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Type: Op-ed

  • State of food insecurity

    Context

    The latest edition of the State of Food Security and Nutrition in the World (SOFI) report, released jointly by five UN organisations in July, reveals that the pandemic and failure on the part of state to combat its effects, has led to a significant increase in the prevalence of hunger and food insecurity in the country.

    About the report

    • Estimates on food insecurity presented in the SOFI report are based on two globally-accepted indicators of food insecurity:
    • 1) The Prevalence of Undernourishment (PoU), which estimates the proportion of people suffering from chronic deficiency of calories.
    • 2) A more recently developed an experience-based indicator called the Prevalence of Moderate and Severe Food Insecurity (PMSFI).
    • The PoU estimates are based on estimates of per-capita supply of food and distributional parameters estimated using the national consumption surveys
    • On the other hand, PMSFI estimates are based on data collected through surveys that attempt to capture people’s experiences of food insecurity (such as eating less, modifying diet to eat cheaper food etc).
    • No assessment of food insecurity during a pandemic: The PMSFI estimates presented in the report are particularly important because, since the outbreak of the pandemic, the Indian government has not undertaken any official assessment of food insecurity in the country.
    • Not only has the government not conducted its own consumption or food security surveys, it does not approve the publication of results based on the Gallup World Poll.
    • As a result, estimates for India are not published in the SOFI reports.
    • However, these can still be obtained indirectly because the data are presented for South Asia and for “South Asia (excluding India)”.
    • Estimates for India can be obtained by comparing the two sets of data.

    What the report says

    • According to the data presented in the report, the prevalence of moderate to severe food insecurity in India rose by about 6.8 percentage points in 2018-20.
    • Data show that there were about 43 crore of moderate to severe food-insecure people in India in 2019.
    • As a result of the pandemic-related disruptions, this increased to 52 crore in one year.
    • In terms of prevalence rates, moderate to severe food insecurity increased from about 31.6 per cent in 2019 to 38.4 per cent in 2021.

    Causes of food insecurity in India

    • Economic distress: The problems of hunger and food insecurity are grave in India because of widespread economic distress, high unemployment and high levels of inequality.
    • Dependence on informal economy: A large proportion of the poor is dependent on the informal economy in which incomes are too low and uncertain.
    • Unemployment: Unemployment rates have risen sharply over the last few years, shrinking public investment and the economic slowdown have compounded the distress among working classes and the peasantry.
    • With low and uncertain incomes, families dependent on the informal economy do not have assured access to adequate and nutritious food.

    Way forward

    • Monitoring system: There is an urgent need for the government to establish systems for regular monitoring of the food security situation in the country.
    • Universal access to food: It is ironic that the country with the largest stock of grain in the world — 120 million tonnes as of July 1, 2021 — accounts for a quarter of the world’s food-insecure population.
    • Universalising access to the public distribution system is the need of the hour at least during the pandemic.

    Conclusion

    The increasing severity of food insecurity in India points to the urgent need for measures by the government to ensure the right to food of citizens of India.

  • What changed for Indian industry after 1991 economic reforms?

    Context

    It has been 30 years since the spirit of liberalisation was unleashed in 1991 economic reforms. The private sector, which had been seen very differently up to 1990, was placed at the centre of the reform process. And this has continued and grown since then.

    Challenges and opportunities for Indian industry after economic reforms

    1) Entry of MNCs and centrality to consumers

    • The first challenge was the entry of MNCs through the joint venture (JV) route.
    • Centrality to consumers: The reforms gave centrality to the consumer who till 1991 did not have a choice.
    • The Indian consumer was given choices and companies, both foreign and Indian, wanted to be their first choice.
    • Growth in demand: The surge of new demand from the marketplace transformed the scenario, reflected in GDP growth rapidly moving up to 7 per cent per annum.

    2) Increased competition

    • For the first time, Indian companies faced real competition from other Indian as well as foreign companies.
    • But, many corporates restructured themselves and transformed into competitive forces.
    • The new reality of reduced customs duties and industrial licensing disappearing, removed the protection umbrella and Indian companies, by and large, who had been planning for this day, were ready to face this challenge.

    3) Government-industry partnership

    • Till June 1991, the government and industry were at a distance from each other.
    • June 1991 changed all of that, the government’s dialogue with industry deepened, consultations were frequent.
    • Feedback on what was happening on the ground was taken regularly.
    • A government-industry partnership became a reality.

