Holding the rate: On RBI’s monetary policy decision (The Hindu - 8 June 2017)

    The RBI has rightly opined that premature action risks ‘disruptive policy reversals later

     The Reserve Bank of India’s decision to keep the policy interest rate unchanged, and reaffirm its “neutral” policy stance, clearly indicates that policymakers at the central bank are singularly focussed on their primary remit of ensuring price stability while supporting economic growth. That the RBI’s Monetary Policy Committee has chosen to do so in the face of clamour for a rate cut, and Consumer Price Index data and the bank’s own survey of households’ inflation expectations appearing benign, points to the MPC’s determination to reassert the central bank’s independence, especially in the rate-setting realm. Laying out its reasoning for opting to remain “watchful”, the RBI has raised pertinent questions relating to the outlook for price stability, the foremost being whether the “unusually low momentum in the reading for April will endure”. It posits that the easing trend in inflation, excluding food and fuel, may be transient given its vulnerability to rising rural wage growth and strong consumption demand. And the elephant in the room, in the MPC’s opinion, is the real prospect of inflationary spillovers from the rising risk of fiscal slippages caused by farm loan waivers — Uttar Pradesh has set the stage, and Maharashtra’s government has vowed to come up with the State’s largest-ever. Observing that inflation has fallen below 4% only since November 2016, the RBI has reiterated its commitment to keeping the headline reading close to that figure on a “durable basis”.

     The MPC acknowledges that the latest monsoon forecast augurs well for the agriculture sector, and when viewed in conjunction with continuing robust government spending, it ought to help undergird overall momentum in the economy. The RBI’s business expectations index based on its industrial outlook survey of April points to upbeat prospects for the manufacturing sector in the second quarter of the current fiscal year, spurred by rising rural and overseas demand. However, on the growth front too the RBI’s policy panel has opted for caution given that the Central Statistics Office’s GDP and GVA (gross value added) data released last month suggest that the effects of demonetisation have lingered on. The RBI has accordingly cut its GVA growth forecast for the year ending in March 2018 by 10 basis points to 7.3% and flagged the risks that global political uncertainties, rising input costs and wage pressures and the twin balance sheet problem (an over-leveraged corporate sector and stressed lenders) pose to a revival in private investment demand and a more durable economic expansion. Spelling out the priorities, the MPC has said monetary policy can be effective only when private investment has revived, the banking sector’s health is restored and infrastructure bottlenecks are removed. To do otherwise “risks disruptive policy reversals later and the loss of credibility” of the RBI.

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The PM-in-waiting: On Leo Varadkar, Ireland’s new leader (The Hindu - 8 June 2017)

     Ireland’s new leader Leo Varadkar will have to oversee issues of Brexit and social reform

    Leo Varadkar, the son of an Indian immigrant, is set to be Ireland’s Prime Minister after he won an internal contest to lead the centre-right Fine Gael, the senior coalition partner in the Republic’s minority government. The outspoken Mr. Varadkar, the incumbent Social Protection Minister, is to take over the reins of the party and country from Enda Kenny, who is stepping down after heading the party for 15 years and the country for six. Mr. Varadkar will be Ireland’s first-ever openly gay Prime Minister with minority and immigrant roots. He is just 38 years old, and thus in a club of young world leaders with France’s Emmanuel Macron and Canada’s Justin Trudeau. While it is indeed remarkable that a person of Mr. Varadkar’s background has been elected to lead Ireland, what is even more striking is that during the ruling party’s elections voters focussed not on his background but on his policies. This speaks volumes for how far the country has come on its social attitudes. Ireland is deeply religious. Catholicism, the state religion, has a far-reaching influence on many aspects of Irish life, including birth, death and marriage. Abortions, except to save the mother’s life, are illegal; divorce, legalised in the 1990s, requires a four-year separation; and gay marriage was legalised just recently.

     As Prime Minister, Mr. Kenny steered Ireland out of the financial collapse of 2008-2010 and campaigned, successfully, for the European Union (EU) to recognise Ireland’s unique position during the forthcoming Brexit negotiations between Brussels and London. The Republic of Ireland is contiguous with Northern Ireland, and therefore the only EU country that shares a land border with the U.K. Mr. Kenny leaves office having convinced the EU to address the fallout for Ireland during Brexit negotiations. He also leaves Mr. Varadkar a vastly improved economy, with an unemployment rate close to 7%, about half of what it was in 2012. Mr. Varadkar will now have to build on his predecessor’s success and address his failures, including a severe housing shortage and a police service that has demonstrated an ability to collude with other public agencies to punish whistle-blowers and cover up corruption. As regards Brexit, Mr. Varadkar will have to ensure that the Common Travel Area, a mechanism by which British and Irish citizens can live and work in the two countries, is maintained, and that the border between the Republic of Ireland and Northern Ireland is not reinstated. He will also have to manage the economic impact of Brexit on trade and jobs in the event that the negotiations diminish Britain’s access to the European single market. Finally, as Prime Minister, he will be expected to shepherd further reforms in laws relating to divorce and abortion if he wishes to further align the Republic’s values with those of the EU and other liberal democracies.

