The Hindu Editorial Analysis | 8th July 19

Table of Contents

At the 34th summit of the Association of Southeast Asian Nations (ASEAN) in Bangkok in June, its member states finally managed to articulate a collective vision for the Indo-Pacific region in a document titled “The ASEAN Outlook on the Indo-Pacific”. At a time when the geopolitical contestation between China and the United States is escalating, it has become imperative for the ASEAN to reclaim the strategic narrative in its favour in order to underscore its centrality in the emerging regional order.
Though there were divisions among ASEAN member states in the run-up to the summit, they managed to come up with a non-binding document. It underlines in the document the need for an inclusive and “rules-based framework” to “help to generate momentum for building strategic trust and win-win cooperation in the region”. An awareness of the emergence of a great power contest around its vicinity pervades the document as it argues that “the rise of material powers, i.e. economic and military, requires avoiding the deepening of mistrust, miscalculation and patterns of behaviour based on a zero-sum game”.
Despite individual differences and bilateral engagements ASEAN member states have with the U.S. and China, the regional grouping can now claim to have a common approach as far as the Indo-Pacific region is concerned and which the Prime Minister of Thailand, Prayuth Chan-ocha, suggested “should also complement existing frameworks of cooperation at the regional and subregional levels and generate tangible and concrete deliverables for the benefit of the region’s peoples”.

Conduct in the China Sea

What has been interesting also is the ASEAN member states agreeing to push for a quick conclusion of a Code of Conduct in the South China Sea, an increasingly contested maritime space which is claimed largely by China and in parts by the Philippines, Vietnam, Indonesia and Malaysia. Tensions continue to rise over the militarization of this waterway; in June, a Philippine fishing boat sank after it was rammed by a Chinese vessel. It is hoped that the first draft of the code for negotiations will see the light by this year end. With these moves, the ASEAN is clearly signaling its intent to be in the driving seat as it seeks to manage the geopolitical churn around it.
Engaged with the Indo-Pacific concept for some time now, it has now been pushed into articulating its formal response with a sense of urgency after other major regional players began laying their cards on the table. The release of the U.S. Free and Open Indo-Pacific (FOIP) strategy report in June — it focusses on preserving a “free and open Indo-Pacific” in the face of a more “assertive China” — was perhaps the final push that was needed to bring the ASEAN discussion on the subject to a close. Japan had already unveiled its Free and Open Indo-Pacific concept in 2016, while Australia released its Foreign Policy White Paper in 2017, detailing its Indo-Pacific vision centred around security, openness and prosperity. Prime Minister Narendra Modi articulated India’s Indo-Pacific vision at the Shangri-la Dialogue in 2018, with India even setting up an Indo-Pacific wing in the Ministry of External Affairs (MEA) earlier this year.
For a long time, the ASEAN has been reluctant to frontally engage with the Indo-Pacific discourse as the perception was that it may antagonise China. But there was soon a realization that such an approach might allow others to shape the regional architecture and marginalize the ASEAN itself. And so the final outlook that the ASEAN has come up with effectively seeks to take its own position rather than following any one power’s lead.

