Cold Start - a real Hot option, only leaves our commentariat cold!

The new Army Chief, Gen Bipin Joshi set the proverbial cat among the pigeons when he made a clear, unambiguous reference to Cold Start Doctrine (CSD) as a live war strategy option against Pakistan. It led to a flurry of "deja vu" responses - from Pakistan and the Indian (and global) commentariat. From Pakistan, the usual "we will nuke India with tactical weapons" narrative was trotted out. Given the frequency with which Pakistani politicians (and military) make nuclear threats, the marginal concern about a new one is rather low. More interesting though was the response of the global strategic commentariat. In a series of newspaper columns, analysts Vipin Narang, Walter Ladwig, George Perkovich (and many others) addressed (or referred to) Cold Start. The general view was the same, and can be encapsulated in the following points:

1. Indian military doesnt have the required capacity to carry out CSD.
2. Indian tanks lack nightfighting equipment, artillery hasnt seen any new induction for 30 years, IAF has 33 squadrons of fighters against a projected 42, Indian submarine programme is running decades late.
3. The higher defence organisation envisaged in CSD (formation of 8 IBG - Integrated Battle Groups) hasnt been affected. Nor has the long pending reforms around Chief of Defence Staff seen any great traction.

In a nutshell, neither in equipment nor in doctrinal/structural developments is the Indian Army in a position to execute CSD. Given that it gives Pakistan the excuse to trot out destabilising Tactical Nuclear Weapons (TNW) it is a futile exercise to refer to it.

Unfortunately, the commentariat has got it wrong, completely. Born out of the experience of the ponderous (and hence ultimately fruitless) mobilisation of Indian Army's Strike Corps during Op Parakram, Cold Start effectively has 3 broad objectives:

One, mobilise a sizeable assault force in quick time (4-5 days) around 1/2 sectors along the International Boundary with Pakistan.
Two, establish local superiority in these sectors by concentrating disproportionate firepower with the assault force.
Three, execute a quick shallow strike along those sectors - "salami slice" enough territory in those sectors to get a time/space advantage over Pakistan, before the international pressure bears down on both countries to cease operations.

A close reading of developments over the last 15 years (since Op Parakram, 2002) shows that there has been steady, perhaps slow, but definite movement towards building up capabilities to execute the limited objectives envisaged under CSD. Lets take a look at some of them.

Force accretion and placement

From 4 RAPIDS (Reorganised Army Plains Infantry Division) - a lightly mechanised/armoured division - in 2002, the Army now has 6 RAPIDs. Of them, 3 of them have been placed (some moved) close to the International Border (in Jodhpur, Kota and Bikaner). These 3 formations form the nuclei of rapid reaction forces near the IB.

A third artillery division, 42 Artillery Division, was raised under SWC in 2008-09. Comprising of both tube and rocket artillery (given the lack of tube artillery acquisition in the last 15 years, this means a conscious strategy of concentrating existing firepower in frontline deployed formations). Further, this new division was also moved to Bassi near Jaipur (from Alwar), closer to the International Border, in 2012. Such a massive concentration of firepower prepositioned near the IB enables high volume fire support at short notice to any quick operation across the border.

Defensive formations (known as Holding Corps) near the IB have been equipped with more mechanised, armour and air defence resources. For example, Jalandhar-based 11 Corps now has mobile SA8/6 SAM systems, transferred from the strike corps (that are being equipped with Akash SAM systems). Such "beefing up" of defensive formations enable them support assault units better by plugging sector-specific gaps in armour/air defence/artillery.

A very large part of the chopper fleet today is night-flying enabled (all Mi17V and ALH-Dhruv can fly at night). As is the renewed transport fleet comprising of C17/C130 planes. All of which enables quick mobilisation of troops at launchpads near the border.

Airbase modernisation has been concentrated around forward air bases. The first IAF base with a fully underground hangars is Uttarlai, near Barmer. 

Structural changes to operations

The jargon used often are "manoevre warfare", "air land" battles. Most of the Indian Army's division (and corps) level exercises in the last 15 years have practised exactly these concepts. From Ex Divya Astra to Ex Shatrujeet, various IA formations have practised mobilising fast, manoevering in integrated air-land battle formations and operating under an NBC umbrella.

In Ex Sudarshan Shakti (2011), the Army publicly explained how it is honing its operations. Instead of static formations with limited number of mechanised/armour assets, the Army now prepares for all formations pooling in assets to smaller assault forces leading an offensive.

The “theatre concept” that army headquarters is trying out is intended to shake the chain of command out of its ennui. Over the years, largely because of a paucity of resources, commands were reluctant to part with their assets to favour units that were not directly under them.
Now, they are being asked to put all assets on the ground to assist the head of an assault force. This will demand a seamless flow, and probably a merger, of logistics branches — like the Army Service Corps — with the strike elements (like the strike corps) and also better co-ordination between commands. 

Threat of nuclear weapons - managing the escalation

Barring the point on Indian "incapabilities", the big bugbear on CSD is the Pakistani threat of using Tactical Nuclear Weapons (TNW) in such a scenario. Besides the bizarre prospect of a country threatening to nuke its own territory (after all, the Indian armoured columns would be inside Pak if CSD was activated), the Indian Army trains and equips extensively for it. Most frontline tank units are equipped with NBC suites. Mechanised units too are being equipped with them now. Most exercises involve a nuclear umbrella as a default operational scenario.

