📰 Understanding the all-time high in India’s trade deficit
After a year of record exports, why have India’s exports moderated in the first quarter?
•The chasm between exports and imports has widened in the first quarter of this year, with the cumulative trade deficit already hitting $70 billion, translating into an average of $23.3 billion a month.
•While Russia’s conflict with Ukraine has propped up commodity prices globally, the spill over effects of runaway inflation are hurting global growth prospects as well as trade demand. The ‘lacklustre’ exports in June reflect an underlying slowdown in external demand.
•India is not alone as even super-exporter Germany recorded its first trade deficit in 30 years this May, albeit a minor one.
•The story so far: Having crossed a record $400 billion mark in 2021-22, India’s exports have moderated in the first quarter of this year, with May and June clocking upticks of 20.6% and 16.8%, respectively, slowing from a 30.7% rise in April. Sequentially too, overall goods exports declined for the third month in a row in June, even as imports continued to rise sharply, triggering fresh peaks for India’s monthly trade deficit.
How has the merchandise trade balance changed in recent months?
•While India’s exports were surging last year, imports were rising too, according to the Ministry of Commerce. Total goods exports in 2021-22 amounted to $422 billion, up sharply from the pre-COVID levels of $313 billion in 2019-20. This was the highest ever export number, and marked the first time in years that an official export target ($400 billion) was not only met, but surpassed. Imports hit a fresh high of $613 billion, compared to $394 billion in the pandemic affected previous year and $475 billion before that. The trade deficit thus stood at $191 billion, nearly double of 2020-21.
•The chasm between exports and imports has widened in the first quarter of this year, with the cumulative trade deficit already hitting $70 billion, translating into an average of $23.3 billion a month. By contrast, the previous highest monthly trade deficit was $22.9 billion in November 2021. That record has been surpassed significantly in the past two months, with the deficit hitting $24.3 billion in May and peaking to a new high of $25.6 billion in June. Economists reckoned the deficit was higher on a seasonally adjusted basis, with Nomura analysts estimating that it stood at $25.8 billion in May and widened to $29.9 billion in June. Economists at HSBC Securities and Capital Markets (India) pegged the trade deficit even higher in seasonally adjusted terms, at $31 billion from $26 billion in May.
•In value terms, imports jumped for the fifth month in a row to a fresh record of $63.6 billion in June, 51% over the same month a year ago and 6.9% higher than May’s tally, which in turn was 7.3% over the value of April’s inbound shipments. On the other hand, exports slid 2.6% from May’s $38.9 billion to $37.9 billion in June.
What is driving up imports and denting exports?
•While Russia’s continuing conflict with Ukraine since late February this year has propped up commodity prices globally, the spill over effects of runaway inflation are hurting global growth prospects as well as trade demand. The ‘lacklustre’ exports in June reflect an underlying slowdown in external demand, with weakness seen in exports of engineering products, chemicals, pharmaceuticals, cotton yarn and plastic products, Nomura said in a note. Outbound shipments for these four categories, part of India’s top ten exports, contracted. While petroleum exports were still up a sharp 98% from June 2021, they were $0.7 billion lower than May 2022 levels. And though exports of readymade garments, electronics and rice remained healthy, non-oil exports fell for the second successive month in June on a seasonally adjusted basis, HSBC cautioned in a note on Tuesday. “…We find that in volume terms, low-skill exports like agriculture and textiles have weakened more than high skill exports like engineering goods and pharma,” said its chief economist Pranjul Bhandari (along with co-authors).
•Imports, on the other hand, have literally been fuelled by energy sources — oil and coal, with the former driven by higher prices and the latter driven by India’s domestic coal supply crunch compelling power producers to import more each passing month. The volatility in financial markets and the sharp inflation have also driven up imports of gold — considered a safe haven and hedge against price rise. Coal imports were up 242% in June, gold by 170% (after a dazzling 789% uptick in May), and crude oil imports grew over 94%. But non-oil, non-gold imports (also known as core imports) also grew by a robust 31.7% in June — spurred by higher inflows of plastics, chemicals, electronics and vegetable oils. While higher prices are feeding a large part of the increase in headline imports, import volumes are also growing in line with steady domestic demand, Nomura analysts argued.
