📰 Centre asks States to boost paddy sowing
There has been a 27% fall in the sown area to 43.45 lakh hectares till July 1 this season, show data
•The Centre has asked the State governments to take steps to increase the sowing of paddy in the wake of reports that the sown area has shrunk.
•At a conference of State Food Ministers on food and nutrition security of India here on Tuesday, Union Minister of Food and Public Distribution Piyush Goyal said the international demand for rice and wheat had increased, and asked the States to increase the sowing of paddy in this kharif season.
•The Centre’s data say that paddy has been sown on 43.45 lakh hectares till July 1, which is 27.05% less than the 59.56 lakh hectares during the corresponding period of 2021. “We request the States to increase the sowing of rice,” Mr. Goyal said. He added that when wheat sowing began in October during the rabi season, the States should increase the sowing as demand for wheat had increased globally.
•Meanwhile, the Uttar Pradesh and Gujarat governments urged the Centre not to supply wheat in place of rice. Gujarat Food Minister Nareshbhai Patel and Uttar Pradesh’s Minister of State for Food & Civil Supplies Satish Chandra Sharma urged the Centre to reconsider the decision to replace wheat with rice. “In areas like Saurashtra, people prefer wheat to rice. The Centre has assured us they will consider replacing rice with ragi and other millets,” Mr. Patel told The Hindu. Kerala Food Minister G.R. Anil said the State had requested increased rice allocation.
•The meeting discussed nutritional safety, particularly on fortified rice. Mr. Anil said though Kerala was ready to distribute fortified rice through its public distribution outlets, the State preferred indigenous varieties of rice which naturally contained nutrients. “We have asked the government to consider such varieties of rice rather than going for fortified rice,” he added.
•Mr. Goyal pulled up the States for not submitting their food Bills to the Centre. He said some States had submitted Bills since 2004 and said all Bills must be cleared by August 15. States such as Bihar, Punjab and Uttar Pradesh cited delays in audit clearance. Mr. Goyal offered them assistance in taking up the matter with the Comptroller and Auditor-General. He criticised States such as Telangana, West Bengal and Rajasthan which did not send Ministers to the conference.
NFSA ranking
•Odisha secured the first rank for the implementation of the National Food Security Act (NFSA). Uttar Pradesh and Andhra Pradesh stood second and third, respectively, in the index prepared by the Centre, which was released by Mr. Goyal. Among the special category States, Tripura secured the first rank. Himachal Pradesh and Sikkim stood at the second and third positions.
•Mr. Goyal said the ranking would lead to a healthy competition among the States. The Centre would launch a similar ranking for procurement too. “The Index denotes only the efficiency of TPDS operations, it does not reflect the level of hunger, if any, or malnutrition, or both, in a particular State or Union Territory,” the index report said.
•The findings showed that most States fared well in digitisation, Aadhaar seeding, and e-POS installation. “However, States and Union Territories can improve their performance in a few areas. Exercises such as conducting and documenting social audits thoroughly and operationalising functions of State food commissions across States and Union Territories will further bolster the true spirit of the Act,” the report added.
The Andhra Pradesh government’s hurried education reforms are a cause for worry
•The 2022-23 academic year is likely to be a turbulent one for school education in Andhra Pradesh. The YSR Congress Party government is keen on rolling out radical reforms at an accelerated pace. Chief Minister Y.S. Jagan Mohan Reddy has been saying that a child who walks into a government school should walk out as a global citizen and face the competitive world with confidence. To give shape to his vision, the School Education Department is focused on conceptual learning instead of rote learning. Emphasis is being laid not on evaluating the students on a three-hour examination but on their classroom participation, projects, communication skills, leadership skills and extra-curricular activities. The Department has been tasked with implementing a slew of government initiatives in sync with the National Education Policy (NEP), 2020, this academic year, starting July 5.
•Besides the annual exercise of printing and supplying textbooks, officials are burning the midnight oil to complete training teachers in English; expedite the process of mapping Classes 3-5 in primary schools in the government sector to high schools located nearby; re-apportion teaching staff; implement Section 12(1)(C) of the Right to Education (RTE) Act, 2009, which mandates private, unaided schools to reserve 25% of seats in entry-level classes for children belonging to weaker sections; and bring select schools under the CBSE syllabus.
•Educationists say there is too much to do and too little time. They have raised serious concerns about the “incoherence” of the initiatives. They worry that no homework was done before these initiatives were introduced and that the reforms lack sound footing.
•The Chief Minister’s English medium project was set aside by the High Court and the matter is sub-judice in the Supreme Court. Undeterred, the State has embarked on training teachers in English and has started printing textbooks with lessons in both English and Telugu to facilitate the smooth transition of children to English as a medium of instruction. It also has plans to shift from the State Board to the CBSE in phases.