Arrayed against this is a Pakistani Army involved in the deadly Zarb-e-Azb operation against TTP and other islamist groups in FATA/Balochistan, as well as raising new units to protect the CPEC project being executed. 

In a nutshell, the higher defence management in India as well as military capability in India have a lot to be desired. the gaps are many. However, this doesnt mean that limited objectives like the sort envisaged under CSD are way outside the realm of India's capabilities. A military modernised by the sheer weight of 15 years of spectacular economic growth will have something to show for it at the end (against an adversary that has barely staved off bankruptcy in the same period). Crucially, many empirical evidence (some of which explained above) suggest that the Indian military has been preparing for CSD with intent and purpose, and its not just a "war plan on paper".

In an information age where narrative matters in determining national security outcomes (no better instance than Kargil as an instance), it is important that the narrative around Indian capabilities breaks out of the "cannot do anything" paradigm!

Banking capital - Narcissism of rather major differences

A popular social media chestnut arising out of demonetisation is an estimate of the number of monetary economists in India - in last count, it was 500 million and counting! With such massive proliferation of economists/astrologers, "serious" commentary has shifted to banking. It is being widely discussed that bringing cash into the banking system as deposits is a sinister plan to use the same (deposits) to write off bad loans that Indian banks are saddled with.

Normally, such drivel would be dismissed out of hand. But when "serious media" like The Wire publish monographs by academics, and the theme is picked up by Rahul Gandhi as something that merits his (generally limited) attention, it should be examined a bit more closely.

In (practitioner) financial circles, banking capital is a topic of intense scrutiny, attention and action, especially so after the global financial crisis of 2008. Global blue ribbon standards are set out by the Bank for International Settlements (BIS), popularly referred to as Basel "N" (we are currently in Basel III) norms, and local banking regulators set out their own specific guidelines around Basel requirements.

In a nutshell, various types of capital used by banks to fund their balance sheets look like this:

Senior Secured Debt (very rarely used these days) form the safest form of banking capital. Should a bank go bust, the specific securities earmarked against this debt are liquidated to pay back the creditors.

Next comes deposits of all types - checking (current/savings accounts) and term (also known as fixed) deposits. In most countries, retail deposits form the bedrock of public confidence in the financial system. As a result, regulators create an architecture of "protection" around deposits. To start with, most countries have deposit insurance programmes - in India, it is extended by a govt-owned entity called DICGC. Like any other insurance, there is a cost to this, and hence the amount insured is capped (in India, the cap is Rs 1 lac). Extending the insurance to cover all deposits would make costs prohibitively high for depositors, leaving a far lower amount for them on the table as interest on the deposit.
Besides deposit insurance, the entire structure of the rest of banking capital is used to protect deposit-holders from bankruptcies. Whenever there has been a run on a (major) bank, regulators have quickly clamped down by using equity capital (and sometimes taxpayer money) to bail out deposit-holders. From Bank of Rajasthan to Global Trust Bank in India to Washington Mutual during the financial crisis in US - regulators and governments have tended to bail out deposit-holders. In no circumstance can deposit funding be used, structurally, legally and in terms of regulatory forbearance, to fund a NPA write-off by the bank.

How is the above accomplished? By building in "bail in" clauses in ALL other types of banking capital - bonds, hybrids and equtiy. What is "bail in"? Basically, the opposite of "bail out", ie, investors in these instruments would suffer haircuts, either in principal or in interest due, should defined performance benchmarks are missed.

Even "senior unsecured debt" have traditionally tended to be treated with kid gloves by governments (post Lehman Bros, every single major bank bailout globally bailed out all sr unsecured bondholders, at a level equivalent to deposit-holders). Today though, most new issuances of such instruments have "bail in" clauses. In other words, the bond-holders will be asked to take haircuts if certain (steep) benchmarks are missed by the issuing banks.

There has also been a proliferation of subordinated and hybrid instruments in the last few years. These are typically structured as bonds, and have fixed coupon payments, but have relatively narrow performance benchmarks below which investors start losing interest payments and/or principal. In India, the widely popular AT1 bonds (Additional Tier 1 bonds) are an example of such hybrids. These instruments provide additional cushion in bank capital to absorb losses and provide time and space to regulators to move-in with a revival/rescue plan.

Last, but not by far the least, is CET1 (Common Equity Tier 1) capital - this constitutes primarily of capital and retained earnings of the bank, and form the first loss-absorbers for the banks. Over the last 7-8 years, CET1 capital requirements have been enhanced. Under new Basel III guidelines, banks need to have at least 4.5% of their Risk-weighted Assets as CET1 capital. Traditionally, in India and elsewhere, this capital (and its owners, basically the shareholders) has been the first loss-absorbers.

Total capital requirements, comprising of CET1, Subordinated, Hybrids together, touch double digits today (11-13% of risk-weighted assets, under Basel III). On top of that, senior unsecured bonds increasingly have "bail in" features. Depositors, lying "senior" to all of these, usually have little to fear unless there is an Armageddon scenario.

Net net, deposits, and deposit-holders, structurally, philosophically and in terms of precedent, are NOT the first port of capital call when a bank needs to write-off losses. Money coming into the banking system as a result of demonetisation is coming in as deposits. There might be differential views on demonetisation, but conflating deposits with banking capital is indulging in narcissism of really major differences, with due regards to Sigmund Freud!