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Distribution: weekly

  • RBI’s monetary policy statement

    Context

    The Monetary Policy Committee of the RBI kept the benchmark policy rates unchanged, and retained the accommodative stance in its October review.

    Factors playing part in monetary policy decisions

    • It’s important to remember that monetary policy these days is influenced by both local macroeconomic developments and the global monetary policy direction, with the former playing a dominant role.
    • Locally, after the second wave of the pandemic, a variety of indicators such as the Purchasing Managers Index (manufacturing and services), mobility indicators, government tax collections, exports and imports are pointing at an improvement in economic activity.
    • Then there is the good news on the monsoon front. With a late pick-up in rains, the cumulative deficiency in this monsoon season has come down to just 1 per cent of the long-period average (LPA).
    • Since the MPC’s August 2021 policy review, Covid-19 cases have trended down and there has been admirable progress on the vaccination front.
    • Also, despite high year-on-year growth numbers, the level of economic activity this fiscal will only be 1.5 per cent above 2019-2020.

    Trends emerging from the economic recovery

    • Role of government: Capital expenditure of both the Centre and states is on track to meet the budgetary commitment, supported by healthy tax collections.
    • Large companies on recovery path: Large companies in industrial sectors such as steel, cement, non-ferrous metals are operating at healthy utilisation levels, and have deleveraged their balance sheets.
    • Policy support for smaller companies: The going is not so good for the smaller ones.
    • Clearly, smaller companies need policy support. The extension of the Emergency Credit Line Guarantee Scheme is a recognition of that.
    • Private consumption is not broad-based either.
    • Even in goods consumption, which is faring better than services, the nature of demand seems skewed towards relatively higher-value items such as cars and utility vehicles.
    • This probably reflects the income dichotomy spawned by the pandemic.
    • Inflation: Its fall to 5.3 per cent in August offers only limited comfort for two reasons.
    • One, core and fuel inflation, which have 54 per cent weightage in CPI, remain stubbornly high.
    • Second, food prices have nudged down overall inflation.
    • Domestic growth-inflation dynamics suggest that the RBI has little option but to remain more tolerant of persistent price pressures, and hope that these will eventually prove transitory because they have been primarily driven by supply shocks caused by the pandemic.

    Global monetary policy environment

    • Globally, the monetary policy environment is veering towards normalisation/tapering/interest-rate rise largely due to an upward surprise in inflation, or because some central banks feel the objectives of quantitative easing have been met.
    • Central banks in advanced economies such as Norway, Korea and New Zealand have recently raised rates.
    • The two systemically important central banks — the US Federal Reserve (Fed) and the European Central Bank (ECB) — view the current spike in inflation as fleeting and have communicated greater tolerance for it for a longer period.

    Conclusion

    The process of mopping up excess liquidity will slowly gain pace over the next few months, followed by a policy rate hike sometime around early 2022. By then, there should be enough clarity on the third wave and the stance of the Fed and the ECB.

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  • India invited to become full-time IEA member

    International Energy Agency (IEA) has invited India, the world’s third-largest energy consumer, to become its full-time member.

    International Energy Agency (IEA)

    • The IEA is an autonomous intergovernmental organization established in the framework of the Organisation for Economic Co-operation and Development (OECD) in 1974 in the wake of the 1973 oil crisis.
    • Based in Paris, IEA was initially dedicated to responding to physical disruptions in the supply of oil, as well as serving as an information source on statistics about the international oil market.
    • In the decades since, its role has expanded to cover the entire global energy system, encompassing traditional energy sources such as oil, gas, and coal as well as cleaner and faster growing ones such as solar PV, wind power and biofuels.
    • It is best known for the publication of its annual World Energy Outlook.

    Role and responsibility

    • The Agency’s mandate has broadened to focus on providing analysis, data, policy recommendations and solutions to help countries ensure secure, affordable and sustainable energy for all.
    • In particular, it has focused on supporting global efforts to accelerate the clean energy transition and mitigate climate change.
    • The IEA has a broad role in promoting rational energy policies and multinational energy technology co-operation with a view to reaching net zero emissions.

