India’s PM has addressed the UNSC open debate on the issue of Enhancing Maritime Security. In this article, we will discuss and analyse all aspects of this issue.

Maritime Security

• Maritime security is one of the latest buzzwords of international relations.
• Major actors in maritime policy, ocean governance and international security have in the past decade started to include maritime security in their mandate or reframed their work in such terms.
• Core dimensions of maritime security involves the concept of blue economy, food security and the resilience of coastal populations.
• A secure maritime environment provides the precondition for managing marine resources.

Dimensions of maritime security

Why it is significant?

• Maritime security is of utmost significance to the world community as there are maritime concerns ranging from piracy at sea to illegal immigration and weapon smuggling.
• It also deals with threats of terrorist attacks and environmental catastrophes.
• For India, maritime security is an important aspect of national security as it has a coastline of over 7,000 km.
• With advancement in technology, physical threats in the maritime region have now been overshadowed by technological threats.
• India’s exports and imports have remained mostly across the shipping lanes of the Indian Ocean.
• Therefore, securing Sea Lanes of Communication (SLOCs) have been an important issue for India in the 21st century.

Need for an agenda

• In today’s economy, the oceans have an increased importance, allowing all countries to participate in the global marketplace.
• More than 80 percent of the world’s trade travels by water and forges a global maritime link.
• About half the world’s trade by value, and 90 percent of the general cargo, are transported in containers.
• Many countries have invested significant resources in maritime infrastructure, trade, energy supply chains, cargo movements and processes.
• China, undeniably a continental country, claims sovereignty over all of the South China Sea islands and their adjacent waters.

5-point agenda for enhancing maritime cooperation

[1] Removal of barriers to legitimate maritime trade:

• Global prosperity depends on the active flow of maritime trade. Any hindrance in maritime trade can threaten the global economy, PM said.
• Maritime trade has always been part of the civilizational ethos of India.
• PM termed this principle as ‘SAGAR’ Security and Growth for All in the Region.

[2] Resolution of maritime disputes peacefully in accordance with international law:

• Citing the example of the resolution of India’s maritime dispute with Bangladesh, PM Modi said it is necessary for free maritime trade to fully respect the rights of seafarers of other countries.

[3] Fight threats from natural disasters, non-state actors:

• PM said the Indian Navy has been patrolling to counter piracy in the Indian Ocean since 2008.
• It is enhancing the common maritime domain awareness of the region through our White Shipping Information Fusion Centre.
• India has provided support for hydrographic surveying and training of maritime security personnel to several countries.

[4] Conservation of marine resources:

• Our oceans directly impact our climate. Hence, it is very important that we keep our maritime environment free of pollutants like plastic waste and oil spills.
• We also need to take joint steps against over-fishing and marine poaching, PM said.
• He also emphasized the need for increased mutual cooperation in Ocean Science research.

[5] Promoting responsible maritime connectivity:

• PM said it is well understood that the creation of infrastructure is necessary to boost maritime trade.
• He advocated for appropriate global norms and standards to ensure that such infrastructure projects are carried out as per the fiscal sustainability and absorption capacity of the host countries.

A veiled dig at China

• PM has indirectly cautioned that fiscal sustainability and absorption capacity of the countries have to be kept in mind in the development of such infrastructure projects.
• The wanton disregard shown by China towards established maritime norms and rule of law has been unprecedented in modern times.
• PM pointedly referred to “dangerous encounters between vessels at sea and provocative actions to advance unlawful maritime claims” in the South China Sea (SCS).
• India’s initiative is a wake-up call for everyone to recognize and address the real and imminent threat to our common maritime heritage.

If Beijing locates, dusts off and re-reads the provisions of UNCLOS, it would be a major step forward.

Outcome of the UNSC meet

• The meet was significant. Barring China, all others stressed the centrality of UNCLOS and international cooperation.
• India’s concept of SAGAR and its vison of Indo-Pacific is receiving greater acceptability. Nations accept that the objective should be development for all.
• The convergence of Russia and India is of great importance. While Russia is aware of the tension growing in the SCS, it is also concerned that none should disturb the strategic balance in the Arctic.
• China has to make a choice whether it wishes to act as a responsible and mature nation and accept the international laws or would continue to flout them.

Securing the Indian Ocean

• The Indian Ocean is the major gateway accounting for nearly 75 per cent of the world’s maritime trade and half of global oil consumption.
• Any threats to the free movement of ships on these oceans and unfair practices have an impact on the global economy.
• Therefore, regional trade relations based on internationally acceptable principles should be the way forward.

Way forward

• The onus is on India to expand its horizons to safeguard its strategic and economic interests.
• India’s legacy to the global policy basket could be advocacy for sustained focus on the maritime domain and the correlation with globalization, the blue economy, the health of the ocean and the overall impact on human security.
• Security and equitable growth for all by husbanding the global ocean for future generations is a laudable goal and encouraging the UNSC to prioritize this issue is a worthy cause.