    4) Boost to aspiration of industries

    • The most significant change brought about by the reforms pertained to the level of “aspirations” of the industry.
    • There was excitement and ambition to be world-class.
    • Rise of IT industry: In this, the IT industry led by TCS, Infosys and Wipro played a major role.
    • They showed that Indian engineers and managers were the best in the world.
    • They exuded confidence which spread to others.

    5) Boost to entrepreneurship

    • Not just the big industry, but also, the small and medium sectors that became part of the new energy in industry.
    • Component manufacturing and exports were new initiatives from ancillaries and suppliers of major manufacturers.

    6) Infrastructure

    • The public sector had a monopoly over infrastructure.
    • This changed and the private sector was invited to participate, to get into public-private partnerships and end the government’s monopoly.

    7) Birth of new private sector bank

    • Banking had been nationalised in 1969.
    • But the reforms of 1991 gave birth to a new private sector bank — HDFC Bank — which, after due diligence by the government and the Reserve Bank of India, opened its doors in 1994.
    • This was a huge step forward in the reform process.

    8) Improvement in corporate governance

    • An industry-led initiative brought out the first-ever task force guidelines and report on corporate governance.
    • This was followed by many other actions and policies.

    Conclusion

    There is still a long way to go, but the die that was cast in 1991 has led to a new tsunami of change.

  • 2 years of Repeal of Article 370

    Context

    Two years ago, India bid farewell to Articles 370 and 35 (A), marking the start of a new era in the politics of Jammu and Kashmir.

    Assessing the impact of changes on five parameters

    1) National unity

    • Articles 370 and 35 (A) created an unnatural and unhealthy divide in our nation.
    • For every law passed, every rule made, we had to ascertain whether it applied to J&K or not.
    • Today, such distinctions are history, J&K has been fully integrated with the other states and Union Territories.

    2) Democracy at the grass-root level

    • A healthy culture of grassroots-level participation was absent.
    • Panchayat polls held: One of the critical deliverables for J&K was to hold panchayat polls, which were finally held in 2020.
    •  This one step will go a long way in shaping the development paradigm in Jammu and Kashmir.
    • Political activity has also picked up across Jammu and Kashmir.
    • The Centre’s emphasis on a proper delimitation followed by full-fledged elections is in line with the commitments made to the people of Jammu and Kashmir.

    3) Peace

    • The third parameter is that of peace.
    • The memories of 2008, 2010 and 2016 are still fresh in the minds of the people of Jammu and Kashmir.
    • An effort was made to reignite such sparks of tension after the decisions on Article 370 and 35 (A) but the Valley as well as Jammu have remained peaceful.

    4) People’s aspirations

    • Jammu and Kashmir did not have RTI laws and its SC, ST and OBC communities were not able to get the benefits of reservation
    • The fact that the most marginalised groups can now get reservation benefits is a major leap forward in fulfilling the aspirations of the people of J&K.

    5) Economic growth

    • The Valley is today abuzz with news of action against corruption in key departments and financial bodies in the state.
    • Money being sent for public good was being misused by vested interest groups.
    • The economic upliftment in the Valley began with the Prime Minister’s Package of 2015.
    • This set the stage for extensive spending on physical and social infrastructure.
    • With the going of 370 and 35 (A) there is great hope that tourism will pick up in the Valley.
    • Incentives given to different sectors of the economy — be it saffron farmers or those who fish trout — combined with a largely peaceful environment is empowering many lives.
    • With corruption and leakages drastically reduced, resources are reaching the intended beneficiaries.

    Conclusion

    The situation in Jammu and Kashmir was never easy. As we enter the Amrut Mahotsav, it is for us to see the new realities in J&K. The people of the state have got the wings to fly and, in the years to come, J&K will make even greater contributions to India’s growth and development.

  • Need to deal with the flaws in the existing structure of GST

    Context

    After four years, the promise of the Goods and Services Tax (GST) remains substantially unrealised.

    Why tax base of GST is not expanding

    • The GST is strongly co-related to overall GDP.
    • Revenue collection of the GST is dependent on the nominal growth rate of Gross Value Added (GVA) in the economy.
    • Since inception, GVA per quarter has been between ₹40-lakh crore to ₹47-lakh crore and GST revenue has not been higher than ₹2.7-lakh crore to ₹3.1-lakh crore.
    • The Tax to Gross value addition is only about 5% to 6.5% though GVA growth was much higher.
    • Issues: A very large segment is covered by exemption, composition schemes, evasion and lower tax rate.