    India and IEA

    • India, in March 2017, became an associate member of the Paris-based body which advises industrialised nations on energy policies.
    • Today the IEA acts as a policy adviser to its member states, as well as major emerging economies such as Brazil, China, India, Indonesia and South Africa to support energy security and advance the clean energy transition worldwide.

    Significance of the invitation

    • This proposal if accepted will require New Delhi to raise strategic oil reserves to 90 days requirement.
    • India is becoming increasingly influential in global energy trends.

    Try this MCQ:

    Q.The Global Energy Transition Index recently seen in news is released by:

    a) International Energy Agency (IEA)

    b) World Economic Forum (WEF)

    c) International Renewable Energy Agency (IRENA)

    d) International Solar Alliance

     

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  • Explained: Patrolling Points along LAC

    The standoffs between Indian and Chinese troops in Ladakh on the Line of Actual Control (LAC), where initial steps towards disengagement have taken place, are around a number of patrolling points or PPs in Galwan, Hot Springs and Gogra areas.

    What exactly are Patrolling Points?

    • PPs are patrolling points identified and marked on the LAC, which are patrolled with a stipulated frequency by the security forces.
    • They serve as a guide to the location of the LAC for the soldiers, acting as indicators of the extent of ‘actual control’ exercised on the territory by India.
    • By regularly patrolling up to these PPs, the Indian side is able to establish and assert its physical claim about the LAC.

    Are all the Patrolling Points numbered?

    • Some of the PPs are prominent and identifiable geographical features, such as a pass, or a nala junction where no numerals are given.
    • Only those PPs, where there are no prominent features, are numbered as in the case of PP14 in Galwan Valley.

    Are all on the Patrolling Points bang on the LAC?

    • Mostly, yes. Except for the Depsang plains in northern Ladakh, where PP10, PP11, PP11A, PP12 and PP13 – from Raki Nala to Jivan Nala – do not fall on the LAC.
    • These are short of the LAC, on the Indian side.

    Are these Patrolling Points not manned?

    • The PPs are not posts and thus not manned.
    • Unlike on the Line of Control (LoC) with Pakistan, the border with China is not physically held by the Army all along.
    • They are just physical markers on the ground, chosen for their location and have no defensive potential or tactical importance for the Army.

    If the Patrolling Points are not manned, how is the claim actually asserted?

    • The claim is asserted by the Army or joint Army-ITBP patrols as they show more visible presence in these areas.
    • This is done by physically visiting PPs with a higher frequency, as the deployment has moved closer to the LAC and due to improved infrastructure.
    • As the Chinese may not see when the Indian patrols visit these PPs, they will leave come cigarette packets or food tins with Indian markings behind.
    • That lets the Chinese know that Indian soldiers had visited the place, which indicates that India was in control of these areas.

    Who has given these Patrolling Points?

    • These PPs have been identified by the high-powered China Study Group, starting from 1975 when patrolling limits for Indian forces were specified.
    • It is based on the LAC, after the government accepted the concept in 1993, which is also marked on the maps with the Army in the border areas.
    • But the frequency of patrolling to PPs is not specified by the CSG – it is finalised by the Army Headquarters in New Delhi, based on the recommendations made by the Army and ITBP.

    What is this frequency?

    • The frequency of reaching various PPs are given in the annual patrolling programme.
    • Based on the terrain, the ground situation and the location of the LAC, the duration for visiting each PP is specified – it can vary from once a month to twice a year.

    Major friction area: Hot Springs

    • Hot Springs lies in the Chang Chenmo River valley, close to Kongka La, a pass that marks the Line of Actual Control.
    • India’s Patrolling Point 15, it is not a launchpad for any offensive action though the area did see action before and during the 1962 war.
    • China’s unwillingness to pull back its platoon-sized unit from Hot Springs is a sign of the difficulties that lie in normalising the situation.
    • The PLA has traditionally had a major base east of Kongka La.
    • The pass also marks the border between two of China’s most sensitive provinces — Xinjiang to the north and Tibet to the south.

     

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  • Economics Nobel for Natural Experiments

    The 2021 Nobel Prize in Economic Sciences was awarded to three US-based economists.