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Farmers revolt: India’s farm distress needs structural solutions, quick fixes such as loan waivers won’t do (The Times of India - 8 June 2017)

     All of a sudden it seems to be Kashmir in Madhya Pradesh: at least five protesters shot dead in Mandsaur district, prohibitory orders and internet shutdowns enforced. The difference is that MP’s turmoil is not the outcome of a political protest led by separatists but rather an economic protest led by farmers; ironically, in a state often upheld by BJP as a model of agricultural progress. Elsewhere, in neighbouring Maharashtra, far-off Tamil Nadu or other states, farmers are seething with discontent – despite a normal monsoon last year and robust produce.

     This is testimony to the deep-seated crisis in India’s agricultural economy and must serve as a wake-up call to the Centre as well as state governments. The usual populist fixes – such as farm loan waivers – is not going to defuse this crisis. Rather, policy makers must now remove the structural bottlenecks in India’s farm economy. Agriculture supports more than half of India’s population but makes up just 15% of its economic activity. It follows that holistic solutions to farmer distress will have to combine creation of non-farm jobs and enhancement of farm incomes.

     A bird’s eye view of agriculture points to an anomaly. Around 77% of farmland is devoted to staples such as cereals. This results in output almost equivalent to what high value crops such as fruits and vegetables yield on less than 20% of the land. Rectifying this mismatch will solve many problems. This is where government policy has a crucial role to play. The Indian farmer has to function in an overregulated environment made worse by capricious bans on exports. This is compounded by restrictions on internal food trade, unfounded fear of new technology such as genetically modified crops and the new bogey that has coincided with the unchecked rise of gau rakshaks: restrictions on cattle trade.

     States have a crucial role to play here as they make policy on marketing of high value perishables such as fruits. For example, when Karnataka took the initiative a couple of years ago by creating an online marketplace and breaking the grip of vested interests, there was marked increase in prices received by farmers. Better designed farm insurance policies which provide timely relief can mitigate adverse climatic impacts. A combination of lighter and smarter regulation and improvements in areas such as insurance will make a critical difference.

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Unsafe for women: Gurgaon-Manesar gang rape shows little has changed since Nirbhaya (The Times of India - 8 June 2017)

     The horrific gang rape of a 19-year-old woman by three men, who also murdered her eight-month-old baby in Haryana’s Gurgaon-Manesar area, once again highlights the utter lack of safety for women. The survivor was attacked when she, along with her baby, was on her way to her in-laws’ place in a shared autorickshaw. The driver and two co-passengers raped her at a deserted plot and threw her baby on to a concrete median verge. Even though almost five years have passed since the Nirbhaya gang rape and murder case which shook the conscience of the country and compelled lawmakers to pass tougher laws against sexual crimes, the Gurgaon-Manesar incident shows little has changed on the ground.

     This appears to be particularly true of Haryana where reports of gang rapes in Murthal during the Jat quota agitation last year had shocked the public. Initially, the Haryana government was reluctant to even acknowledge the gang rapes but later backtracked. More recently, investigation into the brutal gang rape and murder of a woman in Haryana’s Rohtak revealed that the police had ignored complaints made against the main accused months before the crime. In the Gurgaon-Manesar incident, police would not file a rape case in the first instance and allegedly told the survivor they were too busy with the President’s visit.

     All of this highlights a clear failure of basic law and order. Unless this is remedied, simply enacting stringent laws will not suffice. Add to this India’s noxious VIP culture, prioritising security for politicians but not the common man. Authorities like to quip that mindsets need to change to eradicate heinous sexual crimes. This is a copout. Ensure proper policing and high rates of conviction, and the rest will follow.

