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Type: Op-ed

  • Securing the States

    Context

    The Ministry of Home Affairs recently issued a notification extending the jurisdiction of the Border Security Force from 15 km to a depth of 50 km along the international borders in three states — Punjab, Assam and West Bengal.

    Background of the notification about jurisdiction of BSF

    • The last notification of the MHA (July 3, 2014), which defined the jurisdiction of the BSF, stated that the force could operate in the entire states of Nagaland, Manipur, Mizoram, Tripura and Meghalaya without any restrictions whatsoever.
    • In Gujarat, it had jurisdiction up to a depth of 80 km and in Rajasthan up to 50 km.
    • In Punjab, Assam and West Bengal, the BSF jurisdiction was up to a depth of 15 km only.
    • Under the latest notification issued on October 11, 2021, there is no change in the northeastern states and Rajasthan.
    • In Gujarat, jurisdiction has been reduced from 80 km to 50 km.
    • The controversial change is in Assam, West Bengal and Punjab, where the BSF jurisdiction has been extended from 15 km to 50 km.
    • It is this part of the notification which has generated controversy, though the criticism has been made by leaders of Punjab and West Bengal.

    Why the government of India decided to extend the jurisdiction of BSF?

    • Assam, West Bengal and Punjab have international borders.
    • Changed threat perception: The threat perception from across the international borders has undergone a sea change in the context of recent developments in the Af-Pak region.
    • Efforts to destabilise Punjab: Radical groups of different shades are feeling emboldened and are going to make a determined attempt to destabilise Punjab.
    • Pakistan-sponsored terrorist groups, particularly the Lashkar-e-Toiba and Jaish-e-Muhammad, will almost certainly renew their onslaught in the border states.
    • West Bengal has already undergone a huge demographic change.
    • Assam faces multiple problems of ethnic insurgencies, smuggling, counterfeit currency, drug trafficking, etc.
    • Police need assistance: The police across the country are in a state of atrophy and they need the assistance of central armed police forces even for maintaining normal law and order.
    • As such, their effectiveness against the emerging trans-border threats is suspect.

    Implications for powers of police and federalism

    • The home ministry’s latest notification only seeks to reinforce the capabilities of the state police in securing the states under section 139 of the BSF Act, which empowers the members of the force to discharge certain powers and duties within local limits of the areas specified in the schedule.
    •  The jurisdiction of the state police has neither been curtailed nor its powers reduced in any manner.
    • It is just that the BSF will also be exercising powers of search, seizure and arrest in respect of only the Passport Act 1967, Passport (Entry into India) Act 1920 and specified sections of the Criminal Procedure code.
    • The power to register FIR and investigate the case remains with the state police.
    • The Indian Constitution, no doubt, fulfils some conditions of a federation, but it leans towards a strong Centre.

    Conclusion

    National security is a paramount consideration. It is unfortunate that the BSF is being dragged into political controversy when it would actually be over-stretching itself to strengthen national security.

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  • Taking the lid off illicit financial flows

    Context

    The Pandora Papers, published on October 3, once again expose the illegal activities of the rich and the mighty across the world.

    About the Pandora Papers investigation

    • It is “the world’s largest-ever journalistic collaboration, involving more than 600 journalists from 150 media outlets in 117 countries”.
    • The International Consortium of Investigative Journalists (ICIJ) has researched and analysed the approximately 12 million documents in order to unravel the functioning of the global financial architecture.
    • The Pandora Papers, unlike the previous cases, are not from any one tax haven; they are leaked records from 14 offshore services firms. The data pertains to an estimated 29,000 beneficiaries.
    • The 2.94 terabytes of data have exposed the financial secrets of over 330 politicians and public officials, from more than 90 countries and territories.
    • These include 35 current and former country leaders.

    Role of financial centres and banks

    • A large extent of the illicit financial flows have a link to New York City and London, the biggest financial centres in the world that allow financial institutions such as big banks to operate with ease.
    • The big financial entities operating from these cities have been prosecuted for committing illegalities.
    • In 2012, an investigation into the London Interbank Offered Rate or LIBOR — crucial in calculating interest rates — led to the fining of leading banks such as Barclays, UBS, Rabobank and the Royal Bank of Scotland for manipulation.
    • These banks also operate a large number of subsidiaries in tax havens to help illicit financial flows.

