📰 Parliamentary panel cautions against trade in captive elephants
Amended Bill has introduced an exemption clause to allow for sale and purchase of captive elephants
•Do not encourage sale and purchase of captive elephants, the Standing Committee on Science and Technology, Environment, Forests and Climate Change, headed by senior Congress leader Jairam Ramesh, has recommended. The Parliamentary panel has urged the government to remove the controversial clause in the Wild Life (Protection) Amendment Bill, 2021 that overrides the original Act, making an exception only for the pachyderm.
•The Wild Life (Protection) Amendment Bill 2021 was introduced in the Lok Sabha on December 17, 2021 and was referred to the Parliamentary panel on December 25. The panel is meeting on Monday for a final round of meeting on its report on the legislation.
•Section 43 of the principal Act clearly states: “No person having in his possession captive animal, animal article, trophy or uncured trophy in respect of which he has a certificate of ownership shall transfer by way of sale or offer for sale or by any other mode of consideration of commercial nature, such animal or article or trophy or uncured trophy.”
•The amended Bill that was on the panel’s table introduces an exemption clause to Section 43, which says: “This section shall not apply to the transfer or transport of any live elephant by a person having a certificate of ownership, where such person has obtained prior permission from the State Government on fulfilment of such conditions as may be prescribed by the Central Government.”
‘Careful balance’
•The standing committee has strongly recommended the deletion of this exemption clause for elephants. The committee has argued for a “careful balance” between traditions and conservation. “The Standing Committee is deeply conscious of the fact that a number of religious and cultural institutions in some states own elephants which play a crucial role in daily worship and rituals. That is why it has attempted to strike a careful balance to ensure that age-old traditions are not interfered with while at the same time addressing widespread concerns that nothing should be done to even give an impression that private ownership of elephants and trade in them is going to be encouraged,” the committee report accessed by The Hindu read.
•The committee at the same time has recommended that the government could bring in additional checks to allow sale and purchase by religious institutions. The 2021 amendment Bill proposes 50 amendments in the existing Wildlife (Protection) Act, 1972.
•The amended Bill also seeks to rework the protection Schedules. Instead of the present six Schedules in the principal Act, the Bill proposes three Schedules — Schedule I for species that will enjoy the highest level of protection, Schedule II for species that will be subject to a lesser degree of protection, and Schedule III that covers plants.
‘Species missing’
•In principle, the standing committee endorsed the proposal but pointed out many discrepancies with the compilation. The report said that a number of species is missing in all the three Schedules. “The committee also finds species that should be in Schedule I but have been placed in Schedule II. There are species missing altogether both in Schedules I and II as well as in Schedule III,” the report states.
•The Bill also fails to address “human-animal conflict”, the committee noted.
Why do governments default on their debt payments? How is the island nation planning to rejuvenate its foreign reserves?
•The story so far: The Sri Lankan government on Tuesday decided to default on all its foreign debt worth $51 billion as it awaits financial assistance from the International Monetary Fund (IMF). The government stated that it took the decision to preserve its dwindling foreign reserves to pay for the import of essential items. Ratings agencies such as Fitch, and Standard & Poor’s have downgraded Sri Lanka’s sovereign debt.
What is sovereign debt?
•Sovereign debt refers to the debt issued or accumulated by any government. Governments borrow money to finance the various expenses that they cannot meet through their regular tax revenues. They usually need to pay interest on such debt along with the principal amount over time although many governments simply choose to borrow fresh debt to repay existing debt. Historically, governments have tended to borrow more money than they could actually repay in order to fund populist spending.
•It should also be noted that governments can borrow either in their local currency or in foreign currency like the U.S. dollar. Governments usually find it easier to borrow and repay in their local currency. This is because governments with the help of their central banks can easily create fresh local currency to repay debt denominated in the local currency. This is known as debt monetisation and it can lead to increased money supply which in turn causes prices to rise. Making good on their foreign debt which is denominated in a foreign currency, however, can be a tricky affair for governments. This is because governments depend on the inflow of foreign currency to gather the necessary foreign exchange to pay their foreign debt. The Sri Lankan government or the central bank, for example, cannot create U.S. dollars out of thin air to pay their foreign debt denominated in U.S. dollars. Instead, they depend on U.S. dollars flowing into Sri Lanka in the form of foreign investment and payments received in exchange for the export of various goods and services to build up their foreign reserves.