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Heavy lifting (The Indian Express- 8 June 2017)

     Having established its superiority in the numbers game, ISRO is now throwing its weight around

     In February, the Indian Space Research Organisation (ISRO) made world headlines by using a polar launch vehicle to slingshot a record 104 satellites into orbit. That established it as the go-to launch service provider for developers of small satellites, a market which can only grow at exponential speed. Now, the launch of the geosynchronous launch vehicle GSLV Mk-III has catapulted it into the league of big hitters. The launch vehicle, which includes a completely indigenous cryogenic motor, placed India’s heaviest satellite, GSAT-19, in a transfer orbit. The two achievements of 2017 place ISRO in a very special position in the space race.

     When the Cold War fired the starter’s gun, the race was dominated by prestige projects, like sending men into space and to the moon, funded by governments to demonstrate technological supremacy. But now, the commercialisation of space is imminent, private players have entered the fray and the race is about establishing a technological presence and facilities in orbit and on the less forbidding planets, like Mars. ISRO’s biggest GSLV has launched a 3,200 kg satellite into geosynchronous orbit, but can accommodate 800 kg more. Besides, it can send a payload of eight tonnes to low earth orbit, the preferred band for most satellites and all space stations.

     Therefore, ISRO can partially pay its way with cheap multiple launchers, though this market may soon be dominated by reusable vehicles operated by entrepreneurs like Elon Musk. It can also provide launch services to makers of heavy satellites, and pursue its own big projects, like manned flight, space stations and lunar and planetary missions bigger than Chandrayaan and Mangalyaan. It is in the enviable position of reaching for the stars with fiscal prudence. Perhaps no other national space mission currently has this capability, and it will make a difference to India’s prospects in space.

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Restive Gulf (The Indian Express- 8 June 2017)

     A mercantilist approach to the Qatar crisis will not serve India’s strategic and energy concerns in West Asia

    It is tempting to see the Gulf Cooperation Council’s (GCC) diplomatic offensive against Qatar as a rerun of earlier spats in West Asia. That seems to be the understanding behind New Delhi’s cautious reaction to Saudi Arabia, Egypt, the UAE, Bahrain and Yemen cutting off ties as well as transport to Qatar, sparked by an alleged statement of support for Iran by its Emir, Tamim bin Hamad Al Thani. Expressing concern for the over six lakh Indian workers in Qatar, Minister for External Affairs Sushma Swaraj, while asserting that the current row was an internal matter for the GCC, said that New Delhi is “trying to assess who and how many are stuck in the middle, and then we will move”. Securing the Indian diaspora in the Gulf is, of course, of paramount importance. New Delhi must, however, look at the current crisis, and West Asia and North Africa as a whole, from a broader prism than just Indian labour in the region.

The latest developments are symptomatic of a structural change in the Gulf, with Saudi Arabia’s worries about Iran’s influence evidently sharpening. Since the “Arab Spring”, the Iran-Saudi rivalry has been playing out in civil wars, diplomatic manoeuvrings and internal conflicts in Iraq, Yemen, Syria and Egypt. Against this backdrop, Qatar has often tried to play all sides: It was the only GCC country to support the Muslim Brotherhood — which has officially sworn off violence but is still accused of terrorism by many in the GCC — sided with Turkey in the Syrian civil war, and is perceived to be backing Iran. For the Sunni-ruled countries of the GCC, that has serious implications — Bahrain, for example, has a restive Shia majority ruled by a Sunni monarchy. Qatar is also a US ally and houses arguably its most important military base in the region. President Donald Trump’s reversal of his predecessor’s policy of relative non-interference has not helped.

     The situation in West Asia only looks to be escalating if the serial attacks in Tehran, for which the Islamic State has taken responsibility, are any indication. The pressure on Qatar seems to be aimed at changing its policy direction, making it fall in line with Saudi interests. If Iran intervenes or the royal family feud continues, Delhi should be prepared to evacuate its people. Over the longer term, India can’t continue with a mercantilist approach to the Gulf. The region’s salience to India’s strategic and energy concerns demand a deeper engagement.

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The Morning Knock (The Indian Express- 8 June 2017)

     How CBI handles the NDTV case has significant implications for media freedom — and its credibility

   Seven years after causing an alleged loss of Rs 48 crore to ICICI Bank on a loan they took, NDTV founders Prannoy Roy and Radhika Roy were raided by the Central Bureau of Investigation Monday morning. Information and Broadcasting Minister M. Venkaiah Naidu is right to affirm that a media house cannot presume itself to be above the law. Indeed, this is especially true when ownership of most media today is defined by a vertiginous web of cross-holdings involving

corporates and entities for whom media is not a primary business. In the interests of transparency, NDTV must submit to due process. The CBI’s FIR asks questions about disclosures by NDTV and ICICI Bank that will need to be addressed. But the story will unfold under intense public scrutiny, since summary raids on media houses are relics from a dark time to which no one wishes to return. Late last year, Naidu’s ministry, indefensibly, had ordered NDTV India to shut down for a day, a decision it, wisely, revoked. So, the manner in which the new NDTV probe is conducted has significant implications for freedom of speech, the health of democracy and the image of the premier investigative agency.

