📰 India pitches for global action against terrorism
•The MEA announced that on request from the Indian leader the Crown Prince ordered the release of 850 prisoners from Saudi jails before his visit came to an end.
•The Crown Prince said, “We have also diversified to the petrochemical sector in India. Since 2016, we have achieved many goals with India and we think there is a potential for investing $100 billion.” Prime Minister Modi praised the Saudi role as a crucial energy supplier to India and said that both sides are moving towards sustainable energy.
•A joint statement issued at the end of the visit, agreed to expedite the work for the $44 billion West Coast Refinery and Petrochemical Project.
•The visit is the first by the Saudi dignitary who is known to have brought in a new vision to the oil-rich economy.
•Mr. Modi described Saudi Arabia as one of India’s most valuable strategic partners.
•Responding to India’s position on Pakistan, the Saudi side said that it will support India’s security needs. “We will share intelligence with India and other countries to prevent terrorism,” said Mohammed Bin Salman, even though he did not mention cross-border terrorism from Pakistan during his press conference.
•The joint statement urged for early adoption of the UN Comprehensive Convention on International Terrorism and pitched for “comprehensive sanctioning of terrorists and their organisations by the UN.”
•Both sides also resolved to create a “Comprehensive Security Dialogue” consisting of National Security Advisers and set up a Joint Working Group on Counter Terrorism. Both sides also launched a Strategic Partnership Council that will be led by the Prime Minister and the Crown Prince.
•During the visit of Mohammed Bin Salman, Saudi Arabia joined the International Solar Alliance (ISA).
‘Choose non-corrupt candidates or opt for NOTA’
•Odisha’s Jan Jagran Abhiyan has decided to start a Statewide movement to motivate voters to vote for able and non-corrupt candidates without considering their party affiliation or opt for NOTA in the coming elections.
•“The JJA is a political organisation with no intention to contest elections. We will not watch the dirty game of electoral politics from the fences but interfere in it by motivating the voters,” said JJA’s Odisha president Madhusudan Sethi.
•The organisation has decided to start a campaign to motivate the voters to choose their candidates based on six criteria — character, past criminal record, corruption charges against the person, if he/she is anti-caste system, anti-communal and connected to the people. “These are six Cs by which a voter can judge the candidate,” Mr. Sethi said.
•The JJA has decided to ask the voters to opt for NOTA (None of The Above) in case they do not find any candidate fulfilling the six Cs.
•Members of the organisation said voters are falling for big political parties and their charismatic leaders and electing undeserving candidates. “Let the good people get elected and they can choose an able leader,” Mr. Sethi said.
📰 More symbolic than punitive
India’s trade-related action will encourage informal trade and propel Pakistan to look for markets beyond South Asia
•India’s decision to withdraw the Most Favoured Nation (MFN) status to Pakistan means that India will not treat Pakistan on an equal footing in trade as is expected of fellow members of the World Trade Organisation. The move comes after the attack on a Central Reserve Police Force convoy in Pulwama, Jammu and Kashmir.
Just a dent
•It does not strictly fall under the ‘beggar-thy-policy’, often used in international trade through which one country tries to resolve its economic problems by means that worsen the economic problems of its neighbours or trade partners. The moot point therefore is the sensitivity of the impact of the MFN status on Pakistan in terms of its trade with India. It can only be a pressure tactic and do little unless stringent actions are taken to stop informal trade that has been going on between the two countries for long.
•Besides China, India and Pakistan are the two largest economies in the South Asian region. Being dominant constituents of the South Asian Association for Regional Cooperation, both countries have immense potential for intra-regional trade. Trade now takes place using three channels: the official route; the illegal (informal) route, through smuggling along porous India-Pakistan land borders and also Afghanistan, which may not be accounted for in the national income; and lastly, through mainly Dubai and Singapore, which have free ports and accommodate legal agents of traders from India and Pakistan.