    Do you know?

    The Nobel Prize is officially called as Sveriges Riksbank Prize!

    Who are the awardees?

    • Nobel Committee awarded half the Prize to David Card for his “empirical contributions to labour economics”
    • Other half to Guido Imbens and Joshua Angrist “for their methodological contributions to the analysis of causal relationships”

    What makes this year’s award special?

    • This is the first time the economic prize has been divided in this fashion with one half going to one awardee and other half divided across two awardees.
    • In the past, prize money was divided equally between the awardees even if the prize was for different topics as is the case this time around.
    • It may appear that the Nobel Prize has been given for two different contributions, but there is a common theme: “natural experiments.”

    What are Natural Experiments?

    • Economists are often interested in causal questions such as the impact of education on incomes, impact of COVID-19 on poverty and so on.
    • They are also interested is understanding the direction of causality.
    • Economists have used two kinds of experiments to study these causality and direction of causality questions: random experiments and natural experiments.

    (I) Random experiments

    • Under randomized experiments, the researchers allocate say medicines to a treatment group and compare the effect of the medicine with the control group which is not given the medicine.
    • In 2019, the Nobel Committee gave awards to three scholars for their contribution to the field of randomized experiments.
    • However, one cannot randomize experiments to study issues such as why certain people and regions are more unequal or have fewer educational opportunities and so on.

    (II) Natural experiments

    • In natural experiments, economists study a policy change or a historical event and try to determine the cause and effect relationship to explain these developments.
    • The trio used such natural experiments to make some landmark contributions to economic development.
    • Natural experiments are more difficult for two reasons. The first is to identify what will serve as a natural experiment.
    • Second, in a random experiment, the researcher knows and controls the treatment and control groups which allows them to study the cause and effect of medicine.
    • But in natural experiments, such clear differentiation is not possible because people choose their groups on their own and even move between the two groups.
    • Despite the limitations, the researchers could use the natural setting to answer some big policy questions.

    Natural experiments conducted by David Card

    • One question of interest for policymakers is to understand the impact of higher minimum wages on employment.
    • Earlier studies showed that increasing minimum wages leads to lower unemployment.
    • Economists were also not sure of the direction of causation between minimum wages and employment.
    • Say a slowdown in the economy leads to higher unemployment amid lower income groups.
    • This could lead to lower income groups demanding higher minimum wages. In such a case, it is higher unemployment which leads higher minimum wages.

    Contribution of Angrist and Imbens

    • Angrist and Imbens showed how natural experiments can be used to identify cause and effect precisely.
    • We have discussed above how natural experiments make it difficult to separate control and treatment groups. This makes it difficult to establish causal relations.
    • In the 1990s, the duo developed a methodology – Local Average Treatment Effect (or LATE) – which uses a two-step process to help grapple with these problems of natural experiments.
    • Say, one is interested in finding the impact of an additional year of schooling on the incomes of people.
    • By using the LATE approach, they showed that effect on income of an additional year of education is around 9%.
    • While it may not be possible to determine individuals in the group, one can estimate the size of the impact.

    What is the importance of the award today?

    • Earlier it was difficult to identify natural experiments and even if one identified them, it was difficult to generate data from these experiments.
    • With increased digitalization and dissemination of archival records, it has not just become easier to identify natural experiments but also get data.
    • Economists have been using natural experiments to help us understand the impact of past policies.
    • As the 2020 pandemic struck, economists used the natural experiments approach extensively to analyse how previous pandemics impacted different regions and tried to draw policy lessons.

    India context

    • The methodology date back to the early and mid-90s and they have already had a tremendous influence on the research undertaken in several developing countries such as India.
    • For instance, in India, too, it is commonly held that higher minimum wages will be counterproductive for workers.
    • It is noteworthy that last year, in the wake of the Covid-induced lockdowns, several states, including UP, had summarily suspended several labour laws.
    • This included the ones regulating minimum wages, arguing that such a move will boost employment.
    • The main learning is that minimum wages can be increased in India without worrying about reducing employment.

     

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  • [pib] Indian Space Association

    The PM has launched the Indian Space Association (ISpA), an industry body consisting of various stakeholders of the Indian space domain.

