June 2018
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[op-ed snap] Managing the turbulence in India-US relations

Note4students

Mains Paper 2: IR | Effect of policies & politics of developed & developing countries on India’s interests, Indian diaspora.

From UPSC perspective, the following things are important:

Prelims level: CAATSA, 2+2 dialogue

Mains level: Secondary sanctions policy of the US and its possible impacts on India


Context

Hard times for India-US relationship

  1. The US has asked all countries, including India, to reduce oil imports from Iran to zero by 4 November
  2. If India fails to do this, its companies will face the same sanctions as any other violator of this American diktat
  3. This comes against the backdrop of more potential friction building up between the two countries
  4. India is in the process of purchasing S400 surface-to-air missile systems from Russia which could mean more sanctions for New Delhi, as per a US law called “Countering America’s Adversaries Through Sanctions Act” (CAATSA)
  5. In addition to these issues, US President Donald Trump has been quite vocal about the tariffs imposed by India on American goods
  6. Also, the proposed 2+2 dialogue has been canceled unilaterally by the US

What can India do in these turbulent times?

  1. India needs to make a clear distinction between the sanctions that it will face on account of importing oil from Iran and those that will result from India’s defense partnership with Russia
  • There are many private companies involved in the process of importing oil from Iran, primarily in the shipping, insurance and refinery sectors which by the fear of being cut off from the US will most likely pull out of Iran
  • By hurting India’s defense acquisitions from Russia, the US is putting itself in the line of fire as India is the world’s largest arms importer and the US has made rapid strides in this market in the past decade. Future deals with the US could be affected by this move
  • American objectives are far clearer in the case of Iran where Mr. Trump wants to significantly degrade Iranian capabilities to acquire nuclear weapons and to interfere in other countries in the region

What is the US policy?

  1. American sanctions are always more effective in countries which are economically integrated with America than those which are not
  2. The US uses its economic and military links as leverage in its non-proliferation goals
  3. The US seeks the support of other countries to build a tighter multilateral sanctions regime
  4. When this support doesn’t come voluntarily, the US uses secondary sanctions to extract coerced support from other countries
  5. Being cut off from the American market and financial system is too high a cost to pay for defending a country like Iran

Way forward

  1. India’s acquisition of Russian-made S400 missile systems can be managed at the level of the government and public sector, with little role for private companies
  2. This suggests that India should stay firm on the S400 deal
  3. On Iran, New Delhi may not be left with many options
  4. The Indian response will have to be in light of the American threat of secondary sanctions for importing Iranian oil
Foreign Policy Watch: India-United States

Monsoon covers country fortnight early

Note4students

Mains Paper 1: Geography | Important Geophysical phenomena such as earthquakes, Tsunami, Volcanic activity, cyclone etc.

From UPSC perspective, the following things are important:

Prelims level: Monsoon dynamics, westerly winds, western disturbances

Mains level: Role played by the monsoon in Indian economy


News

Early monsoon arrival

  1. The Southwest monsoon has now covered the entire country, a fortnight ahead of its normal schedule of mid-July
  2. This has happened for the first time since 2015

Monsoon advance in India

  1. The monsoon trough will lie over the Himalayan foothills in the first week of July
  2. There was strong interaction between monsoon currents and dry westerly winds, which brought thundershowers and revived monsoon
  3. This was also supported by strong western disturbances, making the advance quicker
Monsoon Updates

IMF suggests India three steps to sustain high growth rate

Note4students

Mains Paper 2: IR | Important International institutions, agencies & fora, their structure, mandate

From UPSC perspective, the following things are important:

Prelims level: International Monetary Fund

Mains level: Steps that need to be taken to sustain high growth momentum in India


News

Projections for India

  1. The International Monetary Fund suggested India can sustain high growth rate by carrying out banking sector reforms, simplifying and streamline GST, and renewing impetus on reforms
  2. Growth is projected at 7.4% in FY 2018-19 and 7.8 percent in FY 19-20, respectively

Suggested measures

To revive a bank credit and enhance the efficiency of credit provision

  • by accelerating the cleanup of the bank and corporate balance sheets and enhancing the governance of public sector banks

To continue fiscal consolidation and to lower elevated public debt levels

  • This needs to be supported by simplifying and streamlining the goods and services tax (GST) structure