Why is Sri Lanka unable to make good on its foreign debt commitments?
•Sri Lanka depends heavily on its tourism sector to bring in the foreign exchange necessary to import essential items such as food and fuel. The tourism sector contributes to about 10% of Sri Lanka’s gross domestic product. Since the coronavirus pandemic and the ensuing lockdowns, Sri Lanka’s tourism sector has been hit hard. This, in turn, has affected the inflow of U.S. dollars into the Sri Lankan economy. Sri Lanka’s forex reserves have dropped to $2.3 billion in February this year from over $7.5 billion in 2019. Thus, the Sri Lankan government has been finding it hard to obtain the U.S. dollars necessary to make good on its foreign debt obligations. It has thus sought help from the IMF as well as countries such as India and China. India this week agreed to offer additional financial assistance of $2 billion to Sri Lanka by rolling over debt that the island nation owes India.
•Sri Lanka’s efforts to fix the exchange rate of the Sri Lankan rupee against the U.S. dollar in order to prop up the price of the rupee may have also played a role in the foreign debt crisis. As foreign exchange inflows dried up during the pandemic and the Sri Lankan rupee came under increasing pressure, the country’s central bank at a certain point banned the payment of more than 200 Sri Lankan rupees for one U.S. dollar. This rate was way below the actual market price of the dollar, which caused trades to be pushed into the black market and also caused a drop in the supply of U.S. dollars in the forex market.
What is the cost of defaulting on foreign debt?
•International lenders may be reluctant to lend any more money to the Sri Lankan government unless such lending is part of a restructuring agreement. This fact will also be reflected in the ratings that international ratings agencies give to debt issued by the Sri Lankan government. Going forward, the cost of fresh borrowing is likely to be high for the Sri Lankan government as lenders will be incurring greater risk while lending to a government that has been unable to make good on its previous commitments.
•A bailout by the IMF could be on the cards, but the Sri Lankan government will have to agree to implement structural reforms as a pre-condition for such aid. The IMF may require the Sri Lankan government to end its aggressive push towards 100% organic farming that has caused food supplies to be affected and food prices to rise. It may also recommend getting rid of price controls on food and other essential goods. It should be noted that price controls on any commodity affect the incentive that producers have to bring fresh supplies into the market. Controls imposed on the exchange rate of the rupee may also need to go in order to re-attract U.S. dollars. An end to price controls and the ban on non-organic farming can help the domestic economy return to normalcy. This, in turn, can help in the return of tourists. At the moment, mass protests due to rapidly rising prices may be causing many tourists to avoid visiting Sri Lanka, thus worsening the country’s foreign debt crisis.
📰 Is the Reserve Bank doing enough to rein in inflation?
Nurturing the real economy, not just tweaking the repo rate, is the need of the hour
•India’s inflation, which is measured by the Consumer Price Index (CPI), has stayed above the Reserve Bank of India (RBI)’s upper tolerance limit of 6% for three months running. The central bank’s monetary policy committee decided to hold benchmark interest rates earlier this month, choosing to remain accommodative “while focussing on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth”. Western economies such as the U.S. have begun raising interest rates. Is the RBI doing enough to arrest inflation? Ananth Narayan and Lekha S. Chakraborty discuss the question in a conversation moderated by K. Bharat Kumar. Excerpts:
Is the RBI behind the curve in reining in inflation?
