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1. Regulate, not ban, cryptocurrencies
The government should desist from the reported move to bring in a law to ban cryptocurrencies. The move could be motivated by the desire to protect unwary investors from losing their shirts by investing in bitcoin, whose value has soared from $1,000 in 2017 to nearly $48,000 today and, by some projections, will hit $1 million by 2030.
It is far more useful to educate investors about the risk involved in putting their trust and money in an instrument with no intrinsic value, is tough to use for payment outside the dark web, is not a unit of account and whose volatility precludes its use as a store of value.
It is created, ‘mined’, in a decentralised fashion and will hit a finite maximum number of tokens, because of its mining algorithm. It is insecure, if you lose your private key, you lose your lode. The rate at which it exchanges for regular currency is a function of sentiment, not rational economic factors. It hogs electricity and could add to climate change, if used extensively.
Given all this, why should the government not ban it altogether? There are moral as well as practical reasons not to. Grown-up men and women should be free to do what they want with their money, so long as they do not harm others.
That is one meaning of liberty. The practical reason has to do with the interesting possibilities that underlie the blockchain technology that underlies cryptocurrencies. The distributed ledger that is a part of the blockchain has many potential uses of great benefit. Banning cryptocurrencies could well finish off Indians’ ability to derive benefit from that potential. That would be a big loss to the entire world, and not just India.
Low-cost cross-border remittances are a potential use case for the distributed ledger. A specific kind of cryptocurrency that is centrally managed and benchmarked against a basket of regular currencies could well serve to settle international payments, ending the world’s dependence on the dollar for the purpose. That would end US ability to weaponise the dollar to have its way. To ban cryptos is give up on such ambitions.
2. Time for bonds that beat inflation
Where is a pensioner to invest? The returns on term deposits and small savings schemes have plummeted. It is time for the government to come out with inflation-indexed bonds (IIBs), protecting both the principal amount and the interest from the corrosive effect of inflation, to help our senior citizens.
Most bank fixed deposits offer about 6% or so for seniors. Of course, the Floating Rate Savings Bonds offer higher returns (7.15%) than on fixed deposits, with the interest being reset every six months at 35 basis points over the National Savings Certificate. High retail inflation leads to negative real returns for investors, hurting the elderly who depend on income from their investments. So, controlling inflation is vital.
The appetite for risk (among the elderly) to invest in equity is low, and some savings must be deployed in bonds. The government must launch IIBs that preserve the value of the principal and offer a rate of interest that is positive in real terms, that is, even after netting out the rate of inflation. This would constitute a decent saving option for retirees in today’s world of volatile asset prices and low yields on debt.
IIBs, known as Capital Indexed Bonds, issued in 1997, offered inflation protection only on the principal and not the interest. It found few takers. Later, when IIBs were issued in 2014, these bonds were made attractive to investors. Investors were offered an interest of 1.5% every year, over and above the rate of inflation as measured by the consumer price index. If launched again, IIBs must have a robust design and also be marketed aggressively. The interest could be made tax-free up to an amount and the penalty for early withdrawal, especially by senior citizens, must not be steep.
3.Distrust and verify: Despite Ladakh disengagement, New Delhi must be wary of Beijing’s designs
In signs of a breakthrough in the nine month long India-China border standoff, both sides have kicked off initial disengagement in eastern Ladakh’s Pangong Tso area by pulling back some tanks, howitzers and armoured vehicles. Defence minister Rajnath Singh informed the Rajya Sabha yesterday that sustained talks had seen the two sides reach an agreement for disengagement on the north and south banks of Pangong, with the Chinese side withdrawing its troops to their positions east of Finger 8 and Indian soldiers pulling back to their Dhan Singh Thapa post between Finger 2 and 3. The area will then be designated as a temporary no-patrol zone.
That said, the entire process of sequential disengagement, de-escalation and de-induction will take time with the progress being monitored and verified at every stage. It will be recalled that we have been here before and the agreed disengagement process last year was disrupted by the Galwan valley clashes in June where 20 Indian soldiers were killed. Singh also said that senior military commanders from both sides will be meeting within 48 hours after the complete disengagement in Pangong to resolve remaining issues. These would include the Chinese intrusion in the strategically located Depsang Plains, where PLA troops have been blocking Indian soldiers from going to their traditional patrolling points.
