1.Omicron shadow: On RBI latest monetary policy

RBI may need to act to ward off price pressures sooner rather than later

The RBI’s latest monetary policy action, of maintaining status quo on benchmark interest rates, the policy stance, as well as the full-year GDP growth and inflation projections, stems largely from a wariness of the risks posed by the Omicron variant of the novel coronavirus. Announcing the bimonthly policy, Governor Shaktikanta Das observed that ‘headwinds from global developments’ were the main risk to the domestic outlook, which was now “somewhat clouded by the Omicron variant of COVID-19”. With the key drivers of demand in the economy — private investment and private consumption — still lacking meaningful momentum, the Monetary Policy Committee had opted to continue with its growth supportive ‘accommodative’ policy stance so as to enable a durable and broad-based recovery, he said. While it may sound churlish to question the MPC’s stand, given that the ongoing recovery from last fiscal’s record contraction is still yet to register an across-the-board expansion from pre-pandemic levels, the fact that one of the six members of the rate-setting panel has dissented on the policy stance for a third consecutive time, cannot be ignored. Positing in October that the ‘upside risks to long-term inflation and to inflation expectations had become more aggravated’, external member Jayanth Varma had at the time cautioned the committee against falling into “a pattern of policy making in slow motion” guided by an excessive desire to avoid surprises. And while his specific reasons for voting against the grain this week are not immediately available, that the MPC is for now prioritising growth over price stability is clear.

Governor Das, who acknowledged the criticality of taming inflation when he asserted “price stability remains the cardinal principle for monetary policy as it fosters growth and stability”, however, seems to be sanguine about the outlook for retail prices. Contending that winter arrivals would help bring down vegetable prices, which had spiked in October contributing to a marginal quickening in headline CPI inflation that month, Mr. Das has banked on optimism in asserting that the ‘slack in the economy’ may limit the pass-through of cost-push pressures that have kept core retail inflation persistently high for 17 months. The RBI’s November round of ‘Inflation Expectations Survey of Households’ shows that households expect inflation to accelerate in the near and medium term. The median inflation expectation of respondents polled in an extension survey earlier this month, in order to factor in both a possible Omicron impact and the softening in fuel prices in the wake of the cut in excise duty, projects the three-months ahead rate at 10.8% and the one-year ahead reading at 10.9%. And though the RBI has begun to slowly tighten the liquidity spigot it opened in the wake of the pandemic last year, a more robust response to ward off price pressures will become imperative sooner rather than later. For a delay risks undermining precisely what Mr. Das said was the RBI’s motto at this juncture, ensuring “a soft landing that is well timed”.

2.A tragic loss: On the death of Gen Bipin Rawat

India must realise Gen. Rawat’s plans for genuine tri-service operational capabilities

India has lost a capable and experienced military leader in the tragic death of the country’s first Chief of Defence Staff (CDS), General Bipin Rawat, in a helicopter crash near Coonoor in the Nilgiris on Wednesday. His wife, Madhulika, and 11 others also perished when the Indian Air Force’s Mi-17V5 helicopter came down in a heavily wooded area. Defence Minister Rajnath Singh has announced in Parliament that a tri-service inquiry, headed by Air Marshal Manvendra Singh, Air Officer Commanding-in-Chief, Training Command, of the IAF, will take place into the incident. The IAF chief, Air Chief Marshal V.R. Chaudhari, has already visited the crash site; the cockpit voice and flight data recorders have been recovered, which would give investigators insights into how the crash occurred. It is imperative that the inquiry be done both thoroughly and speedily. Without speculating on the cause, it needs to be stressed that speedy course corrections in training or hardware are imperative given that these Mi-17VF choppers are being used to ferry top military leaders across the length and breadth of the country.

