Note4Students
From UPSC perspective, the following things are important :
Prelims level: Countries sharing border with Afghanistan.
Mains level: Paper 2- Implications for India of the return of Taliban in Afghanistan after US-Taliban deal.
The article discusses India’s exclusion from the Afghan peace process. As India seeks to fight back its exclusion there are certain issues that need to be addressed. India’s reluctance to enter into talks with the Taliban in one such issue, which needs a rethink. And there are several areas in which India needs to continue working like-the goodwill in Afghanistan, participation in assistance work, bringing together the major leaders in that country.
India left out of the meeting on peace in Afghanistan
- Earlier this month, the United Nations Secretariat held a meeting of what it calls the “6+2+1” group on regional efforts to support peace in Afghanistan.
- The group includes six neighbouring countries: China, Iran, Pakistan, Tajikistan, Turkmenistan and Uzbekistan; global players the United States and Russia, and Afghanistan itself.
- India was conspicuous by its absence from the meeting on April 16, given its historical and strategic ties with Afghanistan.
- This has not happened for the first time, India was left out form talks similarly in 2001 and 2010.
- In both 2001 and 2010, however, India fought back its exclusion
- At the Bonn agreement of 2010, India played a major role in Northern Alliance accepting Hamid Karzai as the Chairman of the interim arrangement that replaced the Taliban regime.
- After the 2010 conference, New Delhi redoubled its efforts with Kabul, and in 2011 India signed the historic Strategic Partnership Agreement, which was Afghanistan’s first such agreement with any country.
Reasons for not inviting India
- In 2020, the reason given for keeping India out of regional discussions on Afghanistan was ostensibly that it holds no “boundary” with Afghanistan.
- But in fact, it is because New Delhi has never announced its support for the U.S.-Taliban peace process.
- As planners in South Block now consider their next steps in Afghanistan, they must fight back against the idea that any lasting solution in Afghanistan can be discussed without India in the room, while also studying the reasons for such exclusions.
Following are the issues that Indian must consider and act on as it seeks to fight back its exclusion from the peace talks.
India’s position on Afghan-led peace process and reality
- India’s resistance to publicly talking to the Taliban has made it an awkward interlocutor at any table.
- Its position that only an Afghan-led, Afghan-owned, and Afghan-controlled process can be allowed is a principled one but has no takers.
- The Ashraf Ghani government does not lead, own or control the reconciliation process today, comprising the U.S.-Taliban negotiation for an American troops withdrawal, and intra-Afghan talks on power-sharing.
- The U.S.-Taliban peace deal means that the Taliban, will become more potent as the U.S. withdraws soldiers from the country.
- Taliban will hold more sway in the inter-Afghan process as well, as the U.S. withdraws funding for the government in Kabul.
Two effects of India’s position
- New Delhi’s decision to put all its eggs in the Ghani basket has had a two-fold effect:
- 1) Its voice in the reconciliation process has been limited.
- 2) It has weakened India’s position with other leaders of the deeply divided democratic setup in Kabul such as the former chief executive Abdullah Abdullah.
India should not let its diplomatic strength weaken
- India painstakingly built up its presence inside Afghanistan since 2001.
- This presence is being threatened anew by terror groups such as the Islamic State Khorasan Province (ISKP).
- ISKP is believed to be backed by Pakistan’s establishment.
- Intercepts showed that the brutal attack, in March, that killed 25 at a gurudwara in Kabul was meant for the embassy in Kabul.
- The government cleared out both of its consulates this month.
- While the government has said that the novel coronavirus pandemic prompted its decision to clear out both consulates.
- The truth is that a full security reassessment is under way for them.
- Either way, India’s diplomatic strength in Afghanistan should not appear to be in retreat just when it is needed the most.
Goodwill in Afghanistan and damage caused due to CAA
- The government must also consider the damage done to the vast reservoir of goodwill India enjoys in Afghanistan because of recent events in the country, especially the controversy over the Citizenship (Amendment) Act.
- The building blocks of that goodwill are India’s assistance in infrastructure projects, health care, education, trade and food security, and also in the liberal access to Afghans to study, train and work in India.
- Above all, it is India’s example as a pluralistic, inclusive democracy that inspires many.
- Afghanistan’s majority-Muslim citizens have felt cut out of the move to offer fast track citizenship to only Afghan minorities.
- The damage was also done by reports of anti-Muslim rhetoric and incidents of violence in India.
Regain upper hand in the narrative in Afghanistan
- While many of these are problems of perception, New Delhi must move swiftly to regain the upper hand in the narrative in Afghanistan.
- India has provided the assistance of more than $3 billion in projects.
- Bilateral trade is about $1 billion.
- A $20 billion projected development expenditure of an alternate route through Chabahar.
- And support to the Afghan National Army, bureaucrats, doctors and other professionals for training in India should assure it a leading position in Afghanistan’s regional formulation.
- Three major projects along with hundreds of small development projects (of schools, hospitals and water projects) have cemented that position in Afghan hearts nationwide, regardless of Pakistan’s attempts to undermine that position, particularly in the South.
- The three major projects include 1) the Afghan Parliament, 2) the Zaranj-Delaram Highway, 3)the Afghanistan-India Friendship Dam (Salma dam).
Pursue opportunities to fulfil its role in the peace efforts
- India must also pursue opportunities to fulfil its role in the peace efforts in Afghanistan, starting with efforts to bridge the Ghani-Abdullah divide.
- India could also play role in bringing together other major leaders with whom India has built ties for decades.
- It would be an utter tragedy if the Taliban were to enter the government in Kabul as the U.S. deal envisages, to find the opposing front collapse as it did in 1996.
- An understanding between Iran and the U.S. on Afghanistan is necessary for a lasting peace as well, and India could play a mediatory part, as it did in order for the Chabahar project.
Return of the Taliban has several implications for India. In 2013, the UPSC asked a question related to developments in Afghanistan against the backdrop of the proposed withdrawal of the International Security Assistance Force. Similarly, a question based on the latest development can be asked, for ex-“The return of Taliban after the US-Taliban deal in Afghanistan is fraught with major security implications for the countries in the region. Examine in the light of the fact that India is faced with a plethora of challenges and needs to safeguard its own strategic interests.”
Use UN call for peace to put hostilities with Pakistan on hold
- Finally, New Delhi should use the United Nations’s call for a pause in conflicts during the novel coronavirus pandemic, to ensure a hold on hostilities with Pakistan.
- This will be even more difficult than it sounds given the abyss that bilateral relations have fallen into in the past year over Kashmir.
Conclusion
It would be a mistake, at this point, to tie all India’s support in only to Kabul or the Ghani government; the government must strive to endure that its aid and assistance is broad-based, particularly during the novel coronavirus pandemic to centres outside the capital, even if some lie in areas held by the Taliban.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Deficit financing through the RBI. Deflation.
Mains level: Paper 3- Necessity of stimulus package and risks involved in it.
This editorial spells out the size of the stimulus package that would be required to restart the economy. It also discusses the possible sources that the government could tap to raise the revenue. Such huge expenditure is likely to result in the huge fiscal deficit which would necessitate that the stimulus is time-bound and transparent.
Prospects of substantially negative growth
- Arvind Subramanian has likened the current economic situation to a “pralay (deluge)”.
- A deluge in which the government should spend more than even what it ought to in a rainy day.
- India, the former chief economic adviser said that India must plan for a “substantially negative” growth this year that might require an additional fiscal expenditure of Rs 10 lakh crore.
- Corporate indebtedness was already high before the lockdown.
- Insolvency cases will mount further.
- Even companies facing no significant cash flow issues wouldn’t invest in uncertain public health as well as the demand-constrained environment.
- Banks, too, aren’t going to lend, no matter how much liquidity the Reserve Bank of India (RBI) may infuse.
- The burden of non-performing assets, which is set to get heavier in the coming months, makes it impossible for them to finance an economic recovery.
- Last, but not the least, are faced with layoffs and pay cuts, they would rather save and will be afraid to spend.
Importance of government spending in the current situation
- Under the circumstances, the onus for ensuring that the wheels of the economy start moving lies on the government.
- There’s no guarantee of it happening even with all lockdown restrictions being lifted.
- Without somebody to spend, the economy is in real danger of contraction, which will, in turn, worsen the problem of businesses going bust, joblessness and loan defaults that can spread to the entire financial services industry.
No “3F” constraints and risk of deflationary shocks
- The one consolation today is that India is not saddled with its traditional “3F” constraints — food, fuel and foreign exchange — which were triggers for inflation and balance of payments crises.
- On the contrary, public foodgrain stocks are at an all-time high, global oil prices have crashed and there is no run on the rupee, unlike during the “taper tantrum” period of May-August 2013.
- Risk of deflationary shock: The risks, if at all, are tilted more towards demand-side “deflationary shocks” than supply-side inflation concerns.
How will the government manage the resources?
- The finances of both the Centre and states are in a mess, with receipts from tax and non-tax sources hardly covering even existing expenditures.
- But governments enjoy sovereign borrowing powers that allow fund-raising at rates below that of triple A-rated instruments issued by private corporates, more so in the present risk-averse scenario.
- Also, there is the option of deficit financing (“printing money”) through the RBI subscribing to primary auctions of government securities.