•Lekha Chakraborty: There needs to be a fundamental rethink on the efficacy of the inflation targeting framework itself. The crucial question is: are we able to anchor inflationary expectations properly? The sole mandate of the RBI is to look into price stability. So, now, what do we do? Do we revise the nominal anchor from the stated 4%? Or do we play around with that band plus or minus 2 percentage points? Or are we going to throw away this framework and adopt a prior inflation targeting framework? Having said that, the context here is important. Inflation is mounting. There is geopolitical uncertainty. The war in Ukraine led to supply-chain disruptions. Consignments are getting delayed. So, it’s a supply-side shock. Manoeuvring with repo rate adjustments to contain inflation may not work. The reverse repo rate itself is likely getting redundant, because they have introduced a new tool — the standing deposit facility rate at 3.75% — to absorb excess liquidity. That’s a smart move, to work with the monetary policy corridor, but leave the rates untouched.
•Ananth Narayan: I have a fundamental problem with the monetary policy framework. Monetary policy is extremely complex. All the macro variables that we care about — inflation, growth, jobs, external balance, financial stability — are interrelated; you cannot target one without touching the other. And each of these is impacted by multiple policy tools, such as interest rates (long term, short term, and everything in between), banking liquidity, fiscal balance, exchange rates, macroprudential regulations, RBI interventions and, of course, that lovely thing called sentiment. What we currently have is a simplistic monetary framework, where we pretend that CPI inflation can be controlled by the repo rate almost linearly. To just change the repo rate and expect to keep CPI inflation between 2% and 6% at all times... that is utter rubbish. We can’t legislate away economic complexity.
•Now, is RBI behind the curve? There are areas where it feels like the RBI was behind the curve. One, in the February policy, the RBI said it expected FY23 CPI inflation to be 4.5%. That didn’t seem credible. Now, it has revised the estimate to 5.7%. Two, for long the RBI insisted that the 10-year government bond yield was a public good that had to be kept low. In FY21, both the central and State governments had a record borrowing programme. The FY21 weighted average government borrowing rate was a record low of just 5.8%, because the RBI effectively sat down on the curve. So, the returns for savers was brought down dramatically. Our household inflation expectations are at 11%. Average deposit rates across all banks are at just 5%. With such hugely negative real rates, we’re pushing savers to the brink, into equity markets, into Bitcoin, and into gold. The resultant asset price inflation is also increasing inequality — the top 15% are doing very well and consuming luxury products, even as the bottom 40% are struggling.
•But to be fair to the RBI, it’s not been an easy time. And to give credit, the RBI stopped its government bond purchases in October. It is only now that the U.S. Federal Reserve has stopped buying bonds. Likewise, our money market rates have already gone up quite a bit. One year ago, the one-year Treasury Bill rate was 3.7%. Today it is 4.9%. So, the RBI has allowed rates to come up. I don’t think repo rate could have helped in the current context.
Would you worry about GDP growth?
•Lekha Chakraborty: The inflationary expectations and the output gap are unobserved variables. How do you deal with these variables within the rules-based monetary macro framework? The output gap variable itself is controversial, because the basic assumption here is that you are experiencing cyclicity; and that once you correct the cyclycity through monetary policy, you’re going to get growth back to pre-crisis levels. This is dangerous, because if that drop in GDP is not cyclical, but a permanent scar, then monetary policy acting as a counter-cyclical policy tool will not work. That’s why fiscal dominance is very crucial. Fiscal policy has been very accommodative. We have very high fiscal deficit and high debt numbers. But from a position of strength, the Finance Minister articulated that her high fiscal deficit can be substantiated through enhancing investment — through ‘crowding in’ private corporate investment.
•Ananth Narayan: The context is extremely tough. Let’s agree for now that the RBI’s basic mandate is inflation targeting. Now, inflation is a problem. Even for the current fiscal year, FY23, inflation could well cross 6% if oil prices remain where they are. It’s not just oil prices, but also edible oil prices, fertilizers, chemicals, feedstock, and all-round supply chain disruptions.
•Now let’s look at growth. The real GDP for FY22 is pretty much the same as it was two years ago before the pandemic. Effectively, two years have gone by with zero real growth. In the last two years, inflation has been 6% compounded annual; high inflation and zero growth are a disaster. The RBI’s growth estimate of 7.2% for the current fiscal is also at risk. High oil and commodity prices tend to reduce our growth. Exports might be impacted because of a global slowdown.
