News & Events
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1.RBI needs to watch out for threats to financial stability
The unsurprising aspect of the Reserve Bank of India’s Monetary Policy Committee meeting was the decision to keep the policy rate, or repo, unchanged at 4%. The MPC also said the current accommodative liquidity policy will continue to help revive growth.
The most significant change in the MPC’s statement is the increase in its inflation projections. Now, it is forecast to be 5.7% for 2021-22. Just three months ago, it was forecast to be 4.9%. The MPC believes the rise in the general level of prices is transitory, caused by supply disruptions on account of the pandemic. The MPC also retained its GDP forecast for 2021-22 at 9.5%.
The additional risk emerges from the fact that bank deposits, the favourite financial asset of Indian households, are likely to provide negative returns across almost all maturities. The MPC is also unlikely to increase the repo as boosting economic growth is the priority. This is the context in which financial instability can arise as households may underestimate risks in the search for yields that are higher than what bank deposits offer. The central bank needs to be alive to this possibility.
2.Ship of state: INS Vikrant’s a milestone. To build on it, GoI needs to get finances and collaboration right
Wednesday marked a milestone in India’s ambition to become self-reliant in defence production. The first indigenous aircraft carrier began its sea trials. It’s expected to be commissioned in a year as INS Vikrant, making India only the seventh nation to develop the capacity to design and build a carrier that can project power on the high seas. Built at the Cochin Shipyard for about Rs 23,000 crore, it’s been 18 years in the making. The start of the carrier’s sea trials occasion a larger question on India’s indigenous defence production capabilities. How good are they?
Self-reliance in defence is a long-standing goal. A pathway to realise this goal was a policy transition in May 2001 to open up the defence industry to 100% private participation. It’s produced results. GoI says 333 private companies have got industrial licences. Domestic procurement of defence equipment has increased even as spending has gone up in absolute terms. In 2020-21, about 63% of the Rs 1.39 lakh crore procurement budget went to domestic manufacturers. In relative terms, procurement from domestic sources has increased. HAL, for example, supplies 61% of the airborne fleet in use by defence services.
During the same period, 2001-20, the Stockholm International Peace Research Institute’s database showed that India was the world’s largest importer of arms at an aggregate value of $52.8 billion. The answer to this apparent puzzle is that while India’s indigenous defence industry has grown, we are short of capabilities in designing and developing major platforms. Therefore, it’s France that provides the Medium Multi-Role Combat Aircraft and Russia the S-400 Air Defence System. The real challenge for defence indigenisation is to move up the value chain. This challenge needs to be located in a fiscal context. India’s defence spending commitments are increasingly lopsided. In 2011-12, 49% of the budget went towards salaries and pensions and 27% towards arms acquisition. By 2020-21, the ratio had tilted towards setting aside 61% of the budget for salaries and pensions and 19% towards buying arms.
There are two ways forward. GoI must soon finalise the modalities of the 15th Finance Commission’s suggestion on creating a non-lapsable defence fund. This is necessary to insulate defence spending from short-term fiscal pressures. It needs to be complemented by a relatively closer engagement between GoI and domestic manufacturers. Arms-making doesn’t follow the cost economics of consumer products. Therefore, moving up the value chain needs GoI’s durable commitment to see key projects through.
3. The intersection of caste and gender
The horrific rape and murder of a nine-year-old in Delhi shows that laws aren’t enough. Dalit women confront a “triple burden” as they face caste discrimination, gender bias, and economic deprivation
On Sunday, while fetching water from a crematorium cooler, a nine-year-old Dalit girl was allegedly raped and murdered, and later, hastily cremated, in Purani Nangal village in Delhi. The same night, four men were arrested after the girl’s parents (who are ragpickers) and others from the village staged a protest. The accused were identified as Radhe Shyam, the 55-year-old priest of the crematorium, and three employees, Kuldeep Kumar, Laxmi Narayan, and Mohammad Salim. Relevant provisions of the Indian Penal Code, the Protection of Children from Sexual Offences (POCSO) Act, and the Scheduled Caste (SC) and Scheduled Tribe (Prevention of Atrocities) Act have been invoked. A judicial inquiry has been ordered. While several politicians visited the family and demanded action by home minister, Amit Shah, the Centre has not made a statement on the crime so far.