     Due process may have been followed so far but there are disquieting questions. The CBI has stepped in seven years after the event — in the interregnum, two of its directors are in the dock for their alleged ties with some accused in other cases — and barely a month after a complaint was lodged. Large parts of its FIR are little more than a cut-and-paste job from the complaint with no evidence of any original investigation. Significantly, ICICI Bank which is alleged to have suffered a presumptive loss has not complained. Further, it was a private loss, with no implications for the exchequer. Such private

matters are customarily decided by the law of torts and the government is not expected to weigh in. Disputes concerning defaults bigger by orders of magnitude are being heard by the courts and the government has made no attempt to short-circuit the process by letting the CBI loose. The complainant, a former consultant with NDTV, has approached the court but has got no order.

For these reasons, this investigation, both in form and content, is a touchstone. The CBI must ensure that it is nobody’s caged parrot. Its statement issued on Tuesday that it “fully respects the freedom of press and is committed to the free functioning of news operations”, is welcome. How it conducts the investigation — and itself — will be a test of this commitment.

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Staying the course (The Indian Express- 8 June 2017)

     Big picture in mind, the Monetary Policy Committee refuses to cut repo rate

     The decision by the RBI’s Monetary Policy Committee (MPC) to keep the central bank’s benchmark “repo” or overnight lending rate unchanged, along with maintaining a “neutral” stance in its latest bimonthly review, can be questioned on many counts. The resolution statement released at the end of its two-day meeting admits to “deceleration” of economic activity since July-September and “contraction” in gross fixed investment in the latest January-March quarter. More importantly, it refers to lower inflation expectations “three months ahead and a year ahead”, based on the RBI’s own survey of households. On both grounds — a deepening slowdown with no signs of an investment pickup and “the abrupt and significant retreat of inflation” since April — there was a clear case for a reduction of policy rates, undertaken last on October 4. Even if no actual lowering of rates was resorted to, the least the MPC could have done is signal a return to an “accommodative” stance, as was the case prior to February. The current repo rate of 6.25 per cent, when adjusted for a consumer price index (CPI) inflation of 3 per cent, works out to over 3 per cent in real terms. This is much more than the RBI’s own 1.6-1.8 per cent estimate for the “neutral” or “natural” interest rate for India, consistent with the economy growing at its potential with low stable inflation.

     But whether right or wrong, one must still give credit to the MPC for its unwavering commitment to reining in inflation and not taking any premature action now that might risk “disruptive policy reversals later and the loss of credibility”. The latter part is most important. The RBI today enjoys credibility globally as a regulator largely for the impeccable inflation-fighting credentials it has built in recent years. That credibility has only been reinforced by the Narendra Modi government’s decision to enter into a monetary policy framework agreement with the RBI, tasking the latter with targeting CPI inflation to 4 per cent or thereabouts in the medium term. Subsequently, a six-member MPC headed by the RBI governor was constituted to take decisions on interest rates. The whole idea here was to insulate such decision-making from any political or populist pressures.

     Under these circumstances, it is unfortunate to see attempts, particularly by the Finance Ministry, to seemingly influence the MPC’s decisions. Finance Minister Arun Jaitley and Chief Economic Advisor Arvind Subramanian issued statements, both making explicit arguments for a significant monetary easing. It goes to the MPC’s credit for fending off these pressures, even if one might not agree with its decision. Ultimately, there are institutional arrangements that need to be respected. We would leave it to the MPC to decide when the time is ripe for the next cut, which may actually come sooner than later.

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भारत के लाइट निरपेक्ष रहना ही बेहतर (Rajasthan Patrika - 8 June 2017)

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अब सोशल मीडिया होगा बाजार का बादशाह ! (Rajasthan Patrika - 8 June 2017)

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अतिवादी दृष्टिकोण से खत्म नहीं होगा आतंक (Dainik Bhaskar - 8 June 2017)

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इसरो की मिसाल सामने फिर बजी शोध संस्थान पिछड़े क्यों? (Dainik Bhaskar - 8 June 2017)

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