•It is also a terrible situation with jobs. CMIE data suggest that over the last five years, we’ve lost two crore jobs outside agriculture. Even before the pandemic, we were losing jobs. Our fiscal situation is already stretched, our external situation is going to get tricky going forward, we are looking at a current account deficit possibly of $100 billion, it could be a record the next fiscal year because of elevated oil prices. FII flows look very iffy, given the global context. Even if FDI flows come in, we’re still going to see a very large outflow from the RBI which has to be made up. Of course, robust tax collections thanks to formalisation and record currency reserves offer us some buffer for now.
•It’s a nightmarish situation for the policymaker. Under such circumstances, what can they do to control inflation? Normally, pushing up repo rates and tightening liquidity makes sense when there’s a lot of credit growth. If we have 25-30% credit growth, which is creating aggregate demand and money supply, we have to arrest that by increasing the cost of money. For the last two years, however, we have had credit growth of just 7.5% annualised, which is lower than the nominal GDP growth rate. It is difficult to argue that credit growth is causing inflation. If anything, we need more credit in investments and job creation.
•Market sentiment is a key factor. Most central banks are tightening monetary policy globally. If we stand out and say we’re not going to tighten, it does attract negative sentiment. We’ve got to give the credibility that we are focussing on inflation. Now the RBI has tried to bring back credibility, by reiterating its focus on inflation, which is great. Improving the return for long-term savers — by not repressing government bond yields — will go a long way in reducing inequality, controlling inflation, and managing financial stability.
•The ultimate way to control inflation for India is for us to create jobs and output. The real economy is the only way to improve all our macro variables. Monetary policy cannot do much for either growth, jobs, or for inflation control. Eventually, it’s the real economy, which is where the government comes into the picture.
Is the CPI index appropriately represented? How relevant is the composition now?
•Lekha Chakraborty: The real issue here is the divergence between the WPI and CPI and of course, the energy price volatility and food inflation. So, how the RBI is able to anchor these is key. In India, inflation is not strictly a monetary phenomenon. There are many supply-side shocks. So, can inflation targeting control or manoeuvre those supply side shocks through the ‘expectations channel’ is an important question. Credit infusion — the predominant narrative of economic stimulus packages — is not working very well, because if there is no corresponding growth in the economy, then this credit infusion can lead to mounting NPAs.
•On the fiscal policy side, the government has to act as an employer of last resort through ‘participation income’ (not ‘basic income’) in the hands of people, by providing guaranteed jobs. This can be a very strong policy to tackle inflation rather than the government providing cash transfers, a huge fiscal stimulus, into the hands of people.
•But at the same time, where is the fiscal space? A crucial question is whether we can do a fiscal-monetary policy coordination through the monetisation of deficit once again, because that’s exactly what Kaushik Basu and Nobel Laureate Abhijit Banerjee have highlighted; they are all arguing for the re-emergence of monetisation of deficit through better coordination of fiscal and monetary policy. So, we need to wait and see because that is again inflationary in nature. But heterodox economists always say that when you are below the full employment equilibrium, it will not lead to mounting inflation, but will lead to growth. My hunch is it’s not the CPI per se (or the core inflation or the headline inflation) that we need to focus on, on the RBI side; the question is a little bigger than that, and that’s about ‘employment’.
•Ananth Narayan: The way in which the CPI basket is constructed, as I understand it, is you look at the Consumer Expenditure Survey, and you look at what people are consuming, and then you try and create a rural and an urban basket, which approximates to the average consumer as to what they actually consume; you try and arrive at the median. Now, the last consumer survey was done in 2011-12. There was one done in 2017-18, the results of which remain a mystery to us. There is one report that I saw in Ideas for India. Given that there’s no Consumer Expenditure Survey, they looked at the consumption pattern indicated by the Consumer Pyramids Household Survey (CPHS) of the CMIE. Their conclusion was based on the 2019 pre-pandemic consumer CPHS data; that the basket wasn’t off the mark. Of course, individual items like typewriters need to be corrected in the next Consumer Expenditure Survey, which hopefully will happen in 2022-23.
