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Stormy weather awaits India in 2019

The country faces a difficult external and internal situation. It needs to show more dexterity on the diplomatic front
As India prepares for the general election this year, all signs point to 2019 being a difficult year. Whether this would directly impact the poll outcome is uncertain, but the country needs to remain alert to unexpected developments.
As we enter 2019, the world outlook looks gloomy.
Global disorder is the dominant imperative.
A global leadership vacuum is leading to chaos concerning rules governing the international order. U.S. President Donald Trump’s utterances and actions are provoking strong counter-reactions, especially from China and Russia.
U.S. Vice President Mike Pence’s attack on China, in October 2018, has signalled, according to many world leaders, the beginning of a new Cold War. Mr. Trump has threatened to pull out of a major arms control treaty with Russia. Russia has also been talking of building stronger deterrence. Cold War 2 seems for real now.

On different trajectories

Nations are today working at cross-purposes across the globe.
Russia is vigorously pursuing its pivot to Asia and for greater influence in Eurasia.
It has deepened its partnership with China, and enhanced relations with Japan and South Korea.
Growing tensions in the Sea of Azov (following Russia’s seizure of Ukraine’s ships) could well lead to a major conflagration between Russia and the West.
China is consolidating its position in Asia. In addition to its strategic partnership with Russia, China has mended fences with Japan. Its Belt and Road Initiative has become the most potent weapon in China’s armoury, with Vietnam and Japan endorsing this concept. India finds itself increasingly isolated in Asia as a result.
Economic portents during 2018 for most of the world proved highly daunting.
The most challenging was the spectre of an all embracing U.S.-China trade war.
This had triggered highly unsettled conditions, and the situation was further aggravated by signs of a weakening Chinese economy.
At the beginning of 2019, it is amply evident that politics is conflicting with business across the world. Hence, normal economic calculations are getting disrupted.
A decline in Britain’s financial assets and of the pound sterling following Brexit, as well as signs of increasing fragility of China’s economy, are newer concerns. The likelihood of the U.S. moving into a period of slower longterm growth, one that is likely to continue for a fairly long time, is aggravating this situation. India cannot hope to remain insulated from these trends.

Ties with Russia, Japan

Coming to India’s foreign policy concerns, relations with Russia and Japan could see a reset.
The strengthening of the Russia-China strategic relationship and the recent warmth in China-Japan relations could impact India’s relations with both countries.
Notwithstanding the warmth displayed in public by the leaders of India and Russia, and India and Japan, the character of our relations with these two countries could undergo a change. To what extent, is yet to be seen. What is evident, however, is that India will need to expend a great deal of its diplomatic capital to ensure that relations do not decline to any considerable extent.
Managing relations with China will be India’s top priority.
India-China relations are marked by a surface calm, but this masks an intrinsic struggle for influence in Asia and even beyond. The Wuhan Spirit, notwithstanding, little has changed as far as India-China relations are concerned, except that there has not been any major Chinese incursion across the disputed India-China border.

China’s outreach

In 2018, China had initiated certain moves to create a China-Myanmar Economic Corridor on the lines of the China-Pakistan Economic Corridor (CPEC).
The Chinese Navy is also poised to challenge India’s position in the Indian Ocean.
Chinese submarines already outnumber India’s here.
China is preparing to outflank India by seeking control of the Kyaukpyu Port on the Arakan Coast in Myanmar, and planning a canal (the Kra canal), connecting the Andaman Sea with the Gulf of Thailand. Together with China’s existing control over the Gwadar (Pakistan) and Hambantota (Sri Lanka) Ports, if China were to succeed in its attempts, it could give it a stranglehold across the Indian Ocean Region. India’s capacity to counter such moves in 2019 appears extremely limited.

