments 1326.3 1461.92 1589.95

26% 25% 23%
Defence 817 860 960

16% 15% 14%
At an exchange rate of Rs. 45 to the US dollar, government expenditure in 2005-06 was $112 billion and the deficit was $33 billion (about 5.6% of GDP).

The big ticket items are interest payments and defense allocations. Interest payments account about 25% of the expenditure and defense for about 15%. About 90% of the deficit for 2005-2006 arose from interest payments. In fact, if projections turn out to be correct, the Indian government would experience a surplus in 2007-08 in the so-called "primary deficit"- the deficit if it did not have to make any interest payments.

The scenario in which interest payments are insignificant is not as far-fetched and wishful as it might seem at first sight. India's total external debt is around $135 billion and its forex reserves are around $180 billion. If India decides to payoff its external debt (like Brazil and Argentina, who paid off some of theirs last year), it would make no difference to the net position, but it could save a substantial amount of money that goes annually to servicing this debt. Of course, there is the small matter of internal debt, but that is not such a bad thing, economically speaking.

The size of the defense budget is large for an emerging country like India. A fair amount of it goes to assorted countries in the world among whom are Britain, France, Russia, Israel and somewhat surprisingly, the Czech republic. This has generated a constant stream of scandals, with well-connected middlemen and politicians skimming off large commissions. According to this newspaper report, as many as 48 defense contracts are under investigation, with former defense minister George Fernandes being a target of at least one investigation. One ubiquitous wheeler-dealer, son a former Admiral and himself an ex-navy man, was the subject of income tax raids yesterday.