📰 The federalist principles
Deep questions of equity are raging in India and the U.S. — hyper-nationalism is blurring the debate
•Debates over taxation and representation have been central to the evolution of democracy over centuries. India and America, the biggest and oldest democracies, respectively, are in the midst of a renewed debate over these subjects in recent months, the repercussions of which will be felt decades into the future.
The two cases
•In the U.S., the Donald Trump administration’s decision to include a question on citizenship in the 2020 Census form is being challenged by several States and cities. Unlike India, the U.S. reallocates the 435 seats in the House of Representatives after each Census. This process of reapportionment also leads to a redistribution of the 538 electoral college votes that elect the President. Besides determining how many seats each State will have in the U.S. House, the Census will also determine allocation of federal, State, and local government funds for social services, community programmes and infrastructure. Critics say seeking citizenship information will suppress the count of non-citizens, who may be legal or undocumented, in the Census, disadvantaging States and cities with more immigrants. Simultaneously, the federal tax code rolled out by the Trump administration seeks to punish States with high taxation and high welfare spend, which tend to be Democratic. In response, several Democratic states have announced measures to help residents circumvent provisions of the federal tax law.
•In India, the decision to switch from the 1971 Census to the 2011 Census for the 15th Finance Commission is troubling States with low population growth, which are more or less also the States that contribute a relatively higher share per capita to the national tax kitty. After the 2031 Census, India will switch to a pan-country delimitation of parliamentary constituencies, as opposed to the current practice of redrawing constituencies without affecting the number of seats in individual States. This will result in reduced parliamentary representation for States with higher success in checking population growth, typically through better social welfare and education strategies.
Deeper questions
•Underlying the many concerns expressed in terms of federalism and the regional power balance, however, are also deeper questions of citizenship, identity and marginalisation of religious, linguistic and ethnic minorities in both democracies.
•America’s founding fathers had made “no taxation without representation” a principle of democracy, but the correlation between taxation and representation is rather weak now. Every year, a million people come to the U.S. as legal residents and potential future citizens and start paying taxes without legislative representation. So is the case with hundreds of thousands of guest workers. However, they get represented in an oblique manner by virtue of being counted in the Census. Some conservative groups are campaigning for redistricting and resource allocation based on the number of citizens, as opposed to residents, in a geographical area. The question remains open as a backdrop to the Trump administration’s move to count citizens.
•A second critical principle of democracy, “one person, one vote,” was established in the U.S. through a series of judgments by the Supreme Court through the 1960s, alongside the Voting Rights Act that empowered African-Americans to exercise their franchise. Both debates were politically fraught. The American electoral map had overlooked the massive urbanisation in the country in the first half of the 20th century. Rural voters in thinly populated Congressional districts held hugely disproportionate political power compared to expanding cities, and lawmakers had no incentive to redraw the political map. Since the late 1960s, regular reapportionments have been institutionalised.
•Universal franchise and the principle that everyone’s vote must carry equal value were part of the Indian Constitution originally. Subsequent constitutional amendments have mandated that the distribution of parliamentary representation among various States be based on the 1971 Census, until the first Census after 2026. The effort was to avoid disadvantaging States that stabilised their populations. But the result is, for example, that around 1.7 million people can elect a member of Lok Sabha from Kerala, while in Rajasthan it takes 2.7 million people. It has long ceased to be “one person, one vote.”
•Political power in India will shift to northern States such as Uttar Pradesh, Rajasthan, Madhya Pradesh, Bihar, post-2031. Kerala could lose six of its current 20 Lok Sabha seats and Tamil Nadu could lose 11 of its 39. In the U.S., political power will shift, post-2020, from Snow Belt States in the Northeast and Midwest such as New York and Michigan to Sun Belt States in the South and West, such as Texas and Washington.