•Informal trade generally takes place due to restrictions on import of specific items on grounds of health and religious beliefs; ‘high tariff barriers or transportation costs, making it cost effective to smuggle goods in the country; imposition of non-tariff measures (NTMs)’; weaknesses in the ‘rules of origin’ resulting in ‘trade routed through a third country; leakages in transit trade; and distortions in domestic policies such as the absence of or relatively low indirect taxes, creating an incentive to transport items illegally to neighbouring countries. Traders carry out informal trade between Pakistan and India through the exchange of goods at the border as well as through the personal baggage scheme’ through “green channel” facilities at international airports or railway stations. ‘Informal trade has also taken place through Afghanistan where goods are exported officially from India and later smuggled into Pakistan. Indian-made goods smuggled into Pakistan include cosmetics, liquor, stainless steel utensils, ayurvedic medicines, videotapes/CDs, confectionery/cashew nuts, tea, coffee, live animals and spices’.
Trade data
•From 2011-12 to 2017-18, India’s formal trade with Pakistan increased from $1.94 billion to $2.41 billion. Of this, the share of exports stands at almost 80% and has been fairly stable over the years (Ministry of Commerce and Industry, India). In 2012-13, informal trade between India and Pakistan — estimated in a study (ICRIER, N. Taneja and S. Bimal, 2016) — was $4.71 billion, which was double when compared to formal trade. India’s informal export share to Pakistan was again much higher at $4 billion while its import share was low at $0.71 billion.
•After the Pulwama attack, the follow-up measure to raise tariff duty on imports to 200% can again be trivial. So would be the NTMs, if increased, as India’s imports from Pakistan are reasonably low at $0.488 billion. Besides, imports from Pakistan grew at a lower rate (1.04%) compared to exports (1.32%) per annum from 2011-12 to 2017-18. Major exports from India that would hard hit would be cotton (not carded or combed) valued at $0.273 billion, p-Xylene ($0.082 billion), polypropylene ($0.063 billion) and single yarn ($0.088 billion). Pakistan’s loss from major exports to India would be much less — from dates ($0.113 billion), portland cement ($0.078 billion), other petroleum oil ($0.055 billion) and light oils and preparations ($0.028 billion).
•Thus Pakistan is an important export destination for India but not vice-a-versa. This is despite the fact that Pakistan imposes a large number of NTMs (143) on Indian exports, the major ones being export related measures (25.2%); technical barriers to trade (24.5%); and sanitary and phytosanitary measures (22.4%). These are ‘concentrated on agriculture, plants, and food-related products and operate as bans that shut competitors out of its market. Pakistan’s NTMs are blunt instruments; it is difficult to use them to provide targeted protection to the strategic industries. In contrast, India’s NTMs are soft barriers which operate as delays or bureaucratic hurdles rather than bans. Pakistan’s NTMs focus on general categories of goods whereas India’s NTMs are on particular industries and trading partners. The widely used NTMs India uses include defence procurement procedure, preference to domestically manufactured electronic goods in government procurement’ and a ban on goods largely manufactured within the country.
•The sense is that Pakistan may not face an exacerbating situation with India withdrawing the MFN status and raising the import duty. Informal trade may proliferate, which might not be in India’s interest and an appropriate strategy is required to bring it to a halt. Also, under the South Asia Free Trade Area Agreement (SAFTA) 2004, Pakistan’s share in external trade is less than 10%, while India’s share is more than 70%. Such steps may propel Pakistan to look for new markets beyond SAFTA, corroborated by the recent meeting held with Saudi Arabia and growing prospects of trade through a third country, mainly via Dubai.
📰 With reservations: quota for Gujjars?