    Five Issues with the GST structure

    1) Dominance of the Centre

    • The political architecture of GST is asymmetrically loaded in favour of the Centre.
    • No body to adjudicate: There is no particular body is tasked to adjudicate if there is a dispute between States and between the Centre and the States.
    • Centre’s domination: In the voting, the central government has one-third vote and States have two-thirds of total votes.
    • All states have equal voting rights regardless of size and stake.
    • With the support of a dozen small States whose total GST collection is not more than 5% of the total central government can dominate the decision making process in GST Council.
    • Small states dictate the terms: With equal value for each States’ voting, larger and mid-sized States feel shortchanged.

    2) Flaw in tax structure

    • Nearly 45% to 50% of commodity value is outside the purview of the GST, such as petrol and petroleum products.
    • Certain states not getting revenue as origin state: States which export or have inter-State transfers or mineral and fossil fuel extractions are not getting revenue as the origin States and need a compensation mechanism.
    • The pre-existing threshold level of VAT has been tweaked too often which has led to an evaporation of tax base incentivising, enabling evasion and mis-reporting.
    • Most trading and retail establishments, (however small) are out of the fold of the GST.
    • At the retail level, irrespective of whether Input Tax Credit (ITC) is required or not, the burden can be passed off to the consumer.
    • As a result, the loss could be as high as one third.

    3) Exemptions

    • Exemptions from registration and taxation of the GST have further eroded the GST tax base compared to the tax base of the pre-existing VAT.
    • Ground for evasion: Exemptions are purely distortionary and also provide a good chance to remain under the radar, thereby directly increasing evasion or misclassification.
    • Theoretically, exemptions at the final stages reduce tax realisation.
    • Multiple rates: As multiple rates are charged at different stages, it goes against the lessons of GST history.
    • This tax works well with a single uniform tax rate for all commodities and services at all stages, inputs and outputs alike.
    • While most countries have a single rate, India stands out and is among the five countries to have four rates/slabs.

    4) Exclusion

    • Against the interest of States: Petroleum products remaining outside the purview of GST has helped the Centre to increase cesses and decrease central excise, in what would otherwise have been shareable with the States.
    • Now, States will be keen on including petrol and diesel under the GST as their share of tax goes up in the process, even if there is a special rate fixed for it.
    • Equity requires that petrol and diesel be brought under the GST.
    • Cascading of taxes: Apart from the complexity it creates in record keeping and ‘granting ITC’, in the present form it also leads to a cascading which the GST avowedly tried to avoid.

    5) Lack of compliance

    • Compliance with GST return (GSTR-1) filing stipulation and the resultant tax information is not up to date.
    • Fraudulent claims of Input Tax Credit (ITC) because of a lack of timely reconciliation are quite high though it has come down by two thirds.
    • Tax evasion, estimated by a National Institute of Public Finance and Policy’s paper, is at least 5% in minor States and plus 3% in the major States.

    Conclusion

    Policy gaps along with compliance gaps do need to be addressed. Without proper tax information, infrastructure and base, the States would go in for selective tax enforcement. In the long run, voluntary compliance will suffer and equity in taxation will be violated.

  • The goal of making the rupee a global reserve currency

    Context

    India will celebrate 100 years of Independence in 2047.  This article makes the case that prosperity is possible and best accomplished by the goal of making the rupee a global reserve currency by India@100.

    What is the purpose of having forex reserves?

    • Official foreign exchange reserves of about $12 trillion across 150 countries are currently stored in eight currencies: 55 per cent in US dollars, 30 per cent in euros, and 15 per cent in six other currencies.
    • Protection in case of volatility: This concentration is inevitable given exploding trade, rising capital flows, and the less acknowledged motivation of protecting your reserves from your currency’s volatility.
    •  A reserve currency has to serve as a medium of exchange, a store of value, and a unit of account. 

