📰 India, France to enhance counter-terror ties
Comes after Sushma Swaraj’s talks with her French counterpart Le Drian
•Gravely concerned over growing terrorism, India and France on Friday decided to enhance counter- terror cooperation, and asked the international community to oppose those financing, sheltering and providing safe havens to terrorists.
•This was announced by External Affairs Minister Sushma Swaraj after her talks with her French counterpart Jean-Yves Le Drian, during which key bilateral, regional and international issues were discussed.
Grave concern
•“We expressed grave concern on growing terrorism and decided that we need to fight the evil together. We appealed to all countries to oppose those financing, sheltering and providing safe havens to terrorists,” Ms. Swaraj said at a joint press event with the French Minister.
•On maritime security, the two sides discussed growing cooperation in the Indian Ocean Region.
📰 An absurd canvas: on Padmavati
Padmavati should not be allowed to become a victim to violent vigilantes
•The coalition ranged against the screening of Padmavati, a big-budget period drama, is growing more violent and absurd by the day. The Uttar Pradesh government has joined the ranks of the Karni Sena, a self-styled Rajput organisation that uses vigilante methods to uphold its notion of caste honour, to raise anxiety about the film’s scheduled release on December 1. Lucknow has written to the Union Information and Broadcasting Ministry requesting that the Central Board of Film Certification be alerted of the “public sentiment” about distortion of “facts” in the film. Its release, the U.P. government has said, could disrupt law and order in the State, especially with the administration’s energies focussed on the municipal elections in end-November. Governments are expected to enforce law and order, not buckle down in the face of threats — whether perceived or real. As the Supreme Court observed in S. Rangarajan vs. Jagjivan Ram, a mere threat to public order cannot be a ground to suppress freedom of expression. By harping on the question of “historical facts” in connection with a film based on a work of fiction, the government is tacitly endorsing random groups and persons using Padmavatito delineate their notions of Rajput honour and Hindu-Muslim enmity. Over in Rajasthan, a Minister, Kiran Maheshwari, has intemperately railed against the film. And the Karni Sena, which vandalised the sets on location in Rajasthan earlier this year and on Friday blocked entry into the Chittorgarh fort where the story is set, freely hands out threats to the life and well-being of those associated with Padmavati, especially Deepika Padukone, its lead actor. Even Congress politicians are counselling that “sentiments” must be heeded.
•Sanjay Leela Bhansali, the film’s director who is known for his lush sets and high emotion, has been at pains to give an assurance that he has not distorted history. Leave aside the fact that the story draws from a 16th century Sufi poem, ‘Padmavat’, and has over the centuries been retold across north India, and that there is no historical record of Padmavati’s existence, the insistence on demanding accuracy in period dramas is anyway an infringement on creativity. Fictionalising the past is a longstanding way of understanding it, from K. Asif’s Mughal-e-Azam to Oliver Stone’s JFK. But the anxieties that are driving the Karni Sena and members of the Sangh Parivar are evident. That Alauddin Khilji, the Delhi Sultan who wages war in the story to try to win the beautiful Padmavati, could be humanised obviously disturbs the Hindutva narrative about ‘evil invaders’. The visuals of the heroine singing and dancing evidently militate against the latter-day patriarchal telling of Padmavati’s story, in which she is shorn of agency and is dutifully circumscribed by notions of purity and honour. In this, it is not just that the film is fuelling such worries: the film is being used to heighten such anxieties and consolidate a regressive and intolerant world view.
📰 Economy gets Moody’s thumbs up
Agency upgrades sovereign rating, expects high growth to continue as a result of ongoing reforms
•Global credit rating agency Moody’s Investors Services raised India’s sovereign rating for the first time in 13 years early on Friday morning (India time), citing the country’s high growth potential in the years to come, thanks to economic and institutional reforms.
•“The decision to upgrade the ratings is underpinned by Moody’s expectation that continued progress on economic and institutional reforms will, over time, enhance India’s high growth potential and its large and stable financing base for government debt, and will likely contribute to a gradual decline in the general government debt burden over the medium term,” the agency said in a statement, upgrading the Indian government’s rating as a local and foreign currency issuer from Baa3 with a positive outlook to Baa2 with a stable outlook.
•Borrowing obligations rated Baa2 are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics. Baa3, by contrast, was the lowest investment grade rating.