•There is also confusion about the school restructuring programme. The proposal is to categorise educational institutions into satellite foundational schools comprising pre-primary 1 and pre-primary 2, foundation schools comprising Classes 1 and 2, foundation plus schools with Classes 1 to 5, pre-high schools with Classes 1 to 8, high schools with Classes 3 to 10, and high school plus with Classes 3 to 12. Sceptics argue that merging primary classes with high schools would violate the ‘neighbourhood school system’ endorsed by the RTE Act and result in a higher school dropout rate, especially of girls in remote tribal areas.
•The earlier deadline of June 30 for completing the school-mapping exercise has been pushed to July 31. People worry that there will be confusion if the merger exercise is carried out even as students attend classes in their old schools. Clarity also eludes the proposed re-apportionment of the teaching staff, the long-pending transfers, and promotions of teachers.
•Two Government Orders which were issued recently, to reapportion teaching staff and to transfer the municipal schools to the administrative and supervisory control of the Department of School Education, have fuelled protests across the State. Teachers are demanding the repeal of these orders saying they will be overburdened and the quality of education will suffer. Given the formidable challenges, it may take a few years at least for the government to achieve its lofty educational goals. Its race against time is ill-advised; instead, it would serve everyone well if the process was gradual with all these concerns addressed.
📰 Handcuffing, a judicial tap, and the long arm of the law
The Supreme Court’s directives on handcuffing must be observed, but issues that affect police reform cannot be ignored
•Recently, the Karnataka High Court passed a verdict on handcuffing, which is significant. In Suprit Ishwar Divate vs The State of Karnataka, while awarding two lakh rupees as compensation for handcuffing an accused, without recording the reasons in the police case diary, it gave liberty to the state to recover the amount from the delinquent police officer.
Principles of handcuffing
•The High Court held that an accused, in normal circumstances, need not be handcuffed on arrest. It is only under exceptional circumstances (such as the possibility of escape and/or the possibility of causing harm to himself or others), that handcuffing an accused can be resorted to. Further, when there is such handcuffing, the arresting officer must record the reasons, which then would have to stand judicial/court scrutiny. The petitioner in this case was a law student against whom five criminal cases had been filed for offences under the Negotiable Instruments Act, 1881 for the dishonour of cheques. He had been arrested in furtherance of a non-bailable warrant issued by a magistrate.
•There can be three occasions when a person can be (legally) handcuffed, i.e., an accused on his arrest and before he is produced before the magistrate; an under-trial prisoner during transit from jail to the court and back; and a convict being transported from jail to the court and back. The law with regard to handcuffing was settled in 1980 when the Supreme Court of India, in Prem Shankar Shukla vs Delhi Administration, held that ‘the only circumstance which validates incapacitation by irons — an extreme measure — is that otherwise there is no other reasonable way of preventing his escape’. It said that where an arrestee or a convict can be prevented from escape by increasing security, such an increase is to be a norm rather than handcuffing.
On compensation
•The Court mandated that in case of handcuffing, the reasons for this have to be recorded in writing and it is the duty of the court to make inquiries with the person arrested as to whether he had been handcuffed or not and then approve or reject the reasons. The Supreme Court passed similar directives in another case with regard to under-trial prisoners. Thus, irrespective of whether the person to be handcuffed is an accused or an under-trial prisoner or a convict, the principles governing handcuffing remain the same. However, if such a person is under the judicial custody of the court, the court’s permission is required for handcuffing except under emergent circumstances.
•The next point is about who should pay compensation. It is an established principle that the relief of monetary compensation for an ‘established infringement of the fundamental right guaranteed under Article 21 of the Constitution is a remedy available in public law, which is based on the strict liability for contravention of the guaranteed basic and indefeasible rights of the citizens’. The constitutional courts are empowered to grant such relief ‘against the state or its servants in the purported exercise of their powers’. So, who should pay such compensation?
•In State of Maharashtra vs Ravikant S. Patil (1991), when there were allegations of handcuffing and the parading of an under-trial prisoner of murder on the streets, the Bombay High Court held the Inspector of Police responsible for violation of Article 21, ordering him to pay ₹10,000 as compensation. However, the Supreme Court (though it upheld the judgment of the High Court directing compensation) held that the police officer was not personally liable as he had acted in his official capacity.
•The top court modified the order to that extent and directed the state (and not the police inspector) to pay the compensation. Therefore, the judgment of the Karnataka High Court (discussed above) as far as payment of compensation by the police officer is concerned, does not appear to be in sync with the ratio of the Supreme Court judgment. The police officer might have failed to implement the court’s directives, but he was not acting in his personal capacity.
Possible solutions
•However, the High Court rightly said that it is the state’s responsibility to equip all police stations with adequate and necessary police personnel to discharge their obligations. Therefore, in absence of the required infrastructure, the blame of non-compliance cannot be shifted only to the police officer.