This year could see a further consolidation of the ‘all weather friendship’ of China-Pakistan.
During 2018, Pakistan facilitated China’s involvement in Afghanistan (and also succeeded in co-opting Russia to be a party to talks with the Afghan Taliban).
The CPEC having weathered quite a few storms in 2018, seems well set to progress this further in 2019.
The prospects of India-Pakistan relations improving on the other hand, are extremely limited.
Cross-border terror attacks are likely to continue, as also sponsorship of terror groups like the Lashkar-e-Taiba and the Jaish-e-Mohammed.
Where India will face even rougher weather, is in Afghanistan, where the Afghan state is perilously close to imploding.
India has been kept out of talks with the Afghan Taliban by all countries concerned, including the U.S., China, and Russia, apart from Pakistan. This is making India’s position here highly invidious.

Mixed challenges for India

The outlook for India in the rest of South Asia is also mixed. Towards the end of 2018, India could retrieve its position in the Maldives. It also succeeded in re-establishing its influence in Bhutan.
The return of Sheikh Hasina as Prime Minister after the general elections in Bangladesh has been a welcome relief.
Yet, India will need to work harder in 2019 to check China from weaning away its neighbours, including Nepal as also Bangladesh, with offers of economic and military aid.
India will also need to use all its resources to assist Bangladesh to limit the influence of radical Islamist groups there.
Internal security, for the better part of 2018, remained on a relatively even keel.
There were fewer Pakistan-sponsored terror attacks, but this is hardly an index of what lies ahead in 2019. Left extremist violence went up marginally in 2018, but the movement remained circumscribed within a core area in Chhattisgarh, Andhra Pradesh, Maharashtra, Odisha and Jharkhand. Ideologically, the movement has remained vibrant, and in 2019, both ideological and militant aspects will need deft handling.
The more challenging internal security problems will be Kashmir and the Northeast.
In 2018, the situation in Kashmir sharply deteriorated, and the year witnessed some of the highest levels of violence since 1989. There was again a sharp spurt in the number of security forces personnel being killed, alongside targeting of their families.
The deadlock between the Jammu and Kashmir administration and militants is unlikely to be resolved.
President’s rule has made little headway in sorting out the conflict-prone situation. Militant outfits, the JeM and the Hizbul Mujahideen, appear energised by the turn of events and can be expected to become still more active.
More educated locals are joining militant ranks. Disclaimers notwithstanding, the presence of the Islamic State is also in evidence. The consequences of this as far as 2019 is concerned could be considerable.
The other major internal security threat that India faces in 2019 is the resurgence of ethnic sub-nationalism in the Northeast. This has been simmering for some time, but now threatens to boil over, following the enactment of the Citizenship (Amendment) Bill.
The Bill has given rise to fears that it would drastically alter the status quo in the region.
The Amendment has helped unite vast segments of people across the entire Northeast. The divisive potential of the recently enacted Act, will have special resonance in an election year. It will demand sensitive and careful handling in 2019.
Two other issues that kept the nation on the edge in 2018, i.e. farmers’ and Dalit unrest, still remain unattended as 2019 begins. Both can ignite fires, specially in an election year. There is little evidence, however, that the causes for the unrest are receiving careful consideration.
Considering the difficult external and internal situation, peace in 2019 may prove elusive. On the diplomatic front, India will need to be more dexterous. The internal situation will require to be dealt with far greater understanding.

