The US and China have a relationship that is unlike any other in the world. One is the preeminent superpower and the other is aspiring to be one. They are extremely wary but pragmatic rivals. And they have entered into a secret deal to help one another.

China has $3.3 billion of reserves in its coffers, the biggest in the world, and it is the US’ biggest creditor. And its reserves continue to grow, albeit at a slower pace in recent months.

So what does the US do? It enters into a secret understanding with China, giving it privileged status as its biggest financier. The US Treasury department has allowed China direct access to its bond auction counter, helping in reducing its transaction costs and bypassing Wall Street to buy bonds but not sell, Reuters reported Monday. The deal helps China to command better rates.The arrangement has been in place since June 2011.

It clearly demonstrates that for the US, national interest is paramount and it will do unconventional deals to protect them. Former diplomat MK Bhadrakumar has an interesting analysis of the secret deal here. And here is another view by Prof Daniel Drezner of Fletcher School.

Can European Union have done a similar deal? China could have been the lender of last resort for Europe. An outside financier would help the beleagured nations of the Eurozone greatly and reduce their dependence on Germany, whose prescriptive attitude is hard for others to stomach. In fact, a couple of months ago at the BRICS summit in New Delhi, China had said that it was willing to fund a European rescue effort. A deal is yet to be announced though.

The state elections results have thrown up some searching questions about people’s wishes and the way politics is conducted in the country. Perhaps the clearest mandate people have given is for leadership. A two-year, high-profile campaign by Rahul Gandhi could swing only 4 per cent votes for the Congress alliance. Whatever his promises to the people of the state, it was plain to them that he was not the one who was going to deliver them. It would have been some proxy and they did not know who it would be.

The results have also shown that people do no have faith in parties that do not have credible leaders and a clear indication where the buck stops. The Congress can claim to have done decisively well only in one state – Manipur – and that is more because of Okram Ibobi Singh. Manipur was the only state where the party had a clear chief ministerial candidate and it won there. And Manipur did not need a Gandhi to win it for the party.

In Uttar Pradesh, both the Samajwadi Party, which is on the cusp of forming the government, and the Bahujan Samaj Party, the runner up, had clear chief ministerial candidates. The two national parties, Congress and the BJP, did not project any leader to govern the state.

In the past few days national leaders of the Congress have been hard at work to apportion credit for victory and blame for defeat. If it won, the victory would be Rahul Gandhi’s and if it lost, the defeat would belong to the party organization that did not follow on the dusty trail left by Rahul’s choppers. The defend-Rahul strategy has continued on national television as the results began to unfold. The strategy of ring-fencing the Gandhi family from political harm has been the bane of the party, and consequently the country, in the past few years.

Prime minister Manmohan Singh has been taking the brunt of it for a while as he struggles to viably fuse the party’s agenda with national economic priorities. As journalist Prabhu Chawla commented on television, `Manmohan Singh would be laughing now because he has nothing to do with the election results.’’

Where does it leave the government and its policy agenda? It is highly unlikely that the government would be able to push ahead with reforms easily. The Congress will not be able to take on Mamata Banerjee’s Trinamool Congress which has been stalling the few reforms it wanted to implement such as foreign investment in retail and the National Counter-terrorism Centre. With the Congress increasingly being accused of undercutting federalism in the country and since it cannot implement many of its pet schemes and other economic reforms without the states’ cooperation, the Parliament is likely to see a Budget session of compromises. Any tough decisions are likely to be postponed.

Sometimes government actions are so bereft of reason that they often seem imbecilic. The director general of foreign trade banned cotton exports today, leaving cotton farmers flummoxed and the textile industry pleasantly surprised. The DGFT did not offer any reason for the prohibition.

No one is able to explain the sudden move by the DGFT as cotton prices have been quite moderate in the past few months. In fact, prices fell in February; the best cotton, known as Shankar-6 selling nearly 6 per cent lower than at the beginning of the month. It is now trading a little over Rs 34000 a candy (1 candy = 355 kg), about Rs 18,000 less than its level a year ago. The last time the government had banned cotton exports was in 2010 when international and domestic prices had hit records.

However, there were no signs of a spike in cotton prices this year. The output was expected to be at record levels and international prices were also moderating. One industry report said that New York cotton futures were caught between bearish and bullish cross currents. Expectation of a record global production surplus for the third straight season which could result in high end of season stocks is dampening prices.