•The impact on the political character of a region or the country as a whole due to these shifts is difficult to anticipate. But there are reasons why minorities and vulnerable groups feel unsettled. In the U.S. several Republican States have in recent years introduced measures that make minority voters less effective, diluting the “one person, one vote” principle. Many fear that the citizenship question in the Census could be a prelude to citizenship-based redistricting and resource allocation which would disempower immigrants, legal and undocumented. In India, political marginalisation of the Muslim minority is taking place not through legal manoeuvring but through social polarisation. The current Lok Sabha has 4% Muslim members against their share of 14% in the total population, an imbalance of power as problematic as the regional imbalance of power. The enthusiasm to promote Hindi demonstrated by the Narendra Modi government is hardly a reassuring prelude to discuss looming shift of political power and relative share of tax revenue from non-Hindi States to the Hindi belt.
•For any country to have a national identity and purpose, the more prosperous people and regions would have to share their wealth with relatively poorer communities and regions. Taxation and redistribution are among the tools through which democratic societies seek to achieve this goal. It is not that regionalism was never a part of politics in the U.S. or India, but in recent years the competition among States has been institutionalised and the rationale of taxation and redistribution itself is being undermined by the market economy. Since 2015, Indian States are ranked for ease of doing business; in a starker demonstration of this logic, Amazon is conducting a competition among American States to decide where to house its second headquarters. States that do well by competition, often by offering sops to investors, are then expected to concede resources to weaker States for the good of the collective, creating a tense dynamic.
•The current climate of hyper-nationalism in India and America is only exacerbating tensions instead of tempering this conversation. Who are the more authentic members of the nation and who the more legitimate claimants for its resources were questions that fuelled the populist, hyper-nationalism undercurrents in India in 2014 and in the U.S. in 2016. Several policies enacted by governments in both countries since then smack of a majoritarian project. As new debates over representation and taxation open old wounds, the challenge before both democracies is to imagine a national community that is inclusive, representative and reassuring for all its minorities — religious, linguistic, ethnic and the economically marginalised.
📰 Paper chase: the need to review use of VVPATs
The Election Commission must review the use of paper trail machines in the polling process
•The high incidence of glitches in the Voter Verifiable Paper Audit Trail (VVPAT) machines in Monday’s by-elections should be a major cause of concern for the Election Commission of India. Fresh polling had to be ordered in dozens of booths in Kairana and Bhandara-Gondiya in Uttar Pradesh and Maharashtra, respectively, as a consequence. Ever since the implementation of the VVPAT system last year, machine malfunction and subsequent delays in polling have been recurring issues. Close to 4.2% of the VVPAT machines deployed in the Karnataka Assembly elections this month developed glitches during the testing as well as polling processes. The overall fault rate was as high as 11.6% in the by-elections held in four parliamentary and nine Assembly constituencies on Monday. The ECI has suggested that these machines were more prone to malfunctioning due to their sensitivity to extreme weather conditions and exposure to light. It also blamed the relative inexperience of polling officers handling them, compared to the ballot and control units for the electronic voting machines (EVMs) that have been in use for much longer. The technical committee of the ECI is now faced with a challenge to ensure that the VVPAT machines hold up, with the general election due next year in the hot summer months. The VVPAT was added to the EVM to audit the voter tallies stored in the machine. Its universal implementation — which began in the Goa Assembly polls in February 2017 — was deemed necessary as many political parties complained about the possible hacking of EVMs. These complaints lacked any basis, but the VVPAT implementation was hastened to bring back trust in the election process. In all elections where it has been used, the VVPAT tallies have matched with the EVM counts, but for a stray case or two when the VVPAT machine was not reset before polling began.
•Inadvertently, the use of these machines, which are adjuncts to the ballot and control units of the EVMs, has added to the complexity of an otherwise simple, single programmable-chip based system, and rendered it prone to more glitches. There is enough empirical evidence to show that EVMs have eased polling and helped increase voter turnout since being put to use. But in using VVPAT machines to reassure sceptics about an election’s integrity, the ECI has introduced a new element, and cost, to the process. Considering these challenges, the ECI should consider deploying the VVPAT machines in a limited, statistically significant, randomly chosen set of polling booths. This will reduce the possibility of glitches affecting the polling process as well-tested machines could be deployed (with enough replacements also handy) to such booths. The current verification process, after all, only involves the counting of VVPAT slips by randomly choosing one booth from each constituency (or segment), and this check should not be affected drastically by the new method.