Gold rush

Tightening monetary policies in the West and supply factors led to the spurt in gold prices
Gold is shining once again. The price of gold in the Indian market reached its highest-ever level, hitting the ₹33,800 mark in Mumbai on Tuesday in the midst of increasing demand from buyers and lagging supply in the global market.
And it is not just the rupee that is witnessing a fall in value against gold. A similar trend has been seen in the price of other major emerging market currencies as well when their worth is measured against the yellow metal.
In fact, many emerging market currencies have already hit, or are quite close to hitting, historic lows against gold. Against the U.S. dollar, however, gold is still priced well below its all-time high of over $1,500 that was reached in 2012 even as it has shown some appreciation against that currency in the last few months.
The increase in the price of gold worldwide should be seen against the backdrop of rising uncertainties that threaten to derail the global economy.
Western central banks have been tightening their monetary policy stances for a while now, leading to increasing fears that this could put an end to the decadelong recovery since the 2008 Global Financial Crisis.
The U.S. Federal Reserve has been at the forefront of the current tightening cycle. The resulting flow of capital from emerging markets to the West has put further pressure on various emerging market currencies. The rupee, for instance, has depreciated significantly in value against the U.S. dollar in the last year alone.
This probably explains the divergence in the performance of the dollar vis-à-vis other emerging market currencies against gold.
The U.S.-China trade war and the lowered rate of Chinese economic growth have added to fears of a global economic slowdown.
Furthermore, as stock markets around the world continue to trade sideways with increased volatility, investors seeking financial safety have turned to gold and boosted its price.
Many central banks have been trying to hoard gold to restore confidence in their currencies.
Apart from these short-term influences, there are probably other long-term secular factors at play as the price of gold looks to shoot up towards new highs.
The fall in price after 2012 led to a fall in capital spending by gold miners, which has meant that supply has failed to keep up with growing demand.
This is typical of all commodities that see years of oversupply that lead to a price slump followed by years of under-supply that leads to a jump in prices.
The depreciation in the value of national currencies against gold is also an indication of the increase in inflationary pressures across the globe.
What could put a premature end to gold’s rally is the easing of policy by global central banks. While this will restore investor confidence in the global economy, it carries with it risks linked to debt-fuelled growth.

The case for minimum basic income

It will address inequality, alleviate rural distress and include the urban poor
The Modi government will present its last Budget tomorrow. Conventionally, the Budget presented in an election year is a vote on account, aimed at providing funds for the government to function until the formation of new government.
However, in recent times, the convention has been followed loosely. In 2014, for instance, the Manmohan Singh-led government’s interim Budget announced the One Rank, One Pension scheme and allocated ₹500 crore for its rollout. By no means was this an emergency measure that could not have waited until the completion of the election.
The Budget also announced cuts in excise duties on some items, including small cars and capital goods, in the hope of reviving consumption and investments. Therefore, it won’t be surprising if the Modi government announces an income support scheme to mitigate rural distress in its interim Budget, in response to Congress President Rahul Gandhi’s promise of providing minimum basic income to the poor, if voted to power.

Some encouraging results

The cynicism over the avant-garde policy tool of minimum income seems overblown.
A pilot project conducted between 2010 and 2013, covering 6,000 beneficiaries in Delhi and Madhya Pradesh, yielded encouraging results. It confirmed that at high levels of impoverishment, even the smallest income supplement can improve nutrient intake, school enrolment and attendance of female students, and reduce incidence of indebtedness.
The study showed that consumption of pulses went up by 1,000%, fresh vegetables by 888%, and meat by 600% among the beneficiaries.
This evidence challenges the commonly held views that welfare payments are an affront to the dignity of the beneficiaries and that they are used for questionable purposes, such as for buying alcohol.
There are other questions, too: Why income support and why now? What are the operational and design imperatives? And how much fiscal space can be opened up in a sustainable and serious way? Let’s look at these concerns.

Why income support?

