The HINDU Notes – 13th July 2020

📰 China, Iran close to reaching trade and military partnership

This undercuts U.S. efforts to isolate the Tehran government

•Iran and China have quietly drafted a sweeping economic and security partnership that would clear the way for billions of dollars of Chinese investments in energy and other sectors, undercutting the Donald Trump administration’s efforts to isolate the Iranian government because of its nuclear and military ambitions.

•The partnership, detailed in an 18-page proposed agreement obtained by The New York Times , would vastly expand Chinese presence in banking, telecommunications, ports, railways and dozens of other projects. In exchange, China would receive a regular — and, according to an Iranian official and an oil trader, heavily discounted — supply of Iranian oil over the next 25 years.

Joint military training

•The document also describes deepening military cooperation, potentially giving China a foothold in a region that has been a strategic preoccupation of the United States for decades. It calls for joint training and exercises, joint research and weapons development and intelligence sharing — all to fight “the lopsided battle with terrorism, drug and human trafficking and cross-border crimes.” The partnership — first proposed by China’s leader, Xi Jinping, during a visit to Iran in 2016 — was approved by President Hassan Rouhani’s Cabinet in June, Iran’s Foreign Minister, Mohammad Javad Zarif, said last week. If put into effect as detailed, the partnership would create new and potentially dangerous flashpoints in the deteriorating relationship between China and the U.S.

•It represents a major blow to the Trump administration’s aggressive policy toward Iran since abandoning the nuclear deal reached in 2015 by President Barack Obama and the leaders of six other nations after two years of gruelling negotiations.

•Renewed U.S. sanctions, including the threat to cut off access to the international banking system for any company that does business in Iran, have succeeded in suffocating the Iranian economy by scaring away badly needed foreign trade and investment. But Tehran’s desperation has pushed it into the arms of China, which has the technology and appetite for oil that Iran needs. Iran has been one of the world’s largest oil producers, but its exports, Tehran’s largest source of revenue, have plunged since the Trump administration began imposing sanctions in 2018; China gets about 75% of its oil from abroad and is the world’s largest importer, at more than 10 million barrels a day last year.

📰 ‘We are still in a crisis and need a full reset of India-China relations’

The disengagement terms are dangerous, as they suggest that we are withdrawing from territory which we have controlled consistently, says former NSA

•India and China must fully reset ties, says former National Security Adviser Shivshankar Menon , cautioning that any move to allow buffer zones, mutual pull-outs and suspending patrols at the LAC sends out the wrong message that both sides are equally responsible for the aggression.

What do you think will be the lasting impact of the stand-off at the LAC?

•Well, I think there is no question that after this, India-China relations will be reset, as there is no going back on the situation before [the Ladakh stand-off]. What China did this time — pressing forward on multiple points along the LAC, then changing the definition of LAC claims, the deaths for the first time since 1975 [in the June 15 Galwan clash] — represents a significant change in Chinese behaviour. This actually calls into question the whole structure of agreements and confidence building measures that were put in place since 1988, and with the 1993 agreement, which had kept the peace on the border for some time. But this is still a crisis. I don’t see this as having been solved yet or being behind us. And I am sure that India-China relations will have to be reset after this.

What do you make of some of the terms of disengagement on both sides, the creation of buffer zones, suspending patrols on the LAC, etc.?

•These [terms] are dangerous, as they suggest that we are withdrawing from territory which we have controlled consistently, and that we were part of the problem to start with. China stopped us from doing our normal patrols in these areas, which we have done for years. If we are withdrawing from territory that we have controlled, it seems to me that we are setting a dangerous pattern.

•And this started with Doklam, where we negotiated withdrawals by both sides from the face-off point in 2017. The Chinese then proceeded to establish a very strong, permanent presence on the plateau, leaving the face-off point itself free. I think it is a political and diplomatic failure not to call them out for changing the status quo, something that China committed to maintain both with Bhutan and with us. So, frankly, [China] learned the lesson that as long as the Indian [government] could walk away with a propaganda victory, they could actually make gains and change the outcomes on the ground in their favour. What we are seeing is more of the same strategy that China has followed in the South China Sea where she changes facts on the ground, presents you with a fait accompli , takes two steps forward and then negotiates one step back. And if we are agreeing to a similar kind of arrangement, no matter how temporary you say it is… all these temporary arrangements tend to become relatively permanent.