📰 India, Indonesia elevate ties
15 agreements signed, including one to boost defence cooperation.
•India and Indonesia on Wednesday elevated their bilateral ties to Comprehensive Strategic Partnership. The two countries condemned terrorism in all its forms, as Prime Minister Narendra Modi held “productive discussions” with President Joko Widodo.
•The two countries also signed 15 agreements, including one to boost defence cooperation, and called for freedom of navigation in the strategic Indo-Pacific region.
•Mr. Modi, who reached Jakarta on Tuesday night on his first-ever official visit to Indonesia, was accorded a red carpet welcome on Wednesday morning at the Merdeka Palace, one of the presidential palaces in Indonesia. The two leaders discussed areas of strategic cooperation and ways to ensure better economic ties and closer cultural relations, besides regional and global issues of mutual interest.
•In a joint press statement after the meeting, Mr. Modi said India’s Act East Policy and the vision of SAGAR (Security and Growth for all in the Region) matched Mr. Widodo’s Maritime Fulcrum Vision.
•“As mutual partners and neighbours, our worries are similar. It is our duty to ensure maritime security and safety. This is also for the safety of our economic interests,” he said.
30-day free visa
•Mr. Modi announced a free 30-day visa for Indonesian citizens and invited the diaspora to travel to their country of origin to experience the ‘New India.’
•Addressing a gathering of the Indian diaspora at the Jakarta Convention Centre in the Indonesian capital, he said, “not only do the names of our nations rhyme, but also there is a distinct rhythm in the India-Indonesia friendship.”
•“We will grant free of cost visa for Indonesian citizens for travel of up to 30 days,” Mr. Modi said, amid applause.
📰 Charting its own path
Why the 20th anniversary of the Pokhran nuclear tests was so muted this month
•Some anniversaries are celebrated with enthusiasm while others are merely observed. The muted response to the 20th anniversary of India’s nuclear weapons tests this past month puts this milestone firmly in the second category. It is a far cry from the triumphalism that overtook India 20 years ago. And yet, in crossing the rubicon (a phrase from that era) India took a gamble with the international nuclear regime that, despite the turbulent reception, has largely paid off. Even if India today is not quite at the Nuclear Non-Proliferation Treaty (NPT)-sanctioned top table of the original five nuclear weapons states (NWS), it is not in the company either of the other two self-declared nuclear weapons powers, Pakistan and North Korea. Therein lies the rub.
No place at the top table
•Today India occupies a special position as a responsible state with advanced nuclear technology, to quote from the 2005 Joint Statement announcing the India-U.S. nuclear deal. This status is a product and a reflection of the steady attempt by New Delhi to shift attention away from its nuclear weapons and towards its civil nuclear technology. India could not act like just another nuclear weapons power. That route to the top table closed when the NPT was negotiated. India has therefore had to make different choices from the original five. By the time the NPT was negotiated, the world had witnessed 925 tests by the NWS, including 96 by the U.S. in 1962 alone. New Delhi declared a moratorium on testing after the two series of tests on May 11 and 13.
•India published a draft nuclear doctrine within five years of testing. The U.S. first published its Nuclear Posture Review in 1994. None of the other NWS has an explicitly published doctrine, though enough can be gleaned from U.K. White Papers and official French and Chinese pronouncements. Even though debate on doctrine has since stalled, the point remains that India hoped transparency would help legitimise its nuclear choices and carve out a path to the nuclear top table.
•Reality, however, did not pan out that way. Each pronouncement on deterrence only strengthened the link between India and Pakistan. From being accused of precipitating Pakistan’s 1998 tests, to not appreciating the potential for a nuclear exchange, India learned that its international interlocutors were unable to view nuclear possession by the two South Asian neighbours with any degree of equanimity. Never mind that the then Prime Minister, A.B. Vajpayee, had mentioned two nuclear neighbours, not one, in explaining the reasons for the test. Nuclear weapons bound India ever closer to Pakistan; worse, they gave Pakistan the ability to invite international attention to the bilateral relationship by playing on extra-regional fears of tensions escalating to a nuclear level. Witness the anxiety generated by Kargil and the 2001/2002 deployment. By the Mumbai attacks in 2008, India had shifted attention away from weapons to the civil nuclear side of things. That it kept the response to Mumbai firmly in the diplomatic sphere despite Pakistan’s attempts to raise the bogey of Indian troop deployments speaks to the realisation that India’s nuclear weapons could be used against India by those outside its borders.