    Modus operandi

    • Tax havens enable the rich to hide the true ownership of assets by using: trusts, shell companies and the process of ‘layering’.
    • Financial firms offer their services to work this out for the rich.
    • They provide ready-made shell companies with directors, create trusts and ‘layer’ the movement of funds.
    • The process of layering involves moving funds from one shell-company in one tax haven to another in another tax haven and liquidating the previous company.
    • This way, money is moved through several tax havens to the ultimate destination.
    • Since the trail is erased at each step, it becomes difficult for authorities to track the flow of funds.
    • It appears that most of the rich in the world use such manipulations to lower their tax liability even if their income is legally earned.

    Why funds are moved to the tax havens?

    • Even citizens of countries with low tax rates use tax havens.
    • Over the three decades, tax havens have enabled capital to become highly mobile, forcing nations to lower tax rates to attract capital.
    • This has led to the ‘race to the bottom’, resulting in a shortage of resources with governments to provide public goods, etc., in turn adversely impacting the poor.
    • Lowering tax liability: It appears that most of the rich in the world use such manipulations to lower their tax liability even if their income is legally earned.
    • Moving funds out of reach of creditors: Revelations suggest that funds are moved out of national jurisdiction to spirit them away from the reach of creditors and not just governments.
    • Many fraudsters are in jail but have not paid their creditors even though they have funds abroad.

    Challenges in checking the illicit financial flows

    • The very powerful who need to be onboard to curb illicit financial flows (as the Organisation for Economic Co-operation and Development, or the OECD is trying) are the beneficiaries of the system and would not want a foolproof system to be put in place to check it.
    • Strictly speaking, not all the activity being exposed by the Pandora Papers may be illegal due to tax evasion or the hiding of proceeds of crime.
    • The authorities will have to prove if the law of the land has been violated.
    • Operators outside the purview of tax authorities: Many Indians have become non-resident Indians or have made some relative into an NRI who can operate shell companies and trusts outside the purview of Indian tax authorities.
    • That is why prosecution has been difficult in the earlier cases of data leakage from tax havens.
    • The Supreme Court of India-monitored Special Investigation Team (SIT) set up in 2014 has not been able to make a dent.
    • Role of organised sector: The Government’s focus on the unorganised sector as the source of black income generation is also misplaced since data indicate that it is the organised sector that has been the real culprit and also spirits out a part of its black incomes.

    Way forward

    • Global minimum tax: Recent development has been the agreement among almost 140 countries to levy a 15% minimum tax rate on corporates.
    • Though it is a long shot, this may dent the international financial architecture.
    • Ending banking secrecy: Other steps needed to tackle the curse of illicit financial flows are ending banking secrecy and a Tobin tax on transactions; neither of which the OECD countries are likely to agree to.

    Consider the question “How illicits financial flows affect the economies of the nations? What are the challenges in curbing it?” 

    Conclusion

    To curb the illicit financial flows, the global community needs to reach a consensus on several issues and tackle the challege collectively.

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  • Why India’s bureaucracy needs urgent reform

    Context

    The bureaucracy that took India through the last 75 years can’t be the one to take it through the next 75 — we need a proactive, imaginative, technology-savvy, enabling bureaucracy.

    Role of bureaucracy and challenges it faces

    • The civil services, and the Indian Administrative Service (IAS) in particular played important role in holding India together post-Independence.
    • Much of the impressive nation-building across sectors happened because of their dedication and commitment.
    • It is also forgotten that the bureaucracy, unlike the private sector, is a creature of the Constitution and is bound by multiple rules, laws, and procedures.
    • Understaffed: As per estimates compiled by the Institute of Conflict Management, the government of India (GOI) has about 364 government servants for every 1,00,000 residents, with 45 per cent in the railways alone.
    • About 60 per cent and 30 per cent are in Groups C and D, respectively, leaving a skeletal skilled staff of just about 7 per cent to man critical positions.
    • We are grossly understaffed.
    • Inaction: Further, faced with extensive judicial overreach reporting to an often rapacious, short-sighted political executive, and a media ever ready to play the role of judge, jury and executioner, the bureaucracy has in large part found comfort in inaction and ensuring audit-proof file work.