- There are, of course, costs in such powers being exercised.
- Past precedents — whether the issuance of ad hoc Treasury Bills to the RBI prior to April 1997 or the stimulus package post the 2008 global financial crisis — do not inspire confidence.
A question based on the stimulus package and its consequences can be framed, for ex- “Do you agree with the view that a stimulus package by the government to restart the economy is necessary? What are the options with the government to raise the money for such a package? What could the consequences of such a package on the economy in the future?”
Conclusion
This is the time to design clear rules for departure from accepted norms of fiscal prudence. Any stimulus has to be transparent and time-bound.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: FRBM Act provisions.
Mains level: Paper 3-Legal provisions for the fiscal consolidation that needs to be changed for the the stimulus package in the wake of corona pandemic.
The article discusses the two legal provisions that need to be changed in order to provide a fiscal stimulus of the size that could save the economy from collapse. Other major concern after the package would be the inflationary pressure resulting from government spending.
The urgency of the fiscal package by the Centre
- The longer the Centre dithers over a big-bang fiscal package to counter the adverse economic fallout of covid-19, the closer it risks pushing India’s economy to the precipice of disaster.
- The nationwide lockdown has more or less paralysed commercial activity, our exit path looks dreadfully long-winded, and the distress being seen right now could just be an early sign of what is to come.
- The suffering of citizens will likely expand once the shutdown’s second-order effects, which operate with a lag, begin to kick in.
- Estimates of ₹10 trillion needed by way of fiscal relief, once seen as too much by some, could yet turn out to be too little.
- Either way, preparatory work in terms of legal enablers should be done alongside the arithmetic
Legal constraints in the way of the stimulus programme
- There are two major constraints that we need to be relieved of—if only temporarily—for a stimulus programme to take shape.
- The first is the Fiscal Responsibility and Budget Management (FRBM) Act of 2003.
- And the second is the amendment done in 2016 of the Reserve Bank of India Act to give legislative cover to a flexible inflation-targeting framework that set our central bank the task of keeping India’s retail price index within a certain band.
- Both of these were aimed at long-term economic stability but made no allowance for a robust fiscal response to the kind of crisis we now face.
- It would be best if these were tweaked appropriately by a special session of Parliament.
- If not, then ordinances should be issued to suspend specific restrictions for a while.
Projections of fiscal deficit
- Under the budget presented in February, the Centre’s fiscal deficit for 2020-21 was projected at 3.5% of gross domestic product (GDP).
- This included a half percentage point deviation from the FRBM glide path allowed by the law’s contingency clause.
- Total expenditure was placed at a little over ₹30.4 trillion, and receipts at ₹22.4 trillion-plus.
- With tax revenues and asset-sale realizations expected to fall short, the fiscal gap could widen to about ₹10 trillion even without any extra spending.
- Drastic cuts in expenditure could save some money, but even if a heavy axe is wielded on expenses, the government’s deficit this year would have to exceed twice the legal limit for a stimulus that saves the economy from collapse.
- If this turns out to be a year of negative growth, as some fear, effecting a revival will only get harder.
- For pre-emptive action, the government should use its parliamentary clout to permit a limitless deficit for 2020-21.
A question based on the limits placed by the FRBM Act and the changes brought by the amendment to the RBI Act which mandated RBI with managing the inflation could be asked by the UPSC.
Prospects of inflationary pressure and RBI’s mandate
- An effort to spend our way out of an economic morass could prove inflationary if too much cash ends up chasing too few goods and services.
- As we have undergone both demand and supply shocks, opinion is divided on whether prices will go haywire.
- This risk would depend on how much cash gets pumped around at what point in time and the pace at which supplies are restored.
- In other words, the inflation outlook is highly uncertain.
- But should prices threaten to rise, it would be counterproductive of the central bank to tamp them down by tightening credit.
- As of now, RBI’s mandate is to keep inflation at 4%, with a tolerance band of 2% on either side.
- This target is valid till March 2021, but needs to be reviewed right away to let the central bank focus on growth.
- The acceptable range could be widened and the time limit to achieve the goal lengthened as a special reprieve.
Conclusion
A few tweaks of the law must go alongside calculations of a stimulus package designed to relieve economic distress. The government should act on these quickly to save the day.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Easing of the nationwide lockdown and major considerations
- Spain’s Prime Minister has presented a four-phase lockdown exit strategy for the country.
- It’s imperative for India to learn from global examples for easing lockdown without doing away with health concerns.
With the nearing end of nationwide lockdown, various exit strategies are being discussed for a smooth restart.
Spain’s exit strategy
- The opening up of the lockdown will begin with phase 0 throughout Spain, except for a few islands that will already be in phase 1 by then.
- A week later, provinces will enter phase 1, which will last for two weeks and the remaining phases will also last for two weeks each.
- In total, the de-escalation will take at least six weeks to be complete.
Phase 0: The preparation phase
- De-escalations in this phase include opening up of takeaway facilities at restaurants and opening up of some other establishments such as hair salons.
- From May 2, individuals will be able to go out for a walk or to exercise alone or with people they stay with. In this phase, professional athletes will be able to access individual training sessions.
- Children aged 14 years or younger have been allowed to go out for walks from April 26.
Phase 1: The initial phase
- Begins on May 11. Small businesses will be allowed to open under strict security measures.
- For instance, gyms can open for people who want to train individually and by appointment.
- Further, hotels and tourist accommodations will be allowed to open, excluding the common areas and with certain restrictions in place.
- Places of worship will also be allowed to open, limiting their capacity to one-third. Owners of terrace bars can open their establishments but with 30 per cent capacity.
- In this phase, some degree of social contact with a limited number of people may also be allowed, subject to what the conditions are then.
Phase 2: The intermediate phase
- Begins on May 25.Will include the resumption of hunting and sport fishing, and the opening of cinemas and auditorium theatres at one-third of their capacity.
- Visits to monuments and cultural facilities, such as exhibition halls and conference rooms, will resume with one-third occupancy.
- Cultural shows will be allowed with less than 50 people in closed spaces. In the outdoors, shows and events can be held with less than 400 people provided they are seated.
- All places of worship will have to limit their capacity to 50 per cent.
Phase 3: The advanced phase
- Begins on June 8 and provided the situation is under control, general mobility will be made more flexible.
- Wearing masks will be recommended when people venture outside, especially on public transport. In commercial settings, capacities will be restricted to 50 per cent.
- Beaches may also open in this phase. The movement of people into other provinces or islands is restricted until the de-escalation process is complete.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: BoD, CoD
Mains level: Namami Gange
The Ganga water quality has improved remarkably during the lockdown period. This highlights the importance of synergy for absolute symbiosis between nature and man as the need of the hour.
Context
- The novel coronavirus lockdown (COVID-19) pandemic has put millions in the throes of adversity — and yet, there is a reason to celebrate.
- Over a month into the nationwide lockdown, air and water pollution levels have shrunk and the wildlife is free.
- Of 36 monitoring units placed in the Ganga, water quality at 27 points was found suitable for bathing and propagation of wildlife and fisheries in the lockdown period
Status of rivers in India
- India’s water bodies are in a poor state. The rivers are becoming dumpyard for untreated sewage and industrial waste.
- In the name of economic growth, most rivers and streams have been turned into sewer canals and are getting difficult to be treated.
- It is estimated that every day, almost 40 million litres of wastewater enters rivers and other water bodies; only 37 per cent is adequately treated.
- A Centre Pollution Control Board (CPCB) report showed that critically polluted river stretches in the country have increased from 302 stretches in 2016 to 351 stretches in 2018.
- The finding was based on Biological Oxygen Demand (BOD).
Ganga
- According to CPCB, more than half of wastewater treatment plants in the basin do not comply with the discharge norms.
- Since 1985, several programmes and schemes have been launched to clean the Ganga. It began with the Ganga Action Plan I, followed by Ganga Action Plan II.
- In 2015, the biggest-ever initiative, Namami Gange was launched with a budget of over Rs 20,000.
- Despite numerous programmes and huge funds, the Ganga still runs polluted.
The causes
- More than 80 per cent of pollution in the Ganga is due to domestic sewage from surrounding towns and villages. The rest is contributed by industrial waste.
- During the lockdown, domestic sewage would have increased owing to increased demand for water to maintain hand-washing hygiene. Industrial waste, however, stopped entering the Ganga.
- Other activities such as tourism, fairs, bathing and cloth washing near the ghats were curtailed. Experts said these observations reflected that domestic sewerage was not the only cause of concern.
- When sewage is mixed with industrial effluents, it gets difficult for the river to assimilate pollution.
- One more reason was high number of western disturbances which brought rain and improved the flow in the river leading to dilution.
COVID-19’s gift to Ganga
- After the nationwide lockdown was imposed, within 10 days signs of improvement in water quality started surfacing.
- At Varanasi’s Nagwa Nala, the Dissolved Oxygen (DO) values were found increased to 6.8 milligram/litre against 3.8 mg/l on March 6, showcasing an extraordinary improvement of 79 per cent in DO values.
- 30 per cent of the total BOD load was due to industries along the river, which amounted to 130-150 tons per day.
- Since all major polluting industries are closed, the toxic load is off the river.