•This might explain India’s muted presence in current discussions on deterrence. The U.S., Russia and China are modernising their nuclear assets; the U.S. and Russia are also developing weapons with calibrated yields. Pakistan claims to have developed tactical nuclear weapons. India has stayed away from these discussions. Its position, as declared in 2003, states that India will respond to WMD use against it with a strike designed to cause unacceptable damage.
•In contrast, India has been very vocal about joining the Nuclear Suppliers Group (NSG) and the Missile Technology Control Regime (MTCR), the informal groupings that control trade in nuclear and dual-use technology. Along with the Wassenaar Arrangement and the Australia Group, they control trade in sensitive materials and technology; together, they provide ballast for the nuclear regime underpinned by the NPT.
•And here we come to perhaps the main reason for India’s nuclear behaviour. India has a troubled relationship with the NPT. Though deciding against accession in 1968, India supports the Treaty and has benefitted from the stability it has provided by limiting the spread of nuclear weapons. And yet, India is the prize sought by several NPT adherents who wish to bring it into the fold as a non-nuclear weapons state. By the terms of the NPT, India cannot be a ‘nuclear have’ as the Treaty only recognises those states that conducted a nuclear test before 1968 to be NWS. So the only way to fully legitimise India’s (legal) nuclear choices is to make the NPT irrelevant to India, while not undermining the Treaty. Joining the NSG and MTCR would help as the informal guidelines for membership require accession to the NPT. India has most of what it needs from the NSG from the 2008 waiver, certainly for the current desultory progress in nuclear power production. Membership would not significantly affect power production, and yet accession remains so totemic as to overshadow the fact that we have actually joined the MTCR, Wassenaar Arrangement and Australia Group in 2016, 2017 and 2018, respectively.
Focus on civil use
•India’s choosing to clear its path to that seat using civil nuclear rather than weapons development is a purely pragmatic decision. Deciding to test in May 1998 at Pokhran was probably the last truly sovereign decision that it made in this field. Now declared, what India chooses to do with its nukes is — legitimately — a global concern. This may explain why May 11 is now National Technology Day and a rising India is protecting its economy by shifting attention away from the Bomb.
📰 34 leopards die each year in Rajasthan, says wildlife report
The population of the big cat faces several serious challenges in the State, prominent among them man-animal conflict
•With an alarming average of 34 leopard deaths every year in Rajasthan , according to a report, as many as 238 big cats have died in the desert State from January 2012 to May 21, 2018.
•Listed on a par with tigers under Schedule 1 of the Wildlife Protection Act (WPA), 1972, the population of leopards faces a serious challenge due to various reasons, prominent among those are man-animal conflicts, availability of prey base and road/train accidents.
•Quoting the report, out of the total deaths that occurred during the above mentioned period, 84 were found dead - both natural and unnatural - while 52 were killed in road/train accidents and 31 due to infighting.
‘19 killed by villagers’
•“24 were killed in seizure and poaching, 19 were killed by villagers, 14 by tiger or other animals whereas electrocution and rescue operations claimed seven deaths each,” as per the data of Wildlife Protection Society of India (WPSI).
•Till May 21 this year, 23 leopard deaths were recorded. While 11 were found dead, 12 were killed, the WPSI data reveals.
•Talking on the issue, Forest and Environment Minister Gajendra Singh Khimsar noted that the rise in population of leopards could be one of the reason behind increase in the conflict between man and animal.
•He claimed that the government is making all efforts to avoid such conflicts where villagers are forced to kill animals in their self-defence.
‘Project Leopard’
•We have launched a one-of-its-kind ‘Project Leopard’ to increase prey base so that animals do not stray out for food and water. Under the project, boundary wall work will finish in next two months in Jhalana Forest Reserve in Jaipur, Mr. Khimsar said.