What will determine the trade trajectory through the rest of the year?
•With several developed economies expected to fall into recession over this year, the dip in exports could accelerate in coming months. The fresh taxes and restrictions imposed on petroleum exports could weaken outbound volumes further, while Indians’ appetite for gold may not be dented much by the higher import duties levied by the Centre last week. Oil and gold prices may have corrected a bit recently, but still remain significantly high. Moreover, coal imports will only surge further as Coal India’s production levels slide through the monsoon. The weakening rupee will continue to make imports costlier while slowing exports may not be able to capitalise enough on it. Indian exporters don’t expect a change in the narrative till the war in Europe abates, along with the high volatility in commodity prices. Economists at Nomura and HSBC expect ‘record high trade deficits’ to remain the norm for India, for now. But India is not alone, and can perhaps, take solace from the fact that even super-exporter Germany recorded its first trade deficit in 30 years this May, albeit a minor one.
📰 Taking stock of five years of GST
Findings show that it has lowered inflation of food items and raised inflation of non-food items
•The monumental indirect tax reform, the Goods and Services Tax (GST), has completed five years in existence. Before the implementation, it was said that it would be a boon to the economy in terms of higher revenue buoyancy, lower inflation, higher revenue, higher growth, and so on. On the completion of GST’s five years, it makes sense to ask what happened to inflation.
•During the 12 months preceding GST implementation, the Consumer Price Index (CPI) inflation was 3.66%, while it increased to 4.24% post-GST in the next 12 months. However, India is not alone in witnessing higher inflation. A similar pattern was observed in Australia, New Zealand, and Canada. An Australian Competition and Consumer Commission study showed that GST initially increases inflation.
•Based on the actual inflation numbers, one can conclude that GST had an inflationary impact on India. But this is not the correct approach to understand whether GST raised inflation in India. Before we systematically examine this issue, let us understand how GST can affect prices.
Understanding the mechanism
•In theory, implementing GST should not lead to a change in overall inflation. The revenue-neutral rate (RNR) is calculated so that it would not cause higher inflation. But revenue neutrality does not mean that prices would not go up or down in the economy. This is because the weight of goods in the consumption basket and their contributions to indirect tax collections are not the same. For example, food and drinks (which comprise 46% of the CPI index), rent, and clothing are all significant parts of the CPI basket that are either not taxed or taxed at low rates.
•Importantly, the effect of GST on the prices of certain goods and services depends on the structure and design of taxation, such as the level of exemptions, the rate structure of GST, the weight of goods and services in the CPI basket, the tax base, the efficiency of the administrative machinery, and so on.
•The RBI, in a 2017 report, showed that about half of the groups of items that GST covers are not in the CPI basket. This study found headline inflation might rise by ten basis points only. So, the effect of GST on prices was expected to be small. Finally, prior to the GST implementation, it was expected that prices would go down because GST harmonises indirect tax rates and eliminates the cascading effect. Thus, whether GST has any effect depends on how different factors affect each other.
•So, how can we ascertain whether GST has had an inflationary impact in India? To answer this, we turn to statistical modelling, which will give us a precise and neat estimate of the causal impact of an intervention. In a nutshell, this model uses pre-intervention data (before July 2017) to train the data to estimate the counterfactual estimates of inflation. A counterfactual estimate is nothing but an estimate of inflation if the intervention (in this case, GST) had not occurred. Then the causal estimate would be the difference between the actual and the counterfactual trends. The outcome variable chosen is retail inflation (CPI).