•It is undisputed that a police station or a reserve police line is often unable to provide sufficient escort to jail authorities in the transportation of under-trial prisoners to court, the reasons being a lack of manpower or urgent law-and-order duties. It may also become difficult at times to predict the conduct of an arrestee on the spot.
•A National Crime Records Bureau publication (Ministry of Home Affairs) on ‘Crime in India- 2020’ shows that 810 cases of prisoner escape from police custody (against 931) were reported in the year 2020. No less than 117 cases were registered against negligent police officers as well. These numbers may not be very high, but are sufficient to substantiate the fact that the use of handcuffs is generally done to prevent escape and not to dehumanise criminals.
•Nonetheless, if any malice is found behind the use of handcuffs, it needs to be dealt with strongly by the department. Similarly, there cannot be a justifiable excuse for not mentioning the reasons for handcuffing in the case diary.
•The Supreme Court, in the Ravikant S. Patil (supra) case, had rightly said that the authorities concerned may, if they think it necessary, hold an inquiry and then decide on action against the police inspector. Therefore, the right approach would be to initiate disciplinary action against the errant officer under service conduct rules, rather than to order the payment of compensation.
•It would also be appropriate for State governments to review the mobility of the police, the requirement of additional manpower and technical gadgets (such as body cameras, as recommended by the Karnataka High Court) periodically, and exempt at least the police department from the ban on recruitment. Per contra, the enforcement agencies and lower courts are duty bound to implement, in letter and spirit, the Supreme Court’s directives on handcuffing.
📰 The way to control tuberculosis
Three major deficiencies of the Revised National TB Control Programme need correction
•Tuberculosis is the worst among endemic diseases, killing 1.5 million people every year (WHO). TB affects adults in their most productive years and therefore impoverishes the family and the nation. In India, the TB capital of the world, the disease kills some 1,400 persons every day. These are gross estimates, for our health management system has no method to count the exact numbers.
•In the 1950s and ’60s, India was the global leader in research in epidemiology, transmission and domiciliary treatment of TB. The National TB Control Programme of 1962 was a district-based one with public-private participation. However, upscaling the model proved unsuccessful and the programme failed to control TB. With that we lost self-confidence and began doing what we were told to do by the WHO under the Revised National TB Control Programme (RNTCP). WHO experts, without factoring in the differences between the TB epidemiology of poor and rich countries, used a theoretical construct of TB control to design RNTCP. By 2018, India realised that light at the end of the tunnel was still elusive.
Flaws in the programme
•There are obvious flaws in the RNTCP. First, for a programme that is heavily funded by the government, there is no prescribed method of monitoring the trajectory of TB control. Contrast this with the National AIDS Control Programme. Before the National AIDS Control Organization was established, the Indian Council of Medical Research-managed AIDS Control Task Force had a unique method of monitoring the control trajectory, popularly called ‘sentinel surveillance’. Through it, we have data on infection prevalence that can be compared across years, starting from 1986 to date. There was pressure from WHO experts to abandon it, but credit must be given to Dr. Sriram P Tripathy, the then Director General of ICMR, for politely but firmly refusing to oblige.
•Recently India confronted the WHO’s estimates on COVID-19 deaths in India. That the government could publicly stand up to WHO was a good sign. We must now boldly point out the flaws of the WHO-designed RNTCP and design our own comprehensive strategy.
•Second, the assumption that treating pulmonary TB patients alone would control TB was epidemiologically fallacious in India. The theoretical principle is ‘source reduction’. If one patient is the proximate source of infection and disease to another in the community, early diagnosis and treatment would work as source reduction. India is a high-burden country. Large proportions of adults carry TB infection in the lung in a dormant condition for life (latent TB). Some among them deteriorate and develop overt TB disease (reactivation TB). HIV infection, diabetes, undernutrition, lung damage due to pollution, tobacco smoking, fall in immune functions due to chronic diseases, alcoholism, etc. accelerate reactivation TB.
•Third, RNTCP has failed to elicit people’s partnership in TB control. In India’s AIDS Control Programme, public education was given high priority. Red ribbon clubs in schools and colleges are its legacy. Without people’s informed participation, stigma and delay in seeking help will continue.
•Realising that TB was not under control, WHO called for another programme revision through a World Health Assembly Resolution in 2014 to eliminate TB by 2035. Emboldened by the promise of an effective strategy, the Prime Minister announced in 2018 that India would eliminate TB by 2025.
Controlling TB
•Epidemiologically, human mastery over microbes includes control, elimination and eradication. Control refers to the reduction of disease burden through specific interventions to a pre-determined level in a pre-stated time period. Evidence will have to show that reduction was due to those interventions and not due to a ‘secular trend’. Diseases that have social determinants tend to decline over time with better housing, nutrition, education and income — this is what a ‘secular trend’ is. Globally, by this ‘secular trend’, the burden of TB had been falling by 1% or 1.5% per year.