Surprisingly better
- Ganga water at Haridwar and Rishikesh was reported fit for drinking due to 500 per cent decrease in sewage and industrial effluents.
- A dip in the number of visitors at ghats in Haridwar also helped the river water quality.
- The Ganga water has become fit for ‘achaman’, which means ritual sipping, after a long time.
Bringing the ambitions to reality
There is an urgent need to:
- Reinvestigate the main source of pollution in Ganga and reorient all river cleaning policies and programmes based on lockdown findings.
- Industries need to strictly adhere to discharge norms accompanied with strong enforcement of laws and regulations vis-a-vis strong monitoring and vigilance framework.
- Setting up of effective interventions to clean rivers, reliable, representative and comprehensive data collected at high frequency in a disaggregated manner.
- There is an urgent need to expand the network of monitoring stations on the Ganga, the Yamuna and tributaries of Ganga in more places.
- Over-extraction and over-exploitation of Ganga’s waters have rendered long stretches of the river completely dry for much of the year. There is a need to maintain ecological flow to keep it clean for longer run.
- Education and awareness needs to be carried out strategically.
Back2Basics: Biochemical Oxygen Demand
- BOD is the amount of dissolved oxygen needed (i.e. demanded) by aerobic biological organisms to break down organic material present in a given water sample at certain temperature over a specific time period.
- The BOD value is most commonly expressed in milligrams of oxygen consumed per litre of sample during 5 days of incubation at 20 °C and is often used as a surrogate of the degree of organic pollution of water.
- BOD is similar in function to chemical oxygen demand (COD), in that both measure the amount of organic compounds in water.
- However, COD is less specific, since it measures everything that can be chemically oxidized, rather than just levels of biodegradable organic matter.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Religious freedon in India
The U.S. Commission on International Religious Freedom (USCIRF) has downgraded India to the lowest ranking, “countries of particular concern” (CPC) in its 2020 report.
Religious freedom in India has been a contested issue since decades. Recent moves by the govt. since the abrogation of Art. 370 which triggered the riots in Delhi has left a big scar on the secular fabric of India.
About USCIRF
- It is a U.S. federal government commission created by the International Religious Freedom Act (IRFA) of 1998.
- Its principal responsibilities are to review the facts and circumstances of violations of religious freedom internationally.
Accusing India of religious intolerance
- USCIRF has placed India alongside China, North Korea, Saudi Arabia and Pakistan.
- India was categorised as a “Tier 2 country” in last year’s listing.
- This is the first time since 2004 that India has been placed in the CPC category.
- The commission also recommended that the U.S. government take stringent action against India under the “International Religious Freedom Act” (IRFA).
What led India to lower its religious freedom?
- India took a sharp downward turn in 2019 due to concerns about the Citizenship Amendment Act, the proposed National Register for Citizens, anti-conversion laws and the situation in Jammu and Kashmir.
- The report accuses India using its strengthened parliamentary majority to institute national-level policies violating religious freedom across India.
- The panel reported harassment and violence against religious minorities to continue with impunity, and engaged in and tolerated hate speech and incitement to violence against them.
India’s reaction
- The Centre reacted sharply to the USCIRF report terming it “biased and tendentious” and rejected its observations.
- The biased and tendentious comments against India are not new. But on this occasion, its misrepresentation has reached new levels.
- Major panellists of USCIRF dissented with the recommendation on India as being ‘too harsh’ and that ended up placing the country alongside what they termed as “rogue nations” like China and North Korea.
- India regards the accusations as inaccurate and unwarranted and questioned the body’s “locus standi” in India’s internal affairs.
US’s religious activism: Unwelcomed by all
- The US earlier this month has announced the launch of a 27-nation International Religious Freedom Alliance, which aim to adopt a collective approach in protecting and preserving religious freedom across the world.
- Among the prominent countries to join the alliance are Brazil, the United Kingdom, Israel, Ukraine, the Netherlands and Greece.
- The USCIRF has been accused worldwide of being biased towards focusing on the persecution of Christians and of being anti-Muslim & Hinduphobic. It panels various controversial personalities.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Petersberg Climate Dialogue
Mains level: Coronovirus outbreak and climate negotiaitions
India along with 30 countries deliberated on issues of Climate Change in first-ever virtual Petersberg Climate Dialogue.
Climate change negotiations are somehow put to a halt due to ongoing pandemic. Such small dialogues are keeping alive the spirit of climate action.
Petersberg Climate Dialogue
- It has been hosted by Germany since 2010 to provide a forum for informal high-level political discussions, focusing both on international climate negotiations and the advancement of climate action.
- This year’s virtual Dialogue was co-chaired by Germany and the UK.
- The dialogue was crucial because of the efforts to contain coronavirus as well as countries preparing to move into the implementation phase of the Paris Agreement 2015 in the post-2020 period.
India’s Contributions
- Expressing solidarity with the world as it combats the COVID 19 pandemic the Union Minister highlighted how COVID – 19 has noticed that we can survive on less.
- India pushed for having climate technology as an open source available to all countries at affordable prices.
- India stressed on climate finance and urged to plan for 1 trillion USD in grants to the developing world immediately.
- India focussed on the opportunity that the world has today to accelerate renewable energy deployment and creating new green jobs in the renewable energy and energy efficiency sector.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: HCARD
Mains level: Technology assistance for COVID-19 containment
HCARD, a robot, to assist frontline COVID-19 healthcare warriors has been developed by a CSIR lab.
It is very unlikely to create a prelim question on HCARD. However, developments as such help in exemplifying the scientific developments which helped contain such highly contagious outbreaks.
What is HCARD?
- The robotic device HCARD, an acronym for Hospital Care Assistive Robotic Device, can help frontline healthcare workers in maintaining physical distance from those infected by the coronavirus.
- The device is equipped with various state-of-the-art technologies and works both in automatic as well as manual modes of navigation.
- This robot can be controlled and monitored by a nursing booth with a control station having such features as navigation, drawer activation for providing medicines and food to patients, sample collection and audio-visual communication.
- The cost of this device is less than Rs 5 lakh and the weight is less than 80 kilograms.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 3- Creating economy that is resilient and fair.
This article discusses the three principles which could form the basis for recreation of the economy devastated by the Covid-19. The first is adopting the economies of “scope” instead of economies of scale. The second is about governance and focus on bottom-up approach. And third is about empowering the people.
Impact of Covid-19 on the ideology of globalisation
- The history of the globalisation has turned out to be very brief.
- In 2020, the global COVID-19 pandemic has forced millions of Indians to return to their villages.
- Jetsetters have been locked in their gated communities.
- Global supply chains have been broken apart.
- People are scrambling for essentials from local suppliers.
- The ideology of globalisation has hit realities on the ground.
Recovery from COVID-19 is an opportunity to create economies that are more resilient and fair. The following three architectural principles must apply.
1. Replace economies of scale by the economies of scope
- COVID-19 has settled, for now, the debate between free-trade evangelists and advocates of industrial policy.
- The vulnerability of global supply chains: A complex global economy in which local producers obtain scale (and lower costs) by supplying products for global markets is vulnerable to shutdowns anywhere.
- The resilience of local economies: Local economies that have a variety of capabilities within them, albeit on smaller scales, are more resilient.
- Therefore, local economic webs must be strengthened, in preference to global supply-chains.
- “Make in India,” which was dismissed by free traders as a reversion to pre-1991 economic policies, has become a necessity.
- Make in India is necessary to maintain supplies of essentials and to create employment for the hundreds of millions of Indians with fragile incomes who have been badly shaken by the lock-down of the Indian economy.
2. Local systems solution to global problems
- Local systems solutions are essential for global systemic problems.
- Privatisation: Garrett Hardin had coined the expression, “The Tragedy of the Commons”, in 1968.
- The Tragedy of the Commons is a term for the proposition that a resource that belongs to everybody will not be cared for by anybody.
- This supported policies to privatise public property, ostensibly for the benefit of everybody and became the dominant school of economics from the 1970s onwards.
- A different explanation: Elinor Ostrom, who was awarded the Nobel Prize for economics in offered a different explanation for the tragedy of the commons.
- She argued that common resources are well-managed when those who benefit from such resources the most are in close proximity to them.
- For her, the tragedy occurred when external groups exerted their power (politically, economically or socially) to gain a personal advantage.
- Bottom-up approach: She was greatly supportive of the “bottom-up” approach to issues: Government intervention could not be effective unless supported by individuals and communities.
- The world is facing challenges of ecological sustainability and persistent inequalities, which seem to get worse with the prevailing paradigm of economic growth.
- These challenges are described in the 17 Sustainable Development Goals (SDGs).
- They cut across national boundaries.
- They also span several domains of expertise and institutional mandates.
- The final, 17th goal states the principle by which all the goals will be achieved — “partnerships”.
Actions theory Vs. Systems thinking
- Action theory: The prevalent action theory, used by governments, businesses and philanthropic organisations to solve complex problems, focuses on breaking complex problems into components and then tackling the components in separate silos.
- Problems caused by the actions theory: This widely prevalent theory of action has contributed greatly to causing the systemic, interconnected problems the SDGs now aim to address.