•Our statistical results provide us with an interesting picture of the impact of GST on price levels. First, we look into the overall price index (CPI). Here, the actual CPI growth in the study period is 4.61%, whereas the counterfactual estimate of inflation is 3.24%. This implies that without the GST implementation, the CPI inflation would have been 3.24%. This indicates that with the implementation of GST, CPI increased by 1.37 percentage points (pp). Second, we also find that CPI core inflation (which strips off volatile components such as food and fuel from the headline inflation) increased by 1.04pp in the post-GST period (actual inflation was 4.57%, counterfactual inflation was 3.53%).
•Third, GST is found to have a significant positive impact on inflation of commodity groups such as paan, tobacco and intoxicants, clothing and footwear, housing, and miscellaneous sectors (mainly consisting of services).
•In the case of non-exempted food and beverages, implementation of GST is found to have a negative impact of 4.42% on price levels.
Rise in inflation post GST
•The rise in inflation post-GST implementation could be due to the rise in the tax rate of some goods and services, the inclusion of business activities that were not taxed earlier, or the market structure. The average weighted GST rate was designed to be neutral, so it might not have contributed much to the observed higher inflation. Coverage of business activities under GST not taxed earlier would result in higher prices since the firms would pass on the cost to the consumers. Although the informal sector suffered following GST implementation, many firms have jumped to the tax net to take advantage of input tax credit and escape from the punishing reverse charge mechanism.
•There is another possibility which would cause higher inflation after the GST implementation. Textbook microeconomics teaches us that market competition leads to lower prices. And when market power increases, prices increase, and profit follows. As Nobel Prize-winning economist Joseph Stiglitz opined, rising market power is bad for the economy as it raises economic inefficiency and lowers the economy’s resiliency. Further, taking advantage of market power, it is possible that most firms would have passed the taxes to end consumers, resulting in a cost-push inflationary impact of the GST.
•Our statistical exercises provide conclusive proof that GST implementation has had an inflationary impact on the Indian economy. Let us recall that prices of petroleum products increased significantly, which might have contributed to the rise in CPI after the GST implementation.
•To summarise, our statistical results suggest that GST implementation has resulted in a decrease in inflation of food items and raised inflation of non-food items such as CPI, paan, tobacco and intoxicants, clothing and footwear, housing, miscellaneous, and non-exempted food and beverages.
•Our analysis suggests that prior to GST implementation, market concentration measured by various indicators was rising, suggesting an oligopolistic market structure. This determines whether the benefits of GST are passed down to the consumers or not. However, withpa the existence of market power, firms’ price includes a significant mark-up over marginal costs. Our results point out the possibility of profiteering in select segments after GST. To pre-empt this possibility, the government set up National Anti-profiteering Authority (NAA) to ensure companies did not use GST as an excuse to raise prices.
•Our findings suggest that NAA should monitor the prices of critical or essential goods and services to see the price impact of GST. Similarly, the Competition Commission of India should observe anti-competitive producer behaviour that hurts consumers via excessive price increases. These measures may ensure that producers do not take advantage of the GST.
Recent progress in the alliance opens up prospects of a customised partnership and mutual growth
•With carbon neutrality being the byword to a sustainable world, a host of countries — Norway, Sweden, the United Kingdom, France, Spain, Japan, Germany, Canada, Costa Rica, the United States, Brazil, India, and China among others — have set for themselves net-zero targets for the middle and later part of the century.
•At the forefront of the commitment to net-zero is the European Union, which wants to be the first carbon-neutral region in the world by 2050. It brought out the ‘European Union Green Deal’ in July last year to focus on a new growth strategy that aims to transform the EU society into a fair and wealthy one with a modern, resource-efficient and competitive economy.
CBAM: carbon-pricing system
•To attain carbon neutrality, the EU has set forth immediate targets and has brought out the ‘Fit-for-55’ package, a communication of its 2030 climate targets. A provision in the policy plan is the introduction of Carbon Border Adjustment Mechanism (CBAM), a carbon-pricing system proposed for imports into the EU. The CBAM suggests taxing the imported goods-based difference between carbon used in the production of domestic and imported goods.