•As per the wildlife census reports of past two years, the leopard count has increased from 434 in 2015 to 508 in 2016. Having said that, according to many wildlife activists it is the depletion of natural prey base in forest areas that had led to the shifting of wild animals towards killing of livestock.
•“The forest department has not made appropriate arrangements such as water and prey base. Animal population is increasing so animals have started moving into habitations and agriculture fields in search of food and water,” said People For Animals (PFA) State president Babu Lal Jaju.
📰 Normal monsoon likely, except in east and northeast: IMD
Eastern and northeastern India may witness ‘below normal’ rainfall, says the weather office.
•All of India is likely to receive a “normal monsoon”, except the east and northeast of the country, which are likely to witness “below normal” rainfall, the India Meteorological Department (IMD) said on Wednesday.
•With this announcement, the IMD’s prediction of a “normal monsoon” remains unchanged in its second stage long-range forecast.
101% of LPA
•The monthly rainfall over the country as whole is likely to be 101% of its Long Period Average (LPA) during July, and 94% of the LPA during August — both with a model error of plus or minus 9%.
•Anything between 90%-96% of the LPA is considered “below normal” while rainfall in the range of 96%-104% of the LPA is considered “normal.”
•Also, rainfall is considered “deficient” if it ranges below 90% of the LPA, and “above normal” if it falls between 104%-110% cent of the LPA. Above 110% of the LPA is considered “excess” rainfall.
•“Rainfall over the country as a whole for the 2018 southwest monsoon season (June to September) is most likely to be normal (96%-104% of LPA). Quantitatively, the monsoon season (June to September) rainfall for the country as a whole is likely to be 97% of the LPA, with a model error of plus or minus 4%,” the IMD said.
•There is also a 43% probability of a normal monsoon, it added.
•On the progress of the monsoon, the Met Department said that conditions are favourable for further advance of the southwest monsoon into some parts of northeastern States in the next 48 hours. It added that conditions are also likely to become favourable for its advance into some more parts of southern peninsula around June 3.
•“Rainfall activity is likely to increase over parts of Maharashtra and Goa from June 6,” the IMD said.
📰 U.K. not to deport skilled migrants
Suspends use of anti-terror rule used to send highly skilled workers, including Indians, back home
•Campaigners have welcomed a decision by the British Home Office to suspend the use of rules designed to prevent the settlement of criminals and terrorists against highly skilled workers, including many Indians, on the basis of changes (often minor) they have made to their tax submissions.
•Britain’s new Home Secretary Sajid Javid, the first South Asian-origin person to hold one of the top four Cabinet posts in the U.K., and tasked with restoring confidence to the Home Office, said all applications for indefinite leave to remain in Britain, which were facing refusal because of the use of the now notorious Paragraph 322 (5) of the anti-terror laws, would be put on hold, pending the findings of a review.
•“We are checking individual case records to identify any applicants who were removed having been refused Indefinite Leave to Remain (ILR) under paragraph 322 (5),” he wrote in a letter to the House of Commons Home Affairs Select Committee . The department had identified 19 people to date who had been refused ILR on these grounds and left the country before facing deportation. A review, which will seek to identify more of those caught up, is expected to be completed by the end of the month.
More action needed
•The campaign group, Highly Skilled U.K., welcomed the developments and the commitment to tackling the issue demonstrated by Mr. Javid. However, they believe more action is needed — both to identify all those impacted and to provide relief to those currently unable to work because of their uncertain immigration status over the use of 322 (5).
•“This is quite welcome, we are aware of a number of cases still pending,” said Aditi Bhardwaj, one of the campaign’s founders. “Its good that the Home Secretary appears to be taking the situation seriously.” However, she believes the figure of those forced to leave Britain after their ILR applications had been refused well exceeded the government’s current figures. “Our campaign group alone is aware of at least six people from India who have left Britain because of this.”
•A further protest is set to take place on June 5. While the Highly Skilled U.K. protests have to date largely involved South Asians (from across the subcontinent), the publicity the group had gained in recent weeks had resulted in Turkish and other citizens contacting the group.