The reforms since 1991 have largely bypassed agriculture and other segments of the economy that engage poor and rural Indians.
While incomplete economic liberalisationand technological advances have led to growth in national income, all individuals have not gained equally.
The disproportionate share of gains from the reforms have gone to middle-class and rich Indians.
This unevenness in development calls for a superior economic growth model.
Until that happens, redistributive policy interventions such as income transfers can improve equity.
Income transfers are not to be confused with doles or unemployment benefits. They are unconditional income supplements to compensate for policy failures and ease the economic anxieties of the less advantaged.
In the West, economists are advocating universal basic income to fight inequality and slow wage growth, allay fears that immigrants will take away jobs, and advance automation.
Besides equity, there’s also an urgent need to address rural distress, which is largely a consequence of policy failures such as ineffective procurement and perverse trade and pricing policies that have in times of bumper harvests led to gluts, depressed market prices, and aggravated farmer losses.
So, it is only fair that the government pays reparations to farmers in some form.
At least two States, Telangana and Odisha, are already experimenting in a limited way with income support schemes, focused on the farm sector.
In Telangana, the government is providing farmers income support payment at the rate of ₹10,000/ha (₹4,000/acre). However, this model, the Rythu Bandhu, benefits the biggest landowners the most, including those who lease out their land. Tenants, sharecroppers and landless labourers, the most vulnerable, are out of its coverage. Its success depends on reliable land records.
Odisha’s recently notified KALIA (Krushak Assistance for Livelihood and Income Assistance) irons out these creases.
It proposes to transfer ₹5,000 in cash per season (₹10,000 per year for double-cropped land) to the State’s 30 lakh marginal farmers, leaving out the two lakh large farmers.
It promises cash grants of ₹12,500 each to the State’s 10 lakh landless households.
The hope is that they will use this money to rear goats or poultry and farm mushrooms or honey. Fisherfolk are covered too, and will receive the investment support for buying fishing nets and allied equipment.
Last year, the Budget had promised compensatory payments to farmers equal to the gap between depressed market prices and the minimum support prices (MSPs) announced.
But MSP-based payments distort price signals to farmers on what to produce and how much in the subsequent season.
Rythu Bandhu and KALIA are superior policy interventions.
Plus, they do not suffer from the moral hazard and limited reach of farm loan waivers.
Waivers penalise farmers who repay loans on time and benefit only borrowers from banks.
The advantage of a minimum income guarantee is that it will also cover the urban poor, who are not covered in these schemes.
While job guarantee programmes, such as the Mahatma Gandhi National Rural Employment Guarantee Scheme, lock up beneficiaries in low-productivity work, income supplements allow them to continue to look for better employment options.

Opening up fiscal space

And are these schemes feasible politically, operationally and fiscally? Income supplements can be transferred into Jan Dhan or Post Office accounts. Beneficiaries can be selected through the Socio-Economic Caste Census (the last round was conducted in 2011, the results of which were released in July 2015).
Increasing the fiscal deficit hurts the poor, for it sparks off inflation and cannot be the way to fund income transfers. Is there really a paucity of funds or judiciousness in spending?
In 2017-18, the Centre and the States collected more than ₹5 lakh crore through various taxes, royalty payments and dividends from producers and consumers of petroleum products.
Streamlining distortionary and demerit subsidies, such as on urea (₹70,000 crore annually), can open up significant fiscal space.
Healthcare, education, water conservation, environment and other merit subsidies need to be preserved and improved and should not be reduced to fund income transfers.
If the wealth tax that the government had abolished in 2015 is reintroduced as a fair and easy-to-collect levy on the super-rich, selling politically to the middle class an income support scheme for the poor will be easier.
Taxpayers must realise that agri-prices, and therefore farm incomes, are not free market-driven.
They are kept artificially low, through pricing policy instruments, so that inflation does not erode the rest of the population’s purchasing power. Will Mr. Modi bite the bullet?

Getting back on track

South African President Cyril Ramaphosa’s visit to India helped further strengthen bilateral ties
South African President Cyril Ramaphosa’s visit to India last week was significant. Its value lay in strengthening the people-to-people aspect of the bilateral partnership, and focusing on the implementation of previous agreements signed by the two governments.
As the chief guest at the Republic Day celebrations, Mr. Ramaphosa followed in the footsteps of President Nelson Mandela, who played this role to perfection in 1995.
The presence of a South African president at the parade was especially pertinent, as this year is the 150th birth anniversary of Mahatma Gandhi, a common hero to both countries.
Through the first Gandhi-Mandela Memorial Freedom Lecture, hosted by the Indian Council of World Affairs, Mr. Ramaphosa related the story of Gandhiji’s impact on South Africa, on Mandela, and the way the combined legacy of the two icons moulded the relationship between the two countries.
He saw India and South Africa as “two sister countries separated by an ocean, but bound by history.”
Mr. Ramaphosa’s message was that in view of the rich past of this special relationship, the two nations should strive harder to keep it strong and vibrant.