So are you saying that status quo ante is something that has to be enforced soon?

•What we need to do is to insist that China implement what she has committed to implement under the agreements, what she says she is committed to do, which is to respect the LAC and maintain the status quo.

There is a suggestion now that India could militarise the Quad or make the Indo-Pacific a strategic concept. Do you think that is the way for India to counter China?

•Well, that is not the entire solution because India-U.S. congruence actually applies to the maritime domain. Our problem with China right now is on land… it is a continental problem and that problem is not going to be solved by the U.S. That is something we have to solve by our own self-strengthening.

You spoke of the congruence with Washington, and yet, the one message that India sent out during this time, was the visit by the Defence Minister to Moscow…

•It has never been binary for us, either the U.S. or Russia or even U.S. or China. We have worked with both, and we will continue to work with both. Russia is still the source of our major military platforms. I do think that one consequence of what we have seen happening in Ladakh and the whole reset of India-China relations, will be stronger India-Russia relations as well.

What do you see as the diplomatic roadmap ahead?

•You know, right now we are in the middle of the crisis. So everything is possible. We could go the 1986-88 way after Sumdorong Chu when the Chinese came in and sat on territory on our side in eastern sector. And we ended up with the Rajiv Gandhi visit, and the new understanding, the modus vivendi of 1988, which kept the peace for several years, and enabled us both to develop and grow. Or we could go the 1959-62 way, which is a steady downward spiral in the relationship where public opinion and actions drive the two sides into conflict, which is the worst option. Thirdly, we could go into a sort of “no-war, no-peace”, an indeterminate space where relations are much more adversarial. My expectation is of a sort of muddling through for the time being, but that always contains the risk of things getting worse.

📰 FICCI survey estimates FY21 GDP growth to be in negative territory

The latest forecast marks a sharp downward revision from the growth estimate of 5.5 % reported in the January 2020 survey

•Industry body FICCI on Sunday said its Economic Outlook Survey has projected the country’s annual median GDP growth for 2020-21 at (-) 4.5%.

•With the rapid spread of COVID-19 pandemic manifesting into an economic and healthcare crisis globally, the latest forecast marks a sharp downward revision from the growth estimate of 5.5 % reported in the January 2020 survey, it said.

•The pandemic outbreak has severely impacted the economic activities as the country had to go through a lockdown to check spread of the virus. However, the restrictions are being gradually eased.

•While addressing SBI Banking and Economics Conclave on Saturday, RBI Governor Shaktikanta Das said the Indian economy has started showing signs of getting back to normalcy in response to the staggered easing of restrictions.

•“It is, however, still uncertain when supply chains will be restored fully; how long will it take for demand conditions to normalise; and what kind of durable effects the pandemic will leave behind on our potential growth,” he said.

•In May, the Reserve Bank had said the GDP growth during 2020-21 is likely to remain in the negative territory.

•Releasing details of the survey, FICCI said the present round of ‘Economic Outlook Survey’ was conducted in June 2020 and drew responses from leading economists representing industry, banking and financial services sector.

•“The latest round of FICCI’s Economic Outlook Survey puts forth an annual median GDP growth forecast for 2020-21 at (-) 4.5% - with a minimum and maximum growth estimate of (-) 6.4% and 1.5% respectively for 2020-21,” it said.

•As per the survey, the quarterly median forecasts indicate GDP growth to contract by (-) 14.2% in the first quarter of 2020-21, with a minimum estimate of (-) 25% and a maximum estimate of (-) 7.4%.

•Economic activity-wise annual forecast indicated a median growth of 2.7% for agriculture and allied activities for 2020-21.

•“Agriculture seems to be the only sector with a silver lining right now. There is an apparent upside as far as the performance of monsoon is concerned this year and the water reservoir levels in the country stand at good levels,” the industry chamber said.