•But the reality also is that people’s perception of inflation is far higher than what the CPI number indicates. It reflects in the household expectations survey that the RBI itself conducts. That’s not a very robust survey so that has its own limitations. But when I speak to folks in the industry, when I speak to even MSMEs, their perception of inflation seems far, far higher than 6%. I think that recent hikes in petrol prices and diesel prices will also add to that expectation.
📰 Is Hindi or English beneficial as the link language?
Data on migration and development indices show that there is a stronger case for English to be the link language rather than Hindi
•Residents of only 12 of the 35 States and Union Territories (UTs) reported Hindi as their first choice of language for communication (Census 2011). But there is a caveat. “Hindi” is an umbrella term encompassing 56 languages (mother tongues) including Bhojpuri, Rajasthani, Hindi and Chhattisgarhi. While 43% of Indians speak “Hindi”, only 26% speak Hindi specifically as their mother tongue.
•This begs the question whether Hindi needs to be made the link language. This is in the context of Union Home Minister Amit Shah saying that when citizens of States communicate with each other, they should do so in the “language of India”, with Hindi as an alternative to English. This sparked criticism from the Opposition. Karnataka Pradesh Congress Committee President D.K. Shivakumar said Bengaluru became India’s IT capital because of English.
•The argument used for pushing Hindi as an alternative to English, because it is spoken by the majority, cannot be tenable as it is a majoritarian one. Instead, we need to answer a utilitarian question: which language would be beneficial for citizens as they seek better lives — Hindi or English? In other words, would native Hindi speakers benefit by learning English or should Hindi be imposed on the non-Hindi speaking population for their “benefit”?
•A comparison of the Human Development Index (HDI) of States and UTs shows that regions with a higher share of English speakers also have higher HDI scores (Chart 1), while States with a higher share of Hindi speakers have relatively low HDI scores (Chart 2). This means there is a positive correlation between a higher standard of living and a higher share of English speakers.
•This is also borne out in migration-related numbers. More people from the Hindi-speaking States have been migrating towards the non-Hindi speaking regions in search of better livelihoods. In the 2017 Economic Survey, an analysis of railways passenger data who travelled in unreserved compartments was used as a proxy to measure work-related migration. “This class of travel serves less affluent people who are most likely to travel for work-related reasons,” the report argued. Movements of nine million such passengers between 2011 and 2016 were considered and travel less than 200 km was ignored.
•Map 4 shows the heat map of net passenger flows for FY2015-16 at the State level. In States such as Tamil Nadu, Maharashtra, Gujarat, West Bengal, Andhra Pradesh, Karnataka, Punjab and Delhi, there was net in-migration. The number of people who migrated into these States was higher than those who migrated to other States. Uttar Pradesh, Bihar, Jharkhand, Madhya Pradesh, Rajasthan, Uttarakhand, Haryana, Himachal Pradesh and Chhattisgarh recorded higher net out-migration.
•Juxtaposing this with Map 3 shows that the States which recorded net out-migration broadly correspond to the States which have a high share of Hindi speakers. In contrast, the States which recorded net in-migration broadly correspond to regions with fewer Hindi speakers. The exceptions were Kerala, Odisha and, to an extent, Maharashtra. Map 3 shows not just those who speak Hindi as a mother tongue, but also those who mentioned it as either a second or third language of preference (Hindi as an all-encompassing term).
•An analysis of the 2011 Census data (Table 5) also shows that net in-migration for Hindi States, where Hindi is spoken by at least 50% of the population, is negative. This indicates that the migrant outflow was higher than the inflow in these States. In non-Hindi States, the net in-migration was positive. This pattern was observed for all types of migrations including those done for work and education.
•To summarise, relatively more people from Hindi-speaking States migrate to non-Hindi States, and there is a strong correlation between a region’s HDI and a higher share of English speakers. This suggests a stronger case for English to be the link language rather than Hindi, contrary to what the Union government seems to imply.