    Indian Space Association (ISpA)

    • The ISpA is a premier industry association of space and satellite companies, which aspires to be the collective voice of the Indian space industry.
    • It will be headed by retired Lieutenant General AK Bhatt, who will be its Director General.
    • It will target to undertake policy advocacy and engage with all stakeholders in the Indian space domain. It will engage with the government and all its agencies.

    Why is the formation of ISpA significant?

    • Million-dollar industry: Governments across the world have poured millions of dollars to push the envelope in term of exploring the edges of the space.
    • Collaborated research: With time, governments and government agencies collaborated to explore newer planets and galaxies in search of life forms that exist outside Earth.
    • Private players involvement: In the recent past, private sector companies such as Elon Musk’s SpaceX, Richard Branson’s Virgin Galactic, and Jeff Bezos’ Blue Origin have taken the lead in spaceflight.
    • Easing workload on ISRO: Though India too has made significant strides in space exploration over time, state-run ISRO has been at the centre and front of this progress.

    What does ISpA aim to achieve?

    • Supplementing space research: One of the main goals of the organisation is to supplement the government’s efforts towards making India a global leader in commercial space-based excursions.
    • Commercial space exploration: ISpA said it would engage with stakeholders across the ecosystem for the formulation of an enabling policy framework which fulfills the government vision of leading commercial space exploration.
    • Establishing global linkages: ISpA will also work towards building global linkages for the Indian space industry to bring in critical technology and investments into the country to create more high skill jobs.

    Who are the stakeholders in this organisation? How will they contribute?

    • ISpA will be represented by leading domestic and global corporations that have advanced capabilities in space and satellite technologies.
    • It has taken off with several Indian and international companies betting on it as the next frontier to provide high-speed and affordable Internet connectivity to inaccessible areas as well.
    • This includes SpaceX’s StarLink, Sunil Bharti Mittal’s OneWeb, Amazon’s Project Kuiper, US satellite maker Hughes Communications, etc.
    • OneWeb, for example, is building its initial constellation of 648 low-earth orbit satellites and has already put 322 satellites into orbit.

    Why is satellite-based Internet important in India?

    • The expansion of the Internet in India is crucial to the Modi government’s dream of a digital India where a majority of government services are delivered directly to the customer.
    • The government aims to connect all villages and gram panchayats with high-speed Internet over the next 1000 days through BharatNet.
    • However, internet connectivity in hilly areas and far-flung places of Northeast India are still a challenge.
    • To overcome this, industry experts suggest that satellite Internet will be essential for broadband inclusion in remote areas and sparsely populated locations where terrestrial networks have not reached.
    • Satellite communications remain limited to use by corporates and institutions that use it for emergency use, critical trans-continental communications and for connecting to remote areas with no connectivity.

     

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  • Species in news: Dhole or Asiatic Wild Dog

    A recent study has identified some priority talukas/tehsils where habitats can be consolidated to enhance population connectivity for the dhole or Asiatic Wild Dog (Cuon alpinus).

    About Dhole

    Wildlife (Protection) Act, 1972: Schedule II (Absolute protection – offences under these are prescribed the highest penalties.)

    IUCN: Endangered

    • The dhole is a canid native to Central, South, East Asia, and Southeast Asia.
    • India perhaps supports the largest number of dholes, with key populations found in three landscapes — Western Ghats, Central India and Northeast India.
    • It is a highly social animal, living in large clans without rigid dominance hierarchies and containing multiple breeding females.

    Their significance

    • Dholes play an important role as apex predators in forest ecosystems.
    • Factors contributing to this decline include habitat loss, loss of prey, competition with other species, persecution due to livestock predation and disease transfer from domestic dogs.

    Try answering this PYQ:

    Which one of the following groups of animals belongs to the category of endangered species?

    (a) Great Indian Bustard, Musk Deer, Red Panda, Asiatic Wild Ass

    (b) Kashmir Stag, Cheetah, Blue Bull, Great Indian Bustard.