•According to the survey, the rural sector supported by a steady agriculture performance and hopefully a contained number of COVID-19 cases will be a key demand generator for India this year.

•The survey further said that industry and services sector, on the other hand, are expected to contract by 11.4% and 2.8%, respectively in 2020-21.

•Weak demand and subdued capacity utilisation rates were already manifesting into a drag on investments and the COVID-19 pandemic has further extended the timeline for recovery, it said.

•Even though activity in sectors like consumer durables, FMCG is gaining traction, majority of the companies are still operating at low capacity utilisation rates. Labour availability and feeble demand remain as major issues for the companies, it added.

•“Therefore, fresh investments will be difficult to come by in the near to medium term. Also, a significant change in consumption patterns is expected on back of uncertainty with regard to jobs and income losses,” FICCI said.

•It noted that absence of demand stimulus, a second wave of the pandemic and continuation of social distancing and quarantine measures will weigh heavy on growth prospects.

•“With demand and investment outlook muted, robust government expenditure has been the only saviour. Nonetheless, growth is likely to bottom out post the second quarter of current fiscal year,” it said.

•According to the survery, some of the stimulus measures are reaching to the ground — especially through the credit guarantee scheme for MSMEs and support through MGNREGA — which is positive.

•During the survey, economists were asked to share their views on the fiscal stimulus package 2.0 and any additional measures that can be undertaken.

•Participants were of the view that government measures in stimulus focussed broadly on saving lives and undertaking deep structural reforms.

•“They, therefore, felt that while the quasi fiscal measures and structural reforms announced were undoubtedly steps in the right direction, on ground implementation and results will take a long time to work through in the present environment,” it added.

•A majority of economists believed that the government could have undertaken “a more aggressive” fiscal stance than what has been announced in the two packages combined.

•Participating economists also highlighted that the measures announced by both the Reserve Bank of India and government focussed largely on addressing supply side constraints with limited support for creation of demand.

•FICCI said the surely participants unanimously believed that the RBI would undertake further cuts in the repo rate going forward to minimise the economic shock and stabilise financial markets.

•Nonetheless, a majority of the participants also opined that cutting interest rates would not pump economic growth given that the demand conditions have remained subdued from even before the COVID pandemic struck the economy.

•The fast-changing macroeconomic environment and deteriorating outlook for growth necessitated off-cycle meetings of the Monetary Policy Committee (MPC) of the RBI — first in March and then again in May 2020.

•The MPC decided to cumulatively cut the policy repo rate by 115 basis points over these two meetings, resulting in a total policy rate reduction of 250 basis points since February 2019.

•FICCI said economists were asked to suggest ways with which India could best utilise the present opportunity to expand its presence in the global value chains.

•Efforts towards liberalisation of FDI policy must be complemented with improving infrastructure and ease of doing business in the country, it added.

📰 Sure power

India’s solar strategy should look attapping the best globally, to make locally

•Prime Minister Narendra Modi’s stated resolve to tap the energy of the sun to substantially power the economy and everyday life is to be welcomed, because it could help chart a green deal for the future. He restated the case for greater reliance on solar power, for energy and as a path for self-reliant industrialisation, at the inauguration of a 750 MW photovoltaic project at Rewa, in Madhya Pradesh last week. But as he would recognise, the idea of building a domestic solar manufacturing industry that delivers increasing volumes of quality photovoltaic cells, modules and associated equipment is long in the tooth. India’s installed base of this green power source is about 35 gigawatts (GW), and its projected addition of capacity until 2024 in a COVID-19 affected future is estimated by the industry to be of the order of 50 GW. Viewed against the goals set five years ago for the Paris Agreement on climate, of installing 100 GW of solar power by 2022, there could be a sharp deficit. Combined with low domestic cell manufacturing capacity at 3.1 GW last year, and heavy reliance on China, high ambition must now be supported by aggressive official policy. The Chinese story is one of a steady rise from insignificant manufacturing capability in the 1990s, to virtual dominance through active government support in identifying and acquiring top technologies globally, importing critical raw materials such as polysilicon, acquiring solar manufacturers abroad, and investing in third countries with ready capability. Importantly, the domestic market was treated with great importance while promoting exports.