•Proposed to be complementary to the EU Emission Trading Scheme (EUETS), during the transition phase of CBAM — beginning January 1, 2023 — importers will only have to report emissions embedded in the production of goods and are not obliged to pay a financial penalty. The CBAM, however, will come completely into force from January 1, 2026 and the measure will see a gradual reduction of free EUETS allowance coverage of 10 percentage points per year and a complete phase-out by 2035. In the initial phase, five CITE (Carbon Intensive and Trade Exposed) sectors such as iron and steel, aluminium, cement, fertilizers and electricity will be taxed under CBAM.
•The EU claims that CBAM is intended to reduce carbon leakage, create a level playfield for EU producers and encourage producers in other countries to adopt cleaner technologies. But several discussions have cropped up around CBAM. Developing countries have raised their concern on the legality of CBAM pointing out its conflict with World Trade Organization (WTO) and the United Nations Framework Convention on Climate Change (UNFCCC) norms, and are afraid that it encourages protectionism.
•History provides several instances of conflict between domestic restrictive policies stating environmental concern and trade openness such as the Shrimp-Turtle Case and Air Transport Association of America vs Energy Secretary Case for Energy and Climate Change. Rulings in these cases have been in favour of environmental laws, proving that the ongoing debate is a continuation of pre-existing issues and, in the past, environment concerns have outweighed those related to trade.
•Developing countries also flag the use of revenue collected from CBAM. According to the EU, revenue collected from CBAM will be a part of the EU’s budget, the NextGenerationEU, a recent initiative launched to provide economic support to EU member countries impacted by the COVID-19 pandemic. Countries opposing the proposed revenue utilisation mechanism suggest that if CBAM is to be implemented, revenue collected from it should be used for cleaner technology adoption in developing countries.
•India and the EU share a healthy trade relationship. The EU is India’s third largest trading partner, while India is EU’s 11th largest trading partner. In 2019-20, India-EU trade accounted for ₹63.8 billion (11.1% of total Indian trade) in goods, while a total of 1.9% of EU’s total trade in goods in 2020 came to India. India exports almost 14% of its global exports to the EU.
Progressive steps
•Recently, there has been increasing initiative from both sides to deepen engagement with each other. Talks on India-EU Free Trade Agreement (FTA) that were stalled a while ago have picked up again and are scheduled to take place in June. The target to finalise the Free Trade Agreement has been set for 2023-24.
•Both India and the EU are committed to climate change, and the recent progress in India-EU alliance opens prospects of a customised partnership and mutual growth. Rather than tax on exports to EU as proposed in CBAM, India and EU can cooperate better by investing in cleaner and greener technologies in India and helping in cleaning up production in India. Such a partnership will ensure that both India and the EU have their agendas of economic growth and sustainability fulfilled, a win-win situation for both entities.
📰 A ‘no’ to pharma freebies, a ‘yes’ for public good
The judgment by a two-judge Bench of the Supreme Court of India in M/s Apex Laboratories Pvt. Ltd. vs Deputy Commissioner of Income Tax, Large Tax Payer Unit-II, on February 22, 2022 has struck a blow for public good.
•Justice Uday Umesh Lalit and Justice S. Ravindra Bhat dismissed the Special Leave Petition by Apex Laboratories to claim deduction on freebies given to doctors. Upholding a decision by the Madras High Court, the Bench said that the act of pharmaceutical companies giving freebies to doctors is clearly ‘prohibited by the law’. Further, it cannot be claimed as a deduction under Section 37(1) of the Income Tax Act, 1961.
•The judgment will go a long way in checking unethical and illegal practices in the pharma sector which has become so out of reach for the common man.