A rebuttal to critics
•For the government, the upgrade serves as a strong rebuttal for critics who have panned its handling of the economy — coming on the back of India’s rise in the World Bank’s ease of doing business index, and as a culmination of persistent efforts to get rating agencies to acknowledge India’s improved macroeconomic situation.
•The financial markets reacted positively to the development, with the BSE Sensex rising 236 points and the rupee rising to ₹64.62 per dollar before closing at ₹65.02 per dollar, up 0.47% from Thursday’s level.
•Acknowledging that some steps such as the GST and demonetisation have ‘undermined’ growth in the near term as reflected by the slower GDP growth of 5.7% in the first quarter of 2017-18, Moody’s said it expects real GDP growth in India to moderate to 6.7% in this fiscal year. But the agency believes that the disruption effect of these reforms will fade as the government helps small and medium enterprises and exporters with compliance issues under the new indirect tax regime and growth will rise to 7.5% in 2018-19, and remain robust, thereafter.
Higher growth potential
•“Longer term, India’s growth potential is significantly higher than most other Baa-rated sovereigns,” the agency said.
•“While a number of important reforms remain at the design phase, Moody’s believes that those implemented to date will advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth,” it noted.
•Asked if a slippage on the fiscal deficit targets for this year could trigger a review of the rating, William Foster, vice-president, Sovereign Risk Group at Moody’s Investors Services, said the stable outlook denotes that “we do not expect a rating change in the foreseeable future.”
•“We forecast the general government budget deficit at 6.5% of GDP this fiscal year, similar to the last two fiscal years. Lower government revenues than planned in the budget and somewhat higher government spending could lead to a deficit somewhat wider than targeted. However, we think that the government’s commitment to fiscal consolidation remains,” Mr. Foster told The Hindu, asserting that steps taken to broaden the tax base and improve the efficiency of government spending will contribute to a gradual narrowing of the deficit over time.
•Although the rating agency agreed that a lot remains to be done such as fixing the GST’s implementation challenges, weak private sector investment and the slow resolution of banks’ bad loans, Moody’s said it expects at least some of these issues to be addressed over time and will help further improve the Indian government’s effectiveness and overall institutional framework.
•Basing its upgrade on the sustainable growth that reforms will trigger and the greater stability in government debt going forward, the agency also flagged the need for acting on other important fronts ‘which have yet to reach fruition’ such as planned land and labour market reforms
📰 Timely recognition: on the Moody's upgrade
The Moody’s upgrade underlines the need for the government to stay the reform course
•Moody’s decision to upgrade India’s sovereign credit rating by a notch after a gap of almost 14 years is undoubtedly a welcome recognition of the country’s enormous economic potential. It has been driven by some of the recent structural reforms — including the implementation of a long-delayed nationwide goods and services tax (GST), and moves to address the logjam of mounting bad loans in the banking sector through an Insolvency and Bankruptcy Code. These are expected to help ensure a healthier enabling environment to realise this potential over the longer term. The ratings agency has said the reforms undertaken until now would “advance the government’s objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth.” And viewed in conjunction with the sizeable foreign exchange reserves, India’s overall capacity to absorb shocks is now seen as much better. The market reaction — with the stock indices and the rupee posting handsome gains intraday — signals that local businesses and overseas investors see the upgrade as a vote of confidence in the economy and the policy approach to economic management and reforms, especially at a time when momentum has slowed to a 13-quarter low.
•Still, as Moody’s has flagged in explaining why it has opted to change the ratings outlook to ‘stable’ from ‘positive’, the “high public debt burden remains an important constraint on India’s credit profile relative to peers.” At 68% of its GDP in 2016, general government debt in India is significantly higher than the 44% median for other similarly ranked economies, according to the New York-based agency, which sees the debt-to-GDP ratio widening by about 1 percentage point this fiscal year to 69%. Moody’s cites “the large pool of private savings available to finance government debt”, the steps taken to enlarge the formal economy by mainstreaming more and more businesses from the informal sector, and measures aimed at improving spending efficiency through better targeting of welfare measures, as all broadly supportive of a gradual strengthening of the fiscal metrics over time. But it is this very same ‘time’ element that holds the key to how the macro-economic situation could evolve. With economists and monetary authorities warning of the likelihood of fiscal slippages as a consequence of farm loan waivers by States, the Centre’s implementation of the pay commission’s award and even weaker tax receipts amid teething issues with the GST, there is a danger that the government may end up missing its fiscal deficit targets in the near term. And therein lies the challenge. For the economy to capitalise on this upgrade, the political leadership must stay the reform course, electorally alluring temptations to resort to populism notwithstanding.