    (c) Snow Leopard, Swamp Deer, Rhesus Monkey, Saras (Crane)

    (d) Lion Tailed Macaque, Blue Bull, Hanuman Langur, Cheetah

     

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  • WTO raises 2021 goods trade outlook

    The World Trade Organization (WTO) has upgraded its world merchandise trade growth outlook to nearly 11 percent for this year, higher than 8% estimated in March.

    About WTO

    • The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade between nations.
    • Governments use the organization to establish, revise, and enforce the rules that govern international trade.
    • It officially commenced operations on 1 January 1995, pursuant to the 1994 Marrakesh Agreement, thus replacing the General Agreement on Tariffs and Trade (GATT) that had been established in 1948.
    • The WTO is the world’s largest international economic organization, with 164 member states representing over 96% of global trade and global GDP.
    • The WTO facilitates trade in goods, services and intellectual property among participating countries.
    • It prohibits discrimination between trading partners, but provides exceptions for environmental protection, national security, and other important goals.

    Report on Global trade

    • According to a WTO, global goods trade is expected to grow by 10.8 per cent compared to the forecast of 8 per cent in March, but with varied recovery, depending on the region.
    • The report said export volume growth in 2021 will be 8.7 per cent in North America, 7.2 per cent in South America, 9.7 per cent in Europe, 7 per cent in Africa, 5 per cent in West Asia and the highest for Asia at 14.4 per cent.
    • On the other hand, imports are expected to grow at a faster pace as compared to exports. Inbound shipments into North America are set to grow by 12.6 per cent.
    • It will be 19.9 per cent in South America, 9.1 per cent in Europe, 13.1 per cent in CIS, 11.3 per cent in Africa, 9.3 per cent in West Asia and 10.7 per cent in Asia.

    Key highlights for India

    • Exports from India have been rising consistently over the last few quarters, after plummeting for a few months as the outbreak of Covid-19 disrupted global trade.
    • India’s exports to its top trading partners such as the US, European Union, nations in West Asia, among others, are expected to rise.
    • Exports data during the first six months of the current fiscal year is emblematic of the fact that external demand has been robust.
    • Besides, supply-side disruptions can also be exacerbated by the rapid and unexpectedly strong recovery of demand in advanced and many emerging economies.

    Competing with China

    • Experts said with rising global demand, India should be able to compete in various segments vis-a-vis China.
    • Currently, China is facing supply-side as well as demand-side issues owing to several internal challenges (energy, debt crisis).
    • Therefore, India is in a good position to increase its exports, and can become a substitute for China across various product categories or sectors.
    • India can take advantage of the increasing global demand, which can ultimately translate into demand for Indian exports.

     

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  • Who was Hermann Bacher?

    Hermann Bacher, popularly known as the ‘father of community-led watershed development in India’, passed away at the ripe old age of 97 years in Switzerland September 14, 2021.

    Hermann Bacher

    • Born in 1924, Bacher, came to India in 1948 at the young age of 24 years.
    • He was to spend the next 60 years of his life here, most of it in Maharashtra.
    • Struck by the poverty he saw in rural Maharashtra, he dedicated his life to the upliftment of the poor, the landless and rural women.
    • Bacher was given Germany’s highest civilian award, the Federal Cross of the Order of Merit in 1994, in recognition of his outstanding efforts.
    • In 2017, the United Nations Convention to Combat Desertifiucation (UNCCD) awarded WOTR the prestigious ‘Land for Life Award 2017’.
    • He is widely regarded and respected as a true ‘man of God’ for whom selfless service of the poor was worship at its most sublime. He is fondly remembered as ‘Bacher Baba’.

    Notable works

    • The 1972 droughts in Maharashtra led him to re-calibrate his developmental approach.
    • This meant that in rain-dependent rural Maharashtra, a shift had to be made from ‘resource exploitation’ to sustainable resource use, or ‘resource mobilisation’, as he described it.
    • He helped thousands of landless labourers’ secure title to land under the Land Reforms Act, 1957, beginning in 1965.
    • He also organised lakhs of farmers to develop their farms and increase their agricultural productivity by helping them access irrigation, improved and hybrid seeds etc.