A case of misuse
•Repelling the contention of the company by S. Ganesh, Senior Counsel, Justice Ravindra Bhat said that pharmaceutical companies have misused a legislative gap to actively perpetuate the commission of an offence of giving freebies to doctors to promote their brands, even though this was prohibited in the law framed by the Medical Council of India (MCI). In the said case, the company was giving out freebies to doctors in order for them to create awareness about a health supplement it was manufacturing called Zincovit.
•The judge said that in the process of interpretation of the law, it is the responsibility of the court to discern the social purpose which the specific provision subserves. The judgment said: “Thus, pharmaceutical companies’ gifting freebies to doctors, etc. is clearly ‘prohibited by law’ and not allowed to be claimed as a deduction under Section 37(1). Doing so would wholly undermine public policy. The well-established principle of interpretation of taxing statutes — that they need to be interpreted strictly — cannot sustain when it results in an absurdity contrary to the intentions of the Parliament.”
•Upholding the Central Board of Direct Taxes (CBDT) circular dated August 1, 2012, and applying it to the case, the Court also cited and relied upon Regulation 6.8 of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 framed under the Medical Council Act, 1956, now repealed and substituted by the National Medical Commission Act, 2019. The Court also highlighted Quereshi (2007) 2 SCC 759 and Commissioner Of Income Tax vs Khemchand Motilal Jain to show that the assessee was not a wilful participant in any offence or illegal activity prohibited by law.
•While overruling the Income Tax Tribunal’s view in the case of PHL Pharma (2017) and Max Hospital (2014) ILR 1 P. 620, the Court held that Regulations 2002 did apply to pharma companies also. Further, they could not be allowed to perpetuate the illegality of violations of norms by doctors. Invoking the principle of implied condition, the Court relied on the precedents in the case of P.V. Narasimha Rao (1998) 4 SCC 626 under the Prevention of Corruption Act, and Jamal Uddin Ahmad (2003) 4 SCC 257 under the Representation of the People Act.
•Laying emphasis on the fiduciary relationship between doctor and patient, the Court noted that a doctor’s prescription is considered as the final word on medication by the patient even if the cost of such medication is unaffordable. In a situation where such trust is reposed in doctors, having prescriptions manipulated by the lure of freebies is immoral. The Court was conscious that the cost of such freebies is factored in the cost of medicines sold, in turn driving up their prices and perpetuating a publicly injurious cycle. This fact was taken note of by the Parliamentary Standing Committee on Health and Family Welfare in its 45th report, dated August 4, 2010.
In the U.S.
•In its elaborate judgment, the Court also took note of a report issued by the United States Department of Health and Human Services Office called “Savings Available Under Full Generic Substitution of Multiple Source Brand Drugs in Medicare Part D” dated July 23, 2018. Here, it was stated that the beneficiaries could have saved over $600 million in out-of-pocket payments had they been dispensed generic equivalent drugs. In a previous study by ProPublica titled “Dollars for Doctors: Now There is Proof: Docs who get Company Cash Tend to Prescribe Brand Name Meds” dated March 17, 2016 also, similar feelings were echoed. In the U.S., by the reason of the Physician Payments Sunshine Act 2010 also known as Section 6002 of the Affordable Care Act (ACA) of 2010, the law compels the manufacturers of drugs, devices, biologic and medical supplies to report to the Centers for Medicare and Medicaid Services, on three broad categories of payments or transfers of value such as meals, travel reimbursements and consulting fees. These include expenses borne by manufacturers such as speaker fees, travel, gifts, honoraria, entertainment, charitable contribution, education, grants and research grants, etc.
The issue of retail price
•Obviously, the uncovered field in this judgment — and it was not the controversy in hand before the Court — is the sale of medicines at Maximum Retail Price, or MRP. This is a scam and a case of underhand dealing that happens in the pharma world (the giving away of freebies is a smaller part of it) because drugs are invariably sold in pharmacist shops at MRP only. This is what affects medical treatment. Even though the Drug Price Control Order and Drugs and Cosmetics Act are there on the statute book, there is hardly any action to keep the sale price of medicines under control with due and proper investigation into their so-called research and development costs and keeping their profit margins within a prescribed limit.