It’s not clear if the 103rd Amendment will protect the new quota for Gujjars in Rajasthan
•With leaders of the Gujjar agitation for reservations calling off their stir, the Rajasthan government has averted what could have been a prolonged crisis. There is a sense of déjà vu amid all this. Gujjar leaders have held various rounds of protests over the last decade and a half, demanding reservations in educational institutions and employment in a separate backward category that is apart from the existing 21% set aside for Other Backward Classes in the State. Despite governments bringing in legislation towards this end, they have been struck down on the grounds that the additional quota would take the quantum of reservation above the 50% limit set by the Supreme Court in the Indra Sawhney judgment. On Wednesday, the Rajasthan State Assembly passed legislation providing 5% reservation to Gujjars and four other nomadic communities, classifying them as “extremely backward classes”. But this time, the circumstances have arguably changed with the passing of the 103rd Amendment to the Constitution that allows for a 10% quota for the economically backward among communities that do not enjoy any form of reservation. The State government has also added a line to the Bill explicitly referring to the amendment, which effectively breaches the 50% limit set for reservations by the Supreme Court. It remains to be seen how the judiciary will tackle this question in light of the 103rd amendment, the constitutionality of which is under challenge.
•The demand by Gujjars has a specific context. In Rajasthan, the community is currently eligible for reservations as an OBC community. They had in the mid- and late-2000s agitated for inclusion in the Scheduled Tribe category, in keeping with the way they are classified in Jammu and Kashmir and Himachal Pradesh. This demand was denied because tribal status, as defined in the Constitution’s Fifth Schedule, involves identifiable characteristics such as lifestyle, culture, inaccessibility and backwardness, and not just economic underdevelopment. Since then, the largely pastoral community has pressed for reservations under a separate backward class category, arguing that inclusion of Jats in the OBC list has crowded Gujjars out of the benefits of reservations. Clearly, the decision to accommodate a demand from one politically dominant community (Jats) has come to haunt administrators in the State as this has fanned Gujjar agitations on and off. Multiple commissions appointed by State governments have recommended the implementation of the 5% quota on the basis of the community’s “extreme” or “most” backward nature. But the lack of adequate data in the absence of a proper socio-economic caste census to prove this has led to the policy’s undoing in judicial orders. More important, the repeated agitations are an indication of the shortfall in adequate, gainful and secure job opportunities in States such as Rajasthan.
📰 The private sector in public health
It can provide services and capital
•The healthcare panel at the recent India Conference hosted by students of the Harvard Kennedy School and the Harvard Business School discussed the role of the private sector in augmenting public healthcare services. Goal 3 of the UN Sustainable Development Goals (SDG) is to “ensure healthy lives and promote well-being for all at all ages”. India has a mammoth role in helping the world attain SDG-3 as global health indicators cannot improve without India making giant strides. In providing healthcare, the Indian government has led the way, as it should, given that India is a welfare state.
•Over the past decade, courtesy changing demographics and lifestyles, India has been witnessing shifting disease prevalence in terms of the largest causes of morbidity and mortality. This requires that we give our health delivery system a re-look. The Harvard panel dove in to how the private sector can be leveraged for this purpose. The precondition is to create an ecosystem where partnerships between the private and the public sector can thrive. This must start with trust and stated common objectives. Once the ecosystem is more conducive, complementarities need to be identified.
•While one may not foresee a great presence of the private sector in providing primary healthcare services, areas such as ambulance services and value-based care delivery can be promoted through this sector. Ayushman Bharat seeks to improve the network of the government’s first-point-of-contact health centres. For higher levels of services, the private sector can be incorporated by creating linkages between public health infrastructure and private providers through a hub-and-spokes model.
•Besides services, the private sector is also a source of capital. A legally mandated way to provide this is through Corporate Social Responsibility. Companies above a certain annual turnover (₹1,000 crore), net worth (₹500 crores) or annual net profits (₹5 crore) have to earmark 2% of their net profits of the past three years to CSR projects, which may include healthcare projects. CSR has not yet reached its full potential. However, it is encouraging to see the merging of initiatives. This is seen in the government directing companies, albeit public sector ones, to the focus districts of the Aspirational Districts programme, which was started in 2018 to improve governance and service delivery across six sectors including health and nutrition.
