📰 Hidden debt rising for partners of China’s BRI plan
42 countries now have debt exposure to China in excess of 10% of GDP
•A new study has found under-reported debts to the tune of $385 billion in projects carried out in dozens of countries under China’s Belt and Road Initiative (BRI), with a rise in “hidden” debt on account of an increasing number of deals struck not directly between governments but structured through often opaque arrangements with a range of financing institutions.
•The study by AidData, a development research lab at the College of William & Mary in the U.S., found that “Chinese debt burdens are substantially larger than research institutions, credit rating agencies, or intergovernmental organisations with surveillance responsibilities previously understood” and “42 countries now have levels of public debt exposure to China in excess of 10% of GDP.”
•The total debt, the study added, was “systematically under-reported to the World Bank’s Debtor Reporting System (DRS) because, in many cases, central government institutions in LMICs [low and middle income countries] are not the primary borrowers responsible for repayment”.
•It estimated that the average government “is under-reporting its actual and potential repayment obligations to China by an amount that is equivalent to 5.8% of its GDP” and “collectively, these under-reported debts are worth approximately $385 billion.”
•The report studied 13,427 projects across 165 countries worth $843 billion, in the time period from 2000 to 2017, and examined how President Xi Jinping’s BRI plan, launched in 2013, has changed China’s overseas lending.
•The big difference between China and other prominent sources of overseas financing was that Chinese banks have used “debt rather than aid to establish a dominant position in the international development finance market”. Since the introduction of the BRI, China “maintained a 31- to-1 ratio of loans to grants and a 9-to-1 ratio of Other Official Flows (OOF) to Official Development Assistance (ODA)”, although Chinese agencies sometimes do not differentiate between loans and grants in public statements of financial assistance. The report found the average loan from China has a 4.2% interest rate, a grace period of less than two years, and a maturity length of less than 10 years.
Biggest recipients
•From 2000 to 2017, Iraq ($8.5 billion), North Korea ($7.17 billion) and Ethiopia ($6.57) were the biggest recipients of ODA, while Russia ($151.8 billion), Venezuela ($ 81.96 billion) and Angola ($50.47 billion) were the biggest recipients of Chinese loans. India ranked 23rd in the list of top recipients of Chinese loans from 2000 to 2017, receiving $8.86 billion, according to the report.
•What has, however, led to many countries, such as Nepal and Sri Lanka in South Asia, turning to Chinese loans at higher interest rates is the lack of financing options elsewhere for infrastructure projects.
•This has seen a surge in lending from Chinese institutions over the past two decades. What has changed under the BRI, the study found, was that while earlier most overseas lending involved central government institutions, now nearly 70% of China’s overseas lending is now directed to state-owned companies, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions. These debts “do not appear on government balance sheets in LMICs” although “most of them benefit from explicit or implicit forms of host government liability protection, which has blurred the distinction between private and public debt and introduced major public financial management challenges for LMICs.”
•The other change with the BRI is the rising number of “mega projects” (worth $500 million or more), which has prompted Chinese banks to work through lending syndicates and financing arrangements to share the risk. The share of projects thus co-financed accounts for 32%, and is another reason behind the debt being “hidden”.
Scandals, corruption
•The report found that Chinese institutions use collateralisation to mitigate risk, for instance with loans collateralised against future commodity export receipts to minimise repayment risk, or later priced at higher interest rates, up to 6%.
•The report said 35% of the BRI infrastructure project portfolio has encountered major implementation problems, such as corruption scandals or labour violations, with Pakistan topping the list of countries with the most number of projects hit by scandals and corruption.
Recent data on child malnutrition underscore the value of good school meals
•The approval of the PM POSHAN scheme by the Cabinet Committee on Economic Affairs until 2025-26 comes at a critical time when real income declines and the economic impact of the COVID-19 pandemic have affected the ability of families to ensure good nutrition. The findings in Phase I of the NFHS-5 for 22 States and Union Territories in December 2020 were shocking: childhood stunting rose in 13 States, there was high prevalence of anaemia among children and women, and wasting was a serious concern in 12 States. The slippage over the previous survey period exposes the worsening scourge of malnutrition, threatening to deprive millions of children of a fully productive adult life. It will take a serious effort to address this hidden crisis, backed by strong budgetary commitment. The centrally supported hot meal programme in Government and Government-aided schools, covering 11.8 crore children, will be supplemented with nutritional elements in identified aspirational districts and areas with high anaemia. The scheme, which is proposed to be extended to pre-primary children, provides for social audit, creation of school nutritional gardens to source fresh produce, involvement of farmer-producer organisations as providers, and lays emphasis on local food traditions. While these are positive features, momentum towards eradicating malnutrition hinges crucially on annual budgetary outlays and proof of POSHAN’s working will lie in measurable outcomes.