•One fails to understand why the law cannot be amended to compel the manufacturer of drugs to sell at the verified genuine cost, that also factors in a reasonable profit margin for each product by bringing manufacturers, both foreign or domestic, under the control of the MCI or any other equivalent body such as the Institute of Chartered Accountants of India. This must be at a uniform rate throughout the country; further, classified life saving drugs should be sold at cost only or even at subsidised rates.
•Nobody is against the pharma industry earning a reasonable profit. But there is an urgent need to check looting that is driven by drug manufacturers to distribute their products using freebies or ‘bribes’.
Further application
•This judgment can also go far. It should be debated and applied to other unethical practices and expenditure out of public funds. The strategy here should be to use financial tools such as income-tax provisions for disallowing such expenditure and taxing the same as perquisites or taxable income in the hands of recipients viz. assurances and declarations in election campaigns by political parties by giving away free laptops, waived electricity charges, food grains, loan waivers, etc. It is tax-payers money that is being used to garner votes.
📰 Words from Bandung to relive in Bali and Delhi
With the Ukraine war shaping the future world order, it is time India brings a balanced outlook to its strategic policy
•Three back-to-back summits in the past fortnight have helped settle the dust on who stands where on the Russian invasion of Ukraine: the BRICS (June 23-24), followed by the G-7 summit (June 26 and 27), and then the North Atlantic Treaty Organization (NATO) Summit in Madrid (June 29). Prime Minister Narendra Modi attended the BRICS summit virtually, and then travelled to Germany for the G-7 outreach between the seven “most industrialised nations” and the special invitees this year, namely, Argentina, Indonesia, India, Senegal and South Africa. India was not a part of the NATO summit, which included an outreach to the United States’s Indo-Pacific treaty allies, i.e., Japan, South Korea, Australia and New Zealand.
•In order to understand what they portend for the future global world order, it is necessary to study the messages sent out by each of these groupings against the backdrop of the situation in Ukraine. Some of the impact will be made clearer this week as India’s External Affairs Minister S. Jaishankar attends a Foreign Ministers meeting of the G-20, “the world’s largest economies”, in Bali (July 7-8), and in the next few months, when Indonesia hosts the G-20 summit in November and India takes over the G-20 presidency in December. Most importantly, how can India, that has hitherto managed a careful balancing act between all the groupings, build a movement out of this moment of deep polarisation in the world?
BRICS-G7-NATO
•The Brazil-Russia-India-China-South Africa Summit hosted by Chinese President Xi Jinping in virtual format was significant as it was the first such multilateral grouping Russian President Vladimir Putin attended since February 24, 2022 (the day Ukraine was invaded), and both Mr. Xi and Mr. Putin took aim at the unilateral economic sanctions imposed by the United States and the European Union. The fact that Mr. Modi agreed to join the summit showed India’s commitment to BRICS as an alternate grouping of economies spotlighted India’s refusal to shun Russia, and agreement to set aside the two-year stand-off with China’s People's Liberation Army at the Line of Actual Control (LAC) in favour of multilateral meetings such as BRICS and the Shanghai Cooperation Organisation (SCO). The BRICS Beijing Declaration was a consensus document, as each member cited differing “National Positions” on the Ukraine issue. However, the BRICS economic initiatives, that Mr. Modi lauded as “practical”, contain several challenges to the western-led sanctions regime against Russia. In addition to BRICS’s New Development Bank (NDB), that has approved about 17 loans totalling $5 billion for Russian energy and infrastructure projects, the “Contingent Reserve Arrangement” (CRA), and a BRICS Payments Task Force (BPTF) for coordination between their central banks for an alternative to the SWIFT payments system, Mr. Putin also proposed building a global reserve currency based on a “basket of currencies” and trading in local currencies. Russia also committed to providing more oil and coal supplies to BRICS countries, which will no doubt raise red flags in the West, as will the possible admission of countries such as Argentina and Iran that have applied to the BRICS mechanism.