Gen. Rawat had not even completed two years as CDS when the Coonoor tragedy happened. After completing his tenure as Army Chief on December 31, 2019, he slipped into his new role as CDS the very next day. Many of his plans to give India genuine tri-service operational capabilities are still to be realised. In such a situation, the Government should not lose time in appointing his successor to ensure that the plans on the drawing board do not suffer. An aggressive China and a still belligerent Pakistan define India’s security challenges. The situation along the Line of Actual Control (LAC) continues to be tense with Indian and Chinese troops staring down each other. Gen. Rawat, known to have been proximate to the ruling establishment, had never minced words while speaking about the challenges facing the country and had waded into political controversies. Though the concept of having a CDS was recommended by a Group of Ministers in 2000 after the Kargil war, it took another 20 years for one to be appointed. The CDS, who functions as Principal Military Adviser to the Defence Minister, is expected to work in tandem with the three service chiefs who continue to operate in their respective domains — a role and function that is still in the making. To ensure that the new CDS and the service chiefs function as a team, the Government would do well to keep in mind the principle of seniority while choosing Gen. Rawat’s successor.

3.The end of the farm protests

The farmers gathered on Delhi’s borders for a little over a year should be headed home in a few days. What remains are the problems of agriculture

PREMIUMYet, what the end of the protests marks is the return to status quo, albeit with some changes that are actually far from desirable (Bloomberg)

The farm protests are finally over — and the farmers gathered on Delhi’s borders for a little over a year should be headed home in a few days. The decision by the Samyukt Kisan Morcha (SKM) came after the government agreed to their demands, and 19 days after Prime Minister Narendra Modi announced the repeal of the three farm laws that sparked the protest in the first place. There is enough reason for everyone to cheer the end of the protests: Blocked roads near Delhi’s borders that caused considerable pain to commuters and local residents can be reopened; no more farmers will lose their lives on account of the cold and the stress; and there’s no fear that a stray incident could cause clashes between the farmers and the police. The farmers will be happy that they are returning home, and victoriously at that, having successfully stood up to the State. And the Union government will also be pleased that the protests — which could have hurt it politically (and still may) in coming elections in Uttar Pradesh, Punjab, and Uttarakhand — are over.

Yet, what the end of the protests marks is the return to status quo, albeit with some changes that are actually far from desirable: The free pass to farmers to now burn stubble, the cause of Delhi’s bad air problem, for a few weeks every year; the possible codification of support prices; and the stillbirth of a reformist electricity law (or at least the more reformist provisions of one). The first and the third are bad for the economy, and the second, for the environment. The farm laws were passed, and considered necessary, because farming in India is mostly uncompetitive and unviable (without State support). While it can be argued that the laws may not have achieved the desired objective of enhancing farm incomes significantly and making Indian agriculture competitive, their repeal (and the end of the protests) leaves farmers where they were in 2019 — facing significant agrarian distress and challenging terms of trade, with once-dominant landholding agrarian communities taking to the streets demanding reservation in government jobs and admission to educational institutions.

3. Reform is in details: Farm agitation is ending but policymakers must learn to better design key changes in the status quo

Farmers picketing Delhi’s periphery to oppose the 2020 farm laws package are set to exit after GoI conceded their key demands. But that can’t be goodbye reforms. Policymakers need to find ways to change the status quo. And learn from botched attempts like the badly drafted farm laws. One lesson is the importance of attention to detail. In intent and overarching vision, the package of farm laws got it right. But the design of the legal framework limited the potential impact of such a far-reaching reform.

To illustrate, a smooth dispute redressal system is a basic need in deepening the market of any product. A poorly designed dispute settlement method was a weakness in the repealed farm package. In this context, it’s important to go back to the reform effort of 1991. Their success did not hinge only on the backing of the political executive. A capable team of bureaucrats, many with domain knowledge, shepherded the reforms right through the decade. Reforming complex economic structures calls for teamwork. While the political executive needs to provide the impetus, implementation will inevitably require credible teams that have bought into the need for change.

GoI has for sure tried to crystallise important changes in the economic structure. But a common thread running through many of them is inadequate attention to detail and follow through. One of the first big changes tried was in the Railways. It’s been over six years since a committee under Bibek Debroy submitted a report. It even spelt out the sequencing of changes to unlock the potential of private participation in Railways, which began almost 30 years ago. However, key measures such as cleaning up the accounts and setting up a regulator endowed with operational autonomy are still pending.