•Elimination refers to achieving zero frequency of new cases. As we have a huge backlog of latent TB, we cannot eliminate TB, but we must aim for a high level of control (lowering from 200 per lakh per year to 50 per lakh per year) and document it with measurement. That will do justice to the Prime Minister’s vision. High control is achievable as we have major assets by way of the RNTCP. Trained State and District TB officers are already on the job and we have an extensive network of TB clinics and an army of community and field workers. Once the deficiencies listed above are corrected, we can control TB.
📰 Indian aviation needs a strong and steady tailwind
Policymakers ought to recognise the country’s untapped potential and work towards dismantling the many hurdles
•Around four decades ago, India had two television channels — Doordarshan One and Doordarshan Two. A programming highlight was a popular R.K. Laxman cartoon. On channel one, there was programming on Indira Gandhi and when a viewer got bored, he switched to the other channel, which had programming on Sanjay Gandhi, her second son and a politician who mattered then. There were only two car companies, manufacturing the Ambassador and the Fiat Premier Padmini; two motorcycle and two scooter companies, that made the Enfield India and Ideal Jawa bikes, and the Bajaj and Lambretta scooters, respectively; one telephone company, two airlines, Air India and Indian Airlines, and a bunch of crumbling public sector airports.
•Then came some change. Thanks to the far-sighted reforms ushered in by P.V. Narasimha Rao, who was ably assisted by Manmohan Singh, and carried forward during the Rajiv Gandhi and Atal Bihari Vajpayee eras and also subsequent governments, India now has over 500 television channels, more than 20 automobile and 15 two-wheeler manufacturers, a revolution and proliferation in the cellphone sector (but now in danger of becoming a duopoly), and a plethora of pharmaceutical companies. The country is a pioneer and world leader in vaccine production and a mighty nation in software and financial services, which are the envy of the rest of the world for innovation and being low cost. But there is also a twist to this tale. There are a number of airline companies, but they are struggling.
•The reforms that opened up the aviation sector in 1991 and ended the licence raj and the monopoly of Indian Airlines and Air India changed the sector. A slew of private sector airlines were given the licence to fly, but two, Jet Airways and Sahara, survived, resulting in cartelisation. There was change again when the concept of low cost airlines in India took shape in 2003 which overcame the cost barrier. There was an explosion in demand and the common man could think of flying. Along with this came a liberalisation of various other sectors that propelled India to the front; it was a vibrant and an emerging economic power and a leader among developing economies.
Barriers and some data
•Sadly, while all other sectors have grown by leaps and bounds, Indian aviation has become ‘the sick man of India’. The growth of aviation has been affected by choking regulations, tough entry barriers for new entrants, high fuel prices on account of sky high taxes, and inefficient public sector airports that are paving the way for monopoly airports that are extortionist in the absence of robust competition. Frequent and knee-jerk changes only point to the absence of a long-term visionary strategic policy not just for airlines but also for the entire gamut of sectors in aviation.
•The number of Indians who buy air tickets in a year is 140 million (the figure for 2019) before COVID-19 struck and ravaged the economy. They are not 140 million different individuals as it seems. That number comprises 35 million to 40 million frequent flyers who form the bulk of ticket buyers. It translates to less than 4% of the population who can afford air travel, placing India just alongside some poorer African countries, in terms of the per capita consumption of air tickets. Brazil, Malaysia, Indonesia and China are way ahead of India.
•Hard numbers across the world for the pre-COVID-19 year 2019 provide context to the story. Ireland, not the biggest of economies, had 28 million domestic air passengers or tickets sold against a population of five million. In Europe, it was 1,146 million passengers for a population of 447 million; in the United States, it was 927 million passengers for a population of 325 million. Let us leave the most developed economies. Here is more data: Brazil 119 million passengers/population 215 million; Malaysia 63 million passengers/population approximately 33 million; Indonesia 116 million passengers/population nearly 280 million, and China, 660 million passengers/1.4 billion people. In contrast, India, with 1.25 billion people, had 140 million domestic passengers. And, finally, some more numbers: Ethiopia five million passengers/population nearly 120 million and Egypt, 13.2 million passengers/ population 100 million.
A Eureka moment
•I founded a helicopter company in 1995, but in 2002 I envisioned a new vibrant India that had unleashed consumer aspirations in its citizens in the wake of a flood of reforms in the economy in China. The explosion of television channels that spurred consumer demand through advertisement unshackled the entrepreneurial ‘animal spirits’ that had been long dormant in India.
•Let me give you an example. In 2002, while transiting at Luton airport (one of the six major international airports serving the London Metropolitan area) on my way to the United States for an aviation conference, I saw an advertisement that hit me like lightning — 13 million passengers per annum flew through this tiny airport. To make this more relatable, that was the number of passengers who passed through nearly 40 airports in India that were operational then. Later, on a domestic flight in Phoenix in Midwest U.S., the passenger in the seat next to me was a heavily tattooed burly man in shorts and bunions who was travelling with his family. As we chatted, I learnt that he was a carpenter visiting the Grand Canyon. It was a journey that was my Eureka moment. I decided that India was ready for a revolution and launched a low cost airline on a wing and a prayer, and invested with hope and optimism — the invisible fuel of any economy.