•The pandemic presents a critical opportunity for India to plan a green deal, on the lines of what the EU has committed itself to: that future growth and employment should align itself to environmental and sustainability objectives, particularly in energy production, away from dirty fuels such as coal. There is no better time than now to make solar energy a strategic sector, giving it as much importance as defence. As the architect of the International Solar Alliance, which attracted about 120 nations at its launch, India needs to show leadership to advance the manufacture and absorption of solar photovoltaic infrastructure in low- and middle-income countries. The key requirements are integrated policies fully supported by States. Industry must get help to set up facilities and avail low cost financing — both important elements in China’s rise — and be able to invest in intellectual property. A forward-looking programme should also look at emerging trends in deploying solar innovatively. These include newer technologies such as aesthetic photovoltaic window and roof tiles for buildings, multi-role urban structures, and greater use of residential and commercial buildings to deploy more panels. Rapid progress requires a strategic shift to aid competitive domestic manufacturing.

📰 The sum and substance of the EU’s China dilemma

Though the Asian giant is critical to European economic health, the political narrative is a sign of a shift in the wind

•Europe and China have been major partners for a generation. According to the Global Office of the International Comparison Program at the World Bank, China and the European Union (EU) jointly account for nearly 35% of global GDP in PPP terms. Europe championed China’s case for World Trade Organization (WTO) membership and China supported the ‘European Project’. A single example is sufficient to demonstrate how critical China is for European prosperity. Between 1995 and 2012, Germany, Europe’s economic powerhouse, enhanced its industrial value by 37%, the largest chunk of which came from supply chains not in the United States but in China.

Behind the presumption

•Therefore, when on June 9, Josep Borrell Fontelles, the European Union’s High Representative for Foreign Affairs and Security Policy, publicly proclaimed that “China is without doubt one of the key global players. We have to engage with China to achieve our global objectives, based on interests and values”, a logical assumption might be that there is unlikely to be any change in the Europe-China relationship after the novel coronavirus pandemic. Such a superficial impression is reinforced by European statements that they will not choose sides between the United States and China. Yet any such presumption bears closer examination.

•In March 2019, the EU Commission published “A Strategic Outlook”, describing China as, simultaneously, a cooperative partner, an economic competitor and a systemic rival promoting alternative models of governance. This was the product of a long process of distillation during which the political and security dimensions began to jostle with the economics that had been the primary determinant of China-EU ties for two decades.

Red flags go up

•There was a growing appreciation that the balance of challenges and opportunities presented by China were shifting as its economic power and concomitant political influence grew with unprecedented scale and speed, and in ways that concerned European security. China’s efforts to cultivate separate European sub-constituencies like the 16+1 Format with the Central and Eastern European States, and meetings with the Nordics and the Southern Europeans; the sailing of the PLA Navy into the Baltic Sea for joint exercises with Russia in 2017; cross-sectoral hybrid threats including information operations in European countries; Chinese behaviour in the South China Sea and Indian Ocean; and its targeted acquisition of key high-technology companies such as Kuka in Germany or key ports like Piraeus in Greece, began to raise red flags in the Chancelleries of Europe. China’s economic and financial practices backed by strategic motives threatened unity and the European project itself, since it appeared to undo their efforts in terms of connectivity, regulatory frameworks and the building of a single European entity.

•Thus, even before the pandemic, the “Strategic Outlook” recommended that the EU should shift towards “a more realistic, assertive and multifaceted approach” to China.

