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1.And the Budget? State poll manifestos, including those of BJP, are wildly populist & contradict finmin’s growth push
Finance minister Nirmala Sitharaman’s Budget last week drew praise for eschewing populism in the midst of election season. Its high approval rating was influenced by the combined impact its spending pattern and that of states will have on economic growth. However, following the release of election manifestos by political parties for the assembly elections beginning today, some may wonder if there is a complete disconnect in the economic approach of GoI and the next governments in the five states. If GoI is marked by restraint, wild populism is the name of the game in states.
BJP is the incumbent in four of the five states. But its manifestos have all the characteristics of an opposition party trying to woo the electorate on populist promises. In UP, it has promised free electricity, two free LPG cylinders and 20 million smartphones and tablets for students. A party that attempted to push difficult agricultural reforms at the Centre has doubled down on impracticable schemes in states. Therefore, in Punjab there’s a BJP promise of MSP for fruits and vegetables. To this list, in Punjab it has added everyone’s favourite and default freebie option – loan waivers and free electricity.
Other parties have manifestos that are as bad. AAP, which thinks freebies were a big part of its Delhi victories, has promised to open the coffers. Therefore, it has got on to the free electricity and monthly income transfer bandwagon. Congress and SP are older hands at this game. Their manifestos have the usual promise of free electricity, too. Congress has now broadbased its approach by grafting direct money transfers to specific groups such as homemakers and pensioners.
The problem with these promises is of course that regardless of who wins elections, state budgets will have to accommodate these populist promises. The issue is not that this will lead to a debt trap, since the extent of a state’s borrowing is fixed by GoI. The issue is that in order to fulfil election promises, budgets will have to cut back on something. Typically, that is public investment, or capital expenditure, because there is no voluble interest group for this spending. Public investment is the most effective form of government spending to create an enabling environment for economic growth. That leads to jobs, the most effective form of inclusion. That’s the premise of the well thought out Union Budget. Therefore, not just opposition parties, BJP too is in effect undermining BJP’s growth Budget.
2.Monetary policy accepts a big risk in continuing to prioritise growth
Reserve Bank of India’s monetary policy committee’s (MPC’s) decision to maintain status quo on the policy interest rate (repo) and liquidity, and its macroeconomic forecasts indicate that it hasn’t bought into the central government’s upbeat views on the economic revival.
Despite a worsening operating environment for central banks across countries, RBI has opted to delay adjusting even its liquidity stance. The primary reason is that MPC believes domestic recovery is incomplete. Consequently, it concludes the current loose monetary policy should continue.
In pursuing this approach- of delaying adjustments to even its liquidity stance- there is one major risk MPC has opted to ignore at this moment. Inflation has become harder to estimate this year. On record, RBI has forecast a lower inflation, 4.5% on average, for 2022-23. However, it appears this forecast has taken a rather easy view of the trajectory of oil prices.
The Indian basket of crude oil has crossed the $90/barrel mark. It has been edging up for weeks now and some forecasts suggest the price will stay elevated. To this factor, one needs to add the monetary policy’s observation that cost pressure on core inflation may continue for a while.
The trade-off here is that MPC believes economic revival remains so fragile that even though the surplus liquidity in the system often pushes the weighted average call rate below the interest rate corridor targeted by RBI, status quo on liquidity should continue. The risk with this approach is that MPC may find itself behind the curve when it readjusts to a tighter monetary policy. It’s a significant but implicit risk in this morning’s policy announcement.
3. Anger in diplomacy: On Indian reaction to MNC Kashmir tweets
Pak. establishment was behind MNC Kashmir tweets, but India should have shown restraint
The advent of social media has no doubt changed how diplomacy is conducted between countries. Even so, it was surprising that the MEA and the Commerce Ministry put as much energy as they did into ensuring that several multinational companies retracted social media posts their Pakistani distributors had put out last week. The posts, that appeared to be part of a coordinated exercise sponsored by the Pakistani establishment, were put out on February 5 — marked in Pakistan as “Kashmir Solidarity Day” — and contained what New Delhi termed as highly offensive messages calling for “Kashmiri liberation”. The Government’s outrage was valid, given that these companies, including Hyundai, Toyota, KFC, Pizza Hut, and pharma major Schwabe, also have flourishing businesses in India, and it was strange that private MNCs would post such politically charged messaging at all. However, where a sharp word or even a short statement of disapproval would have sufficed, the Modi government decided to go the whole distance: even summoning the Korean Ambassador while ensuring that Indian embassies took up the issue with other governments. External Affairs Minister S. Jaishankar also raised the matter with his Korean counterpart, who apologised to the Indian people. Commerce Minister Piyush Goyal added in Parliament that the original apology by Hyundai India was not adequately “forceful or unequivocal”, even as social media consumers in India threatened to boycott products made by the companies concerned.