    Suggestions

    • Get out of business: That we need not be in many sectors is well-recognised — leave them to the markets — and politicians must get bureaucrats out of business, in more ways than one.
    • Prevent punitive actions: To increase the officers’ willingness to take decisions, one possible solution is to legally prevent enforcement agencies from taking punitive action, like arrest for purely economic decisions without any direct evidence of kickbacks.
    • Lateral entry: The toughest challenge is to change an inactive bureaucracy to one that feels safe in taking genuine risks.
    • Lateral entry needs to expand to up to 15 per cent of Joint/Additional and Secretary-level positions in GOI.
    • Recruitment process: Changes in recruitment procedures, like the interview group spending considerable time with the candidates, along with psychometric tests, will improve the incoming pool of civil servants.
    • Evaluation: Most importantly, after 15 years of service, all officers must undergo a thorough evaluation to enable them to move further, and those who do not make it should be put out to pasture.
    • Adoption of technology: Every modern bureaucracy in the world works on technology-enabled productivity and collaboration tools.
    •  India procures about $600 billion worth of goods and services annually — can’t all payments be done electronically?

    Consider this question ” The civil services held India together after Independence, but if the country’s potential is to be realised, existing problems of inefficiency and inaction must be fixed. In light of this, examine the factors reasponsible for inefficiency and suggest the reforms.”

    Conclusion

    India cannot hope to get to a $5-trillion economy without a modern, progressive, results-oriented bureaucracy, one which says “why not?” instead of “why?” when confronted with problems.

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  • Climate finance

    Context

    In the run-up to the 26th UNFCCC media reports have claimed that developed countries are inching closer to the target of providing $100 billion annually. This view has been bolstered by the Organisation for Economic Co-operation and Development (OECD), which claimed that climate finance provided by developed countries had reached $78.9 billion in 2018.

    Issue of climate financing and claim of reaching the target of $100 billion

    • These claims reaching the target of $100 billion annually is erroneous.
    • First, the OECD figure includes private finance and export credits.
    • Public finance: Developing countries have insisted that developed country climate finance should be from public sources and should be provided as grants or as concessional loans.
    • However, the OECD report makes it clear that the public finance component amounted to only $62.2 billion in 2018, with bilateral funding of about $32.7 billion and $29.2 billion through multilateral institutions.
    • Nature of finance: Significantly, the final figure comes by adding loans and grants. Of the public finance component, loans comprise 74%, while grants make up only 20%.
    • The report does not say how much of the total loan component of $46.3 billion is concessional.
    • Non-concessional loans: From 2016 to 2018, 20% of bilateral loans, 76% of loans provided by multilateral development banks and 46% of loans provided by multilateral climate funds were non-concessional.
    • Between 2013 and 2018, the share of loans has continued to rise, while the share of grants decreased.
    • The OECD reports on climate finance have long been criticised for inflating climate finance figures.
    •  In contrast to the OECD report, Oxfam estimates that in 2017-18, out of an average of $59.5 billion of public climate finance reported by developed countries, the climate-specific net assistance ranged only between $19 and $22.5 billion per year.
    •  The 2018 Biennial Assessment of UNFCCC’s Standing Committee on Finance reports that on average, developed countries provided only $26 billion per year as climate-specific finance between 2011-2016.

    Broken commitments from the US on climate financing

    • U.S. President Joe Biden recently said that the U.S. will double its climate finance by $11.4 billion annually by 2024.
    • It is Congress that will decide on the quantum after all.
    • The U.S. also has a history of broken commitments, having promised $3 billion to the Green Climate Fund (GCF) under President Barack Obama, but delivering only $1 billion.
    • The future focus of U.S. climate finance is the mobilisation of private sector investment.
    • The bulk of the money coming in would be through private funds, directed to those projects judged “bankable” and not selected based on developing countries’ priorities and needs.

    Finance skews toward mitigation

    • Climate finance has also remained skewed towards mitigation, despite the repeated calls for maintaining a balance between adaptation and mitigation.
    • The 2016 Adaptation Gap Report of the UN Environment Programme had noted that the annual costs of adaptation in developing countries could range from $140 to $300 billion annually by 2030 and rise to $500 billion by 2050.
    • Currently available adaptation finance is significantly lower than the needs expressed in the Nationally Determined Contributions submitted by developing countries.