    Steps India would require to take

    • Full capital account convertibility: To fulfil the ambition of becoming the reserve currency, the first step is full capital account convertibility, as suggested by the Tarapore Committee in 1997. 
    • Advocate rupee invoicing: Dollar investors in the last decade not experiencing the usual big bite out of rupee returns is useful for advocating trading partners to start rupee invoicing.
    • Offshore corporate rupee borrowing: Raising corporate rupee borrowing offshore and onshore will also help.
    • Digital currency: We need to accelerate our CBDC (central bank digital bank currency) plans.
    • Take payment networks to a global level: We need to take our UPI payment technology to the world, the dollar gets heft from global networks like Visa, MasterCard and Swift.
    • Raise tax to GDP ratio: Fiscal policy must raise our tax to GDP ratio, raise the share of direct taxes in total taxes, and keep our public debt to GDP ratio under 100 per cent.
    • Monetary policy: Monetary policy must control inflation while moderating central bank balance sheet size.
    • Economic policy: Economic policy must raise the productivity to reach goals in formalisation, urbanisation, financialisation (100 per cent credit to GDP ratio), industrialisation (less than 15 per cent farm employment), internationalisation (higher share of global trade) and skilling.
    • Institutional reforms: These goals must be complemented by reinforcing institutions that signal rule of law; cooperative federalism, press freedom, civil service effectiveness, and judicial independence.

    How it will help India?

    • Becoming a global reserve currency is helpful because it indirectly aligns fiscal, monetary, and economic policy.
    • Low-interest rate: The main advantage is the “exorbitant privilege” of lower real interest rates.
    • Edge over China: The 2 per cent renminbi share in global reserves — despite a 25 per cent increase last year — doesn’t reflect their status as the world’s second-largest economy and biggest trading nation.
    • China’s astounding economic success seems to be making China overconfident.
    • Chinese overconfidence creates an opportunity for India. 

    Conclusion

    Prosperity for all Indians by India at100 — a precondition for a country where the mind is without fear and the head is held high — needs bold reforms in the next 25 years. These reforms are best measured by the wholesome and achievable goal of the rupee becoming a global reserve currency by 2047. The journey is the reward.

  • What India needs for a just energy transition

    Context

    With an ever-growing list of countries announcing net-zero emissions targets, the global energy system is set to undergo a transformation in the coming decades. But India needs to ensure that this transition is smooth and people-centric.

    Transition in India

    • According to an IEA analysis, 90 per cent of new electricity generation capacity around the world now comes from renewables.
    • In India, that energy transformation is well underway.
    • India is among the world’s top five countries in terms of renewable power capacity.
    • Ambitious target of 450 gigawatts: Its ambitious target to increase India’s renewable energy capacity to 450 gigawatts (GW) by 2030 would help move it closer to achieving the country’s broader climate goals and commitments made under the Paris Agreement.
    • Clean energy leadership by India: India is also showing global clean energy leadership through initiatives such as the International Solar Alliance, which has more than 70 member countries.
    • Transition in rural area: The energy transition in rural India can be driven by dedicated policies to promote renewables, incentivise investment in decentralised low-carbon power sources like rooftop solar, and train and build the capacity of clean energy entrepreneurs.
    • Incorporating energy efficiency in the Affordable Housing Mission: In the short term, stimulus spending in the labour-intensive construction sector could accelerate progress on the Affordable Housing Mission.
    • Incorporating energy efficiency and green construction methods into these projects could ensure millions of homes enjoy thermal comfort, and help make energy efficiency a core part of building designs.

    Factors to consider in transition to clean energy

    • Ensure equity: It must be ensured that the opportunities of India’s transition are shared fairly throughout society — and workers and communities are not left to face the challenges alone.
    • Make it people-centric: To achieve the trifecta of jobs, growth and sustainability, India must strive to put people at the centre of its energy transformation.
    • Provisions for coal-dependent regions: New jobs would need to be found over time for the coal miners affected by the changes, as well as for people who work in the fossil fuel power plants that will close down.
    • Policymakers must earmark special “transition funds” to help coal-dependent regions, some of which are among India’s poorest.
    • Increase investment by rationalising energy subsidies: Energy subsidies must be rationalised and directed towards those who need them most.
    • Fiscal resources freed up through subsidy reform should then be invested in clean energy solutions, especially in underdeveloped regions and marginalised communities.
    • Support rural livelihood: A just transition should focus on how clean energy can support rural livelihoods and increase communities’ resilience in the aftermath of the pandemic shock.
    • Ensure women’s participation in the green workforce: While India’s energy transition will create many new jobs, the limited participation of women in the growing green workforce must be addressed.
    • A 2019 study by CEEW and the IEA suggests that women account for nearly 32 per cent of the renewables workforce globally but only around 11 per cent of the rooftop solar workforce in India.
    • Engage youth: Engaging the youth is critical to ensure that the energy transition is sustainable, inclusive and enduring.
    • Young entrepreneurs in India have already shown their impact by expanding the footprint of renewables and disrupting traditional energy models.
    • Some of these key themes are being explored by the 30 members of the Global Commission on People-Centred Clean Energy Transitions, which the IEA launched in January.