•“We are expecting significant numbers of people,” said Ms. Bhardwaj. The group will be calling for those currently in limbo to have the right to work, access health care and other public services — rights that had been removed for them amid delays and indecision over reviews of their right to remain.
•“We’ve seen the breakdown of families, people suffering incredible anxiety and stress, losing jobs and homes, surviving with money from friends,” she said.
Increased attention
•The treatment of highly skilled workers has gained increased attention from the public as well as in Parliament, with MPs putting together a group to identify those impacted. They are critical of the use of Article 322 (5), which deals with “character” and “security” issues, against highly skilled workers who have been in Britain for over five years under the Tier 1 Highly Skilled visa programme (now no longer place) because they made rectifications to their tax filings.
•Tax rectifications are common place in the U.K. self-assessment system, as even ministers admitted, and in the case of highly skilled workers, the rectifications had been accepted by Britain’s tax authorities.
📰 Nepal leads the way in cutting emissions in brick kilns
Redesigned ovens, zig-zag stacking of bricks reduces pollution
•Below skies darkened by thick black smoke, hundreds of thousands of brick kiln workers endure back-breaking labour and suffocating heat working in almost medieval conditions across South Asia. But in one corner of the region, the need to rebuild after Nepal’s devastating 2015 earthquake has presented an unexpected opportunity.
•Along with much of Nepal, the industry was devastated by a 7.8-magnitude earthquake that hit in 2015, killing around 9,000 people and flattening about a third of the country’s brick kilns.
•There are more than 150,000 kilns in India, Bangladesh, Pakistan and Nepal belching out thousands of tonnes of soot — known as black carbon — a major air pollutant and the second largest contributor to global warming after carbon dioxide.
•The Brick Kiln Initiative, launched by the International Centre for Integrated Mountain Development, found a way to redesign the ovens and stack the bricks differently so that less toxic soot is produced.
•By stacking the bricks inside the kilns in a zig-zag pattern, the heat snakes through the gaps more efficiently, ensuring coal is completely burned so less soot is produced.
Halving coal consumption
•Emissions are cut by 60%. But more importantly for the kiln owners, it nearly halves coal consumption.
•“The environmental factor does not necessarily motivate most kiln owners, but the zig-zag method has an economic benefit. We are using less coal and getting better bricks faster,” said Mahendra Chitrakar, president of the Federation of Nepal Brick Industries.
•Most of the 100 brick kilns in the Kathmandu valley have already adopted the new technology, according to Mr. Chitrakar.
📰 Contaminants making their way into food-contact items
Manufacturers are using recycled electrical equipment as a source of black plastic
•Hazardous chemicals such as lead are finding their way into food-contact items and other everyday products because manufacturers are using recycled electrical equipment as a source of black plastic, a study has found.
•The substances are among those applied to devices, such as laptops and music systems, as flame retardants and pigments but remain within the products when they reach the end of their useful lives.
•Scientists at the University of Plymouth in the U.K. have shown that a combination of the growing demand for black plastic and the inefficient sorting of end-of-life electrical equipment is causing contaminated material to be introduced into the recyclate.
Threat to marine life
•This is in part because despite black plastics constituting about 15% of the domestic waste stream, this waste material is not readily recycled owing to the low sensitivity of black pigments to near infrared radiation used in conventional plastic sorting facilities. As well as posing a threat to human health, the study showed that there are potentially harmful effects for the marine and coastal environment either through the spread of the products as litter or as microplastics.
•Researchers used XRF spectrometry to assess the levels of a range of elements in more than 600 black plastic products such as food-contact items, storage, clothing, toys, jewellery, office items and new and old electronic and electrical equipment.
•Bromine, in the form of brominated compounds, is and has been used in electrical plastic housings as a flame retardant, while lead is often encountered in electronic plastics as a contaminant. However, both elements were found extensively in non-electrical black consumer products tested, where they are not needed or desirable.
•In many products, including cocktail stirrers, coathangers, various items of plastic jewellery, garden hosing, Christmas decorations and tool handles, concentrations of bromine potentially exceeded legal limits that are designed for electrical items.