In the scenario there does not appear to be any reason why exports, which would have helped India’s cotton farmers get better prices, should be banned.

A large number of cotton farmers, especially in the Vidarbha region of Maharashtra and in Andhra Pradesh, are impoverished, debt-ridden and suicidal. The largest number of debt-related farmer suicides in India is reported from these two regions. Buoyant prices in the past two years had been a great relief to them.

The DGFT said that even exports against registration certificates already issued will also not be allowed, potentially paving the ground for a glut and even lower prices. Media reports suggest about 12 million bales of 170 kg each had already been registered for exports. That means many contracts, sale as well as shipping, will have to be broken.

“We are flabbergasted with the Government notification banning export of cotton,’’ said Ajay Jakhar, chairman of Bharat Krishak Samaj.  “It is anti-farmer and unwarranted.’’

He said it was even more surprising as cotton consumers’ body, the Confederation of Indian Textile Industry had also written to the government requesting it to keep off the market.

Given that even the textile industry was not really pressing for a ban, what could it be that pushed the DGFT? There were rumours that the ban could have been prompted by traders exporting much more than they had reported. Only the DGFT knows.

The heat and dust has settled in much of Uttar Pradesh as the state elections, billed as a political game changer for India, enters the final slog overs. The equations have remained largely unchanged from the beginning and most parties have been cautious in criticizing one another as most believe that the state is headed towards a hung assembly and power would have to be shared to be enjoyed.

Mayawati anyway never enters into a pre-poll alliance as she has an absolutely loyal vote bank. Indian Express editor Shekhar Gupta wrote that during five days of travel in UP, he or his colleagues did not come across a single dalit who would vote for anyone but the Bahujan Samaj Party. As everyone knew right from the beginning the fight for the top slot is between Mayawati and Mulayam Singh. The Congress and BJP are fighting for the last two positions.

High voter turnout has made forecasting even trickier. A little under 60 per cent of voters have voted this time compared to a little over 46 per cent five years ago. That is a jump of nearly 14 percentage points in a state where a 30 per cent vote share means victory. In the last Lok Sabha elections when the Congress won 21 seats, its vote share was just 18 per cent.

No one has any idea who the new voters are rooting for. By new voters I mean not only first time voters, who may be swayed by the relatively young age and modern rhetoric of Rahul Gandhi and Akhilesh Yadav, but also those who were registered but stayed away from the box in previous elections.

Typically, it is the cynical voter who skips the tread to the booth. Usually, they are also educated, upwardly mobile and if I were to hazard a guess, upper caste whose relative preference always seems to be argument than action. The upper caste voters are disillusioned with Mayawati this time, and do not vote for Mulayam anyways. A few days before the elections when I travelled to the state, they were gripped by a frustrating indecision as BJP, their party of choice, was making a complete hash of their chances. The few who had placed their faith in Mayawati in 2007 were already disillusioned and the only thing they had decided was they would not vote BSP. Judging by the turnout, they may have come back to vote and most likely cast their lot with the the Congress or BJP.

The voting percentage has also been boosted by the huge number of women lining up at polling booths – 60 per cent compared with 57 per cent men. Women tend to have a longer memory than men and I would imagine that their memories of the Samajwadi Party’s reign are not exactly pleasant. Dalit men and women vote in full strength anyway. So it is unlikely that their numbers have added to the voter turnout by much though their presence at Mayawati’s rallies had swelled considerably. If it is OBC and upper caste women who have stepped out of their homes on election day, they are more likely to have voted for the SP and the two national parties. If the BJP leadership’s lacklustre campaigning – national leaders were mostly conspicuous by their absence – is any indication, it seems to have already resigned itself to playing an insignificant role once the results are out.

Since the Bahujan Samajwadi Party already suffers from the incumbency factor and its voters turn out in strength irrespective of the importance of the election, the higher turnout is unlikely to be beneficial for Mayawati. That means the beneficiaries are most likely to be the Samajwadi Party and the Congress. It brings us to two possibilities – as we suggested in Forbes India‘s assessment before the elections began, the SP in a position to form the government with Congress support or, as coal minister and Congress leader Sriprakash Jaiswal controversially said, if the Congress so desires, President’s rule.