•A day after BRICS, Mr. Modi left for the G-7 Summit at Germany’s Schloss Elmau, proof, if any was required, of India’s flexibility in dealing with both sides of the conflict. In a number of statements, the G-7 (the U.S., the United Kingdom, Canada, France, Germany, Italy, Japan and the European Union) targetted Russia’s war in Ukraine and China’s economic aggression. However its outreach documents — on “Resilient Democracies” and “Clean and Just Transitions towards Climate Neutrality” — the only ones that India and other invitees signed on to, were devoid of any mentions of either.
•At the NATO meeting, however, there was little sign of any restraint as the group comprising the U.S., Canada and European countries committed to more NATO actions against “Russian aggression”. These included, for the first time, a reference to “systemic competition” from China as a challenge to NATO “interests, security and values”. The presence of the U.S.’s trans-Atlantic and trans-Pacific military allies at one conference sent out a clear message against a perceived Russia-China alliance. The launch of another Indo-Pacific coalition — of “Partners in the Blue Pacific” (PBP), i.e., the U.S., the U.K., Australia, New Zealand and Japan, in addition to last year’s Australia-U.K.-U.S. (AUKUS), is another signal of the U.S.’s growing focus on countries that it has military alliances with, against its adversaries. Apart from the Indo-Pacific partners at the summit, there were leaders of the five countries that have applied to join NATO, i.e., Finland, Georgia, Sweden, Ukraine (President Zelensky gave a virtual address), and Bosnia Herzegovina (its Defence Minister attended). The direct message was that NATO would no longer consider Russian sensitivities on the subject of NATO expansion.
India must lead
•The outcome of all three summits points to a growing polarisation, even battle lines being drawn, between the Western Atlantic-Pacific axis and the Russia-China combine. So where does this leave India? The Narendra Modi government has committed to a singular strategy, albeit a defensive one, that does not condone Russia for its attacks on Ukraine, but one that does not criticise it either. First, India has joined China as global economies that have most increased their intake of Russian oil, and where India continues to source fertilizer, cement and other commodities from Russia using different means, including even paying in the Chinese Yuan to circumvent sanctions. Second, India is working to diversify its defence purchases from Russia, hostilities with China are high, and a strategic tilt towards the U.S. and Quad partners in the Indo-Pacific is growing. On the multilateral stage, too, India remains a balancing voice in the room: along with Brazil and South Africa, India ensured that the BRICS Beijing declaration did not carry the Russian position on the Ukraine war or any criticism of the West, while making certain with other partners of the global South that the G-7 outreach documents carried no criticism of Russia and China.
•This perilous tightrope walk, however, is unlikely to suffice as a long-term strategy. It is time for New Delhi to seize the moment for leadership in a world that is becoming increasingly uncomfortable with the growing polarisation and the disruption due to the Ukraine war. India is not alone. In Germany, Mr. Modi found common cause on this with the Indonesian President, Joko Widodo, who is trying ensure that both sides of the world attend the G-20 summit he will host in Bali in November, amid growing worries that leaders of at least nine member countries (Australia, Canada, France, Germany, Italy, Japan, the Republic of Korea, the U.K., the U.S., as well as the European Union) could stay away from sessions where Mr. Putin speaks. As the next President of the G-20, Mr. Modi also must shoulder the burden of ensuring that the G-20 stays together, and reassuring those worried by the brinkmanship of the West on one side and Russia and China on the other.