•In other products, including various toys, storage containers and office equipment, concentrations of lead exceeded its legal limit for electrical items. “There are environmental and health impacts arising from the production and use of plastics in general, but black plastics pose greater risks and hazards,” said Andrew Turner, University of Plymouth.
•“This is due to the technical and economic constraints imposed on the efficient sorting and separation of black waste for recycling, coupled with the presence of harmful additives required for production or applications in the electronic and electrical equipment and food packaging sectors,” said Mr. Turner. “Black plastic may be aesthetically pleasing, but this study confirms that the recycling of plastic from e-waste is introducing harmful chemicals into consumer products,” he said.
📰 Moody’s cuts India’s 2018 growth forecast to 7.3% from 7.5%
For the world economy, Moody’s expected 2018 to be a year of robust global growth, similar to 2017.
•Moody’s Investors Service on Wednesday cut India’s 2018 growth forecast to 7.3% from the previous estimate of 7.5%, saying the economy is in cyclical recovery but higher oil prices and tighter financial conditions will weigh on the pace of acceleration.
•Moody’s, however, maintained its 2019 growth forecast at 7.5%. “The Indian economy is in cyclical recovery led by both investment and consumption. However, higher oil prices and tighter financial conditions will weigh on the pace of acceleration. We expect GDP growth of about 7.3% in 2018, down from our previous forecast of 7.5%. Our growth expectation for 2019 remains unchanged at 7.5%,” it said in an update of its ‘Global Macro Outlook: 2018-19’
•Moody’s said growth should benefit from an acceleration in rural consumption, supported by higher minimum support prices and a normal monsoon.
•“The private investment cycle will continue to make a gradual recovery, as twin balance-sheet issues — impaired assets at banks and corporates — slowly get addressed through deleveraging and the application of the Insolvency and Bankruptcy Code,” it said.
•Also, the ongoing transition to the new Goods and Service Tax regime could weigh on growth somewhat over the next few quarters, which poses some downside risk to the forecast, it said. “However, we expect these issues to moderate over the course of the year.”
•For the world economy, Moody’s expected 2018 to be a year of robust global growth, similar to 2017.
•“However, global growth will likely moderate by the end of 2018 and in 2019 as a result of a number of advanced economies reaching full employment, and because of rising borrowing costs and tighter credit conditions in both advanced and emerging market countries that will hamper further acceleration,” it said.
•The G-20 countries, it said, will grow 3.3% in 2018 and 3.2% in 2019. The advanced economies will grow at a moderate 2.3% in 2018 and 2% in 2019, while G-20 emerging markets will remain the growth drivers, at 5.2% in both 2018 and 2019, down from 5.3% in 2017.
•Moody’s said downside risks to growth stem from emerging markets turmoil, oil price increases and trade disputes.
•“The ongoing financial market turbulence in emerging market countries poses risks of a broader negative spillover effect on growth for a range of countries beyond Argentina and Turkey, while there is a risk that high oil prices will be detrimental to consumption demand. A re-escalation of trade tensions between the US and China is another risk factor to growth. Political concerns add to downside risks in Brazil, Mexico and Italy,” it said.
•“Overall, we expect 2018 to be a year of robust global growth, similar to 2017,” according to Moody’s VP senior credit officer Madhavi Bokil.
•“The ongoing financial market turbulence in emerging market countries poses risks of a broader negative spillover effect on growth for a range of countries beyond Argentina and Turkey, while there is a risk that high oil prices will weigh on purchasing power and present an upside risk to inflation. A re-escalation of trade tensions between the U.S. and China is another risk factor to growth.”
•The outlook for global monetary policy is broadly unchanged with the U.S. Federal Reserve on a predictable and gradual tightening monetary policy path. Three additional increases in the US federal funds rate this year is expected to be followed by three more hikes in 2019.
•The European Central Bank will likely stop additional asset purchases by year-end and start increasing the deposit facility rate in the first half of 2019. The Bank of Japan will maintain its current monetary policy over the next two years.
•“Rising interest rates and currency depreciation reinforces Moody’s view central banks in emerging market countries will not be able to provide monetary policy accommodation for much longer,” Ms. Bokil said.
