Worst quarter for India’s economy in 3 years

India is expected Friday to announce its worst quarterly economic growth figures in three years, with economists saying there is scant hope for a swift turnaround in Asia’s third-biggest economy.

Indian business leaders and industry have been clamouring for coordinated action by the government and the central bank to stimulate growth.

India, which once aspired to double-digit expansion, has been hit hard by declining investor confidence, subdued demand and prolonged political logjam that has stalled key reforms.

“The current slowdown is broad-based, and we see little on the horizon to lift growth from its current path,” said Glenn Levine, senior economist at Moody’s Analytics.

Levine expects growth of 5.2 per cent for the first financial quarter of 2012-13, a shade lower than the consensus market forecast of 5.3 per cent.

The figures for the three months to June, set to be announced at 0530 GMT, were expected to deepen the gloom surrounding the Asian giant.

The projected expansion would be the weakest since the last fiscal quarter of 2008-09 when the economy logged 3.5 per cent growth.

While five per cent-plus expansion would be hailed as strong in Western nations, Indian policymakers say the country needs double-digit growth to create jobs for hundreds of millions of young workers.

The government – damaged by a series of corruption scandals – is struggling to introduce economic reforms in parliament that are seen as key to spurring the economy.

But the legislature has been deadlocked by opposition demands for Prime Minister Manmohan Singh to quit over an alleged government giveaway of billions of dollars in coal mining rights to private firms.

India’s once booming industrial sector is in crisis, with output contracting by a shock 1.8 per cent in June. Overseas investor confidence has also tumbled, as shown by figures for foreign direct investment for the quarter to June, which slid year-on-year by 67 per cent to $4.43 billion.

It remains “unclear what the government can do in the next three to six months” to improve the situation, said Siddhartha Sanyal, chief India economist at Barclays Capital.

Global rating agencies have lowered their outlook on India’s investment-grade rating amid rising worries about the government’s deteriorating finances.

The Reserve Bank of India has also warned that prospects are unlikely to improve in the near-term, due to high inflation, the lack of reforms and the impact of weak monsoon rains on farm output.

While other banks globally have been easing rates to revive their troubled economies, India’s policymakers have kept borrowing costs on hold since April – when it cut them for the first time in three years by 50 basis points.

Business leaders and industry have been clamouring for coordinated action by the government and the central bank to stimulate growth.

But the government has no fiscal room to spur the economy and the bank says a cut in subsidies to close India’s gaping deficit and revival of reforms are needed to remove chronic bottlenecks and pave the way for lower rates.

India’s economy is expected to grow by 6.7 per cent in this fiscal year, according to a forecast by an advisory panel to the prime minister, but many economists say that is overly optimistic.

“The mood is downbeat and people have no hope left from the government,” said Jigar Shah, head of research at Kim Eng Securities.

“The only positive (aspect) is that things possibly cannot get worse.”

2020: Year Of The Modern China Military

China appears on track to forge a modern military by 2020, a rapid buildup that could be potentially destabilising to the Asia-Pacific region, the Pentagon has said.

China’s People’s Liberation Army marches in Beijing

Fuelled by its booming economy, China’s military growth in the past decade has exceeded most US forecasts. Its aircraft carrier programme, cyberwarfare capabilities and anti-satellite missiles have alarmed neighbours and Washington.

Some China watchers, including members of the US Congress, note with apprehension that rising Chinese defence spending coincides with Washington’s plans for defence cuts.

“China clearly believes that it can capitalise on the global financial crisis,” said the house armed services committee chairman, Howard McKeon, adding that the US military presence in the Pacific must not be sacrificed in an attempt to control US spending.

The US defence department’s annual assessment to Congress on the Chinese military flagged all the major concerns about China’s growing military might, including Beijing’s widening edge over Taiwan. It also noted cyber-attacks in 2010 – including those on US government computers – that appeared to have originated in China.

“We have some concerns [on cyber] about some of the things that we’ve seen. And we want to be able to work through that with China,” said Michael Schiffer, a deputy assistant secretary of defence.

The report focused on 2010, a year when the Pentagon said China’s military modernisation programme paid “visible dividends”. It cited China’s fielding of an operational anti-ship ballistic missile, continued work on its aircraft carrier programme and the completion of a prototype of China’s first stealth fighter jet, the J-20.

The J-20 programme, the Pentagon report said, would not achieve “effective operational capability” before 2018.

“Despite continued gaps in some key areas, large quantities of antiquated hardware and a lack of operational experience, the PLA [China's People's Liberation Army] is steadily closing the technological gap with modern armed forces,” the report said.

A spokesman for China’s embassy in Washington said the report was “a reflection of cold war mentality” and would be used as a tool to depict China as a threat.

“We hope the US will take practical steps to work with China for stable and healthy military ties by following the spirit of mutual respect, mutual trust, reciprocity and mutual benefit,” the embassy spokesman Wang Baodong said in an email.

The military buildup could have a destabilising effect on the region, Schiffer said, calling for greater openness by the PLA and more bilateral military dialogue.

“The pace and scope of China’s sustained military investments have allowed China to pursue capabilities that we believe are potentially destabilising to regional military balances,” Schiffer said.

The Pentagon said that despite its progress at becoming a more potent regional military power, Beijing was not expected to be able to project and sustain large forces in high-intensity combat operations far from China before 2020.

That is something the United States, still the predominant military power in the Pacific, has been able to do throughout the world for decades.

One of the best ways for a military to project power is with aircraft carriers and China launched its first carrier – a refitted former Soviet craft – for a maiden run earlier this month. Schiffer said he believed Beijing was working towards building its own domestically produced aircraft carriers and sources told Reuters China was building two carriers.