- What is systems thinking: Effective action to address multiple challenges together requires “systems thinking” — that is, a systemic vision spanning across the problems.
- Systems thinking is essential, amongst experts at the top and amongst partners on the ground.
- Several organisations are promoting collaborative action with systems thinking on the ground in India.
- Kudumbashree in Kerala has proven the power of community action.
- The Foundation for Ecological Security, guided by Elinor Ostrom’s ideas, is working in many Indian states.
- Dainik Bhaskar is promoting “SDG chaupals” in Indian villages.
3. Empowering the people
- The third principle for the new economy is, empower the people, the fundamental requirement for genuine democracy.
- India’s Constitution seeks self-governance in India’s towns and villages.
- These are not being implemented by governments and policy experts who do not want to give up power to the people.
- India lives in its villages, Mahatma Gandhi had said. Most of India still does.
- And many, who had migrated to cities looking for jobs, are returning, shaken by the pandemic.
- Gandhi was a systems thinker. For Gandhi, the global village was an abstract concept.
- This cannot be realised until local villages and towns become harmonious communities, where people live in harmony with each other and with nature around them.
The corona crisis has laid bare some of the problems associated with globalisation. It has forced a rethink of the economic policies and model adopted by the world. Against this backdrop, a question can be asked by the UPSC that demands the analysis of problems that have surfaced and solutions. For ex. “Covid-19 pandemic has brought into a sharp focus some inherent problems associated with the globalisation. In this context suggest the ways to make the Indian economy resilient to such shocks and fair to all the sections of society”
Conclusion
COVID-19 marks the end of the economics’ paradigm of the Washington Consensus. New models of economies, and new rules of global governance, must be bottom-up, not top-down. That’s how the whole world can move from relief, to recovery, and into resilience.
Back2Basics: What was the Washington Consensus?
- The Washington Consensus refers to a set of free-market economic policies supported by prominent financial institutions such as the International Monetary Fund, the World Bank, and the U.S. Treasury.
- A British economist named John Williamson coined the term Washington Consensus in 1989.
- The ideas were intended to help developing countries that faced economic crises.
- In summary, The Washington Consensus recommended structural reforms that increased the role of market forces in exchange for immediate financial help.
- Some examples include free-floating exchange rates and free trade.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Poor health infrastructure of SAARC countries and other common problems.
The article discusses the various common features shared by the South Asians countries. One of them is the poor public healthcare infrastructure. So, the pandemic offers an opportunity to make the required policy changes. It also offers the opportunity for cooperation among the regional countries in dealing with Covid-19. These issues are discussed in the article.
South Asian countries: Common features, common problems
- South Asia, one of the world’s most populous regions, is also affected by the COVID-19 pandemic.
- Both Karachi and Mumbai, among the world’s most densely populated cities, where we live and work, are being overwhelmed by cases.
- While the death rate in these places may not be as alarming as in Europe and the U.S., the collateral damage of the lockdown is taking its own toll.
- Common features of South Asia: While there are many differences amongst the countries of the region, there are also common features which impact the health of its people, some of them a result of our shared cultural and geopolitical history.
- The collective experience of dealing with COVID-19 may provide important lessons, which transcend national boundaries.
Poor healthcare system: a common problem
- South Asian countries have invested very little in health.
- This is reflected in our abysmally low health parameters.
- It is interesting that Britain, which formulated our health policies before independence, went on to form one of the world’s strongest public health systems, the National Health Service.
- Whereas its South Asian colonies chose to stray from that path.
- This resulted in a dysfunctional public healthcare
- Governments have also relinquished what ought to have been their primary duty, of health care provision, to the private sector.
- Having become an industry, the focus of healthcare in the private sector is on profit rather than on people’s needs.
- High treatment costs in private sector: Whilst privatisation has brought in advanced technology and expertise, the high costs of treatment in the private sector have resulted in impoverishment as most of the population has no insurance or third-party coverage, and pays out of pocket.
- The sector has also been poorly regulated.
- The result is that it is responsible for several excesses in its quest for profit.
Other common features of the region
- Hunger, malnutrition, poor sanitation and large-scale migration are features of this region.
- Existing infectious diseases like TB, HIV and malaria have been worsened by emerging ones like dengue, chikungunya, healthcare-associated infections and antimicrobial resistance.
- The region is also an epicentre of an epidemic of lifestyle diseases.
- Conflicts and expenditure on defence: Constant internal and external conflicts in South Asia not only consume a large portion of national budgets but also divert the attention of the public and policymakers from healthcare needs.
- Defence budgets take the largest share of national budgets, and obviously adversely impact social sector spending.
- Underfunded public health is going to hinder region’s capacity to fight COVID-19.
- The central role of religion: Religion continues to occupy a central space in the society and politics of the region.
- Though it offers succour to many, religious dogma can impact health policy and health-seeking behaviour.
- The refusal of devotees across Pakistan to avoid religious congregations during Ramadan despite the government’s orders has significantly fed the community spread of the virus.
Opportunity for policy changes to address healthcare problems
- COVID-19 has forced us to seriously reflect on our healthcare system.
- This is welcome if it results in policy change.
- Healthcare professionals and bodies must seize this opportunity to push our respective governments to address it seriously and not just as a pre-election strategy.
- A long-term commitment to universal health care, with not only a national but also a regional and global focus, is needed.
A question on this theme could be asked by the UPSC, for instance, “South Asian countries share the common problem of poor public healthcare infrastructure, which increases their vulnerability to the pandemic. But corona pandemic also offers an opportunity to improve the shortcoming in the health infrastructure and cooperation among the SAARC countries. Comment.”
Regional strategy and cooperation needed
- The SAARC heads of state have already offered help to one another.
- A regional strategy has a better chance of controlling the pandemic than isolated national-level efforts.
- The pooling of resources and sharing data may not only help flatten the curve but perhaps even develop into longer-term efforts towards effective treatment.
- It is being speculated that our populations are behaving differently; that the BCG vaccine may be a protective influence.
- Joint research into such areas can be a unifying point for SAARC.
Conclusion
It is in our collective interest to look at health security and not just national security. By the accident of their birth, South Asians have endured a lot. They merit better.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Money multiplier.
Mains level: Paper 3- Government spending to sustain the economy hit by the corona crisis.
The article discusses the fiscal response of the government to deal with the corona crisis. Fiscal response to the 2008 financial crisis was higher in terms of GDP percentage. Also, a comparison with emerging peer economic indicates that India might be running the tighter fiscal policy in the time of crisis. The article suggests higher spending by going beyond the traditional fiscal space.
A possible explanation for moderate fiscal response by the government
- The Indian government has till now come up with an insipid fiscal response to the ongoing economic crisis.
- Long battle: One view is that the government does not want to fire all its bullets in what threatens to be a long battle. It wants to time its interventions.
- Weak public finances: The other possible explanation for this fiscal timidity is that India has entered this crisis with weak public finances.
Comparison with finances at the 2008 financial crisis
- The combined official fiscal deficit of the Union plus state governments was at its lowest level in many decades.
- The economic boom of the preceding four years had led to higher tax collections pouring into the treasury.
- The massive increase in spending announced in the budget of February 2008 was with an eye on the national election scheduled a year later, rather than in anticipation of a coming storm.
- Then followed the second wave of fiscal expansion after the North Atlantic financial crisis hit Indian shores seven months later.
- Back then, India’s effective fiscal stimulus over two years was a substantial 4.3% of gross domestic product (GDP).
- In 2020, the crisis-driven spending plan announced by the government so far is less than 1% of GDP.
- There could yet be a big fiscal push in the coming days.
Tighter fiscal policy in crisis compared to other emerging economies
- Some of the budget estimates released a few days ago by the International Monetary Fund are telling.
- In 2018, the total fiscal deficit of the Indian government as a proportion of GDP was 2.4 percentage points higher than the average for Asian emerging markets.
- India is expected to end 2020 with a total fiscal deficit that will be 2.5 percentage points lower than Asia’s average.
- In other words, India ran a looser fiscal policy compared to the rest of Asia in normal times, but is likely to run a tighter fiscal policy than its regional peers in a crisis year.
- Something similar can be seen in estimates for public debt.
- Asian public debt as a proportion of GDP is expected to go up by nine percentage points in 2020.
- The comparable figure for India is 2.9 percentage points. (These estimates are being cited with full knowledge that forecasting models break down during extreme events.)
Funding extra expenditure through money creation
- Lack of traditional fiscal space should not hold the government back in a crisis situation.
- There are many options outside the consensus macro playbook.
- Money creation: A commonly cited option right now is funding extra expenditure through money creation rather than borrowing.
- The size of the Reserve Bank of India (RBI) balance sheet as a percentage of nominal GDP is close to its 35-year average.
- There is scope for printing more money right now.
- Lower inflationary pressure: And the inflationary consequences are likely to be muted because of the lower velocity of money amid a demand collapse.
- Public finances in the future: Getting public finances back on track is a battle that lies in the future.
- A rapid recovery in economic activity would be the best solution.
- Otherwise, history tells us that countries have brought down their public debt numbers through some combination of financial repression, austerity, higher taxes and inflation.
- Some element of capital controls could also be back in play.
Need for increasing discretionary government spending
- The collapse in tax revenues as the economy is shut down will automatically lead to a rise in India’s fiscal deficit.