    Conclusion

    Delivering on climate finance is fundamental to trust in the multilateral process. Regrettably, while developing countries will continue to pressure developed countries to live up to their promises, the history of climate negotiations is not in their favour.

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  • Agri-food systems need a transformative change

    Context

    There is an urgent need for reorientation of the long-term direction of agri-food systems to not only enhance farm incomes but also ensure better access to safe and nutritious foods.

    Challenge of malnutrition in India

    • The findings from the first round of the Fifth National Family Health Survey suggest that nutrition-related indicators have worsened in most States.
    • In addition, findings from the Comprehensive National Nutrition Survey (2016-18) have highlighted the role of micro-nutrient malnutrition.
    • Pathways for nutritional security consist of improving dietary diversity, kitchen gardens, reducing post-harvest losses, making safety net programmes more nutrition-sensitive, women’s empowerment, enforcement of standards and regulations, improving Water, Sanitation and Hygiene, nutrition education, and effective use of digital technology.

    Agri-food system: Significance and challenges it faces

    • The agri-food systems are the most important part of the Indian economy.
    • India produces sufficient food, feed and fibre to sustain about 18% of the world’s population (as of 2020). Agriculture contributes about 16.5% to India’s GDP and employs 42.3% of the workforce (2019-20).
    • A sustainable agri-food system is one in which a variety of sufficient, nutritious and safe foods are made available at an affordable price to everyone, and nobody goes hungry or suffers from any form of malnutrition.
    • However, the country’s agri-food systems are facing new and unprecedented challenges, especially related to economic and ecological sustainability, nutrition and the adoption of new agricultural technologies.
    • The edifice of India’s biosecurity remains vulnerable to disasters and extreme events.

    Way forward: Reorienting agri-food systems

    • There is an urgent need for reorientation of the long-term direction of agri-food systems to not only enhance farm incomes but also ensure better access to safe and nutritious foods.
    • Additionally, the agri-food systems need to be reoriented to minimise cost on the environment and the climate.
    • This need is recognised by the theme of World Food Day 2021: ‘Our actions are our future. Better production, better nutrition, a better environment and a better life’.
    • FAO’s support for the transformation of agri-food systems is rooted in agro-ecology.
    • The more diverse an agricultural system, the greater its ability to adapt to shocks.
    • Different combinations of integrated crop-livestock-forestry-fishery systems can help farmers produce a variety of products in the same area, at the same time or in rotation.
    • In January this year, FAO in collaboration with NITI Aayog and the Ministry of Agriculture convened a National Dialogue to evolve a framework for the transition to a more sustainable agri-food systems by 2030 and identify pathways for enhancing farmers’ income and achieving nutritional security.

    Consider the question “What are the challenges facing agri-food systems in India? Suggest the pathways to transform the agri-food system to enhance farm income and ensure food and nutrition security.”

    Conclusion

    Food systems can help combat environmental degradation or climate change. Sustainable agri-food systems can deliver food security and nutrition for all, without compromising the economic, social and environmental bases.

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  • The sanctions cloud over India-U.S. ties

    Context

    The delivery of the S-400 Triumf air defence systems from Russia is expected according to schedule. In response, U.S. Deputy Secretary of State Wendy Sherman hoped that both the U.S. and India could resolve the issue.

    Background of the CAATSA

    • The Countering America’s Adversaries through Sanctions Act (CAATSA) was passed when the U.S. sought to discourage trade in the defence and intelligence sectors of Russia.
    • The Act mandates the President to impose at least five of the 12 sanctions on persons engaged in a “significant transaction” with Russian defence and intelligence sectors.
    • These sanctions include suspending export licence, banning American equity/debt investments in entities, prohibiting loans from U.S. financial institutions and opposing loans from international finance institutions.
    • The Act also built in a safety valve in the form of a presidential waiver.
    • The “modified waiver authority” allows the President to waive sanctions in certain circumstances.
    • There are a few more provisions including one that allows for sanctions waivers for 180 days, provided the administration certifies that the country in question is scaling back its ties with Russia.