•It was a crazy idea but the environment seemed conducive under the National Democratic Alliance government led by Atal Bihari Vajpayee. Entrepreneurs break the status quo, smash cartels and create new markets. There are the examples of Bill Gates, Steve Jobs and even India’s N.R. Narayana Murthy who founded Infosys (with other professionals) with an initial capital investment of ₹10,000. Today, one has the newer examples of Byju or PayTm. Naresh Goyal was a humble travel agent who put together some funds and built a world class airline, Jet Airways. Capital will eventually find entrepreneurs who have revolutionary ideas just as river coursing through land finds the sea. As we have seen many times, a mighty war chest need not guarantee the success of a game-changing venture.
•The ‘Start-up India’ initiative is a laudable initiative by the government of the day and the Prime Minister, Narendra Modi. It is by and large the driving force in hi-tech companies and disrupting many conventional businesses. But the point is that this force must spread to other areas. Aviation is integral to equitable economic growth, for a country to be globally competitive and to change the situation in swathes of India that are struggling with poverty and unemployment. Passenger airlines and air cargo overcome geography and connect remote areas are alienated from the mainstream. They can drive investment deep into the country, giving people access to markets. More importantly, they boost tourism, which is the largest employment generator in the unorganised sector.
•With mega airports controlling air and ground space, it is almost impossible to connect rural and small towns from the large metros. Despite the regional airport development plan, ‘Ude Desh ka Aam Naagrik ( UDAN) initiative, there is not much regional connectivity. And where slots are made available with difficulty, there is the barrier of prohibitive costs.
Carry out these reforms
•India’s air cargo growth is also languishing. Hong Kong airport alone handles more cargo than all of India’s over 100 airports put together. Air cargo integrated with road, rail and port infrastructure is the backbone of a growing economy. It is critical to understand that for passenger airlines to grow, there have to be reforms in all areas of aviation, i.e., air cargo, airports, aviation fuel taxes (State and central, which in India are among the highest in the world) and Maintenance, Repair and Overhaul (MRO). They are in a dismal state in India. For example, there are labyrinthine taxes, customs, other duties and tortuous rules to be overcome to bring in parts, to facilitate repair and overhaul, and to re-export them or for use in aircraft here. This is a huge deterrent. Airlines find it easier to send their aircraft to major MROs abroad (Dubai, Singapore or Germany), some of which employ Indian technicians. Similarly, the charter business has remained stagnant. It is ironic that when there are thousands of pilots and technicians unemployed in India, airlines have to look for foreign pilots and engineers, pushing up costs in the process.
Trough and crest
•And, finally, there is India’s Aircraft Act, 1934 and Aircraft Rules, 1937. Though there are frequent modifications under the above overarching mother Act and Rules, India has not kept pace with modern technology in aerospace, increasing costs to the industry and ultimately affecting passenger growth. Regulators are not popular in any country. India’s statutory regulatory authority, the Directorate General of Civil Aviation, needs to be modernised, well-staffed, motivated and incentivised. There need to be aviation professionals in charge rather than the ubiquitous bureaucrat from the Indian Administrative Service There needs to be a comprehensive overhaul and deep reforms.
•But despite the setbacks and deterrents, there is a silver lining. India may not possess all. But it has an inexhaustible market and largely untapped potential. That is what gives many of us hope. Policymakers need to be asked only one question: What should the Government do to make the common Indian fly high? How does one increase the figure of 4% who fly now to 50% in the next two decades?
📰 The status of China’s Belt and Road Initiative in South Asia
What has been the progress of the BRI so far? What have been the roadblocks and challenges?
•In 2013, Chinese President Xi Jinping, during his visits to Kazakhstan and Indonesia, expressed his vision to build a Silk Road Economic Belt (SERB) and a 21st Century Maritime Silk Road (MSR), to break the “bottleneck” in Asian connectivity. Thus, the Belt and Road initiative was born.
•The biggest project under BRI is in Pakistan, the China Pakistan Economic Corridor (CPEC). Over time, China pledged $62 billion in low-interest loans and financing from Chinese state-owned banks and the Asian Development Bank (ADB).
•Bangladesh, which joined the BRI in 2016, has been promised the second-highest belt and road investment by China in South Asia after Pakistan. Multiple studies show that Bangladesh has been able to benefit from the BRI while maintaining diplomatic and strategic ties with both India and China. It has managed to not upset India by getting India to build infrastructure projects similar to BRI in the country.