•At the end of the day the lesson was clear: as India strives to ensure availability, affordability and accessibility to quality healthcare for its people, both private and public stakeholders need to come together.
📰 The employment test
The labour force may have actually shrunk while the Modi government has been in office
•Attuned as we have become to political grandstanding on the purpose of democracy, we may not have imagined that something so prosaic as statistics can alter our perception of how it is actually working for us. The emergence over the past few months of data on employment, speaking precisely the lack of it, cannot but have an influence on our assessment. They paint a picture of an economy that is widely out of line with the government’s pronouncements on its performance. These have generally avoided any reference to employment, except to say that there is a lack of reliable data on it, for the rectification of which the government itself has done very little.
•Arun Jaitley, Finance Minister for the greater part of this government’s tenure, has claimed that it has coincided with a degree of macroeconomic stability that has not been surpassed. Perhaps he had in mind the combination of falling inflation and declining Budget deficits since 2014. However, while this has indeed transpired, it is important to note that these trends had commenced even before. Moreover, after repeatedly expressing a commitment to fiscal consolidation, the government did not hesitate to swerve from the path of rectitude to finance an income support programme for farmers in an election year.
Silence on jobs
•But of greater significance is the fact that neither he nor the Prime Minister has had anything to say about employment. In this the BJP is not unique. Employment does not usually figure in the public discourse orchestrated by political parties, either at the Centre or in the States. This must change, for steady employment is the citizen’s aspiration, to realise which she elects representatives. Governments in India must therefore be routinely subjected to an employment test which gauges their success in generating and sustaining high employment. In his election campaign in 2014 Narendra Modi had announced that he would generate jobs.
•Employment data from government sources (Labour Bureau) for about half a decade up to 2015 and from the independent agency Centre for Monitoring Indian Economy (CMIE) for the period since give us a reasonably good idea of the progress made with respect to employment. When supplemented with other information, these sources also suggest to us the proximate factors responsible for that history. The evidence they provide tell two stories. First, the Modi government has had next to no success in generating employment, notwithstanding its promises at election time. A development that may require some effort to understand fully, but which nevertheless it is important for the citizen to do, is that the labour force may actually have shrunk while it has been in office. The labour force is the sum of the employed and those unemployed who are seeking employment. A shrinking of the labour force is most unusual in an economy with a growing population, and thus a growing working age cohort.
The demonetisation effect
•While this decline had already emerged in 2015, it became pronounced after demonetisation in 2016. We owe to CMIE, a private Indian body, both this finding and the articulation of the precise mechanism at work. A section of those hitherto willing to work may have simply dropped out of an already challenged labour market. This possibility is recognised in macroeconomics as the ‘discouraged-worker effect’ and has been observed in Western economies. The loss of skill that can accompany being unemployed even temporarily, and the consequent loss of long-run output for the economy, is the basis of the argument that public policy must respond with alacrity to growing unemployment. No such sensibility has infused the government, which appears not to have noticed the decline in the labour force itself, a development that occurred very early in its tenure. It has instead congratulated itself on having delivered macroeconomic stability. We are now able to see that whatever may have been the acclaimed beneficial impact of demonetisation in terms of raising direct tax compliance, it has caused demoralisation among a section of the already unemployed who may have given up all hope of finding employment.
•The second of the two histories referred to, seen in the reports of one of the government’s agencies, is that of a rising unemployment rate from 2011 onwards. This point has political significance as we stay poised for the general election. This is that while the Modi government may have run amok with the demonetisation, India’s unemployment challenge predates this episode and evidently runs deeper. Labour Bureau data show that the unemployment rate almost doubled between 2011 and 2015. It is surprising that the government’s own reports did not flag this. The economic, as opposed to the political, message is that the recent history of unemployment has been impervious to the political formation governing India.