Still, the report said any domestically produced Chinese aircraft carrier would not be operational until at least 2015 if construction were to start this year.

“Whether or not this [China's carrier programme] proves to be a net plus for the region or for the globe or proves to be something that has destabilising effects and raises blood pressure in various regional capitals I think remains to be seen,” Schiffer said.

One of the biggest irritants in the US-Chinese relationship is Taiwan. The PLA suspended military ties with the United States for most of 2010 over US arms sales to Taiwan and warned that a renewed flurry of engagement could again be jeopardised by new arms sales to an island China sees as a renegade province.

Schiffer said the US government had not yet made a decision on any new arms sales to Taiwan, comments echoed at the state department.

A Reuters report this month said the US sale of 66 new Lockheed Martin F-16 C/D fighter jets to Taiwan appeared unlikely.

US ‘working hard’ to gain Pak trust: Mellen

WASHINGTON, The United States is working hard to regain Pakistan’s trust following years of estrangement in the pre -9/11 period, but the effort is going to take time, according to America’s top military officer. “It’s not going to happen overnight,” Admiral Mike Mullen, Chairman Joint Chief Staff, said of regaining the Pakistanis’ trust. At the same time, Mullen added in an interview at Aspen Security Forum, Colorodo, “I’ve seen significant commitments in the whole of (US) government.”

The military leader also acknowledged that Pakistan makes extraordiarny efforts to ensure the safety of its prized nuclear assets.

Strong relations with Pakistan are important to stamping out terrorism in Afghanistan and Pakistan that threatens the United States, Mullen argued, according to Pentagon.

The admiral noted that he recently returned from his 18th trip to Pakistan since becoming chairman.

“I believe the leadership in Pakistan recognizes the importance of how it all turns out in Afghanistan,” he stated.

“We are in agreement that Afghanistan needs to be stable and peaceful. How we get there and the long-term commitment is critical.

That’s a huge part of the engagement strategy with Pakistan.”

The U.S. and NATO strategy in Afghanistan is to dismantle the leadership of al-Qaida to make the terrorist group ineffective. “And the al-Qaida leadership resides in Pakistan,” Mullen claimed.

Improving U.S.-Pakistan relations that ebbed sharply in the 1990s – in the wake of Soviet pullout from Afghanistan as a result of US-assisted fight by the Mujahideen – is important also in light of Pakistan’s nuclear arsenal, Mullen noted. He said he has discussed the issue with Pakistan army.

“These are the most important weapons in the Pakistani arsenal.

That is understood by the leadership, and they go to extraordinary efforts to protect and secure them. These are their crown jewels. As much as we are focused on this (terrorism) threat (on the western border) and the Pakistanis are more than they used to be, they see a threat in India (on the eastern border) and (having nuclear weapons) is their deterrent. They see this as a huge part of their national security,” he remarked.

As for efforts by Iran and North Korea to obtain nuclear weapons, Mullen described a different situation.

“There isn’t any reason to trust (Iran),” he said. “There is an uncertainty associated with Iran that is very consistent with Iran for a long time.”

North Korea’s desire for nuclear weapons and its increasing aggressiveness-it sank a South Korean naval ship in March, killing 46 sailors-are cause for concern, the chairman said.

Mullen said he’d put North Korea at the top of the list of nuclear proliferation concerns.

It is important to continue sanctions against Iran, North Korea, and other countries that ignore international law on nuclear weapons, Mullen said.

US audit says Afghan forces overrated

WASHINGTON – A US government audit has found deficiencies in the training of Afghan security forces, the Pentagon said Monday following a newspaper report that said their capabilities had been overrated.

Afghan security forces stand guard a Taliban detainee

The Financial Times said the findings of the Special Inspector General for Afghanistan Reconstruction cast doubt on a 25 billion dollar effort to build up the country’s security forces, a cornerstone of President Barack Obama’s exit strategy.

Pentagon spokesman Bryan Whitman acknowledged that the audit, which has not been released yet, reviewed the adequacy of the training of the Afghan security forces and found “some shortcomings in there.”

“I’m sure the command will be addressing it,” he said.

General Stanley McChrystal, the commander of NATO forces in Afghanistan, immediately changed the method for assessing Afghan security forces upon being briefed on the audit findings, Susan Phalen, a spokeswoman for the auditors said.

However, she declined to say whether the audit found that the previous method had inflated the capabilities of the Afghanistan security forces.

Phalen said the report was in its final phase but was still under review.

The Financial Times said the report will say the standards used to appraise the Afghan military and police from 2005 until recently were woefully inadequate.

The old rating system measured forces on factors such as equipment and training rather than anything more accurately reflecting their fighting abilities, the audit will say, according to the FT.

“It became clear to us that the assessment wasn’t giving a clear picture of the actual operational readiness of Afghan National Security Forces,” said Colonel Dennis Devery, deputy director of the ANSF assistance bureau.

The report looked at the surge in Afghan army units considered “fully capable” for combat. None met the standard before 2008, but 22 units were considered ready by May 2009.

“The system deliberately exaggerated the combat capacity of Afghan troops, and it disguised the true level of attrition and desertion,” said Anthony Cordesman, of the Center for Strategic and International Studies in Washington.

A new assessment system is now in place, measuring troop units on their operational effectiveness.

Afghanistan’s ability to take over responsibility for securing its borders and quelling the Taliban insurgency is seen as vital to Western plans to end engagement in a war NATO and its allies have been fighting since 2001.