- However, there is a need for an increase in discretionary government spending as well.
- Economists have shown that spending multipliers are higher than tax multipliers in India.
- In other words, the increase in economic output for every unit increase in the fiscal deficit is higher when the government spends rather than changes tax rates.
- State’s spending Vs. Union spending: Spending by states gives more bang for the buck than equivalent spending by the Union government.
“Below the line measures” to support the economy
- Also, there are options other than direct spending to support the economy.
- Countries such as Germany, the UK, Italy, France and South Korea have complemented traditional fiscal expansions with “below the line” measures such as loans and guarantees to companies.
- In an excellent recent study, analysts estimate that more than half of Indian corporate balances sheets will be unable to meet expenses with zero revenues.
- They are careful to point out that their analysis is based on extreme assumptions that there is no fall in their wage bills, no revenues, and no access to fresh credit.
One of the common suggestions we have been coming across is the spending by the government by printing money. In this article, the second important suggestion is below the line measures. Take note of these measures and options available with the government.
Way forward
- The poor need income support for their very survival. That should be at the top of any democratic government’s list of
- However, protecting Indian companies from a financial collapse also matters, because otherwise, the economy will see a reduction in its capital stock, which will be needed both for a rapid recovery as well as job creation once the worst is over.
- There are contagion risks in financial markets as well, going by what has happened to some mutual funds that were invested in bonds.
Conclusion
These are extraordinary times that require extraordinary measures. The danger from a delayed fiscal programme is that hysteresis may set in, as companies run out of money and supply chains are broken, damaging our economic prospects in the medium term.
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From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Highlights of the report
The annual report ‘Trends in World Military Expenditure, 2019’ was released by the Stockholm International Peace Research Institute (SIPRI), a Swedish think tank.
Military expenditure across the World
- The global military expenditure rose to $1917 billion in 2019 with India and China emerging among the top three spenders, according to the report.
- In 2019, the top five largest spenders — U.S. ($732 bn), China, India, Russia ($65.1 bn) and Saudi Arabia ($61.9 bn) — accounted for 62% of the global expenditure.
- China’s military expenditure reached $261 billion in 2019, a 5.1% increase compared with 2018, while India’s grew by 6.8% to $71.1 billion.
- In Asia and Oceania, other than India and China, Japan ($47.6 bn) and South Korea ($43.9 bn) were the largest military spenders.
What drives India’s military spending?
- India’s tensions and rivalry with both Pakistan and China are among the major drivers for its increased military spending.
- While India’s defence spending excluding pensions, which constitute a significant part, has been growing in absolute terms, it has been going down as a percentage of its GDP as noted by the report.
Significant rise
- India’s expenditure in 2019 was 6.8% more than that in 2018.
- It grew by 259% over the 30-year period of 1990–2019, and by 37% over the decade of 2010–19.
The Defence expenditure in India is increasing every year in absolute terms, implying higher spending while there has been very selective modernisation of the armed forces. Critically analyse.
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From UPSC perspective, the following things are important :
Prelims level: Not Much
Mains level: Need for a global consensus on Terrorism
A report compiled by NITI Aayog has questioned the methodology adopted by an Australian based institute to rank India as the seventh-worst terrorism affected country.
Despite of being a global threat, there is yet no consensus on the definition of terrorism. Despite the considerable discussion, the formation of a comprehensive convention against international terrorism by the United Nations has always been impeded by the lack of consensus on a definition.
Global Terrorism Index (GTI)
- GTI is a report published annually by the Institute for Economics and Peace (IEP).
- The index provides a comprehensive summary of the key global trends and patterns in terrorism since 2000.
- It produces a composite score in order to provide an ordinal ranking of countries on the impact of terrorism.
- It is an attempt to systematically rank the nations of the world according to terrorist activity.
- The index combines a number of factors associated with terrorist attacks to build an explicit picture of the impact of terrorism, illustrating trends, and providing a data series for analysis by researchers and policymakers.
Its database
- The GTI is based on data from the Global Terrorism Database (GTD).
- The GTD is collected and collated by the National Consortium for the Study of Terrorism and Responses to Terrorism (START) at the University of Maryland.
- It has codified over 190,000 cases of terrorism.
- The GTI covers 163 countries, covering 99.7% of the world’s population.
India’s ranking
- India has moved to the seventh position from the previous years eighth in the annual Global Terrorism Index (GTI) 2019.
- India has ranked ahead of conflict-ridden countries such as the Democratic Republic of Congo, South Sudan, Sudan, Burkina Faso, Palestine and Lebanon.
Why such ranking matters?
- The positioning in the global indices impacted investments and other opportunities.
- The purpose was to see which of the indices can be used to drive reforms or which of these would require some amount of engagement with the publishing agency to make the indices more relevant.
Issues with GTI
- The GTD was based solely on “unclassified media articles, with more than 100 structured variables such as each attack’s location, tactics and weapons, perpetrators, casualties and consequences etc.
- The large diversity in definitions of terrorism amongst countries, and the lack of a universally accepted definition of terrorism, leads to a great deal of ambiguity in calculating and understanding GTI reports.
- IEP’s economic impact of terrorism model does not account for costs for countering violent extremism and long-term economic impacts on business activity, production and investment.
- Indeed, the GTI 2019 report itself states that a great majority of property damage values from terrorist incidents are coded in the GTD as ‘unknown,’ resulting in 1 out 4 parameters scoring nil for most countries.
- Similarly, the definition of mass shootings used in the GTI is limited to ‘indiscriminate rampages in public places resulting in four or more victims killed by the attacker,’ leaving out lone-wolf attacks.
Highly irrelevant data
- The absence of a robust data collection and analysis methodology, and any engagement with Governments facing the scourge of terrorism, means that the GTI has low direct value for policymakers.
- It cannot be used as an aid to understand and alleviate challenges to countries from domestic and cross border terrorism.
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From UPSC perspective, the following things are important :
Prelims level: Naming of Tropical Cyclones
Mains level: Tropical Cyclones
The India Meteorological Department (IMD) has released a new list containing 169 names of future tropical cyclones that would emerge in the Bay of Bengal and the Arabian Sea.
When is the name of a Tropical Cyclone declared?
- Names are declared when TCs are diagnosed with maximum sustained surface wind-speed of 34 knots (62 kmph) or more as per Global Data Processing and Forecasting System (GDPFS) Manual of WMO.
- Panel Members’ names will be listed alphabetically country-wise.
We can expect a statement based prelim question like – Which of the following criterion are followed while naming a tropical cyclone?
Who is involved in the naming of Tropic Cyclone?
- Worldwide there are six regional specialised meteorological centres (RSMCs) and five regional Tropical Cyclone Warning Centres (TCWCs) mandated for issuing advisories and naming of tropical cyclones.
- IMD is one of the six RSMCs to provide tropical cyclone and storm surge advisories to 13 member countries under WMO/ESCAP Panel.
- The panel countries include Bangladesh, India, Iran, Maldives, Myanmar, Oman, Pakistan, Qatar, Saudi Arabia, Sri Lanka, Thailand, United Arab Emirates and Yemen.
- RSMC, New Delhi is also mandated to name the Tropical Cyclones developing over the North Indian Ocean (NIO) including the Bay of Bengal and the Arabian Sea.
Since when did naming begin?
- The WMO/ESCAP Panel on Tropical Cyclones (PTC) at its twenty-seventh Session held in 2000 in Muscat, agreed in principle to assign names to the tropical cyclones in the Bay of Bengal and the Arabian Sea.
- After long deliberations among the member countries, the naming of the tropical cyclones over the north Indian Ocean commenced from September 2004.
- This list contained names proposed by the eight member countries of WMO/ESCAP PTC, viz., Bangladesh, India, Maldives, Myanmar, Oman, Pakistan, Sri Lanka and Thailand.
Why name Cyclones?
The naming of Tropical Cyclones (TC) helps the scientific community, disaster managers, media and general masses to-
- identify each individual cyclone.
- create awareness of its development.
- remove confusion in case of simultaneous occurrence of TCs over a region
- remember a TC easily
- rapidly and effectively disseminate warnings to a much wider audience
Major criteria adopted for naming
- The proposed name should be neutral to (a) politics and political figures (b) religious believes, (c) cultures and (d) gender
- The name should be chosen in such a way that it does not hurt the sentiments of any group of the population over the globe
- It should not be very rude and cruel in nature
- The maximum length of the name will be eight letters
- The Panel reserves the right to reject any name if any of the criteria above are not satisfied
- The names of tropical cyclones over the north Indian Ocean will not be repeated. Once used, it will cease to be used again.
Back2Basics
Explained: Naming of cyclones
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Europeanized school of painting in India
Mains level: NA
April 29 is the birth anniversary of the famed Indian painter Raja Ravi Varma (1848-1906), remembered for giving Indians their western, classical representations of Hindu gods and goddesses.
Raja Ravi Varma
- Varma was born into aristocracy at Kilimanoor in the erstwhile Travancore state of present-day Kerala and was closely related to its royal family.
- At the age of 14, Varma was patronised by Ayilyam Thirunal, the then ruler of Travancore, and went on to receive training in watercolours from Ramaswamy Naidu, the royal painter.