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12th Aug, 2021

Inflation

• Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time.
• It refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
• Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This is measured in percentage.
• Inflation can be viewed positively or negatively depending on the individual viewpoint. Those with tangible assets, like property or stocked commodities, may like to see some inflation as that raises the value of their assets. People holding cash may not like inflation, as it erodes the value of their cash holdings.
• Ideally, an optimum level of inflation is required to promote spending to a certain extent instead of saving, thereby nurturing economic growth.
• Inflation and economy is related in the following way:

• RBI takes the necessary measures to keep inflation within permissible limits and keep the economy running smoothly.

• Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy. During deflation, the purchasing power of currency rises over time.
• Deflation benefits consumers because they can purchase more goods and services with the same nominal income over time.
• Disinflation is a temporary slowing of the pace of price inflation. It is used to describe instances when the inflation rate has reduced marginally over the short term.
• Stagflation is the combination of high unemployment with high inflation. This happened in industrialized countries during the 1970s, when a bad economy was combined with OPEC raising oil prices led to low growth.

Who measures Inflation in India?

• Inflation is measured by a central government authority, which is in charge of adopting measures to ensure the smooth running of the economy.
• In India, the Ministry of Statistics and Programme Implementation measures inflation.

Types of Inflation

Depending upon the rate of growth of prices, inflation can be of the following types:

1. Creeping Inflation

Creeping or mild inflation is when prices rise 3% a year or less. This kind of mild inflation makes consumers expect that prices will keep going up. That boosts demand. Consumers buy now to beat higher future prices. That’s how mild inflation drives economic expansion.

2. Walking Inflation

This type of strong, or pernicious, inflation is between 3-10% a year. It is harmful to the economy because it heats up economic growth too fast. People start to buy more than they need, just to avoid tomorrow’s much higher prices. This drives demand even further so that suppliers can’t keep up. More important, neither can wages. As a result, common goods and services are priced out of the reach of most people.

3. Galloping Inflation

When inflation rises to 10% or more, it wreaks absolute havoc on the economy. Money loses value so fast that business and employee income can’t keep up with costs and prices. Foreign investors avoid the country, depriving it of needed capital. The economy becomes unstable, and government leaders lose credibility. Galloping inflation must be prevented at all costs.

4. Hyperinflation

Hyperinflation is when prices skyrocket more than 50% a month. It is very rare. In fact, most examples of hyperinflation have occurred only when governments printed money to pay for wars. Examples of hyperinflation include Germany in the 1920s, Zimbabwe in the 2000s, and Venezuela in the 2010s. The last time America experienced hyperinflation was during its civil war.

5. Core Inflation

The core inflation rate measures rising prices in everything except food and energy. That’s because gas prices tend to escalate now and then. Higher gas costs increase the price of food and anything else that has large transportation costs.

Causes of Inflation

• In any economy, generally two sets of factors result in inflation — Demand-pull factors and Cost-push factors.

• Demand-pull factors may be those due to which there is an increase in the demand for goods and services in general leading to rising prices.
• On the other hand, cost-push factors are those due to which there may be shortfall in supply of goods/services and/or rise in the cost of production of goods/services.
• At any given point of time, inflation is attributed to both sets of factors. Sometimes one may be more potent than the other.

Measures to Contain Inflation

RBI takes monetary measures while the Government takes fiscal measures to contain inflation.

Monetary Measures

• As part of the monetary policy review, the RBI takes suitable measures to moderate demand to levels consistent with the capacity of the economy to maintain its growth without provoking price rise.
• It is generally agreed that high rates of inflation is caused by an excessive growth of the money supply.
• The RBI controls the money supply by its monetary policy via which it alters the interest rates and alters the banking reserve requirements to bring the inflation in its comfort zone.
• The key policy rates are Repo Rate, Reverse Repo Rate, Marginal Standing Facility and the key banking reserve requirements are SLR and CRR.
• When these rates are altered, the movements are passed on other prevailing interest rates in the economy which ultimately influences the borrowing costs for firms and households.

For example, when the interest rates go down, it becomes cheaper to borrow, so households are more willing to buy goods and services and firms are in a better position to purchase items to expand their businesses, such as property and equipment.

Fiscal Measures

• The government can take the following Fiscal Measures to contain inflation:

1. Reducing Import Duties
2. Allowing imports of the commodities which are scarce in market.
3. Removing levy obligations in case of sugar
4. Banning exports of commodities such rice and oils.
5. Imposing minimum export prices.
6. Suspending or banning the futures trading is come commodities.
7. Raising the stock limit of some commodities.
8. Making available the commodities via various organizations such as NAFED and NCCF.

Measurement of Inflation

• There are several ways to measure inflation.
• On the basis of population coverage, the inflation indices are developed to understand the levels of inflation for certain sets of population such as consumers, producers, retailers, wholesalers etc. Such indices are called Consumer Price Index (CPI), Producer Price Index (PPI), and Wholesale Price Index (WPI) etc.
• On the basis of items, the inflation indices are developed to understand the levels of inflation for certain sets/baskets of items. Since the prices of some items are more volatile than others like food and fuel, it might give conflicting signals to policymakers as the overall inflation could change because of a selected few goods. Hence, separate indices can be developed separating the volatile items from the main index.  This gives rise to concepts of Headline inflation and core inflation whereby, the Headline inflation includes all the items and core inflation usually excludes food and fuel items.