•The story so far: At the recently concluded summit of G-7 leaders in Germany, U.S. President Joe Biden and his allies unveiled their $600 billion plan called the Partnership for Global Infrastructure and Intelligence which is being seen as a counter to China’s Belt and Road Initiative (BRI), valued at a trillion U.S. dollars by some experts. Therefore, there is a need to re-visit the various projects under the BRI in different South Asian countries.
What is China’s Belt and Road Initiative?
•In 2013, Chinese President Xi Jinping, during his visits to Kazakhstan and Indonesia, expressed his vision to build a Silk Road Economic Belt and a 21st Century Maritime Silk Road, to break the “bottleneck” in Asian connectivity. This vision led to the birth of the BRI. The initiative envisioned a Chinese-led investment of over $1 trillion in partner countries by 2025. More than 60 countries have now joined BRI agreements with China, with infrastructure projects under the initiative being planned or under construction in Asia, Africa, Europe, and Latin America.
•To finance BRI projects, China offers huge loans at commercial interest rates that countries have to pay within a fixed number of years. The west has accused China of debt-trapping by extending “predatory loans” that force countries to cede key assets to China. However, research indicates that low and middle-income countries are often the ones to approach China after not being able to secure loans from elsewhere. In recent years, the BRI seems to have experienced a slowing down as annual Chinese lending to countries under the initiative slimmed from its peak of $125 billion in 2015 to around $50 to 55 billion in 2021.
What have been the BRI’s investments in Pakistan?
•On his 2015 visit to Pakistan, Mr. Xi and then Pakistan Prime Minister Nawaz Sharif unveiled the BRI’s flagship project and its biggest one in a single country — the China Pakistan Economic Corridor (CPEC). Over time, China pledged $62 billion in low-interest loans and financing from Chinese state-owned banks and the Asian Development Bank (ADB), up from an initial $46 billion pledge. The CPEC envisioned multiple projects involving energy, transport and communication systems.
•At the centre of the CPEC was the $700 million development of the city of Gwadar into a smart port city that would become the “Singapore of Pakistan”. Gwadar is strategically important as it is an hour’s drive from Iran and less than 320 km from Oman. According to the master plan for Gwadar’s development under BRI, approved in 2020, it would increase the city’s GDP to $30 billion by 2050 and create over a million jobs. However, multiple reports have shown that shipping activities at the Gwadar Port is almost negligible so far, with only some trade to Afghanistan.
•Additonally, Gwadar residents have also protested against the large security force deployed to protect Chinese nationals involved in projects after they became the target of multiple deadly attacks by Baloch nationalists. In late 2021, thousands of Gwadar residents staged a sit-in protest against the lack of promised basic amenities in Gwadar and Chinese deep-sea trawlers reducing fishing opportunities for locals. Other major projects are the orange line metro, coal power plants to tackle energy shortages and the Main Line 1 rail project from Peshawar to Karachi. While coal plants set up and managed by Chinese firms did help improve the power situation in Pakistan, former Prime Minister Imran Khan sought renegotiation of payments to China in 2020 alleging that Chinese companies had overcharged the country by $3 billion. In May this year, Chinese power firms operating in Pakistan threatened to close down if the latter did not pay dues worth 300 billion in Pakistani rupees (approximately $1.5 billion).
What about Sri Lanka?
•In Sri Lanka, multiple infrastructure projects that were being financed by China came under the fold of the BRI after it was launched in 2013.
•The island nation in the last couple of years has witnessed competition between India and China in port terminal and energy projects. In 2021, Colombo ejected India and Japan out of a deal to develop the East Container Terminal at the Colombo port and got China to take up the project. It then awarded the project for the Western Side of the Terminal to the Adani Group.
•Some BRI projects in Sri Lanka have been described as white elephants — such as the Hambantota port, a deep seaport on the world’s busiest east-west shipping lane, which was meant to spur industrial activity. The port had always been secondary to the busy Colombo port until the latter ran out of capacity. The Sri Lankan government took $1.4 billion in Chinese loans for the port’s expansion. Unable to service the huge loan and incurring $300 million in losses due to delays, the government handed Hambantota port to a Chinese state-owned company on a 99-year lease in 2017. Other key projects under BRI include the development of the Colombo International Container Terminal, the Central Expressway and the Hambantota International Airport among others.
Are there projects in Afghanistan?
•Afghanistan has not comprehensively been brought into the BRI, despite a Memorandum of Understanding (MoU) being signed with China in 2016. China had promised investments worth $100 million in Afghanistan which is small in comparison to what it shelled out in other South Asian countries. The projects have not materialised so far and uncertainties have deepened after the Taliban takeover last year.
How have projects from India and China progressed in Maldives?
•Situated in the middle of the Indian Ocean, Maldives comprises two hundred islands, and both India and China have strategic interests there. One of the most prominent BRI projects undertaken in the Maldives is the two km long China-Maldives Friendship Bridge — a $200 million four lane bridge.