The framework

While the ASEAN outlook does not see the Indo-Pacific as one continuous territorial space, it emphasises development and connectivity, underlining the need for maritime cooperation, infrastructure connectivity and broader economic cooperation. The ASEAN is signalling that it would seek to avoid making the region a platform for major power competition. Instead its frame of reference is economic cooperation and dialogue. The fact that the ASEAN has gone ahead and articulated an Indo-Pacific outlook is in itself a seeming challenge to China which refuses to validate the concept. But the ASEAN’s approach is aimed at placating China by not allowing itself to align with the U.S.’s vision for the region completely.
India has welcomed the ASEAN’s outlook on the Indo-Pacific as it sees “important elements of convergence” with its own approach towards the region. During U.S. Secretary of State Mike Pompeo’s visit to India in June, India was categorical that it is “for something” in the Indo-Pacific and “not against somebody”, seeking to carefully calibrate its relations with the U.S. and China in this geopolitically critical region. As External Affairs Minister S. Jaishankar has suggested “[and] that something is peace, security, stability, prosperity and rules”. India continues to invest in the Indo-Pacific; on the sidelines of the recent G-20 Summit in Osaka, Japan, Mr. Modi held discussions on the Indo-Pacific region with U.S. President Donald Trump and Japan Prime Minister Shinzo Abe with a focus on improving regional connectivity and infrastructure development.
With the ASEAN finally coming to terms with its own role in the Indo-Pacific, the ball is now in the court of other regional stakeholders to work with the regional grouping to shape a balance of power in the region which favours inclusivity, stability and economic prosperity.
Neither ‘crimes against humanity’ nor ‘genocide’ has been made part of India’s criminal law, a lacuna that needs to be addressed urgently. This was the lament of Justice S. Muralidhar of the Delhi High Court, while pronouncing the judgment in State v. Sajjan Kumar (2018).
The case concerned the mass killing of Sikhs during the anti-Sikh riots in 1984 in Delhi — and throughout the country. The court categorically stated that these kind of mass crimes “engineered by political actors with the assistance of the law enforcement agencies” fit into the category of crimes against humanity (CAH).
Internationally, CAH are dealt with under the Rome Statute of the International Criminal Court (ICC). They are defined as offences such as murder, extermination, enslavement, deportation, torture, imprisonment and rape committed as a part of “widespread or systematic attack directed against any civilian population, with knowledge of the attack”.
India is not a party to the Rome Statute, which means that it is under no obligation at present to enact a separate legislation dealing with CAH. Even after ratification of the Genocide Convention (1948), India has not enacted it in domestic legislation.
The Rome Statute of the International Criminal Court (often referred to as the International Criminal Court Statute or the Rome Statute) is the treaty that established the International Criminal Court (ICC). It was adopted at a diplomatic conference in Rome, Italy on 17 July 1998 and it entered into force on 1 July 2002. As of March 2019, 122 states are party to the statute. Among other things, the statute establishes the court’s functions, jurisdiction and structure.
The Rome Statute established four core international crimes: genocide, crimes against humanity, war crimes, and the crime of aggression. Those crimes “shall not be subject to any statute of limitations”. Under the Rome Statute, the ICC can only investigate and prosecute the four core international crimes in situations where states are “unable” or “unwilling” to do so themselves; the jurisdiction of the court is complementary to jurisdictions of domestic courts. The court has jurisdiction over crimes only if they are committed in the territory of a state party or if they are committed by a national of a state party; an exception to this rule is that the ICC may also have jurisdiction over crimes if its jurisdiction is authorized by the United Nations Security Council.
Reasons for reluctance
The most probable reason for India’s reluctance to actively participate in the negotiation process on a separate Convention on CAH, which started in 2014, could be the adoption of the same definition of CAH as provided in the Rome Statute. The Indian representatives at the International Law Commission (ILC) have stated that the draft articles should not conflict with or duplicate the existing treaty regimes.
India had objected to the definition of CAH during negotiations of the Rome Statute on three grounds.

First, India was not in favour of using ‘widespread or systematic’ as one of the conditions, preferring ‘widespread and systematic’, which would require a higher threshold of proof.
Second, India wanted a distinction to be made between international and internal armed conflicts. This was probably because its internal conflicts with naxals and other non-state actors in places like Kashmir and the Northeast could fall under the scope of CAH.
The third objection related to the inclusion of enforced disappearance of persons under CAH. It is pertinent here that India has signed but not yet ratified the UN International Convention for the Protection of All Persons from Enforced Disappearances as it would put the country under an obligation to criminalise it through domestic legislation.