- Later, Varma studied oil painting with the British painter Theodore Jensen.
- Apart from Travancore, Varma also worked for other wealthy patrons such as the Gaekwad of Baroda.
Major works
- A prolific artist, Varma is believed to have made around 7,000 paintings before his death.
- Varma worked on both portrait and landscape paintings and is considered among the first Indian artists to use oil paints.
- Apart from painting Hindu mythological figures, Varma also made portraits of many Indians as well as Europeans.
- His most famous works include Damayanti Talking to a Swan, Shakuntala Looking for Dushyanta, Nair Lady Adorning Her Hair, and Shantanu and Matsyagandha.
His legacy
- He continues to be regarded as the most important representative of the Europeanized school of painting in India.
- His 1873 painting, Nair Lady Adorning Her Hair, won Varma prestigious awards including Governor’s Gold Medal when it was presented in the Madras Presidency and Certificate of Merit at an exhibition in Vienna.
- In 1904, the British colonial government awarded Varma with the Kaiser-i-Hind Gold Medal.
- In 2013, a crater on the planet Mercury was named in his honour.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: MPC
Mains level: Paper 3- MPC and RBI actions which are inimical to mandate of MPC.
This article by Urjit Patel elaborates on the recent actions of the RBI which are likely to result in making the role of MPC redundant. Some of the moves cited are injection of liquidity by the RBI and reduction of reverse repo rate by the RBI. Implications such actions could have for the macroeconomic stability are also discussed.
Stimulus package after the 2008 financial crisis and problems created by it
- Following the global financial crisis of 2007-08, India, like many other countries, embarked on a stimulus.
- The pump-priming did not end too well.
- Inflation and bad loans: By 2013, India crossed or approached double-digit figures in inflation and the national fiscal deficit, in addition to looming bad loans.
- Taper tantrum: In summer 2013, when the Federal Reserve indicated a possible reversal of its ultra-accommodative policy, macroeconomic parameters for India were so weak that it got caught up in the “taper tantrum” and experienced external sector fragility.
Inflation targeting and the role of MPC
- While fiscal excesses and financial sector stress remain issues today, India has improved significantly on at least one dimension — namely, inflation — which has also stabilised the external sector.
- How was this beneficial progress achieved?
- Starting in September 2013, the Reserve Bank of India (RBI) initiated an effort to build credibility with domestic savers and international investors on maintaining inflation at prudent levels.
- Three years thereafter, the RBI Act was amended to put in place a flexible inflation targeting framework.
- A Monetary Policy Committee (MPC), comprising of RBI representatives and external members appointed by the Government of India, was enjoined with the legal mandate of managing the policy (repo) rate.
- MPC was mandated to keep consumer price inflation at a target level of 4 per cent, while keeping in mind economic growth.
Assessment of MPC’s performance
- By objective measures, the MPC framework until recently worked rather well.
- It lent transparency and democratic accountability to the process of interest-rate setting.
- Combined with efforts on managing food inflation, it has brought inflation closer to the target.
- It has contributed to tempering household inflation expectations.
- It has kept borrowing costs in the economy at reasonable levels in spite of the high level of government borrowing and several other distortions.
- Appreciation by the rating agencies: Indeed, rating agencies and multilateral institutions repeatedly mention the MPC and the inflation targeting framework as a landmark structural reform towards sound macroeconomic management.
Latest monetary actions by RBI that reduced MPC’s role
- Since last year, a series of monetary actions by the RBI have left the MPC’s decision on the policy rate partly redundant, diluted the accountable process of monetary decision-making.
- This has put at stake the sanctity of the MPC framework.
- With a stated intention to improve the transmission of monetary policy to households and corporations, the RBI has pumped unprecedented levels of money (close to Rs 7 trillion) into the banking system.
- It has done so mostly by purchasing government bonds but partly also by purchasing dollars.
- No desired results: Given impaired financial sector balance-sheets, transmission to economic growth has been at best muted; liquidity is no silver bullet to durably address financial sector stress.
- The primary effect of excessive liquidity has, instead, been to monetise the government’s expenditures and keep its borrowing costs low.
- With its declared aim not being met satisfactorily, the RBI has doubled down on liquidity supply, with the same outcome.
- An important casualty has been the MPC framework.
- Contradictory actions: At times, even when the MPC has kept the policy rate unchanged, the RBI has injected yet more liquidity to move medium-term interest rates down.
- The two actions have been noted to be in direct contradiction of each other.
- If the objective is to move medium-term rates, why not build consensus within the MPC to cut the policy rate more aggressively and communicate the rationale?
- Change in reverse repo by the RBI: Further, given the enormous liquidity glut, every night banks park liquidity with the RBI at a (reverse repo) rate lower than the policy rate and which is not set by the MPC; nevertheless, this rate used to be changed only as part of the MPC Resolution.
- Lately, the RBI has moved reverse repo rate progressively lower than the policy rate; recently.
- It has done so outside of the MPC meeting cycle and not as part of the MPC Resolution.
- There are straightforward tools in liquidity management to ensure that in surplus conditions also, the central bank transacts with banks at the policy rate — technically, by switching from “deficit” to “floor” system of liquidity management.
- Such a switch is routinely adopted by central banks when they provide excess liquidity; the RBI has chosen not to do so.
What are the implications?
- The net effect is that market interest rates are being increasingly controlled by the RBI rather than the MPC.
- Indeed, there is a proposal that the rate at which the RBI absorbs liquidity be still lower, likely divorced from the policy rate set by the MPC.
- The spirit of the MPC framework enshrined in the RBI Act is being violated.
- It is unclear how the MPC can be expected to satisfy its legal mandate if what it seeks to achieve via the setting of the policy rate is in conflict with, or compromised by, the RBI’s liquidity management.
- These developments have the potential to pose risks for India’s macroeconomic stability going forward.
- The implicit monetisation of fiscal expenditures through government bond purchases by the RBI in the secondary market has postponed the recognition of the untenable fiscal reality.
- The delay has meant the government has had limited policy space since the onset of COVID.
- Supply-chain disruptions due to measures taken to contain the pandemic raise the possibility of cost-push inflationary pressures, especially given the excessively easy fiscal and monetary conditions.
- This can abruptly raise economy-wide borrowing rates, inflict losses on banks, and imperil financial stability.
- If the gains in inflation credibility built by the MPC framework are dissipated by ineffective policies and operations, both household and investor expectations for inflation in India could unhinge.
- Worse, it could instigate turmoil in the external sector.
- Excessively low bank deposit rates may induce some non-resident deposits to exit the country.
A question based on the issue of RBI’s action and its implication for MPC and overall economy can be asked by the UPSC, for ex- “The MPC framework has performed well in delivering on its mandate. Yet, there were some actions by the RBI recently which could be perceived as inimical to the functions of the MPC. Discuss.”
Conclusion
In a highly unpredictable time such as this, the RBI should preserve its inflation credibility. The decision on monetary policy actions based on voting by committee members, provision of inflation and growth forecasts in the resolution statement, and coordination of rate-setting and liquidity management, need to be adhered to.
Back2Basics: What is MPC?
- The Reserve Bank of India Act, 1934 (RBI Act) was amended by the Finance Act, 2016, to provide for a statutory and institutionalised framework for a Monetary Policy Committee, for maintaining price stability, while keeping in mind the objective of growth.
- The Monetary Policy Committee is entrusted with the task of fixing the benchmark policy rate (repo rate) required to contain inflation within the specified target level.
- The meetings of the Monetary Policy Committee are held at least 4 times a year and it publishes its decisions after each such meeting.
- As per the provisions of the RBI Act, out of the six Members of Monetary Policy Committee, three Members are from the RBI and the other three Members of MPC are appointed by the Central Government.
- Governor of the RBI is ex officio Chairman of the committee.
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From UPSC perspective, the following things are important :
Prelims level: SPR
Mains level: Paper 3- Importance of SPR , issues with it and need for the diversification.
This article highlights the opportunity that the sharp drop in the oil prices presents to India. It also highlights several issues with India’s strategic petroleum reserves and suggests ways to deal with them. We have covered an article from livemint on the same topic in the past week.
Negative price in the international market for WTI crude oil
- Oil prices continue to decline globally, with crude hitting multi-decade lows, as global demand evaporates.
- Earlier last week, in unprecedented price action, the near-month contract for West Texas Intermediate (WTI) sweet crude oil dropped to -$37.63 a bbl.
- A negative price has never before been registered for a major global crude oil benchmark.
- The extreme price action is a signal that there is a global oil glut with few places to store oil.
- Global oil markets have been severely disrupted.
- While WTI does not feature in India’s basket, Brent Crude Oil, which does, is trading around $25 a barrel, the lowest in 18 years.
Price of oil: The silver lining of the future recovery
- Even as India suffers from a lockdown, a silver lining for future recovery and reconstruction is the price of oil.
- Given India’s growth aspirations and lack of self-sustaining oil production, a sharp reduction in oil prices is a bonanza.
- Normally, reduced oil prices would translate into surplus for the consumers and a fiscal bonus for the government through increased tax collections.
- However, given that the demand for petrol has slumped, those gains will not accrue right away.