    Conclusion

    A people-centric approach, backed by good policy design, will not only help India build a clean and inclusive energy future, but could also provide a model for other countries and communities worldwide.

  • Disruption of Parliament

    Context

    Last week, a newspaper reported that the government is considering curtailing the monsoon session of Parliament on account of disruptions.

    Reasons for disruptions

    • In 2001, a day-long conference was held in the Central Hall of Parliament to discuss discipline and decorum in legislatures.
    • The inputs of participants of conference helped identify four reasons behind the disorderly conduct by MPs.
    • Inadequate time: The first was dissatisfaction in MPs because of inadequate time for airing their grievances.
    • Unresponsive attitude: The second was an unresponsive attitude of the government and the retaliatory posture of the treasury benches.
    • Adherence to norm: The third was political parties not adhering to parliamentary norms and disciplining their members.
    • Lack of action: The absence of prompt action against disrupting MPs under the legislature’s rules.

    Suggestions

    • Enforcement of a code of conduct for MPs and MLAs: The Lok Sabha has had a simple code of conduct for its MPs since 1952.
    • Newer forms of protest led to the updating of these rules in 1989.
    • Accordingly, members should not shout slogans, display placards, tear away documents in protest, play cassettes or tape recorders in the House.
    • A new rule empowers the Lok Sabha Speaker to suspend MPs obstructing the Houses’ business automatically.
    • But these suggestions have not been enforced so far.
    • Increase in working days: As recommended by the 2001 conference, there should be an increase in the working days of Parliament.
    • The conference had also resolved that Parliament should meet for 110 days every year and larger state legislative assemblies for 90 days.
    • Successive governments have shied away from increasing the working days of Parliament.
    • Our legislature should meet throughout the year, like parliaments of most developed democracies.
    • The concept of opposition days: In the United Kingdom, where Parliament meets over 100 days a year, opposition parties get 20 days on which they decide the agenda for discussion in Parliament.
    • The main opposition party gets 17 days and the remaining three days are given to the second-largest opposition party.
    • Canada also has a similar concept of opposition days.
    • This can also be done in India.

    Conclusion

    More strengthening of our Parliament is the solution to prevent disruption of its proceedings. It is the only mechanism to ensure that disrupting its proceedings or allowing them to be disrupted ceases to be a viable option.

  • Surveillance and human rights

    Context

    The Pegasus revelations reflect an attack on Indian democracy and Indian citizens.

    Role of government in protecting the fundamental and human rights of citizens

    • The surveillance of the target group in India through Pegasus raises doubts about the functioning of democracy in India.
    • Constitutional duty of government: The government has a constitutional duty to protect the fundamental and human rights of its citizens, irrespective of who they are.
    • There is clear evidence that the rule of law has been undermined.
    • More evidently, this reflects extremely poor governance.
    • The Intelligence Bureau, the Research and Analysis Wing, and the National Security Council Secretariat should have forewarned the government and citizens against such surveillance seriously violating privacy and fundamental rights.
    • The Supreme Court, in K.S. Puttaswamy v. Union of India (2017), declared privacy a constitutionally protected value.

    Violation of human rights

    • India is a signatory to the Universal Declaration of Human Rights.
    • Article 12 provides that everyone has the right to the protection of the law against arbitrary interference with his privacy, family, home or correspondence.
    • The International Covenant on Civil and Political Rights, also signed by India, in Article 17 states, “No one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.”
    • In K.S. Puttaswamy, the Supreme Court noted India’s commitments under international law and held that by virtue of Article 51 of the Constitution, India has to endeavour to “foster respect for international law and treaty obligations…”
    • The Protection of Human Rights Act, 1993 is a fallout of this commitment.