•Support for the PM POSHAN, which the Government says has been approved over the five-year period at ₹1,30,794 crore, including ₹31,733 crore from States and UTs, must remain elastic. While some child growth metrics such as stunting require a longer window to measure, problems such as anaemia and low weight lend themselves to speedy amelioration. The Government must demonstrate that Saksham Anganwadi-Mission POSHAN 2.0, which amalgamates the POSHAN Abhiyan and schemes covering anganwadis, crèches and adolescent girls, is fiscally stronger than its erstwhile component parts. There must be a meaningful increase in the current Budget estimate over the combined past outlay for the subsumed individual schemes. On nutritional planning, the renewed plan should introduce a greater diversity of diets that compensates for micronutrient and protein deficiency. Strong supplementation of nutrition at school, in the community, and at childcare centres is critical at a time when criticism of food inflation has met with a tone-deaf response, and pandemic-induced income declines have depressed essential consumption. The lower offtake of foodgrains for the noon meal scheme during the pandemic over the previous year and patchy food distribution mechanisms in many States should set alarm bells ringing. The future of a generation of Indians is at stake.
📰 Making parties constitutional
This will ensure in-party democracy, make them transparent, and de-communalise them
•A political party is an organised group of citizens who hold common views on governance and act as a political unit that seeks to obtain control of government with a view to further the agenda and policy they profess. They are indispensable links between the people and the representative machinery of government. Political parties maintain a continuous connection between the people and those who represent them either in government or in the opposition.
•Political parties have extralegal growth in almost every democratic country. The American Constitution does not presume the existence of political parties. In Britain too, political parties are still unknown to the law. Nonetheless, Sir Ivor Jennings, in The British Constitution, opined that “a realistic survey of the British Constitution today must begin and end with parties and discuss them at length in the middle”. Similarly, political parties in India are extra-constitutional, but they are the breathing air of the political system.
The German model
•The Basic Law of the Federal Republic of Germany (1949) gives constitutional status to political parties. Article 21 of the Basic Law deals with their status, rights, duties and functions. It provides: “(1) Political parties shall participate in the formation of the political will of the people. They may be freely established. Their internal organisation must conform to democratic principles. They must publicly account for their assets and for the sources and use of their funds. (2) Parties that, by reason of their aims or the behaviour of their adherents, seek to undermine or abolish the free democratic basic order or to endanger the existence of the Federal Republic of Germany shall be unconstitutional... (4) The Federal Constitutional Court shall rule on the question of unconstitutionality... (5) Details shall be regulated by federal laws.” The German model of constitutionalising political parties is more desirable for India than the U.S. and the U.K. models. Section 29A(5) of the Representation of the People Act, 1951 is the only major statutory provision dealing with political parties in India. It orders that a political party shall bear true faith and allegiance to the Constitution of India as by law established, and to the principles of socialism, secularism and democracy, and would uphold the sovereignty, unity and integrity of India.
•Political parties in developed nations maintain high levels of internal democracy. In the U.K., the Conservative Party has the National Conservative Convention as its top body. It has a Central Council and an Executive Committee. The Central Council elects its President, a Chairman and Vice Chairmen at its annual meeting. It also elects an Executive Committee which meets once a month. In the U.S., both the Democratic and the Republican Party have the National Committee as their top decision-making body. The National Committee plays an important role in the presidential election and agenda setting.
•The Indian Constitution is the one of the longest Constitutions in the world. It even elaborately deals with the co-operative societies. The right to form co-operative societies is a fundamental right under Article 19 (1)(c), but the right to form political parties is not. It is astonishing that such a meticulous Constitution overlooked political parties, the vital players in the political system, for constitutional regulation. Most of the parties are openly caste- or religious-based. Their finances are dubious and opaque. Almost all the parties — the Rashtriya Janata Dal, the Samajwadi Party, the All India Majlis-e-Ittehadul Muslimeen, the Indian Union Muslim League, etc. — are family fiefdoms. The Congress high command is only a euphemism for the Gandhi family. There are no periodical in-party elections in Indian parties except in a few like the CPI(M).
•Political parties are the agents of democracy and safety valves in the political system. They desperately need reform. Hence, it is high time to constitutionalise political parties to ensure in-party democracy, to impart transparency in their finances, and to de-communalise them.
📰 At the Quad, forming habits of cooperation
The institutionalisation of the organisation has begun and it is a chance for India to work with the advanced economies
•The first in-person summit of the Quad powers — Australia, Japan, India and the United States — has clearly advanced the work begun by the virtual summit in March. The September 24 meeting, hosted by U.S. President Joseph Biden, drew global attention both for its symbolism and substance. The photograph showing the four leaders sitting behind separate desks imaginatively placed in a circular format in the elegant East Room of the White House, conveyed a signal of mutual warmth, purpose and resolve. It is necessary to critically analyse the summit’s outcome in order to appreciate the development and formalisation of a new plurilateral and its direction in the coming years.