Taken together, Delhi needs to be extremely cautious here. Even if the current round of disengagement from friction points goes off well, we don’t know that Beijing will de-mobilise the 50,000 troops it has deployed across the LAC. This will necessarily force the Indian army to remain deployed in difficult topography for longer durations. In which case the LAC would become like the LoC, putting additional burden on our defence resources.
Being stared down by Delhi is unlikely to have gone down well with Beijing, which plays the long game and regards India as an inferior power. There could be external factors at play here, such as the growing momentum of the Quad grouping or the Biden administration sticking to the previous Trump administration’s charges of China being guilty of human rights violations and bullying its neighbours. The fundamental issues remain: the LAC is undemarcated, India-China strategic rivalry is out in the open, Beijing’s support for Islamabad has never been stronger. Hence, Delhi must remain on guard and stick to the motto ‘distrust and verify’.
4.Hello, minimum govt: PM pitches the social benefits of privatisation, highlights wealth creators as job creators
At a time when farmers’ protests have put it on the back foot, it’s welcome that the Modi government has doubled down on the reform agenda in the Budget instead of succumbing to populist pressure. Unprecedented use of the word ‘privatisation’ suggests that it may be moving out of the ‘reform by stealth’ mode into acknowledging more frontally what the economy needs to climb out of the hole it’s currently in. Prime Minister Narendra Modi gave an important speech in Parliament on Wednesday, underlining that the time and world in which the government did everything are long gone. Now the private sector has to play a much bigger role in the India story. But that needs fighting our hidebound distrust of it: “How can we declare all of them dishonest?”
The politicisation of economic reforms has been the country’s Achilles heel. Every time a government attempts them, an opposition party takes up the faux mantle of aam admi. The subtext of charges like ‘suit boot ki sarkar’ is that ‘dhoti kurta sarkar’ would be better. New votaries of preserving status quo in agriculture who have come up from Sweden to the US, would blanch at current Indian practices being replicated in their backyard. But experts have long noted that the NDA government with its historic majority and Modi with his enormous political capital, can break this impasse with candid advocacy of reforms.
Time and again the gap between promises and execution has eroded trust in reform pledges. To win it back, the Modi government has to show actual progress in monetising assets, exiting non-strategic sectors. It also has to answer opposition charges of benefitting only select business houses, dispassionately and institutionally. Build the independent regulatory apparatus that will ensure competition. People’s doubts shouldn’t be vilified. The painstaking work of countering them with logic and hard evidence is absolutely necessary.
5.In Ladakh, be cautious | HT Editorial
In a statement in Parliament, defence minister Rajnath Singh laid out the background of the border dispute with China, the contours of the standoff in eastern Ladakh since last year, and most crucially, the details of a breakthrough in talks between the two sides, leading to the beginning of a process of disengagement in the Pangong Tso area. Mr Singh said that forward deployments would be stopped in a “phased, coordinated and verified manner”. The Chinese side would keep its presence east of Finger 8, while India would maintain its permanent base near Finger 3. Similar action would be taken on the southern banks. Structures built by the two sides, both on the northern and southern banks, would be removed. There would be a “temporary moratorium” on military activities, including patrolling in traditional areas, which will recommence only after military and diplomatic talks. The implementation of this process began on Wednesday, and, Mr Singh said, it would “substantially” restore the situation to that existing prior to the standoff. And senior commanders would meet 48 hours after this process of disengagement to take up the dispute in other friction areas.
This is a breakthrough. And the government must be applauded for using a mix of four instruments — direct engagement, strong military build-up, economic measures, and international partnerships — in keeping the pressure on China. As former foreign secretary Shyam Saran wrote in this newspaper on the day the disengagement began, Beijing had boxed itself into a corner, underestimated Indian resolve, and was looking for ways to extricate itself. A mix of hard messaging and pragmatism has helped India over the past year in forcing China to backtrack — and remember Beijing has backtracked, for it had violated agreements and overstepped in Pangong Tso.
At the same time, it is crucial that the government insist on the restoration of status quo ante. This would mean the resumption of patrolling rights till Finger 8 in due course. It also must monitor the extent of Chinese withdrawal, for remobilisation can’t be ruled out. India must maintain its position on all other friction points, including Depsang which is of strategic value. And it must retain some form of military leverage — remember, taking control of the heights on the southern banks changed the game — to force China to abide by the understanding.