📰 Beyond Piketty: on income inequality
Have demonetisation and the GST aggravated income inequality?
•With the Gujarat State elections barely a few weeks away, the debate on the Indian economy has become increasingly polarised. While the official view of demonetisation unleashed in November 2016 elevates it to a moral and ethical imperative, the chaos caused by the goods and services tax (GST) launched on July 1, 2017, is dismissed as a short-run transitional hiccup. Both policies, it is asserted, are guaranteed to yield long-term benefits, unmindful of large-scale hardships, loss of livelihoods, closure of small and medium enterprises and slowdown of agriculture. Critics of course reject these claims lock, stock and barrel. Lack of robust evidence is as much a problem for the official proponents of these policies as it is for the critics. Hence the debate continues unabated with frequent hostile overtones.
Tracking income inequality
•Beneath the debate are deep questions of inequality and its association with poverty. Thomas Piketty produced a monumental treatise, Capital in the Twenty-First Century, demonstrating that rising income inequality is a by-product of growth in the developed world. More recently, Lucas Chancel and Piketty (2017), in ‘Indian income inequality, 1922-2014: From British Raj to Billionaire Raj?’, offer a rich and unique description of evolution of income inequality in terms of income shares and incomes in the bottom 50%, the middle 40% and top 10% (as well as top 1%, 0.1%, and 0.001%), combining household survey data, tax returns and other specialised surveys.
•Some of the principal findings are: one, the share of national income accruing to the top 1% income earners is now at its highest level since the launch of the Indian Income Tax Act in 1922. The top 1% of earners captured less than 21% of total income in the late 1930s, before dropping to 6% in the early 1980s and rising to 22% today. Two, over the 1951-1980 period, the bottom 50% captured 28% of total growth and incomes of this group grew faster than the average, while the top 0.1% incomes decreased. Three, over the 1980-2014 period, the situation was reversed; the top 0.1% of earners captured a higher share of total growth than the bottom 50% (12% v. 11%), while the top 1% received a higher share of total growth than the middle 40% (29% v. 23%).
•True to its modest objective, it offers a rich and insightful description of how income distribution, especially in the upper tail, and inequality have evolved.
•Sharp reduction in the top marginal tax rate, and transition to a more pro-business environment had a positive impact on top incomes, in line with rent-seeking behaviour.
India’s wealth gain
•According to Credit Suisse Global Wealth Report 2017, the number of millionaires in India is expected to reach 3,72,000 while the total household income is likely to grow by 7.5% annually to touch $7.1 trillion by 2022. Since 2000, wealth in India has grown at 9.2% per annum, faster than the global average of 6% even after taking into account population growth of 2.2% annually. However, not everyone has shared the rapid growth of wealth.
•Our research, based on the India Human Development Survey 2005-12, focusses on a detailed disaggregation of income inequality, along the lines of Chancel and Piketty, recognising that incomes in the upper tail are under-reported; and examines the links between poverty and income inequality, especially in the upper tail, state affluence, and prices of cereals.
•Our analysis points to a rise in income inequality. A high Gini coefficient of per capita income distribution, a widely used measure of income inequality, in 2005 became higher in 2012. The share of the bottom 50% fell while those of the top 5% and top 1% rose. The gap between the share of the top 1% and the bottom 50% narrowed considerably.
•More glaring is the disparity in ratios of per capita income of the top 1% and bottom 50%. The ratio shot up from 27 in 2005 to 39 in 2012. Far more glaring is the disparity in the highest incomes in these percentiles. The ratio of highest income in the top 1% to that of the bottom 50% nearly doubled, from a high of 175 to 346.
•All poverty indices including the head-count ratio fell but slightly.
Poverty and inequality
•Higher incomes reduced poverty substantially. Inequality measured in terms of share of income of the top 10% increased poverty sharply but only in the more affluent States. Somewhat surprisingly, higher cereal prices did not have a significant positive effect on poverty. Similar results are obtained if the share of the top 10% is replaced with the Gini coefficient as a measure of inequality.