Can these objections be seen as providing the basis for India’s objections/silence to the ILC’s ongoing work? Does India have objections to the very definition of CAH based on the Rome Statute or does it have concerns with the contextual elements of the crime?
A familiar pattern
In State v. Sajjan Kumar, the Delhi High Court also said that “a familiar pattern of mass killings” was seen “in Mumbai in 1993, in Gujarat in 2002, in Kandhamal, Odisha in 2008, and Muzaffarnagar in Uttar Pradesh in 2013”, where the criminals “have enjoyed political patronage and managed to evade prosecution”.
India’s missing voice at the ILC does not go well with its claim of respect for an international rules-based order. Turning a blind eye to the mass crimes taking place in its territory and shielding the perpetrators reflect poorly on India’s status as a democracy. It would be advisable for India to show political will and constructively engage with the ILC, which would also, in the process, address the shortcomings in the domestic criminal justice system.
The most keenly watched number in the Union Budget is, perhaps, the ratio of fiscal deficit to GDP. A decline in the ratio is cheered by commentators and the markets. An increase is a seen as a setback to reforms.
This year, the number was of greater interest than before thanks to the vision outlined by the Economic Survey for 2018-19 a day earlier. Earlier editions of the Survey had suggested that since private investment was not taking off, there was scope for public investment to pick up the slack.
The latest Survey leaves no room for such ambiguities. It makes clear that private investment is the key driver of growth and jobs. It follows that the government must make fewer demands on public savings so that more of it is available for private investment. In other words, going by the Survey’s analysis, there is no escape from an even sharper focus on fiscal consolidation.

Meeting the fiscal deficit target

It is astonishing, therefore, that Finance Minister Nirmala Sitharaman’s Budget speech did not even mention the fiscal deficit figure, perhaps a first of sorts! Nor did it make any reference to a path towards the fiscal deficit target of 3.3% of GDP. The omission reflects the limitations imposed on the Finance Minister by trends in revenue and expenditure.
In 2011-12, the fiscal deficit to GDP ratio was 5.9%. By 2015-16, it had declined to 3.9%. Thereafter, it has got stuck at around 3.5%.
The Budget for 2018-19 missed the targets set earlier, for 2017-18 and 2018-19. It outlined a revised ‘glide path’ with fiscal deficit targets of 3.3% for 2018-19, 3.1% for 2019-20 and 3% for 2020-21. The Budget for 2019-20 shows that the revised targets too have been missed thus far. The fiscal deficit for 2018-19 has ended up 3.4% of GDP; for 2019-20, it is estimated at 3.3%. It would be a brave soul who believes that the target of 3% for 2020-21 will be met.
The government has had some success in reining in traditional items of revenue expenditure. Major subsidies (food, fertiliser, petroleum), which used to claim 2% or more of GDP, have stabilised at 1.4% of GDP.
But new items of expenditure have emerged. The PM-Kisan scheme, which provides ₹6,000 for each farming household per year, will cost the government ₹75,000 crore in 2019-20. The outlays on the National Rural Employment Guarantee Scheme have crept up with each passing year.