•Most of China’s investment in the Maldives happened under former President Abdullah Yameen, seen as pro-China. Over the years, opposition protests grew against the large borrowing from China and Mr. Yameen was defeated in 2018. The Maldives’ current regime of President Ibrahim Solih has tried to distance itself from the BRI, focusing more on its ‘India First’ policy. India has also in recent years sought greater ties with the Maldives under Prime Minister Narendra Modi’s ‘Neighbourhood First’ policy.
What about Bangladesh?
•Bangladesh, which joined the BRI in 2016, has been promised the second-highest investment (about $40 billion) in South Asia after Pakistan. Multiple studies, including research by the Council on Foreign Relations, show that Bangladesh has been able to benefit from the BRI while maintaining diplomatic and strategic ties with both India and China. It has managed to not upset India by getting India to build infrastructure projects similar to BRI in the country. In 2016, when the Chinese government promised Dhaka BRI investment worth around $40 billion, India followed up in 2017 by extending a $5 billion line of credit and economic assistance. BRI projects include China-Bangladesh Friendship Bridges, special economic zones, the $689.35 million-Karnaphuli River tunnel project, upgradation of the Chittagong port, and a rail line between the port and China’s Yunnan province. However, multiple projects have been delayed owing to the slow release of funds by China.
📰 A matter of import
Spectre of wider trade and current account deficits is dragging the rupee down
•India’s monthly merchandise trade deficit hit a fresh record of $25.6 billion in June as per preliminary estimates released by the Commerce and Industry Ministry on Monday. This is the third occasion in seven months and the second month in a row that the trade deficit has widened to all-time highs. In June, the value of outbound shipments grew 16.8%, marginally slower than the 20.6% growth recorded in May, to about $38 billion — reflecting the third successive month of moderation. Worryingly, four of India’s top 10 export items — engineering goods, cotton yarn, drugs and pharma and plastic products — contracted from a year ago. Petroleum exports were up 98% from June 2021, but about $0.7 billion lower than May 2022. Even as exports growth slid, imports surged by over 51% to $63.6 billion in June, crossing the $60 billion mark for the fourth month in a row. Coal imports, up almost 242% year-on-year, and petroleum inflows, up 94.2%, drove nearly three-fourths of this surge. And although gold imports, which had soared nearly eight-fold in May to touch 107 tonnes, moderated from over $6 billion that month to $2.6 billion in June, they were still 169% higher than a year ago and significantly over April’s imports of $1.7 billion. The trade deficit for Q1 adds up to a record $70.25 billion, over two times higher than a year ago.
•The tangible slowdown in exports, due to weaker global demand, is unlikely to change much soon, with recessions or sharp growth slowdowns expected in several developed markets. Domestic demand for imports of oil, fertilizers, coal and even gold — a safe haven for investors amid tumultuous financial markets — is largely inelastic, and elevated global prices for these will continue to escalate the import bill through this year. The weakening rupee, which tumbled further to 79.37 vis-à-vis the U.S. dollar on Tuesday, will raise import costs further. Analysts expect the rupee to scale the 82 to a dollar mark by the October to December quarter before recovering and the current account deficit to more than double to around 3% of GDP this year from 1.2% in 2021-22. Robust forex reserves notwithstanding, the persistent outflows of foreign capital from the financial markets have triggered concerns about the balance of payments situation. Last week, the Government imposed a windfall tax on crude oil production that could help bridge concerns about the fiscal deficit. It also placed restrictions on petroleum products’ exports and acknowledged that gold imports were hurting the current account by raising customs duties to 15% from 10.75%. This may end up hurting petroleum exports further while import duties may not dent India’s unparalleled appetite for the yellow metal as much as hoped. Coal imports, on the other hand, are expected to keep hitting record highs as the monsoon will affect domestic output. Policy makers may have little room to manoeuvre out of this vicious cycle, but missteps must be avoided and domestic inefficiencies hurting exports reviewed urgently.
📰 The relentless march of FPIs to the exit gate
Why are Foreign Portfolio Investors exiting the Indian market? How has the Russia- Ukraine war contributed to this?
•Foreign Portfolio Investors (FPIs) have been on a selling spree in India. June 2022 witnessed the worst sell-off since March 2020 — when India announced a nationwide lockdown — at ₹50,000 crore.
•Post-pandemic, recovery in the Indian economy has been uneven. As the industry was grappling with this challenge, came Russia’s invasion of Ukraine which led to a rise in global prices. Add to this mix the U.S. Federal Reserve raising the benchmark interest rate starting March this year. All of these have made Indian assets ‘risky’.
•When FPIs sell their holdings and repatriate funds back to their home markets, the local currency takes a beating. With a weaker rupee, we have to shell out more funds to import the same unit of goods.