•If we are to more than just wring our hands at the existant unemployment, an understanding of what underlies it is necessary. Actually, no more than standard macroeconomic analysis is needed in this regard. Both output growth and employment are under normal circumstances associated with capital formation. Capital formation as a share of output has been declining since 2011-12. Unlike consumption expenditure, capital expenditure is unique in expanding both the supply and demand sides of the economy. Despite the declining capital formation, neither United Progressive Alliance (UPA) II nor National Democratic Alliance II considered it necessary to respond to it by stepping up public investment, the obvious thing to do in the prevailing circumstances.
•The clue to this inertia may be found in the political economy. For UPA II the success of its first term in office must have looked like the perfect opportunity to expand its political base by legislating rights and reciting the mantra “inclusive growth”. Then came Narendra Modi, who somewhat incongruously for an avowedly nationalist politician, embraced the dogma of the Washington Consensus. Popular in the 1990s after the collapse of the Soviet Union, it extolled small government and asserted the capacity of the market mechanism to deliver an optimal outcome. There was in this scheme of things no place for any involuntary unemployment. So, whatever may have been the calculation of the two political formations, employment generation just took a back seat in their respective programmes.
Cost of failure?
•We have adopted representative democracy as our form of government because we cannot in isolation achieve the outcomes we desire even when they are exclusive to us. Employment is one example of this. Though it manifests itself as jobs for individuals, it is determined by macroeconomic factors which individuals cannot influence on their own. The Great Depression in the 20th century and the Great Recession in the 21st, both which have originated in the U.S. but quickly spread across the world, testify to this helplessness of individuals in the face of market forces. In a democracy, it is left to elected representatives whether to pursue macroeconomic policies conducive to the generation of employment. India’s political parties have for close to a decade now failed to so, either wilfully or out of neglect. However, when elected to govern, they are given a chance to create the conditions that enable Indians to lead flourishing lives, which includes being meaningfully employed during their working age. India’s political parties must pass ‘the employment test’. When they fail they must vacate the stage.
📰 Centre clears ₹48,239 cr. recapitalisation package for PSBs
Four non-PCA banks PNB, Union Bank, Andhra Bank, and Syndicate Bank will get a total of ₹14,879 cr.
•The government has approved the disbursal of a recapitalisation package of ₹48,239 crore for 12 public sector banks, Financial Services Secretary Rajiv Kumar announced on Wednesday.
•He said that this package had a fourfold objective: (i) bringing the better-performing banks currently in the Prompt Corrective Action (PCA) category out of it, (ii) helping those that have recently come out of PCA to stay out of it, (iii) equipping non-PCA banks to meet regulatory requirements, and (iv) helping the remaining PCA banks to meet their requirements as well. Towards this, a total of ₹15,982 crore is to be disbursed to Allahabad Bank and Corporation Bank, both of which fall within the first objective. Bank of India and Bank of Maharashtra, which recently exited the PCA category, are to receive a total of ₹4,843 crore. The bulk of this (₹4,638 crore) is allocated for Bank of India.
•Four of the non-PCA banks (Punjab National Bank, Union Bank, Andhra Bank and Syndicate Bank) will get a total of ₹14,879 crore. The largest share of this, of ₹5,908 crore, will go to PNB. The last category — of PCA public sector banks looking to meet their regulatory requirements — will get a total of ₹12,535 crore.
•These banks are Central Bank, United Bank, UCO Bank, and Indian Overseas Bank. “It should be taken as a supplement to the earlier package of recapitalisation, which was much bigger,” D.K. Srivastava, chief policy advisor, EY India, said. “We need to also take this in the context of growth picking up. Usually, when growth starts to become better, then those NPAs which have an economic reason behind them automatically get out of their NPA status. So, given that growth is improving and that this is a supplementary amount, it may be considered a timely intervention.”
•The Centre had infused ₹28,615 crore into 7 banks via recapitalisation bonds in December 2018.