Over the medium-term, renew impetus to reforms of key markets

  • Labor and land, as well as improving the overall business climate would be crucial to improving competitiveness maintaining high level of growth in India
Economic Indicators-GDP, FD,etc

Global funding watchdog hands 10-point plan to Pakistan

Note4students

Mains Paper 2: IR | Important International institutions, agencies & fora, their structure, mandate

From UPSC perspective, the following things are important:

Prelims level: FATF

Mains level: International initiatives to combat terror financing and black money


News

FATF action on Pakistan

  1. The Financial Action Task Force (FATF) has unanimously agreed to put into effect its February decision to place Pakistan in the greylist for inaction against terror funding
  2. It has laid out a 10-point action plan for compliance with its guidelines
  3. Pakistan’s failure in implementing the elaborate action plan may result in it being included in the blacklist next year

Important highlights of the plan

  1. The country has been instructed to take measures demonstrating that UN-designated terrorists and banned terror outfits are deprived of their resources and their sources of funding are choked
  2. Pakistan will have to take steps to ensure that terror funding risks are properly identified, assessed and that supervision is applied on a risk-sensitive basis
  3. It will also be required to show that remedial measures are being taken to prevent financial institutions from indulging in money laundering and terror funding
  4. The country will have to take stringent action against illegal financial operations, identify cash couriers and enforce controls on illicit movement of currency

Back2Basics

Financial Action Task Force (FATF)

  1. FATF is an inter-governmental body established in 1989 by the Ministers of its Member jurisdiction
  2. The FATF is a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas
  3. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system
  4. The FATF has developed a series of Recommendations that are recognised as the international standard for combating of money laundering and the financing of terrorism and proliferation of weapons of mass destruction
  5. The FATF monitors the progress of its members in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally
  6. The FATF’s decision-making body, the FATF Plenary, meets three times per year
Black Money – Domestic and International Efforts

RBI steps in as rupee hits record low

Note4students

Mains Paper 3: Economy | Effects of liberalization on the economy

From UPSC perspective, the following things are important:

Prelims level: RBI tools for maintaining the value of rupee, current vs capital account convertibility

Mains level: Impact of global factors on the price of Indian currency & overall economy


News

Rupee hits a record low

  1. The rupee breached the 69-a-dollar mark for the first time ever in early trade
  2. This prompted the central bank to intervene in the currency market that enabled the domestic unit to cut losses
  3. It is estimated to have sold dollars about $700-800 million through state-owned banks

Reasons for fall of rupee

  1. Rising crude oil prices
  2. Looming trade war fears
  3. Capital outflows from the emerging markets
  4. Markets were partly under pressure due to the derivatives expiry

RBI intervention

  1. India’s $ 413 billion foreign exchange reserves act as a cushion
  2. RBI intervenes to cut volatility in currency prices

Back2Basics

Read more about Capital & Current account convertibility here:

Capital and Current Account Convertibility in India

Economic Indicators-GDP, FD,etc

Rising temperature to cut living standards of 600 million Indians

Note4students

Mains Paper 1: Geography | changes in critical geographical features (including waterbodies & ice-caps) & in flora & fauna & the effects of such changes.

From UPSC perspective, the following things are important:

Prelims level: Not much

Mains level: Actual impact of climate change on India in coming years


News

One-third Indians at risk

  1. Six hundred million Indians could see a dip in living standards by 2050 if temperatures continue to rise at their current pace
  2. India’s average annual temperatures are expected to rise by 1°C to 2°C by 2050, even if preventive measures are taken along the lines of those recommended by the Paris climate change agreement of 2015
  3. If no measures are taken, average temperatures in India are predicted to increase by 1.5°C to 3°C

Impact on states

  1. Seven of the 10 severest or most vulnerable ‘hotspots’ in India would be located in Maharashtra
  2. The rest would be in Madhya Pradesh and Chattisgarh
  3. In the absence of major climate mitigation, nearly 148 million Indians will be living in these severe hotspots in 2050

Basis for study

  1. Economists at the World Bank correlated these climate projections with household consumption data (a proxy for living standards) in Nepal, Afghanistan, India, Pakistan, Bangladesh and Sri Lanka, and extrapolated it to 2050
  2. Using publicly available climate models that project how rising temperatures will affect rainfall and seasons, the researchers conclude that if emissions continued at the current pace, India could see a 1.5% decline in its GDP by 2030
Climate Change Impact on India and World – International Reports, Key Observations, etc.