    Implications of CAATSA sanctions against India and scope for waiver

    • Impact on bilateral relationship: Sanctions have the tremendous potential of pulling down the upward trajectory of the bilateral relationship between the U.S. and India, which now spans 50 sectors, especially in the field of defence.
    • India turned sullen over the manner in which the U.S. negotiated the exit deal with the Taliban.
    • Quad engagement: Yet, on the strategic plane, India remained on course by agreeing to the upgrading of the Quadrilateral Security Dialogue and sharing the same vision as the U.S. on the Indo-Pacific construct.
    • The U.S.’s apprehension is that bringing India under a sanctions regime could push New Delhi towards its traditional military hardware supplier, Russia.
    • The U.S. Sanctions can stir up the latent belief in India that Washington cannot be relied upon as a partner.
    • While the administration will have to do the heavy lifting, the role of Indian-Americans should be significant just as they rallied around to support the Civil Nuclear Deal in the face of stiff resistance from Democrats opposed to nuclear proliferation.
    • Decrease in imports from Russia: India’s import of arms decreased by 33% between 2011-15 and 2016-20 and Russia was the most affected supplier, according to a report by the Stockholm-based defence think-tank SIPRI.
    • In recent years, though, there have been some big deals worth $15 billion including S400, Ka-226-T utility helicopters, BrahMos missiles and production of AK-203 assault rifles.
    • Increase in defence import from US: On the other hand, over the past decade, government-to-government deals with the U.S. touched $20 billion and deals worth nearly $10 billion are under negotiation.

    Conclusion

    The CAATSA test will determine the course of the India-U.S. strategic partnership. Whether the Biden administration sail through opposition within his party remains to be seen.

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  • Reforms-based and Results-linked, Revamped Distribution Sector Scheme: Ensuring sustainable turnaround in financial health of discoms

    Context

    In its budget 2021-22, the Union government had announced the launch of a “reforms-based and results-linked” scheme for the distribution sector.

    Precarious financial condition of discoms

    • Their overall debt burden, despite the implementation of the UDAY scheme, is estimated to increase to around Rs 6 lakh crore in the ongoing financial year.
    • Moreover, their annual cash losses are estimated to be about Rs 45,000-50,000 crore (excluding UDAY grants and regulatory income).
    • Due to highly subsidised nature of power tariffs towards agriculture and certain sections of residential consumers, the overall subsidy dependence is likely to be roughly Rs 1.30 lakh crore this year at the all-India level.

    Revamped Distribution Sector Scheme

    • In its budget 2021-22, the Union government had announced the launch of a “reforms-based and results-linked” scheme for the distribution sector.
    • Subsequently, the Revamped Distribution Sector Scheme was notified in July with an overall outlay of Rs 3.03 lakh crore. 
    • Under the scheme, AT&C losses are sought to be brought down to 12-15 per cent by 2025-26, from 21-22 per cent currently.
    • Operational efficiencies of discoms are to be improved through smart metering and upgradation of the distribution infrastructure, including the segregation of agriculture feeders and strengthening the system.
    • The scheme has two parts — Part A with an outlay of Rs 3.02 lakh crore, pertains to the upgradation of the distribution infrastructure and metering related works.
    • Part B, with an outlay of Rs 1,430 crore, is for training and capacity building, besides other enabling and support activities.
    • Discoms and their state governments will have to sign a tripartite agreement with the central government in order to avail benefits under the scheme.
    • Only those discoms that meet all the pre-qualifying criteria will be eligible for the release of funds.
    • A loss-making discom will not be eligible unless it draws up plans to reduce its losses, approved by the state government and filed with the central government.
    • As far as the agricultural sector is concerned, the use of solar power projects to supply electricity to these consumers through the agriculture feeder route is likely to result in savings.
    • This is because of a combination of high tariff competitiveness offered by solar power, lower technical losses due to proximity to load centres, and the ability to meet demand during the day when sunlight is available.
    • In addition, the delicencing initiative proposed by the central government can effect significant changes in the distribution segment, facilitating competition and placing emphasis on the quality and reliability of power supply and consumer services.