•It is plausible that poverty reduction slowed in 2016-17 because of deceleration of income growth; and huge shocks of demonetisation and the GST to the informal sector have aggravated income inequality. Indeed, depending on the magnitudes of these shocks, poverty could have risen during this period.
•In sum, regardless of the longer-term outlook and presumed but dubious benefits of the policy shocks, the immiseration of large segments of the Indian population was avoidable.
📰 SC for nationwide ban on furnace oil, pet coke
Appeal follows rise in pollution
•The Supreme Court on Friday requested all States and Union Territories to move forward towards a nationwide ban on the use of pet coke and furnace oil to power up industries, in a bid to fight pollution.
•The Environment Bench of the Supreme Court had already ordered a ban on the industrial use of pet coke and furnace oil in the States of Uttar Pradesh, Haryana and Rajasthan on October 24.
•This ban specifically came after an Environment Pollution Control Authority Report recommended the ban on sale, distribution and use of furnace oil and pet coke in the National Capital Region (NCR). Their use is already prohibited in Delhi.
‘Not confined to NCR’
•“We may note that the pollution caused by pet coke and furnace oil is not a problem confined only to NCR but appears to be a problem faced by almost all the States and Union Territories in the country,” the Bench of Justices Madan B. Lokur and Deepak Gupta observed in their written order.
•Pursuant to the Supreme Court ban, both the Environment Ministry and the Central Pollution Control Board, on November 15, brought into “immediate effect a prohibition on the use of pet coke and furnace oil by any industry, operation or processes within the States of U.P., Haryana and Rajasthan until further orders”.
•However, senior advocate and amicus curiae Harish Salve submitted that such a prohibition would only partly solve the pollution problem in these States. He said the actual source of these pollutants should be stopped. For this, the very sale of pet coke and furnace oil for use as fuel should come to an end in U.P., Haryana and Rajasthan.
•Additional Solicitor General A.N.S. Nadkarni, for the Centre, was asked by the court to get instructions from the Centre and respond within a week on the suggestions by Mr. Salve.
•On October 24, the apex court also imposed a fine of ₹2 lakh on the Ministry of Environment for not fixing any emission standards for industries using pet coke and furnace oil in the NCR.
📰 First industry built PSLV by 2020,says VSSC Director Sivan
ISRO to outsource launch vehicle production
•The Indian Space Research Organisation (ISRO) is preparing to hand over the entire gamut of launch vehicle manufacture to domestic industry by 2020.
•“Until now, public and private industries have only supplied devices, components and sub-systems for ISRO’s launch vehicles, including the PSLV and the GSLV. Our effort is to give a push to industry for production of end-to-end systems. By 2020, we hope to have the first completely industry-built PSLV,” Vikram Sarabhai Space Centre (VSSC) Director K. Sivan said here on Friday.
•Inaugurating the National Aerospace Manufacturing Seminar (NAMS 2017) organised by the Society of Aerospace Manufacturing Engineers, he said efforts were on to set up a consortium of companies for the purpose. “Ultimately, we hope to see industry make the transition from vendors supplying parts, to partners providing integrated systems”.
•The theme of the seminar was ‘Aerospace Manufacturing in India-Vision 2030.’
•ISRO already has a partnership with private industry to produce satellites. The IRNSS-1H communication satellite aboard the ill-fated PSLV C-39 was the first to be produced by a consortium of six companies.
•Dr. Sivan said ISRO had a partnership with about 500 domestic industries for the supply of various components and devices. “About 80% of the cost of launch vehicles and 40% of satellites are handled by these industries”.
•He stressed on the need for industry to reduce the manufacturing and material cost without compromising on quality to bring down the launch cost. ISRO, he said, had tightened tolerance to error following the failure of the PSLV- C39 mission.
•Liquid Propulsion Systems Centre (LPSC) Director S. Somanath said the industry partnership for satellite production had paved the way for the transition to industry-made launch vehicles. He said automation and the increased use of composites and additives were turning the conventional manufacturing process on its head. “Reusable launch vehicles promise to bring down launch cost but pose a problem for industry due to lower demand. The solution is to create a market for more missions.”