- Opportunity for India: India should look at this as an opportunity to strengthen its energy security by buying oil and filling up our Strategic Petroleum Reserves (SPR).
- Considering that India was the third-largest consumer of energy in the world, as well as the third-largest importer of oil in 2018, we are particularly vulnerable to oil price fluctuations.
- The dramatic reduction in oil prices offers a once-in-a-generation opportunity for us to fill up our reserves in an extremely cost-effective way.
India’s Strategic Petroleum Reserve (SPR) Programme
- Currently, we do maintain an emergency stockpile of oil reserves: Under the existing Strategic Petroleum Reserves programme, India claims to have 87 days of reserves.
- Out of this, refiners maintain 65 days of oil storage and the rest of the reserves are held in underground salt caverns maintained by Indian Strategic Petroleum Reserves Limited (ISPRL).
- The existing and planned capacity for the underground reserves is 10 and 12 days of import cover for crude oil respectively.
Following point highlights the importance and various issues with India’s Strategic Petroleum Reserves (SPR). SPR plays an important role in India’s energy security. A question based on its role may be asked by the USPC “Assess the importance of Strategic Petroleum Reserves for India and what are the issues associated with that need to be improved?”
Issues with the strategic reserves
- First, capacity does not directly translate into utilisation, which is partly because oil is an expensive commodity most days of the year.
- In 2019, the average closing price of a barrel of crude was $57.05.
- In 2018, it was $64.90, and in 2017, U$50.84.
- Of the existing 10 days of capacity, only about 50 per cent is utilised.
- The second issue is with regard to the refinery holdings.
- In India, the SPR arrangement between the oil refineries and the Union or state governments is not specified well, though most of the refineries that hold stock are publicly-owned companies.
- In fact, a breakdown of which refineries hold SPR and in what form (crude or refined) or information about where they are located is not publicly available.
Need for transparency in relation to SPR
- The first step, therefore, should be to introduce transparency and accountability in relation to the SPR.
- The procedures, protocols and facts about Indian SPR storage require greater public and parliamentary scrutiny, just like India’s other strategic reserves (for instance, foreign exchange).
- For this, there should be timely and reliable dissemination of information.
- Instead, it is now shrouded in secrecy.
- The ambiguity surrounding mobilisation process: The lack of transparency around our SPR holdings is compounded by the ambiguity surrounding the mobilisation process.
- SPR reserves are meant to be used in emergencies, where time is likely to be of the essence.
- The SPR mobilisation process could be made more efficient by laying out designated roles for different agencies to avoid redundancies in times of crisis.
- There should be role and process clarity regarding SPR mobilisation.
- For instance, to begin with, there should be clarity on who (or which agency) can define an emergency and therefore order a mobilisation.
Diversification of SPR
- Further, in order to mitigate risks better, India should look to diversify its SPR holdings.
- Diversification can be 1)Based on geographical location (storing oil either domestically or abroad), storage location (underground or overground) and 2) Product type (oil can be held in either crude or refined form).
- Storage and transportation costs could be saved by diversifying geographically.
- 3) Diversification could also be in the form of ownership — either publicly owned through ISPRL or by private oil companies, such as ADNOC of Abu Dhabi.
- The private companies could fill up the SPR when prices are low and take advantage of price arbitrage.
- This could achieve a degree of price stability and reduce the cost for India to buy such large quantities of oil.
- The only requirement for this to work is to have a clear contract with the private companies about the mandatory minimum level of stock that they should preserve for use in emergency times.
Storing oil abroad
- With oil dirt-cheap, if we can purchase more than we can store in our existing facilities, why not go abroad for more storage space?
- For instance, one option could be to operationalise, modernise, and add to the oil tanking facilities at Trincomalee in Sri Lanka.
- Another opportunity would be to enter into a strategic partnership with Oman (Ras Markaz) for oil storage.
- Partnership with Oman would also help India avoid the potential bottleneck of the straits of Hormuz.
- Geopolitical risk factor: Since many of these places could potentially be vulnerable to geopolitical risks, only a small part of India’s overall SPR strategy should involve storing abroad.
Conclusion
Energy is and will remain vital to India’s aspirations for growth. The sharp fall in the price of oil presents an opportunity for the Union government to increase its SPR stockpile and achieve a degree of energy security.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Not much.
Mains level: Paper 2- Changes in the post-Covid-19 world in geopolitics and the geoeconomics.
The article discusses the changes that the world will experience in the global order in the aftermath of Covid-19. The major changes will be on the economic and geopolitical front. Various changes are discussed in the article. We have read some article on the same topic and the basic theme is the same. Role of China and the US, failure of the international institutions are some of the common themes.
Failure of international institutions
- The existing international institutions such as the United Nations, the United Nations Security Council and the World Health Organization (WHO) are seen to have failed to measure up to the grave challenge posed by the pandemic.
- The UN Security Council is under attack for being slow in dealing with a situation that appears, at least on the surface, far graver than any military threat in recent decades.
- The WHO has been tarred with the charge of bias and of grossly underestimating the nature of the epidemic.
- That prestigious global institution should have been singled out for attack at this time speaks volumes about the mood prevailing across the world.
Economic shock
- There are many other aspects of the COVID-19 crisis that will drastically impact the globe.
- Negative growth: On the economic front, the World Bank has already predicted negative growth for most nations. India’s growth forecast for the current fiscal year has been put at 5% to 2.8%.
- Contraction of the economy and the loss of millions of jobs across all segments will further complicate this situation.
One of the most important factors that we realised in the corona crisis in the role of the state. Take note of this factor. A question can be asked on the role of the state, for ex. “The COVID-19 pandemic has brought into focus the important role of the state in our lives. comment.”
The important role of the state in focus
- What is likely to change even more dramatically are certain other aspects relating to political management and security. Both terms are set to gain new meanings.
- The role of the state as an enforcer of public goodwill almost certainly become greatly enhanced.
- The dominant imperative would be to not put limits on the role of the state even where the situation may not be as grave as the present one.
- Many pieces of legislation of yesteryears that had been relegated to the archives — they were perceived to be anachronistic in a modern democratic set-up — may get a new lease of life.
- Some pieces of legislation such as the Disaster Management Act already reflect this reality today.
- Other pieces of legislation could follow in its wake.
- This trend is already becoming evident to some extent across the world. Europe has shown a willingness to sacrifice personal liberties in favour of greater state control.
- Post COVID-19, the world may have to pay a heavy price in terms of loss of liberty. An omnipotent state could well become a reality.
Following are the changes in geo-economics and geo-politics that post-covid world would see.
Role of China under scrutiny
- Far-reaching changes can also be anticipated in the realm of geo-economics and geopolitics. The world needs to prepare for a sea change.
- One nation, viz. China, is presently seeking to take advantage of and benefit from the problems faced by the rest of the world in the wake of the epidemic.
- Negligence on the part of China: China remains totally unfazed by the stigma that the current world pandemic owes a great deal to its negligence.
- More importantly, it is seeking to convert its ‘failure’ into a significant opportunity.
- This is Sino-centrism at its best, or possibly its worst.
- China now seeks to benefit from the fact of its ‘early recovery’.
- It wants to take advantage of the travails of the rest of the world, by using its manufacturing capability to its geo-economic advantage.
- Seeking geopolitical advantage: Simultaneously, it seeks to shift from being a Black Swan (responsible for the pandemic), to masquerade as a White one, by offering medical aid and other palliatives to several Asian and African countries to meet their current pandemic threat.
- In turn, it seeks to gain a geopolitical advantage by this action.
Hostile takeover bids by China
- There are enough reports of China’s intentions to acquire financial assets and stakes in banks and companies across the world amid crisis.
- Shares in HDFC: India seems to have woken up only recently to this threat after the Peoples’ Bank of China acquired a 1% stake in India’s HDFC.
- Across the world, meanwhile, the clamour against China’s hostile takeover bids is becoming stronger.
- Several countries apart from India, such as Australia and Germany, have begun to restrict Chinese foreign direct investment in companies and financial institutions in their countries.
- These countries recognised the inherent danger of a possible Chinese hostile takeover of their critical assets.
China taking advantage of RCEP and Belt and Road initiative
- Restricting hostile takeovers may not be adequate to checkmate China.
- It is poised to dominate the Regional Comprehensive Economic Partnership (RCEP).
- Which will enable China to exploit market access across the Association of Southeast Asian Nations, East Asian nations, Australia and New Zealand.
- Together with its Belt and Road Initiative, China is ostensibly preparing the way for a China-centric multilateral globalisation framework.
The diminishing role of the US’s and Europe
- The geopolitical fallout of this pandemic could be still more serious.
- One distinct possibility is that COVID-19 would effectively put paid to the existing global order that has existed since the late 1940s.
- The United States which is already being touted in some circles as a ‘failing’ state, will be compelled to cede ground.
- Weakened economically and politically after COVID-19 has ravaged the nation, the U.S.’s capacity to play a critical role in world affairs is certain to diminish.
- The main beneficiary of this geopolitical turnaround is likely to be China, a country that does not quite believe in playing by the rules of international conduct.
- Weakened Europe: Europe, in the short and medium-term, will prove incapable of defining and defending its common interests, let alone having any influence in world affairs.
