To be a hard state

We can go around in circles trying to define terrorism. There are clichéd expressions like one person’s terrorist is another’s freedom-fighter. But there is clearly a difference between a cause perceived as legitimate and the terrorist act that is not only violent, but also targets non-combatants or civilians. There is also a difference between terrorism that has collective support, implicit or explicit, and that which is purely individual.

The former is easier to understand, because both supply of and demand for terrorists is driven by a sense of economic, political, ethnic or religious deprivation, real or imagined. Assam, J&K, Manipur, Mizoram, Punjab, Nagaland, Tripura and the Naxalite belt (across central and eastern India) belong to this category. While easier to understand, the policy response is more difficult. But what is happening in Mumbai, Hyderabad or Bangalore is different. Not only is it individual, there is no clear link to deprivation. This is more difficult to understand, but policy response ought to be simpler.

In Madan Singh versus State of Bihar (2003/04), the Supreme Court was justifiably harsh on terrorism, describing “acts of terrorism veritably as ‘peacetime equivalents of war crimes’”. But once the headlines fade, do we take terrorism that seriously? India is variously described as a soft state, unlike hard states like US or Israel. The only way to make these terms tangible is by bringing in costs, especially of anti-terrorism measures.

The short-term cost of a terrorist incident of the individual variety isn’t much, not unless weapons of mass destruction are used. Yes, there is a loss in human lives, perhaps even physical capital stock (buildings and the like). There are other direct short-term costs that are often sector specific (tourism, insurance, stock market). For Bali 2003 and US (9/11) there are estimates ranging between 0.5 and 0.75 per cent of GDP for one-shot terrorist incidents. These are probably over-estimates, because money not spent on visiting Hyderabad will be spent elsewhere.There is a difference between a macro cost and expenditure switching.

These one-shot cost estimates are also distinct from larger costs involving more permanent and continued terrorist violence, usually of the collective variety. That is what is meant when the Strategic Foresight Group tells us conflict within South Asia leads to annual GDP losses of between one and two per cent. Without downgrading the importance of human lives, the point is that economies, especially those that are diversified the way India is, can handle these one-shot costs and move on. Of greater importance is the longer-term cost of deterrence. More needs to be spent on law enforcement, intelligence gathering and security and some expenditure on security can also be private. Human rights and judicial independence are curtailed. There is a trade-off and one can’t wish it away. Transaction costs are imposed on travelers, visitors, external trade, capital and foreign exchange markets and even business. Resources that could have been used more productively are diverted to less productive uses. We spend more on protecting existing human and physical capital stock and less on enhancing growth potential. We pay more attention to security rights of citizens, less to human rights of suspected terrorists.

The argument that there is plenty of slack in the present public expenditure system and efficiency can be improved without diverting resources away from, say, social infrastructure, doesn’t get us very far. Cross-country estimates suggest anti-terrorist deterrence requires expenditure of 2 per cent of GDP. Such calculations require valiant assumptions and simplifications. If this expenditure switching is half as efficient as present expenditure, with a capital/output ratio of 3.5, diversion to deterrence leads to annual GDP loss of around 0.3 per cent. Sticking to the domain of individual terrorist acts, do we want such losses or do we live with one-shot reductions of 0.5 per cent every once in a while? Even if 0.5 per cent is an over-estimate and even if everything cannot be reduced to money values, the choice should be obvious. This brings one back to the hard state/soft state dichotomy. Hard states are those where the trade-off is recognised and the choice is made. In the political freedom spectrum, advanced democracies absorb some characteristics of primitive democracies (dictatorial states), but preserve their democratic character by building in legal safeguards. Soft states like India don’t accept the trade-off and don’t make the choice.

Take the Hyderabad instance. The All India Majlis-e-Ittehadul Muslimeen (AIMIM) has 1 Lok Sabha seat and 4 assembly seats. It supports the UPA at the Centre and the Congress government in Andhra and has distinguished itself by opposing a motion in the Andhra assembly condemning 9/11 and attacking Taslima Nasreen in August 2007. A few days before the Hyderabad blasts, AIMIM criticised Hyderabad’s anti-terrorist squad for adopting a hard-line approach to terror and this is reportedly the reason why investigations have been handed over to CBI. Has anyone from the central or state government uttered a word against AIMIM? Not that I know of.

The writer is a noted economist