    Pioneering water harvest

    • Since rain fell in the watersheds and landscapes villagers lived in, the only way to harvest and conserve rainwater wherever it fell was to undertake watershed development measures.
    • The idea was that “running water must be made to walk; walking water made to stop and sink underground”.
    • This meant, planting trees and grasses, conserving forests, undertaking soil and water conservation works such as digging contour trenches, raising farm bunds, etc.
    • It also meant building water harvesting structures on the streams (check dams, earthen bunds, etc) in a systematic manner across the entire landscape of the village, beginning from the top.

    Establishing the IGWDP

    • Through his work, was born the idea which later became the large-scale Indo-German Watershed Development Program (IGWDP) that he conceived and launched in Maharashtra in 1989.
    • This was in collaboration with and the support of the Governments of India, Maharashtra and Germany, NABARD and the non-profit sector.
    • Its unique and ground-breaking feature was that it put the villagers in the driver’s seat — the community would plan the programme, implement it and maintain the watershed assets.
    • Funds, substantial amounts, would be given directly to them and they would have to manage and account

     

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  • A ‘Taiwan flashpoint’ in the Indo-Pacific

    Context

    If the rising confrontation between the United States and China erupts into a clash of arms, the likely arena may well be the Taiwan Strait.

    Historical background of the Taiwan issue

    • The Guomindang (KMT) forces under Chiang Kai-shek lost the 1945-49 civil war to the Chinese Communist Party (CCP) in 1949. forces under Mao Zedong.
    • Chiang retreated to the island of Taiwan and set up a regime that claimed authority over the whole of China and pledged to recover the mainland eventually.
    • The CCP in turn pledged to reclaim what it regarded as a “renegade” province and achieve the final reunification of China.
    • Role of the U.S.: Taiwan could not be occupied militarily by the newly established People’s Republic of China (PRC) as it became a military ally of the United States during the Korean War of 1950-53.
    • This phase came to an end with the U.S. recognising the PRC as the legitimate government of China in 1979, ending its official relationship with Taiwan and abrogating its mutual defence treaty with the island.
    • Strategic ambiguity policy of the US: Nevertheless, the U.S. has declared that it will “maintain the ability to come to Taiwan’s defence” while not committing itself to do so.
    • This is the policy of “strategic ambiguity”.
    • The PRC has pursued a typical carrot and stick policy to achieve the reunification of Taiwan with the mainland.
    • It has held out the prospect, indeed preference for peaceful reunification, through promising a high degree of autonomy to the island under the “one country two systems”.
    • The “one country two systems” formula first applied to Hong Kong after its reversion to Chinese sovereignty in 1997.

    China-Taiwan economic links

    • Taiwan business entities have invested heavily in mainland China and the two economies have become increasingly integrated.
    • Between 1991 and 2020, the stock of Taiwanese capital invested in China reached U.S. $188.5 billion and bilateral trade in 2019 was U.S. $150 billion, about 15% of Taiwan’s GDP.
    • By the same token, China is capable of inflicting acute economic pain on Taiwan through coercive policies if the island is seen to drift towards an independent status.

    Prospects for peaceful reunification

    • Taiwan has two major political parties.
    • The KMT, dominated by the descendants of the mainlanders remains committed to a one-China policy.
    • The Democratic Progressive Party (DPP), on the other hand, is more representative of the indigenous population of the island, and favours independence.
    • Faced with aggressive threats from China and lack of international support, the demand for independence has been muted.
    • Ever since the DPP under Tsai Ing-wen won the presidential elections in 2016, China has resorted to a series of hostile actions against the island, which include economic pressures and military threats.
    • One important implication of this development is that prospects for peaceful unification have diminished.
    • Sentiment in Taiwan in favour of independent status has increased.

    Role of the US

    • While the U.S. does not support a declaration of independence by Taiwan, it has gradually reversed the policy of avoiding official-level engagements with the Taiwan government
    • The first breach occurred during the Donald Trump presidency.
    • The Joe Biden officials have continued this policy.
    • The Taiwanese representative in Washington was invited to attend the presidential inauguration ceremony (Biden), again a first since 1979.
    • Reports have now emerged that U.S. defence personnel have been, unannounced, training with their Taiwanese counterparts for sometime.