Investor activism is increasingly on the rise in the West. Many investors want the companies they back to be not just heartless corporate entities but caring citizens of the globalised world. They would frown at smoking chimneys and overbearing managers. Remember how the Pension Fund of Norway and the Church of England sold their shareholding in Vedanta citing environmental concerns and human right violations at the company’s Orissa plant. (Read Forbes India’s April 2010 story on Vedanta).

Such activism is good for the world in general. Unscrupulous companies would clean themselves up if capital becomes scarce for them.

I met some such conscientious investors at dinner a couple of days ago. Talking to them, it dawned on me that the winds blowing in the West are yet to turn eastward. Businesses in India largely are still insensitive to bigger concerns.

The people I met worked for investors in the West who are committed to backing businesses that are responsible to society, have good business practices, are concerned about public commons, environment etc. As a rule they will not invest in companies that were not fully committed to protecting the environment. They met more than 2000 companies last year. “By meeting companies, I mean meeting the people who run those companies,’’ one of them told me.

What he meant was the topline and bottomline alone did not matter. What mattered was: are the people running the companies good? Do they have good values? In short — Do they care? The promoter of a company was a little taken aback by the line of questioning and said, well, I don’t know how to answer you. Nobody has really asked these questions until now.

So the universe of opportunity available to such investors remains small. Most stars of the stock market do not figure. The ones that they like tend to be young and small, perhaps from the post-1991 era.

“But things are getting better, thanks to the slowdown!’’ he says.

Now that is interesting.

He helpfully explains that investors become choosy in recessionary markets. They begin to care about managements and practices. But in an ebullient market, the mob takes over. Then even the well-intentioned are sucked into the frenzy.

“People like us do badly in such markets. We have to have longer staying power than the longevity of irrational exuberance. It is tough.’’

For them the long run is really becoming long. Just hope it doesn’t become Keynesian long.

Political winds seem to be changing direction in Uttar Pradesh in the past few days. What appeared to be blowing in favour of the opposition in UP when elections were announced now seems to be filling the sails of Mayawati’s boat.

On Tuesday, Bahujan Samaj Party MLA and former minister Avadhesh Verma broke down in front of television cameras lamenting that despite loyally serving Mayawati he was kicked out of the party for no fault of his. By evening, Verma was dining in the BJP tent with a party ticket in pocket to fight elections from his home constituency Dadraul.

Verma is among many BSP discards such as Daddan Mishra, Badshah Singh and Babu Singh Kushwaha who have got the red carpet treatment from the BJP. And there are quite a few of them. Facing anti-incumbency for the first time, Mayawati has started a purge from BSP. She has sacked 21 of 52 ministers from her cabinet. Several other sitting legislators have also been denied tickets this time around. Those unhappy with the way things have gone are either leaving the party or being chucked out. Why is the BJP waiting with open arms to welcome BSP politicians expelled on charges of corruption?

Sources close to the BJP leadership say that it is a strategy that the party had decided upon months ago. It had drawn up a list of several `vulnerable’ BSP legislators who could defect and had been working on them believing that many of them had pockets of influence and would weaken the BSP in those places. But accepting the tainted leaders into the party fold may backfire on it. A party worker and ticket seeker says that it has demoralized the cadres. In fact, some of the top leaders themselves are said to be unhappy with the way things are going for it, especially since it has been attacking the Congress Party for corruption. After giving shelter to tainted politicians so close to the polls, BJP leaders will hardly be believable when they go out seeking votes vowing to fight corruption.

Perhaps the party believes that it cannot anyway win the state on its own steam. So the strategy now appears to be to try win about 50-60 seats and hope for a hung assembly. Such a result could open up a chance to form a government with another party that wins about 150 seats. But then Nitin Gadkari cannot shake hands with Rahul Gandhi or Mulayam Singh. That leaves the BJP with only one possibility — join Mayawati. She is certain to benefit given that the opposition parties have begun digging their own graves so close to the elections. The Gods of politics do have a sense of irony!

The election commission has set the stage for elections to five state assemblies but political parties, especially in Uttar Pradesh (UP), had begun girding up several months ago. Surprisingly, while the elections were expected to be in March or April, the commission scheduled it for February. Delhi grapevine suggests that the Congress, which was eyeing the 10 Rajya Sabha seats from UP that would fall vacant in April, wanted it early. Mayawati’s BSP currently holds five of those and would have certainly retained them with the party’s present strength in the assembly. She seems to have seen through the ploy and advanced school exams in the state. But the tactic failed.