•The story so far: Foreign Portfolio Investors (FPIs) have been on a selling spree in India. June 2022 witnessed the worst sell-off since March 2020 — when India announced a nationwide lockdown — at ₹50,000 crore. This comes on the back of May’s sell-off figures of about ₹44,000 crore. June was also the ninth on the trot that FPIs had sold net of their assets — ie, sold more than they had purchased. Their selling actions have triggered a significant decline in benchmark indices, resulting in a drop in market capitalisation of companies.
What are FPIs?
•Foreign portfolio investors are those that invest funds in markets outside of their home turf. Their investments typically include equities, bonds and mutual funds. They are generally not active shareholders and do not exert any control over the companies whose shares they hold. The passive nature of their investment also allows them to enter or exit a stock at will and with ease.
What factors spur FPI moves?
•Promise of attractive returns on the back of economic growth draws investors including FPIs into a country’s markets. For example, as per data from the National Securities Depositories Ltd. (NDSL), FPIs brought in about ₹3,682 crore in 2002. This grew to ₹1.79 lakh crore in 2010. This correlates with the concurrent expansion of economic output in that period, despite the 2008 global financial crisis which saw FPI sell-offs in that time-frame in the country. The year 2017 saw FPI inflows exceed ₹2 lakh crore.
•Likewise, FPIs withdrew ₹1.18 lakh crore in March 2020 alone — the month when India announced a nationwide lockdown, triggering concerns around economic growth. In tandem, benchmark stock index Sensex fell from 42,270 in February 2020 to 25,630 in March 2020.
•FPIs also show keenness to invest in bonds when there is a favourable differential between the real interest rates on offer in the country they aim to invest in, and other markets, but more specifically, compared with the largest economy in the world, the U.S.
Why have FPIs been selling India holdings?
•FPIs sold assets worth about ₹50,000 crore in June 2022. This is the second highest sell-off in a month since 1993, after March 2020.
•Post-pandemic, recovery in the Indian economy has been uneven. The second wave of the COVID-19 pandemic in 2021 devastated lives and livelihoods. The economy stuttered again when a third, albeit less severe, wave saw the spread of the Omicron variant early this year. Add to this the return of pent-up demand in economies worldwide as the pandemic subsided. The pace of recovery caught suppliers off guard, contributing to supply-side shortages.
•As the industry was grappling with this challenge, came Russia's invasion of Ukraine. Sunflower and wheat supplies, to name just two commodities, from these two nations were impacted, leading to a rise in global prices for these crops. As supplies in general tightened across the globe, commodity prices too rose and overall inflation accelerated. India witnessed a quickening pace in price rise that stayed above the Reserve Bank’s upper comfort level of 6% for five months running, touching 7.8% in April, before receding to a slightly less aggressive 7.04% in the subsequent month.
•Industrial production has seen a bumpy ride without giving confidence of a full and final recovery from the pandemic. For example, the S&P Global India Manufacturing Purchasing Managers’ Index (PMI) slid to 53.9 in June — the lowest level in nine months — from 54.6 in the previous month. Experts attribute this to inflation pressures, which also dampened business confidence sentiment to a 27-month low in June, as per survey-based findings. Consumption expenditure too has remained weak in the subcontinent.
•With each of these factors contributing to a decline in confidence of robust economic performance, FPIs have been exiting market investments over these past months. Add to the mix the U.S. Federal Reserve raising the benchmark interest rate starting March this year. On June 15, the Fed announced the most aggressive interest rate increase in almost 30 years, raising the benchmark borrowing rate by 0.75 percentage points in its battle against surging inflation. The key rate range had gone up from 0-0.25% in March to 0.75-1% in May.
•When the differential between the interest rates in the U.S. and other markets narrow, and if such an occurrence is accompanied by the strengthening of the dollar, then the ability of investors to realise healthy returns is impacted. For returns are measured not only by the value appreciation of assets but also by exchange rate changes. If the dollar strengthens against the rupee, then an investor is able to realise fewer dollars for a given quantum of rupee assets liquidated. Further, if inflation quickens in the overseas market where the investor has placed funds in, then real returns are even further impacted.
•They then tend to exit assets seen as ‘risky’ such as in emerging markets like India, Brazil or South Africa. And indeed, the rupee has been depreciating against the dollar, which has seen a general strengthening against several other currencies. The rupee touched its record low of 79.33 against the greenback on Tuesday.
What impact does an FPI sell-off have?
•When FPIs sell their holdings and repatriate funds back to their home markets, the local currency takes a beating. After all, they sell rupees in exchange for their home market currency. As supply of the rupee in the market rises, its value declines. In this instance, the rupee has been seeing all-time lows recently. About a year ago, it was trading in the region of 73 to a U.S. dollar; it is now flirting with the 78 level. With a weaker rupee, we have to shell out more funds to import the same unit of goods. The most telling impact is on the cost of our crude oil imports that contribute to 85% of our oil needs.
