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  • Common problems of South Asia call for collective efforts against Covid-19

    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.

     

  • It will take fiscal boldness now to relieve financial distress

    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.

     

     

  • ‘Trends in World Military Expenditure’ Report, 2019

    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.

  • Global Terrorism Index (GTI) 2019

    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.

  • New list of names of tropical cyclones over north Indian Ocean

    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

    https://www.civilsdaily.com/news/explained-naming-of-cyclones/

  • Raja Ravi Varma, the painter who helped Indians bring their gods home

    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.

  • RBI should preserve its inflation credibility

    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.

  • Sharp fall in oil prices is opportunity for India to increase stockpile

    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.

  • New global order in post-Covid-19 world

    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.

  • Kesavananda Bharati Case (1973): The judgment that upheld basic structure of India’s constitution

    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.