Elections to the 403 assembly seats in UP will arguably be the most watched one, not least for the personalities and stakes involved. Some have billed the elections as the semi-final before the Lok Sabha polls in 2014.

Few people predicted an absolute victory for Mayawati’s Bahujan Samaj Party in 2007. But the dalit politician surprised everyone. Not many believe that she will be able to repeat the magic of 2007, but nobody is writing her off either. Whatever happens, she has a core strength of about 70-80 seats that she is unlikely to lose.

As things stand today, political observers believe, the fight is between the BSP and OBC leader Mulayam Singh Yadav’s Samajwadi Party. The BJP and the Congress are third and fourth players respectively. While the elections will be critical for both Mayawati and Mulayam, the man who has invested the most in UP is Rahul Gandhi. The scion of India’s first political family has been focused on UP for more than a year, repeatedly venturing to remote villages on people contact programmes. He jumped into an acrimonious land debate in Bhatta-Persaul a few months ago, positioning himself as the messiah of the poor farmer. He also chose to officially launch Congress’ poll campaign from Phulpur, which being Jawaharlal Nehru’s constituency evokes loads of party and family symbolism.

Rahul Gandhi has certainly made the Congress visible in the state, even though the party remains rift-ridden, cadre thin and without a chief ministerial candidate. His unofficial tag of India’s future prime minister also lends weight because the people may like to have the PM from their state. He is also trying to make good governance, development and economic progress as the main election plank instead of caste and community equations. His main target has been the chief minister herself and she seems to be wary of what he may achieve. While the party itself is expecting to cross the hundred seats mark based on its performance in the 2009 Lok Sabha elections when it won a surprising 21 seats.

The difference between a rookie and a seasoned politician was plain when in the midst of Gandhi’s hectic campaigning Mayawati threw in the forgotten bogey of state reorganization. She had first mooted splitting UP into four smaller states in 2007 after she became chief minister but the issue had remained dormant. She propped it at the right time and in one clean sweep negated a lot of work done by opposition parties, including the Congress.

Mayawati had won in 2007 by knitting together an unlikely alliance of dalits, which is her core, unflinching vote base, Brahmins and Muslims each of whom have pockets of influences in the state. As one veteran Hindi journalist explains, the party with the support of the most number of castes will always win UP.

That is the game that is on right now. The BJP is so far in disarray and is trying to rally behind Uma Bharti, Rajnath Singh adn Kalraj Mishra who still have considerable clout in parts of the state, especially among Brahmin voters. BJP’s biggest disadvantage is it cannot hope for Muslim votes and Hindu votes are split along caste lines.

While Rahul Gandhi has been on his UP tour, another political heir has been tirelessly wooing voters across the state. Admittedly, unlike Gandhi, the Australia-educated 38-year-old son of Mulayam Singh has drawn large crowds at each one of his over 100 rallies and street corner meetings. Whether these crowds will stamp their approval in the polling booth remains to be seen. Besides, SP has already been weakened by the exit of Amar Singh and Beni Prasad Verma, whose Rajput and Kurmi communities respectively would be miffed with the party. The party also got a jolt when Rashid Masood joined the Congress, reportedly displeased with Akhilesh Yadav’s ascension and influential Muslim leader Azam Khan’s clout. Akhilesh’s uncle Shivpal Yadav, who is also the party’s leader in the assembly, also has been having a running feud with Azam Khan. SP’s woes notwithstanding, many expect the party to do well.

Much depends on the Muslim vote. Some expect the community vote to be split at least four ways – between SP, Congress, BSP and the wildcard Peace Party. Dr Mohammad Ayub, a physician who runs a hospital in Gorakhpur and a disposable syringes business, founded the Peace Party four years ago and has since shown immense acumen in creating an alliance of Muslims and Brahmins. In the Lakhimpur bypoll last year, the Peace Party put up a Brahmin candidate who was the runner up to SP’s winner. It also fought in Dumariyaganj bypoll with the same strategy. Though it came third, it managed to push SP to the fourth position.

As the scenario unfolds, one of the likely outcomes could be BSP losing its majority, SP and Congress doing well and the BJP relegated to fourth place. If that happens, UP could see a Congress-SP alliance government in power by March.