    Issue of tariff determination

    • A continuing area of concern affecting discom finances is the significant delay in the process of tariff determination in many states.
    • As of now, only 19 out of 28 states have issued tariff orders for 2021-22, indicating sluggish progress.
    • Further, there is upward pressure on the cost of power supply for distribution utilities, considering the dominant share (around 70 per cent) of coal in the fuel mix for energy generation, the strengthening of imported coal prices and the possibility of domestic coal price revisions by Coal India.
    • As a consequence, a cost-reflective tariff determination process, coupled with the timely pass-through of power purchase costs, remains critical for the utilities.

    Consider the question “Examine the factor that explains the continuing financial woes of state-owned discoms despite implementing several schemes. How Revamped Distribution Sector Scheme seeks to address the issue?”

    Conclusion

    On the whole, while the focus on improving the operational efficiency, and ensuring the financial sustainability of discoms is indeed welcome, timely implementation of the reforms is critical to achieving the milestones.

     

  • 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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  • Europe as a valuable strategic partner

    Context

    Last week’s in-person summit in Delhi was with the Danish prime minister, Mette Frederiksen.

    Europe as a valuable partner

    • Few Asian countries view Europe with strategic suspicion. Many in Asia see Europe as a valuable partner.
    • As the deepening confrontation between the US and China begins to squeeze South East Asia, Europe is widely seen as widening the strategic options for the region.
    • The perspective is similar in Delhi, which now sees Brussels as a critical element in the construction of a multipolar world.
    • Cultivate Europe: As External Affairs Minister Subrahmanyam Jaishankar puts it, India’s strategy is to “engage America, manage China, cultivate Europe, reassure Russia, bring Japan into play”.
    • EU’s Strategy for India: The EU outlined a strategy for India in 2018 to focus on four themes — sustainable economic modernisation, promotion of a rules-based order, foreign policy coordination, and security cooperation.
    • At the summit in Portugal in May this year, the EU and India agreed to resume free trade talks and develop a new connectivity partnership that would widen options for the world beyond the Belt and Road Initiative.
    • Rebalancing the international system: Above all, there is a recognition in both Delhi and Brussels that the India-EU strategic partnership is crucial for the rebalancing of the international system amidst the current global flux.

    Possibilities with smaller European countries

    • Europe looms so large in the Indian diplomatic agenda today and smaller European states draw unprecedented political attention from Delhi.
    • That Denmark, a country of barely six million people, can establish a significant green partnership with India, is a reminder that smaller countries of Europe have much to offer in India’s economic, technological, and social transformation.
    • Luxembourg brings great financial clout, Norway offers impressive maritime technologies, Estonia is a cyber power, Czechia has deep strengths in optoelectronics, Portugal is a window to the Lusophone world, and Slovenia offers commercial access to the heart of Europe through its Adriatic sea port at Koper.
    • As India begins to realise this untapped potential, there are new openings with the 27-nation EU headquartered in Brussels.

    EU’s important role in Indo-Pacific

    • The EU’s Indo-Pacific strategy is likely to have a much greater impact on the region more immediately and on a wider range of areas than military security.
    • Area’s of impact range from trade and investment to green partnerships, the construction of quality infrastructure to digital partnerships, and from strengthening ocean governance to promoting research and innovation.
    • Defence and security are important elements of the EU’s Indo-Pacific strategy that “seeks to promote an open and rules-based regional security architecture, including secure sea lines of communication, capacity-building and enhanced naval presence in the Indo-Pacific.
    • Whatever the specific circumstances of the AUKUS deal and its impact on France, the US wants all its partners, especially Europe, to contribute actively to the reconstitution of the Asian balance of power.
    • Working with Quad: The EU strategy, in turn, sees room for working with the Quad in the Indo-Pacific, while stepping up security cooperation with a number of Asian partners, including India, Indonesia, Japan, the Republic of Korea, Singapore and Vietnam.
    • India is conscious that Europe can’t match America’s military heft in the Indo-Pacific.
    • But it could help strengthen the military balance and contribute to regional security in multiple other ways.

    Consider the question “Delhi knows that Europe could significantly boost India’s capacity to influence future outcomes in the Indo-Pacific. It would also be a valuable complement to India’s Quad coalition”. Comment.

    Conclusion

    It was Russia that defined India’s discourse on the multipolar world after the Cold War. Today, it is Europe — with its much greater economic weight, technological strength, and normative power — that promises to boost India’s own quest for a multipolar world and a rebalanced Indo-Pacific.

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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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