•China’s actions in the first half of 2020 have sharpened such contradictions. Its early handling of COVID-19, and even more importantly, the clumsy Chinese efforts to use the confusion inside Europe to their propaganda advantage, led the EU to make a rare and blunt accusation against China on June 10, 2020: “Foreign actors and certain third countries, in particular Russia and China, have engaged in targeted influence operations and disinformation campaigns around COVID-19 in the EU, its neighbourhood and globally, seeking to undermine democratic debate and exacerbate social polarisation, and improve their own image in the COVID 19 context.” China’s aggressive actions in the South China Sea, on the Line of Actual Control with India, and in Hong Kong, among others, have also gained European eyeballs, so much so that even though China remains critical to European economic health, the EU Commission President, Ursula von der Leyen, after the virtual Summit with Chinese Premier Li Keqiang on June 22, 2020, said that Europe’s relations with China are “simultaneously one of the most strategically important and one of the most challenging that we have”. This then is the European dilemma.

Determinants and focus now

•The European debate is no longer simply about market access, industrial subsidies, over-capacity in steel and hi-tech industries; stealing of IPR, and China’s assertive approach to the security, resilience and stability of digital networks. It has begun to turn towards how to balance economic co-dependency and co-prosperity with China’s strategic global intentions and efforts to seek military supremacy and its bearing on European security. In the trinity of determinants identified by the EU in March 2019 — namely [negotiating] Partner, [economic] Competitor and Systemic Rival — the last dimension is gradually becoming the dominant political narrative.

•China also views Brussels as increasingly antagonistic. Yuan Peng, President of China Institutes of Contemporary International Relations, which belongs to China’s intelligence services, has opined in a stellar article on June 17, titled “The Coronavirus Pandemic and a Once-in-a-Century Change”, that “Europe’s star is fading”. Ironically, the retreat of the U.S. from global leadership is providing the Chinese with the means to take advantage, even when they no longer deem it in their strategic interests to support the “European Project”. During recent EU-China leader level meetings, the Chinese have downplayed the differences. Yuan Peng puts it thus: “The United States, Europe and Japan have common interests in curbing China, but China, Europe and Japan also have much to gain in tapping the potential of their relations.” The Chinese intention is to delay the former by dangling the economic carrot.

Sentiments after pandemic

•None of this should lead to the inference that the EU will follow the U.S. in ‘de-coupling’ or join an ‘against-China’ camp. The European Union Chamber of Commerce in China, which recently released its Business Confidence Survey 2020, says that most European businesses are chiefly “in China, for China”. European companies still hope that China’s President Xi Jinping will use this pandemic to make fundamental reforms in the way that Deng Xiaoping and Zhu Rongji did in 1992 and 1998, respectively. European companies still regard China as the biggest potential market. Yet, the pandemic has also triggered calls for diversifying European businesses away from an overreliance on any single market. The deteriorating relationship between China and the U.S. is causing many new investors to look for alternative investment spaces. If either the Chinese fail to restore their end of the global supply chains or if the world demand cannot be revived, more companies will tend to look elsewhere.

A role for India

•This, then, is an opportune time for India-EU relations, but only if we do not waste the crisis. Political conditions are favourable especially after the withdrawal of the United Kingdom. The Europeans recognise India’s role in helping provide peace and prosperity in the Indo-Pacific. They see great potential in working together on technologies and issues of the future. But we are not the only economic alternative for Europe in the aftermath of COVID-19. If the Broad-based Trade and Investment Agreement can be put back on track or, at the very least, if we conclude a new investment agreement, and if we are ready to join in high-technology collaboration including 5G and artificial intelligence, we may be able to align our stars. This will require imagination from our side, but Europe will also need to change its positions on trade in goods and be ready to accommodate India on services. The opportunity for India and the EU to build a partnership that is both economic and strategic is there for the taking in a post-COVID-19 strategic scenario.

📰 Hardly smart about urban health care

Despite the renewed policy focus on cities, the pandemic has exposed the weaknesses in handling a public emergency

•The novel coronavirus pandemic has largely been an urban crisis so far, with megacities such as Delhi, Mumbai, Bengaluru and Chennai accounting for most of the COVID-19 positive cases. Indian cities are not only facing a public health crisis but also a larger emergency of economic issues and livelihoods. A high percentage of urban residents have lost employment during the lockdown and continue to face an uncertain future. So, are Indian cities equipped to deal with the pandemic and its aftermath?