    Implications for Quad and India

    • The recent crystallisation of the Quad, of which India is a part, and the announcement of the AUKUS, with Australia being graduated to a power with nuclear-powered submarines, may act as a deterrent against Chinese moves on Taiwan.
    • But they may equally propel China to advance the unification agenda before the balance changes against it in the Indo-Pacific.
    • For these reasons, Taiwan is emerging as a potential trigger point for a clash of arms between the U.S. and China.

    Consider the question “What are the implications of Taiwan issue and the US involvement in it for India?”

    Conclusion

    In pursuing its Indo-Pacific strategy, India would do well to keep these possible scenarios in mind.

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  • Issues faced by World Bank and IMF

    This article discusses some inherent issues with the international organizations (IOs) i.e., the World Bank (Bank) and International Monetary Fund (IMF) (aka Bretton Woods Twins). This comes in the backyard of the WB decision to scrap its flagship publication, the ‘Doing Business’ report.

    Issue over chair: A monopoly of the West

    • Common individuals to head: The individuals which are common to them: Paul Wolfowitz, Jim-Kim, David Malpass, Rodrigo Rato, Dominique-Strauss Kahn, Christine Lagarde, and Kristalina Georgieva.
    • Monopoly of US/EU: They have all become heads via a dual monopoly selection procedure: Only an American can head the Bank and only a European can head the IMF.
    • Personal integrity: This has been called into question, the most recent being the revelations of malfeasance at the World Bank where data was apparently massaged to make at least two major countries — China and Saudi Arabia— look better than they would otherwise have been.

    Issues with these heads: Hypocrisy

    • Political accountability: Within countries, we expect reasonable standards of integrity from heads of important institutions, and democratic political accountability mechanisms exist to ensure that.
    • Probity: The effectiveness and legitimacy of these individuals and indeed of the international institutions they head require personal qualities of probity.
    • Non-virtuous preachers: These heads often go around the developing world, preaching the virtues of good governance, from arguing against the scourge of corruption to improving data integrity.
    • Undue parameters: There are even World Bank indices to rank countries on those metrics.

    How has this impacted these institutions?

    Ans. The credibility of the institutions is lost.

    • It is not just the charge of hypocrisy, but also the effect on the morale and motivation of the staff of these institutions.
    • Many of them chose to work here because of a commitment to public service.
    • The recent letter by more than 300 former World Bank staff, expressing their anguish at the recent revelations on the Doing Business index, captures this sentiment.

    Why such issues grapple these institutions?

    • Goal definition: International institutions operate in a grey zone of neither clearly being in or outside the realm of formal politics and hence have weaker mechanisms of accountability.
    • Selection of heads: The selection procedure for choosing heads of the Bank and the Fund has been a dismal failure. Compromised heads are potentially more biased.
    • Indoctrination: Contrast this with the growing alarm and anxiety that characterizes the rise of China and its attempts to place its own nationals in existing IOs as well as creating new ones.

    Chinese has intruded even into these

    • Countries place their nationals to head these institutions, both for prestige and to pursue their national interests.
    • China has its own nationals now head four of the 15 UN specialized agencies (it suffered a rare setback to head the World Intellectual Property Organisation last year).

    Conclusion

    • The contest between the West (and especially the US) and China to shape the global order is becoming manifest.
    • China’s efforts, its success, and more broadly its influence in IOs should certainly raise deep concerns, most notably the suppression of the inquiry into the origins of the coronavirus.
    • Looking ahead, if the US and Europe do not hold themselves to the standards they exhort to the rest of the world, their credibility and legitimacy will continue to degrade.
    • This will cede ground and soft power to geopolitical rivals.

    Way forward

    • So, global political leaders convening next week for the annual meetings of the Bank and Fund must act with urgency and conviction to stem the rot.
    • They must open the selection of the heads of these institutions to the best candidate, regardless of nationality.
    • And to pave the way, they should clear up the current mess over the Doing Business saga.

    Back2Basics:

    International Org. | Part 7 | Bretton Woods Institutions – World Bank Group

     

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