- Role of Germany: Germany, which may still retain some of its present strength, is already turning insular.
- Both France and the post-Brexit United Kingdom will be out of the reckoning as of now.
Problems in West Asia and the possible role of Israel
- In West Asia, both Saudi Arabia and Iran are set to face difficult times.
- The oil price meltdown will aggravate an already difficult situation across the region.
- There may be no victors, but Israel may be one country that is in a position to exploit this situation to its advantage.
India: Economic and geopolitical challenges
- In the meantime, the economic downturn greatly reduces India’s room for manoeuvre.
- In South Asia, India faces the prospect of being isolated, with the Chinese juggernaut winning Beijing new friends and contacts across a region deeply impacted by the economic consequences of the COVID-19 pandemic.
- Likewise, India’s leverage in West Asia — already greatly diminished — will suffer further.
- With oil prices going down and the Indian expatriate community (who are among the hardest hit by this downturn) out on a limb.
- Reduction in remittances: Many of the latter may seek repatriation back to the host country, substantially reducing the inflow of foreign funds to India from the region.
A question based on the changes in the global order in the post-pandemic world could be asked by the UPSC, for ex- “In the post-Covid-19 world, we are experiencing several changes. What are the changes in the geo-politics that are likely to affect India’s interests?”
Conclusion
In the post-Covid-19 world, we are about to see many changes on the economic and geopolitical front. India should prepare itself for the emerging challenges on various fronts.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Features of Basic structure doctrine
Mains level: Basic structure doctrine
Exactly 47 years ago, the Supreme Court passed its landmark judgment in Kesavananda Bharati vs State of Kerala, considered among the most significant constitutional cases in India’s judicial history.
Major judgments of the Supreme Court are mentioned in the newscard. Aspirants are advised to memorize them all with thier key features. UPSC may ask a prelim question mentioning all these judgements and asking which of them are related/not related to the Amendments in the Constitution. Right from the Shankari Prasad Judgment (1951) to the Ayodhya Judgement (2019), note down all important judgements.
Background
Amending the Constitution
- The Constitution of a country is the fundamental law of the land. It is based on this document that all other laws are made and enforced.
- Under some Constitutions, certain parts are immune from amendments and are given a special status compared to other provisions.
- Since the Indian Constitution was first adopted, debates have raged as to the extent of power that Parliament should have to amend key provisions.
Early years of Absolute Power
- In the early years of Independence, the Supreme Court conceded absolute power to Parliament in amending the Constitution, as was seen in the verdicts in Shankari Prasad (1951) and Sajjan Singh (1965).
- The reason for this is believed to be that in those initial years, the apex court had reposed faith in the wisdom of the then political leadership when leading freedom fighters were serving as Parliamentarians.
- In subsequent years, as the Constitution kept being amended at will to suit the interests of the ruling dispensation, the Supreme Court in Golaknath (1967) held that Parliament’s amending power could not touch Fundamental Rights, and this power would be only with a Constituent Assembly.
Parliament could make any amendment
- Article 13(2) reads, “The State shall not make any law which takes away or abridges the right conferred by this Part (Part-III) and any law made in contravention of this clause shall, to the extent of the contravention, be void.”
- In both the cases, the court had ruled that the term “law” in Article 13 must be taken to mean rules or regulations made in exercise of ordinary legislative power and not amendments to the Constitution made in exercise of constituent power under Article 368.
- This means Parliament had the power to amend any part of the constitution including Fundamental rights.
The tussle between Parliament and the judiciary
- In the early 1970s, the government of then PM Indira Gandhi had enacted major amendments to the Constitution (the 24th, 25th, 26th and 29th) to get over the judgments of the Supreme Court in RC Cooper (1970), Madhavrao Scindia (1970) and the earlier mentioned Golaknath.
- In RC Cooper, the court had struck down Indira Gandhi’s bank nationalization policy, and in Madhavrao Scindia it had annulled the abolition of privy purses of former rulers.
Background for the Kesavananda Bharati Case
- All the four amendments, as well as the Golaknath judgment, came under challenge in the Kesavananda Bharati case.
- Here, relief was sought by the religious figure Swami Kesavananda Bharati against the Kerala government vis-à-vis two state land reform laws.
- Since Golaknath was decided by eleven judges, a larger bench was required to test its correctness, and thus 13 judges formed the Kesavananda bench.
- Critics of the doctrine have called it undemocratic since unelected judges can strike down a constitutional amendment. At the same time, its proponents have hailed the concept as a safety valve against majoritarianism and authoritarianism.
- Noted legal luminaries Nani Palkhivala, Fali Nariman, and Soli Sorabjee presented the case against the government.
- The majority opinion was delivered by CJI S M Sikri, and Justices K S Hegde, A K Mukherjea, J M Shelat, A N Grover, P Jaganmohan Reddy, and H R Khanna. Justices A N Ray, D G Palekar, K K Mathew, M H Beg, S N Dwivedi, and Y V Chandrachud dissented.
A closer win
- By a 7-6 verdict, a 13-judge Constitution Bench ruled that the ‘basic structure’ of the Constitution is inviolable, and could not be amended by Parliament.
- The basic structure doctrine has since been regarded as a tenet of Indian constitutional law.
The judgment in Kesavananda Bharati
- The Constitutional Bench, whose members shared serious ideological differences, ruled by a 7-6 verdict that Parliament should be restrained from altering the ‘basic structure’ of the Constitution.
- The court held that under Article 368, which provides Parliament amending powers, something must remain of the original Constitution that the new amendment would change.
- The court did not define the ‘basic structure’, and only listed a few principles — federalism, secularism, democracy — as being its part.
- Since then, the court has been adding new features to this concept.
‘Basic structure’ since Kesavananda
- The basic structure doctrine was first introduced by Justice Mudholkar in the Sajjan Singh case (1965).
- Major features were notably propounded by Justice Hans Raj Khanna in 1973.
- The ‘basic structure’ doctrine has since been interpreted to include the supremacy of the Constitution, the rule of law, Independence of the judiciary, doctrine of separation of powers, federalism, secularism, sovereign democratic republic, the parliamentary system of government, the principle of free and fair elections, welfare state, etc.
- An example of its application is SR Bommai (1994), when the Supreme Court upheld the dismissal of the governments by the President following the demolition of the Babri Masjid, invoking a threat to secularism by these governments.
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Note4Students
From UPSC perspective, the following things are important :
Prelims level: Ozone, Polar Vortex
Mains level: Ozone hole healing
Recently the EU’s Copernicus Atmosphere Monitoring Service (CAMS) announced that a hole in the Arctic ozone layer, believed to be the biggest reported, has closed.
What healed the hole in the Ozone?
- The ozone hole’s closing was because of a phenomenon called the polar vortex, and not because of reduced pollution levels due to Covid-19 lockdowns around the world.
- The hole in the North Pole’s ozone layer, which was first detected in February, had since reached a maximum extension of around 1 million sq km.
Ozone hole
- The ‘ozone hole’ is not really a hole — it refers to a region in the stratosphere where the concentration of ozone becomes extremely low in certain months.
- Ozone, made up of three oxygen atoms, occurs naturally in small amounts.
- Roughly 10 km to 40 km up in the atmosphere (the layer called the stratosphere), the ozone layer is sunscreen, shielding Earth from harmful ultraviolet radiation.
- Manufactured chemicals deplete the ozone layer. Each spring over Antarctica (it now springs there), atmospheric ozone is destroyed by chemical processes.
- This creates the ozone hole, which occurs because of special meteorological and chemical conditions that exist in that region.
The importance of the ozone layer
- Ozone (chemically O3, a molecule of three oxygen atoms) is found mainly in the upper atmosphere, an area called the stratosphere, between 10 and 50 km from the earth’s surface.
- Though it is talked of as a layer, ozone is present in the atmosphere in rather low concentrations.
- Even at places where this layer is thickest, there are not more than a few molecules of ozone for every million air molecules.
- They perform a very important function. By absorbing the harmful ultraviolet radiations from the sun, the ozone molecules eliminate a big threat to life forms on earth.
- UV rays can cause skin cancer and other diseases and deformities in plants and animals.
Why this year’s hole was massive?
- This year, the ozone depletion over the Arctic was much larger.
- Scientists believe that unusual atmospheric conditions, including freezing temperatures in the stratosphere, were responsible.
- Cold temperatures (below -80°C), sunlight, wind fields and substances such as chlorofluorocarbons (CFCs) were responsible for the degradation of the Arctic ozone layer.
- Although Arctic temperatures do not usually fall as low as in Antarctica, this year, powerful winds flowing around the North Pole trapped cold air within what is known as the polar vortex.
- By the end of the polar winter, the first sunlight over the North Pole initiated this unusually strong ozone depletion—causing the hole to form.
How long it will take for complete recovery?
- As per the Scientific Assessment of Ozone Depletion data of 2018, the ozone layer in parts of the stratosphere has recovered at a rate of 1-3 per cent per decade since 2000.
- At these projected rates, the Northern Hemisphere and mid-latitude ozone is predicted to recover by around 2030, followed by the Southern Hemisphere around 2050, and polar regions by 2060.
Also read: Polar Vortex
What’s causing extreme cold in US Midwest
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