Of all reforms initiated by this government, the Insolvency and Bankruptcy Code (IBC) is perhaps the most significant. However, the creation of a bad bank to help commercial banks offload their NPAs raises questions on the efficacy of IBC. Is the relatively slow process – 73% of ongoing resolutions having crossed the extended timeline of 270 days – nudging banks to seek alternatives? Given the importance of an effective IBC to India’s fragile financial sector, GoI needs to ensure this reform realises its full potential. An attendant benefit is that it will become easier to convince stakeholders of future reforms when there’s success to showcase.

4. A better NJAC: Politicians are right on the collegium. But can their solution rise above politics, that’s the question

Bipartisan support, at least in the Lok Sabha, has again surfaced for a National Judicial Appointments Commission. The commission was supposed to replace the collegium system of judges’ appointment. But the law was struck down by a five-judge Supreme Court bench with a 4-1 majority in 2015. The current support for NJAC is a good context for all stakeholders to review the debate. The political class rightly critiques the principle of “judges appointing judges”, which has virtually no precedent anywhere. Collegium-backers cite instances of executive overreach and suspicious government interest in judicial appointments in the 1970s and 1980s. Those misgivings led to the collegium system, its rules formalised through the Second and Third Judges Cases in the 1990s. But the collegium has attracted credible suspicions of nepotism, it also displays manifest opacity, and on occasion, ignores obviously meritorious candidates.

On paper, the six-member NJAC – the Chief Justice of India as chairperson, two seniormost SC judges, Union law minister, and two eminent citizens, the last two nominated by a panel comprising the Prime Minister, CJI and leader of opposition – was to be a transparent constitutional body. But thanks to SC swinging the axe, we never got a chance to observe this experiment. But now that there’s some political momentum behind the idea, let’s lay out what a good NJAC should be.

 

First, the rule in the earlier NJAC Act that any two commission members can veto a candidate raises suspicion this is a backdoor attempt to give GoI primacy. This rule should go. Then, the choice of two civil society members of NJAC must pass the smell test. Politics is polarised. So, both the PM and the LoP, members of the panel choosing these two commission members, must rise above their politics – a tall order. The collegium system doesn’t work. But the NJAC solution can be better.

5.The end of the farm protests

The farmers gathered on Delhi’s borders for a little over a year should be headed home in a few days. What remains are the problems of agriculture

The farm protests are finally over — and the farmers gathered on Delhi’s borders for a little over a year should be headed home in a few days. The decision by the Samyukt Kisan Morcha (SKM) came after the government agreed to their demands, and 19 days after Prime Minister Narendra Modi announced the repeal of the three farm laws that sparked the protest in the first place. There is enough reason for everyone to cheer the end of the protests: Blocked roads near Delhi’s borders that caused considerable pain to commuters and local residents can be reopened; no more farmers will lose their lives on account of the cold and the stress; and there’s no fear that a stray incident could cause clashes between the farmers and the police. The farmers will be happy that they are returning home, and victoriously at that, having successfully stood up to the State. And the Union government will also be pleased that the protests — which could have hurt it politically (and still may) in coming elections in Uttar Pradesh, Punjab, and Uttarakhand — are over.

Yet, what the end of the protests marks is the return to status quo, albeit with some changes that are actually far from desirable: The free pass to farmers to now burn stubble, the cause of Delhi’s bad air problem, for a few weeks every year; the possible codification of support prices; and the stillbirth of a reformist electricity law (or at least the more reformist provisions of one). The first and the third are bad for the economy, and the second, for the environment. The farm laws were passed, and considered necessary, because farming in India is mostly uncompetitive and unviable (without State support). While it can be argued that the laws may not have achieved the desired objective of enhancing farm incomes significantly and making Indian agriculture competitive, their repeal (and the end of the protests) leaves farmers where they were in 2019 — facing significant agrarian distress and challenging terms of trade, with once-dominant landholding agrarian communities taking to the streets demanding reservation in government jobs and admission to educational institutions.