Self-perceptions
•The opening remarks by the Quad leaders were remarkably succinct. Mr. Biden portrayed the Quad as a group of democratic partners “who share a worldview and have a common vision for the future”. Prime Minister Narendra Modi was confident that the Quad would “play the role of a force for global good”.
•Australian Prime Minister Scott Morrison blended a preview of upcoming agreements with a dose of sharp Aussie candour by laying stress on the point that the grouping wanted the Indo-Pacific region to “be always free from coercion”. It was a thinly-veiled criticism of China’s policy. Japanese Prime Minister Yoshihide Suga was the only participant who addressed the U.S. President as “Joe”. He projected the Quad as “an extremely significant initiative”, designed to promote “a free and open international order based on the rule of law in the Indo-Pacific”. Another dig at Beijing.
Practical cooperation
•The joint statement issued following the summit, began with the compromise formulation crafted last March, to emphasise the leaders’ commitment to “a free and open Indo-Pacific, which is also inclusive and resilient”. Promoting security and prosperity in this region is the raison d’être of the Quad, a goal to be achieved through practical cooperation among the four powers.
•The Washington summit added new areas of collaboration: infrastructure; cybersecurity and space; education and people-to-people relations. On the first, the plan is to promote “sustainable infrastructure”, with a stress on aligning the Quad with the G7’s Build Back Better World (B3W) Partnership, based on the G20’s quality infrastructure investment principles. Here, the Quad can focus on four key B3W elements: digital connectivity, climate, health security and gender equality infrastructure. There was no mention of any specific projects or countries where they are envisaged. However, the formation of an infrastructure coordination group composed of senior officials was announced. It will map and coordinate infrastructure needs and catalyse private-sector investment.
•On cybersecurity, the Quad will cooperate on combating cyber threats and securing critical infrastructure. On the space front, the plan is to identify new collaboration opportunities, especially sharing of data to monitor climate change, disaster response and preparedness, and sustainable uses of ocean and marine resources. A senior cyber group and a new working group on space will be established. On education, the Quad fellowship programme will award 100 graduates — 25 scholars from each Quad country — opportunities in leading STEM (Science, technology, engineering, and mathematics) programmes in the U.S. This is not a government programme but a philanthropic initiative.
•The three working groups on vaccines, climate and emerging technologies established last March, have reported progress. On vaccines, the Quad stands committed to donate over 1.2 billion doses globally, although only 79 million doses have been delivered so far. The production of vaccines in India — with the target of “at least 1 billion doses” of COVID-19 vaccines by the end of 2022 — is on track. Vaccines are slated for free distribution in the Indo-Pacific region, beginning next February. Ample funding has been assured by Japan and Australia. Besides, new measures are contemplated to conduct research and step-up preparedness to handle future pandemics.
•The Quad working group on climate change has focused on three thematic areas: climate ambition, clean-energy innovation, and climate adaptation and resilience. The Quad leaders emphasised enhanced action for achieving global net-zero emissions preferably by 2050, with an important caveat — “taking into account national circumstances” — added at India’s instance. A Quad shipping task force has now been launched to build a green-shipping network and green port infrastructure. As regards critical and emerging technologies, a slew of steps is under consideration relating to 5G and beyond 5G networks; supply chains of critical minerals including semiconductors; and emerging advances in biotechnology. To be successful, building the supply chains will need expert resources and coordination from each country. A contact group on Advanced Communications and Artificial Intelligence will focus on standards-development and foundational research.
Political facets
•Cooperation among the Quad members in the six areas mentioned will help the grouping to address the economic and technological challenges posed by China.
•But what of the pressing strategic, defence and maritime security aspects of the challenge? Those will stay outside the formal framework of the Quad for now. Maritime security will continue to be strengthened through bilateral 2+2 Ministerial tracks; the four-powers Malabar Exercise; and other bilateral or trilateral arrangements such as AUKUS (the new trilateral security pact between Australia, the United Kingdom and the U.S.). Defence cooperation will not be lowered in priority; it will just be handled differently. The Quad wants a positive orientation, rather than be seen as an ‘Asian NATO’.
•Regionally, the Quad sees the Association of Southeast Asian Nations (ASEAN) as “the heart of the Indo-Pacific region”. Together with the small island States in the South Pacific, ASEAN countries will stand to benefit from growing cooperation within the Quad. So will the European Union (EU), whose new EU Strategy for Cooperation in the Indo-Pacific was welcomed by the four leaders. On Afghanistan, the decision to “closely coordinate” policies and next steps will be watched as the U.S. comes under strong pressure to show flexibility towards the interim Taliban government.
•The institutionalisation of the Quad has begun to gather speed. For India, this grouping is critical. It is the first major plurilateral organisation in years where India is on the ground floor, an equal partner of the new P4. It has much to contribute and leverage, beyond its market. This is an opportunity for India to work with the advanced economies to “build habits of cooperation”, while confronting the 21st century challenges in its Indo-Pacific neighbourhood