Defence and economic cooperation

As to the dialogue at the government level, there was a shared awareness that New Delhi and Pretoria had signed a large number of agreements, but it was now time to concentrate on implementation, since progress has been slow.
The visit resulted in finalisation of a strategic programme of cooperation aimed at implementation in a time-bound manner.
Diplomatic sources have indicated that specific emphasis in the next three years would be on promoting defence and economic cooperation.
On the former, the way was cleared last year when an agreement was reached to allow the South African public enterprise, Denel, to participate again in the procurement of military equipment by India.
Earlier, for years, the company had stood blacklisted because of using agents to pay kickbacks. Its products and technology are world class, the reason why Delhi chose to devise a compromise.
Defence cooperation extends to other areas too: maritime security, joint training exercises on sea and land, and provision of training facilities.
Despite promotion, bilateral trade and investment are yet to show robust and speedy expansion.
A continuous process is under way to identify inhibiting factors.
Some of them relate to the small size of the South African economy and its slow rate of growth.
Lack of direct air connectivity and South Africa’s rigid business visa regime are seen as discouragements.
Mr. Ramaphosa agreed to reform the visa regime. He also identified a few sectors where India’s investment would be most welcome, such as
agri-processed goods, mining equipment and technology, financial sectors and defence equipment

Multilateral groupings

India-South Africa cooperation in multilateral groupings came up for a close review, especially the India-Brazil-South Africa (IBSA) forum and the Indian Ocean Rim Association (IORA).
New momentum is being imparted to IBSA, which has been ‘displaced’ by the larger grouping, BRICS, in recent years.
The fact that Mr. Ramaphosa’s talk was portrayed as one of the select events marking 15 years of IBSA and that he met the Brazilian president just before his arrival in Delhi indicates that India may be willing to host the much-delayed IBSA summit this year.
Prime Minister Narendra Modi and President Ramaphosa agreed on measures to further strengthen IORA.
A specific decision was to enhance cooperation to harness the potential of the Blue Economy within the IORA framework.
The two leaders also witnessed the exchange of two new agreements of cooperation.
These formally linked the Research and Information System for Developing Countries, a policy research institute in Delhi, and two premier South African think tanks — the Institute for Global Dialogue and the South African Institute of International Affairs.
The three institutions have been entrusted with the task to conduct joint research and dialogue in 1.5 track format (i.e. involving officials and experts) on “areas to further promote practical cooperation with Africa.”
In sum, the President’s visit was a notable plus in the Modi government’s record of deepening relations with Africa. As to the visitors, the Delhi sojourn should have sharpened their awareness of the desirability to pursue a more balanced Asia policy, factoring in the complex dynamics between India and China.

Centre hikes scholarships

But research scholars unhappy, say 25% raise too low, want increase to be 56% The Centre has hiked its popular research scholarship — called the Junior Research Fellowship — to ₹31,000 per month, a roughly 25% increase from the existing ₹25,000. For months, research scholars across India have organised protests demanding that the scholarship be hiked as the stipend hadn’t been revised since 2014. A Wednesday communiqué from the Department of Science and Technology, which was coordinating the exercise, said that the Senior Research Fellowships (SRF), given to research students two years into their doctoral studies, had been hiked to ₹35,000 per month. Stipends for Research Assistants (who are pursuing post doctoral studies and have at least three years of research experience) would range from ₹47,000 to ₹54,000 per month. In percentage terms, this is the lowest hike since 2010.