Still an urban dream

•Over the last decade-and-a-half, cities have started receiving more policy attention from the government, with dedicated national-level programmes on urban development. The ‘Smart Cities Mission’, a flagship programme of the Narendra Modi-led National Democratic Alliance (NDA) government, completed five years, in June 2020. The Mission had sought to make 100 selected cities “smart”, primarily through an “Area-Based Development” model under which a small portion of the city would be upgraded by retrofitting or redevelopment.

•Five years after its launch, the enthusiasm regarding Smart Cities seems to have waned. While “smart cities” and “bullet trains” were buzzwords in the initial years of the first term of the NDA government, over the last few years there has hardly been any mention about them by the top political leadership. Many of the projects undertaken under the ‘Smart Cities Mission’ are behind schedule. According to the Ministry of Housing and Urban Affairs, of the 5,151 smart city projects across the 100 cities, while around 4,700 projects have been tendered, only 1,638 projects have been completed. In terms of expenditure, of the total investment of Rs. 2,05,018 crore, only projects worth Rs. 26,700 crore have been completed. Hence, the idea of completely transforming India’s derelict cities into “smart cities” within five years now seems a pipe dream.

A blind spot

•Most of these Smart Cities are now reeling under the devastation caused by COVID-19. Some cities have been using the Integrated Command and Control Centres created under the ‘Smart Cities Mission’ as “war rooms” for monitoring real time data regarding the spread of the virus. However, tackling the larger public health and economic fallout remains a more difficult challenge.

•In fact, the ‘Smart Cities Mission’ has given short shrift to basic services such as public health. An analysis of the smart city projects under the Mission shows that only 69 of over 5,000 projects undertaken under the Mission were for health infrastructure. These projects are for an estimated cost of Rs. 2,112 crore, amounting to just around one per cent of the total mission cost. Hence, public health seems to be a major blind spot in India’s smart city dreams.

•While one could argue that health infrastructure is not a core element of a “smart” city, the ‘Smart Cities Mission’ was never focused merely on technology; it had the stated aim of improving the quality of life of urban residents. Further, public health is an essential local government function in India’s constitutional scheme. As per the 12th Schedule of the Constitution, introduced by the 74th Amendment, “public health” is one of the 18 functions that are to be devolved to the municipalities. However, public health infrastructure of cities has often been neglected over the years and new programmes such as the ‘Smart Cities Mission’ have further driven local governments away from their core responsibilities.

Strengthening local capacities

•The COVID-19 crisis has exposed the weaknesses in the institutional and human capacity of Indian cities to handle a public health emergency. Despite the renewed policy focus on cities, India’s urban local bodies continue to be financially and administratively weak and heavily understaffed. There is also high level of vacancy of Accredited Social Health Activist (ASHA) workers, the frontline public health workers carrying out contact tracing, in urban areas, especially in COVID-19 hotspot cities such as Mumbai.

•The relative success of Kerala in containing the pandemic has shown how a decentralised political and administrative system with strong local governments and high investment in local public health care can be effective. In the absence of such participative local government institutions, authorities in some cities have roped in resident welfare associations to monitor COVID-19 cases. In this process, resident welfare associations have become emboldened and are often imposing draconian rules as they exercise a form of private authoritarianism in their neighbourhoods.

•To tackle the COVID-19 crisis, it is important to strengthen local government capacities, invest heavily in urban public health systems, and promote programmes that improve the livelihoods of urban vulnerable communities. The ‘Smart Cities Mission’, with its skewed priorities and parallel governance structures of Special Purpose Vehicles, offers little hope in this regard. Instead, programmes such as the National Urban Livelihoods Mission and National Urban Health Mission, which have lately received limited focus and resources, need to be strengthened.

Think jobs too

•Further, it is time to consider the introduction of a national urban employment guarantee programme that assures jobs for urban residents and strengthens the capacities of urban local bodies. Kerala has been running such a scheme since 2010 and States such as Odisha, Himachal Pradesh and Jharkhand have also recently launched similar initiatives in the wake of the COVID-19 crisis. As Indian cities face an unprecedented challenge, it is important to get the priorities of urban development right and invest in programmes that improve the health and livelihoods of its residents.