    Recommendations on digital communication technologies

    • The annual report of the United Nations High Commissioner for Human Rights (UNHCHR) in 2014 made recommendations on “digital communications technologies”.
    • Judicial oversight: The UNHCHR report stated, judicial involvement that meets international standards can help to make it more likely that the overall statutory regime will meet the minimum standards that international human rights law requires.
    • At the same time, the report stated that judicial involvement in oversight should not be viewed as a panacea.
    • Independent body: The report also recommended an independent oversight body to keep checks.
    • Effective remedy to victim: The International Covenant on Civil and Political Rights requires states parties to ensure that victims of violations of the Covenant have an effective remedy.
    • Role of business: The report also dealt with the role of businesses and stated that when a state requires that an information and communications technology company provide user data, it can only supply it in respect of legitimate reasons.
    • Earlier, due to concerns of member states, the General Assembly adopted Resolution 68/167 affirming that rights held by people offline must also be protected online.
    • The resolution also called upon all states to respect and protect the right to privacy, including in digital communication.

    Conclusion

    Indians have a right to call upon NSO to terminate the agreement, if any, with the Indian government or any private player and to cooperate with citizens to unravel the truth.

  • Making a case for Indo-Abrahamic accord

    Context

    An Egyptian scholar, Mohammed Soliman, has recently written about the significance of what he calls the emerging “Indo-Abrahamic Accord” and its trans-regional implications to the west of India.

    About Abraham Accord

    • Abraham Accord, signed in August last year in Washington, signifies the normalisation of Israel’s relations with the UAE and Bahrain.
    • The UAE and Bahrain were followed by Sudan and Morocco in signing the Abraham Accords.
    • Although Egypt (1979) and Jordan (1994) had established diplomatic relations with Israel earlier, the Abraham Accords are widely seen as making a definitive breakthrough in the relations between Israel and the Arabs.

    Factors in favour of accord

    • Depth of trilateral relationship: Although India had relations with UAE and Israel for many years, they certainly have acquired political depth and strategic character recently.
    • Converging interests: Turkish president Recep Tayyip Erdogan’s assertive claims for the leadership of the Islamic world and hostile stand against India on several issues, indicates converging interests between India, the UAE, and Israel.
    • One of the unintended consequences of Erdogan’s overweening regional ambition, his alienation of Israel as well as moderate Arabs, his conflict with Greece, and his embrace of Pakistan is the extraordinary opportunity for India to widen India’s reach to the west of the Subcontinent
    • Cooperation: There are many areas like defence, aerospace and digital innovation where the three countries can pool their resources and coordinate development policies.
    • India’s extended neighbourhood: The notion of a “Greater Middle East” can provide a huge fillip to India’s engagement with the extended neighbourhood to the west.

    India-Turkey relations

    • Hostile approach on Kashmir: Turkey has been championing Pakistan’s case on Kashmir after India changed the territorial status quo of the state in August 2019.
    • Blocking NSG entry: At Pakistan’s behest, Turkey is also blocking India’s entry into the Nuclear Suppliers Group.
    • The new geopolitical churn is also driven by Pakistan’s growing alignment with Turkey and its alienation from its traditionally strong supporters in the Arab Gulf — the UAE and Saudi Arabia.

    Opportunities for India in extended neighbourhood to the west

    • Relations with Greece: The renewed territorial disputes between Turkey and Greece, and Turkey’s quest for regional dominance has drawn Greece and the UAE closer.
    • Greece has also looked towards India to enhance bilateral security cooperation. 
    • Greece’s European partners like France, which have a big stake in the Mediterranean as well as the Arab Gulf, have taken an active interest in countering Turkey’s regional ambitions.
    • Erdogan’s support for the Muslim Brotherhood, which seeks to overthrow the current political order in the region, has deeply angered the governments of Egypt, Saudi Arabia and the UAE.
    • India’s relations with Egypt: If there is one country that can give substantive depth to the Indo-Abrahamic Accord it is Egypt.
    • Located at the cusp of Mediterranean Europe, Africa, and Asia, Egypt is the very heart of the Greater Middle East.
    • Independent India’s engagement with the region in the 1950s was centred on a close partnership with Egypt.
    • If Delhi and Cairo lost each other in recent decades, India can rebuild the strategic partnership jointly with the Egypt government which is calling for the construction of a “New Republic” in Egypt.
    • The notion of a “Greater Middle East” can provide a huge fillip to India’s engagement with the extended neighbourhood to the west.
    • The familiar regional institutions like the Arab League and the Organisation of Islamic Cooperation might endure but are incapable of addressing the region’s contradictions.