Gather the like-minded
•These countries are more numerous than one can imagine. At the United Nations General Assembly, for example, a majority of 141 countries voted to castigate Russia for its invasion of Ukraine, but much fewer, only 93, voted to oust Russia from the Human Rights Council. Even more significantly, only 40 countries joined the U.S. and Europe-led sanctions regime against Russia. This represents a large pool of independently-minded countries that do not see it in their own national interest to blandly choose one side over another. Instead of abstaining on every vote or being defensive about sanctions, therefore, India’s national interests would be better served by building a community of those like-minded countries (from South America to Africa, the Gulf to South Asia and to the Association of Southeast Asian Nations), who cannot afford the hostilities, and want to avoid the possibility of a global war at all costs. Like Mr. Widodo, who flew from Germany to Kyiv and Moscow to talk to Mr. Zelensky and Mr. Putin, Mr. Modi is amongst the few leaders today still able to speak to both sides. The group of those who can urge for sanity to prevail must grow.
Words that matter
•In 1955, it was in such a similar moment that India took leadership of (along with countries such as Indonesia and Egypt at the Asian-African Conference of 29 newly independent nations, at Bandung), a conference that eventually led to the Non-Aligned Movement (NAM). “If all the world were to be divided up between these two big blocs what would be the result?” asked Prime Minister Jawaharlal Nehru at Bandung. “The inevitable result would be war. Therefore, every step that takes place in reducing that area in the world which may be called the unaligned area is a dangerous step and leads to war. It reduces that objective, that balance, that outlook which other countries without military might can perhaps exercise.”
•While the Narendra Modi government has shown little interest in NAM or even in Nehruvian thought, it may be necessary to reconsider Nehru’s words in a world fraught with danger nearly 70 years later. This is the time to rethink India’s role in “growing the unaligned area” and bringing the “objective and balanced” outlook Nehru spoke of, to the forefront of India’s strategic policy, by channelling that thought from Bandung, to Bali and Delhi this year.
📰 Hate crime, punishment
There needs to be zero tolerance for violence over ‘hurt sentiments’ because of hate speech
•India’s laws on freedom of expression are clear about the reasonableness of the right to exercise it. But hate speech, directed at communities and intended to fan communal hatred, is not clearly defined in the law. However, there are provisions in the law that can be interpreted as allowing for criminalising offences that are related to hate speech, in particular those that are likely to incite violence. There have been rightful demands, including from the Law Commission of India, to add specific provisions in the Indian Penal Code to tackle hate speech. It is imperative that lawmakers work on doing so, especially in the age of online media and messaging, where hate speech incidents have burgeoned into an even more significant problem. That said, there is no justification for any form of hate speech to be countered with violence. As the adage goes, sticks and stones may break bones, but words will not. There must be zero tolerance for violence. The incident in Amravati, Maharashtra, where a chemist, Umesh Kolhe, was knifed to death allegedly by three men in retaliation for his sharing a post in support of former Bharatiya Janata Party (BJP) spokesperson Nupur Sharma’s comments on the Prophet was on the same lines as the dastardly murder of a tailor, Kanhaiya Lal, in Udaipur a week ago. In both cases, suspects who were incensed by the remarks took to violence as a counter to what they perceived as an insult to their religion. The two cases are being probed by the National Investigation Agency. The culprits, those involved in the planning and execution of these murders, must be brought to book and accorded strict punishment for their crimes.
•Even as these hate crimes are investigated, it is imperative on the part of the Union and the State governments to quickly reassure citizens on the need for communal amity and that the purveyors of hate speech and those indulging in violence in retaliation will be prosecuted. Justice and the application of the rule of law should not only be seen to be done, but needs to be applied in a fair manner without prejudice for or against specific communities. The Union and State governments should not adopt repressive measures by using enforcement authorities to inflict collective punishment on communities for individual acts of transgression. Political parties of all hues, but especially those in power, must refrain from fanning communal hatred. The unevenness of government actions has resulted in disenchantment among Muslims; the actions of a few criminals among the community have endangered others. It is unmistakable that the developing quagmire is related to the casual bigotry and the callousness of those who were in responsible positions in the BJP. Governments must reorient themselves to the rule of law and to strict adherence to constitutional values as the secular fabric of the country must be preserved at all costs.