📰 Inflation pressure eases
Why has inflation been falling?
•Inflation at both the retail and wholesale levels has been falling for the last 4-5 consecutive months. Inflation as measured by the Consumer Price Index (CPI), which captures retail inflation, and the Wholesale Price Index (WPI) has been falling in general for the last year or so. The CPI, for example, was as high as 5.21% in December 2017, following which it fell quite steadily (except for a mid-year blip in 2018) till it reached 2.05% in January 2019, the lowest it has been in 19 months. The WPI has similarly seen an overall decline, but has been more volatile than the CPI.
•The main reason why inflation has been falling is the drop in global oil prices. After rising in the middle of 2018 to average $80 a barrel in October, the Indian basket of crude oil prices fell to $57 a barrel in December 2018. It was $59 in January 2019. Prices in February have been slightly higher than that, but the increase is not much.
What does this mean for the economy?
•The nature of the Indian economy is such that a change in oil prices has knock-on effects on almost every sector such as food, manufacturing, transport and infrastructure. Any sector that uses fuel or energy as an input is affected by global oil prices because India is still overwhelmingly dependent on imported oil to meet its needs.
•When global oil prices fall, inflation falls across the board, most notably in energy-intensive sectors. And within this, falling prices in each of these sectors have an impact on the other sectors dependent on them. For example, falling inflation in the transport sector means that every sector that needs to transport goods will also benefit.
•Another aspect of falling inflation is that the Reserve Bank of India has more leeway to go easy on interest rates, one of its key inflation targeting tools. In its last Monetary Policy Review, the central bank cut the benchmark interest rate by 25 basis points. Some experts feel there is scope for even more cuts. Politically, low and falling inflation is always to the benefit of the government. This is especially noteworthy in the run-up to the general election. In contrast, the CPI inflation averaged about 7.6% in the three months leading up to the 2014 elections.
Why do WPI and CPI inflation diverge?
•Economists have pointed out the divergence for quite some time now. The main reason behind it is that the two indices measure different products and assign each of the categories different weights in the calculation of the overall index.
•This divergence has intensified since the implementation of the Goods and Services Tax because the new tax system affects retail inflation far more than it does wholesale inflation, since it is included in the final price of the product.
What is the outlook ahead?
•The outlook on oil prices is a stable one. The consensus is that crude oil prices will remain in the range of $55-65 a barrel for the next three to four quarters. Given how important this is for inflation in India, experts feel retail inflation will remain subdued at 2-3% and wholesale inflation at 3-4% in the near future.
📰 Meet the sea squirt, sucking up plastic particles from the sea
It can filter particles from ocean and store them in its tissue
•A rubbery sea creature with an irritating habit of clinging to ships and invading beaches could help measure plastic pollution as it can filter tiny particles from the ocean and store them in its soft tissue.
•Israeli researchers have found that ascidians — round, palm-sized animals also known as sea squirts — can thrive in dirty industrial areas and pristine waters alike, allowing them to detect and analyse waste and its impact in various regions.
One truck every minute
•A staggering amount of plastic flows into the ocean each year. The United Nations says it is as if a garbage truck full of plastic was dumped into the water every minute, a rate some estimates show could lead to oceans carrying more plastic than fish in 30 years. But the long-term impact of the waste, particularly tiny pieces called microplastic, is still not fully understood. “[Sea squirts] just sit in one place all their life and filter the water, like a pump,” said Gal Vered of Tel Aviv University, and who co-published the researchers’ findings in the journal Marine Pollution Bulletin. “They can really give us a picture of what the whole reef, the whole ecosystem felt during its life.”
•As a bonus, sea squirts are related in evolutionary terms to human beings. So studying them and the plastic inside them could be more insightful than looking at creatures like fish. “Although we don’t look alike at all, we have similar systems,” said Noa Shenkar, of Tel Aviv University’s zoology department and museum of natural history.