    Consider the question “Amid Turkey’s quest for regional dominance and hostility towards India, the deepening engagement between India, the UAE and Israel can be converted into a formal coalition on the lines of Abraham Accords” Comment.

    Conclusion

    The opportunities that are coming India’s way to the west of the Subcontinent are as consequential as those that have recently emerged in the east.

  • A cycle of low growth, higher inflation

    Context

    In recent times, several economists have been arguing that the Government does not need to do anything with the economy. They argue that like after the Great Depression, the economy rebounded worldwide, and so will it with us. The argument is fallacious on four accounts:

    Four factors that make recovery different from the recovery after the Great Depression

    1) Demand destruction

    • In the case of the Great Depression, demand was created by the Second World War effort, especially in the United States.
    • Demand destruction: In the current scenario, the COVID-19 pandemic has resulted in demand destruction.
    • This is because many jobs have been lost, and even where jobs were retained, there have been pay cuts.
    • Both of these trends were confirmed in the Centre for Monitoring Indian Economy and other surveys.

    Bright spot on export front

    • The only bright spot in this dismal scenario is that the western world has spent a lot of money stimulating the economy.
    • However, the Indian exporter face the challenge of rising freight costs and structural issues such as a strong rupee relative to major competitors.
    • Only the Indian IT sector is placed well to capitalise on rising demand in the world markets.

    2) Inflation and factors driving it

    • India is suffering from stagnant growth to low growth in the last two quarters.
    • As in the low initial base set by last year, almost any growth this year is seen as a significant growth percentage.
    • Commodity prices and monetary policy: Inflation in India is being imported through a combination of high commodity prices and high asset price inflation caused by ultra-loose monetary policy followed across the globe.
    • Liquidity infusion: RBI is infusing massive liquidity into the system by following an expansionary monetary policy through the G-SAP, or Government Securities Acquisition Programme.
    • Foreign portfolio investors have directed a portion of the liquidity towards our markets.
    • India has a relatively low market capitalisation, therefore, India cannot absorb the enormous capital inflow without asset prices inflating.
    • Supply chain issues: Additionally, supply chain bottlenecks have contributed to the inflation we see in India today.
    • Rising fuel prices: India’s usurious taxation policy on fuel has made things worse.
    • Rising fuel prices percolate into the economy by increasing costs for transport.

    Impact of inflation

    • The middle and lower-middle-class get destitute due to regressive indirect taxes and high inflation, with their wealth eroding due to said inflation.
    • Especially in the case of the lower middle class, inflation is lethal as they do not have access to any hard assets, including the most fundamental hard asset, gold.
    • The increase in fuel prices will also lead to a rise in wages demanded as the monthly expense of the general public increases.
    • This leads to the dangerous cycle of inflation and depleting growth.

    3) Interest Rate

    • The only solution for any central banker once he realises that inflation is entrenched is tightening liquidity and further pushing the cost of money.
    • If this does not dampen inflation, repo rates will need to go up later this year or early next year.
    • Tightening the money supply is a painful act that will threaten to decimate what is left of our economy.
    • Rising interest rates lead to a decrease in aggregate demand in a country, which affects the GDP.
    • There is less spending by consumers and investments by corporates.

    4) Rising NPA and its impact on credit growth

    • Rising interest rates, lack of liquidity, and offering credit to leveraged companies instead of direct subsidies to support small and medium-sized enterprises (SMEs) and micro, small and medium enterprises (MSMEs) to counter the COVID-19 pandemic and its effects will result in NPAs of public sector banks climbing faster.
    • Our small and medium scale sector is facing a Minsky moment. 
    • The Minsky moment marks the decline of asset prices, causing mass panic and the inability of debtors to pay their interest and principal.
    • India has reached its Minsky moment.
    • This means that the public sector unit and several other banks will need capital in copious amounts to make up for bad debt.
    • The Union government’s Budget is in no position to infuse large amounts of capital.
    • As a result of the above causes, credit growth is at a multi-year low of 5.6%.

    Way forward

    • Indian economy is in a vicious cycle of low growth and higher inflation unless policy action ensures higher demand and growth.

    Conclusion

    In the absence of policy interventions, India will continue on the path of a K-shaped recovery where large corporates with low debt will prosper at the cost of small and medium sectors. This means lower employment as most of the jobs are created by the latter.