While the Government might feel it has achieved its purpose by ensuring the companies and governments involved were contrite about the posts, it must also consider the big picture of how its actions, that appear to be at some variance with those of a secure and powerful global player, are viewed in the rest of the world. India’s claims over Jammu and Kashmir are strong, and widely acknowledged, and not so fragile that a few social media posts, that appeared only in Pakistan, can dent in any way. Second, holding foreign governments in democratic countries to account for the actions of the local distributors of their private companies could have unforeseen repercussions. It is also worth considering whether the Foreign Ministry’s resources are better spent in furthering India’s interests than on expending diplomatic capital on short-lived controversies such as the MEA’s objection to pop star Rihanna’s posts on the farmer protests last year. The apologies and statements thus extracted may prove to be a pyrrhic victory, if one considers that the intentions of those behind the obnoxious posts in Pakistan, aimed at drawing attention to their propaganda on Kashmir, were also met. A quiet word with the MNCs might have worked better than a public display of diplomatic opposition.
4.The French format: On Macron’s shuttle diplomacy between Russia and Ukraine
If Normandy Format talks could be convened, it would be a breakthrough for Russia, Ukraine
French President Emmanuel Macron’s shuttle diplomacy between Russia and Ukraine is one of the most significant interventions in the crisis ever since tensions started soaring in Eastern Europe. Mr. Macron, who has held talks with Russian leader Vladimir Putin in Moscow and Ukraine President Volodymyr Zelensky in Kiev, has said that both sides remain committed to the Minsk accords (2014-15), aimed at ending the violence between Ukraine and Russia-backed separatists in the east; Mr. Putin assured him that Russia would not escalate the crisis. Put together, these statements offer a path towards calming the Russia-Ukraine tensions. Moscow has issued sweeping demands, including rolling back NATO from Eastern Europe, which the West has rejected. But Russia’s key concerns are the growing NATO-Ukraine cooperation and the increasing western presence in the Black Sea. The U.S. had earlier offered dialogue on mutually reducing military drills in the eastern flank of Europe. And what Mr. Macron is trying to do now, through the Normandy Format talks (including France, Germany, Russia, Ukraine), is for a Moscow-Kiev dialogue based on the Minsk protocol, which, in theory, was accepted by both sides.
The crisis has also laid bare the differences within the western bloc on how to deal with Russia. While the Biden administration has threatened to shut down Russia’s Nord Stream 2 pipeline in the event of a Russian invasion, the German leadership has been less specific in its response. Germany has barred Estonia, the tiny NATO member that shares a border with Russia, from supplying arms to Ukraine. Hungary’s Prime Minister Viktor Orbán, who met Mr. Putin in the Kremlin earlier this month, has said Russia’s demands were reasonable. Turkey’s Recep Tayyip Erdoğan, who visited Ukraine last week, has offered to host a peace summit. And now, Mr. Macron, who says the West “must respect Russia”, has already moved ahead. These varied responses, despite Joe Biden’s assertion of unity, show that Europe has less appetite for conflict with Russia. As a continent that experienced two disastrous World Wars and a Cold War, Europe understandably adopts pragmatic realism. But what needs to be seen is whether France and Germany have the diplomatic muscle to calm Russian nerves without making compromises on the continent’s security. A starting point could be reviving the Minsk process. The accords call for a general amnesty for the rebels, constitutional amendments giving the breakaway regions in eastern Ukraine more autonomy and the handing over of Ukraine’s borders to its army. None of the clauses in the agreement has been implemented. If the Normandy Format talks could be convened and Russia and Ukraine take steps to revive the agreement, it would be a diplomatic breakthrough.