Tax-GDP ratio

The big disappointment has been in respect of tax revenues. The expectation following demonetization and the introduction of the Goods and Services Tax (GST) was that both direct and indirect taxes would rise. As a result, the tax to GDP ratio would move to a different trajectory. The Budget for 2018-19 projected the tax to GDP ratio to rise from 11.6% in 2017-19 to 12.1% in 2018-19 and further to 12.4% in 2019-20. The Budget for 2019-20 dashes these hopes. It estimates the tax to GDP ratio at 11.9% in 2018-19 and 11.7% in 2019-20. The shortfall in GST collections in 2018-19 seems to have set the clock back for fiscal consolidation. • How do we balance the fiscal numbers when the tax to GDP ratio is not coming up to expectations? The Chief Economic Adviser has indicated that the government pins its hopes on capital receipts from disinvestment and the sale of land belonging to the government including public sector enterprises (PSEs). Disinvestment in the sense of strategic sale of PSEs has not really taken off. Much of disinvestment has involved the buying of equity in PSEs by other PSEs. The sale of government land is bound to be a long-drawn-out process and one fraught with controversy over valuation. Moreover, the sale of government assets to balance the Budget merely defers fiscal problems to the future. It is not the answer to the problem of fiscal sustainability.
In the short term, the government’s hopes must rest on the Bimal Jalan committee on the economic capital framework for the Reserve Bank of India (RBI). The government’s intention in setting up the committee was to see whether some of the RBI’s reserves could be used to mitigate the fiscal position. The report has been submitted, but is yet to be made public. There are reports that the majority does not favour a one-shot transfer to the government, something the government would have liked.
Private investment is constrained not just by the crowding out effect of a high fiscal deficit. Earlier editions of the Economic Survey had identified the twin balance sheet problem, that is, high levels of debt in companies and high non-performing assets of banks, as an important constraint on private investment. The Economic Survey of 2018-19 contends that reducing policy uncertainty can somehow overwhelm the drag caused by the twin balance sheet problem. This is questionable.
The broad direction of policy has never been in doubt since the onset of economic reforms, even if the pace has varied in response to the situation on the ground. Had policy uncertainty been a serious issue, it would have surely been reflected in inflows of foreign capital, whether foreign institutional investment or foreign direct investment.
Resolving the twin balance sheet remains the key to reviving private investment. This requires the government to provide adequate capital to public sector banks (PSBs). The Budget’s biggest positive is the allocation of ₹70,000 crore towards capital for PSBs. However, the allocation is meaningful only if it is spent at one go in the current financial year, not staggered over several years. Only then will banks have enough capital to cover provisions for non-performing assets as well as provide loans to firms.
The liquidity problem at NBFCs
The Budget also makes an attempt to address the liquidity problem at NBFCs. It provides cover for loss of up to 10% on purchase of pooled assets of NBFCs of a total value of ₹100,000 crore during the current financial year. Many see it as a government bailout of private NBFCs. The apprehensions may be misplaced. The loss cover is only for six months and is intended only for well-rated portfolios and NBFCs. Banks may be incentivized to buy more of the portfolios of the better NBFCs, not those of the weaker ones.
The government expects that by boosting the flow of credit, the recapitalization of PSBs will help revive private investment. What if it doesn’t? Should the government continue to focus on a single number for the fiscal deficit target? Or would it be more realistic to accept a broad range, keeping in mind the fall in the inflation rate and the decline in the combined fiscal deficit of the Centre and the States? The answer to the economic slowdown may not be as simple as the Survey makes out.

Indo-Afghan trade chokes on U.S. curbs Budget also cuts Chabahar funding

The government’s decision to slash its allocation for Iran’s Chabahar port by two-thirds, as announced by Finance Minister Nirmala Sitharaman in the latest Budget, will be a further blow to India-Afghan trade, already hit by Pakistan’s decision to ban airspace rights to most flights to and from India, and U.S. sanctions on Iran, officials and diplomats in Delhi and Kabul said.
The government, which had been allocating ₹150 crore for the port each year for the past few years, has slashed its allocation to just ₹45 crore in the Budget for 2019-20.

Waiver of little help

Technically, the U.S. has issued India a waiver to develop the Chabahar port, to promote trade with Afghanistan as part of its “South Asia” strategy. In practice, however, the cancellation of all waivers for oil and crippling economic sanctions imposed by the Trump administration, have all but frozen deals. Afghan banks are hesitant to open credit lines for shipments, and shippers and cargo handlers are staying away from servicing the Iranian port.
“During the last months (February-May), Chabahar had flourished for transportation of goods and commodities to Afghanistan and central Asia with the volume of loading and unloading twice as much as before,” Iran’s Ambassador to Delhi Ali Chegeni said. “But the U.S. officials’ hostile statements on Iran’s sanctions naturally and indirectly has negative impacts and led to worry amongst companies about working with Iranian ports including Chabahar,” he told The Hindu.
Speaking to journalists last week, Afghanistan’s new head of mission Tahir Qadiry said they hoped Pakistan’s airspace ban, which had been extended until July 12, would be lifted shortly. As a result of the ban, Afghan fruit and agricultural products that had made up a bulk of the cargo on flights between Kabul and Delhi are being shipped to other international markets.
“The original cargo corridor is not operational as of now,” Barun Birla of Aero Trek International, the company that operated the inaugural cargo charter on the corridor, told The Hindu.
Officials say that with trade through both air and sea routes restricted, as well as Pakistan’s refusal to give Afghan trucks passage to the Wagah land route, trade may come to a standstill for now.