Inflation Indices

In India, Consumer Price Index (CPI) and the Wholesale Price Index (WPI) are two major indices for measuring inflation. In the United States, CPI and PPI (Producer Price Index) are two major indices.

The Wholesale Price Index (WPI) was the main index for measurement of inflation in India till April 2014 when RBI adopted the new Consumer Price Index (CPI) (combined) as the key measure of inflation.

Wholesale Price Index

The wholesale Price Index (WPI) is computed by the Office of the Economic Adviser in the Ministry of Commerce & Industry, Government of India. It was earlier released on weekly basis for Primary Articles and Fuel Group. However, since 2012, this practice has been discontinued. Currently, WPI is released monthly.

Salient notes on WPI are as follows:

Base Year

The current WPI Base year is 2004-05=100. It’s worth note that the base year for CPI is 2012 currently. This is one reason for the increasing difference between CPI and WPI in recent times.

Consumer Price Index

Consumer Price Indices (CPI) released at the national level are:

1. CPI for Industrial Workers (IW)
2. CPI for Agricultural Laborers (AL)/ Rural Laborers (RL)
3. CPI (Rural/Urban/Combined)

While the first two are compiled and released by the Labor Bureau in the Ministry of Labor and Employment, the third is by the Central Statistics Office (CSO) in the Ministry of Statistics and Programme Implementation.

In India, RBI uses CPI (combined) released by CSO for inflation purposes. Important notes on this index are as follows:

Base Year

The base year for CPI (Rural, Urban, and Combined) is 2012=100.

Key differences between WPI & CPI

• Primary use of WPI is to have inflationary trend in the economy as a whole. However, CPI is used for adjusting income and expenditure streams for changes in the cost of living.
• WPI is based on wholesale prices for primary articles, administered prices for fuel items and ex-factory prices for manufactured products. On the other hand, CPI is based on retail prices, which include all distribution costs and taxes.
• Prices for WPI are collected on voluntary basis while price data for CPI are collected by investigators by visiting markets.
• CPI covers only consumer goods and consumer services while WPI covers all goods including intermediate goods transacted in the economy.
• WPI weights primarily based on national accounts and enterprise survey data and CPI weights are derived from consumer expenditure survey data.

Index of Industrial Production (IIP)

• Index of Industrial Production data or IIP as it is commonly called is an index that tracks manufacturing activity in different sectors of an economy.
• The IIP number measures the industrial production for the period under review, usually a month, as against the reference period.
• IIP is a key economic indicator of the manufacturing sector of the economy.
• There is a lag of six weeks in the publication of the IIP index data after the reference month ends.
• IIP index is currently calculated using 2011-2012 as the base year.

IIP Index Components:

• Mining, manufacturing, and electricity are the three broad sectors in which IIP constituents fall.
• The relative weights of these three sectors are 77.6% (manufacturing), 14.4% (mining) and 8% (electricity).
• Electricity, crude oil, coal, cement, steel, refinery products, natural gas, and fertilizers are the eight core industries that comprise about 40 per cent of the weight of items included in the IIP.

Basket of products

There are 6 sub-categories:

1. Primary Goods (consisting of mining, electricity, fuels and fertilizers)
2. Capital Goods (e.g. machinery items)
3. Intermediate Goods (e.g. yarns, chemicals, semi-finished steel items, etc)
4. Infrastructure Goods (e.g. paints, cement, cables, bricks and tiles, rail materials, etc)
5. Consumer Durables (e.g. garments, telephones, passenger vehicles, etc)
6. Consumer Non-durables (e.g. food items, medicines, toiletries, etc)

Who releases IIP data?

• The IIP data is compiled and published by CSO every month.
• CSO or Central Statistical Organization operates under the Ministry of Statistics and Programme Implementation (MoSPI).
• The IIP index data, once released, is also available on the PIB website.

GDP Deflator

The most comprehensive measure is GDP deflator which is measured as the ratio of GDP (Gross Domestic Product) at current prices to GDP at constant prices. Since it encompasses the entire spectrum of economic activities including services, the scope and coverage of the national income deflator is wider than any other measure. This data is released by the Central Statistical Organization (CSO) but is not used as it comes quarterly and with a 2-month lag.

What is Inflation targeting?

• Inflation targeting involves using monetary policy to keep inflation close to the agreed target.
• RBI and Government of India signed a Monetary Policy Framework Agreement in February 2015.
• As per terms of the agreement, the objective of monetary policy framework would be primarily to maintain price stability (inflation targeting), while keeping in mind the objective of growth.
• According to the agreement, RBI would aim to contain consumer price inflation within 4% with a band of (+/-) 2% for all subsequent years.

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