Why does RBI want a hedge against dollar reliance, but not push for de-dollarisation
Source: Indian Express
Syllabus context: GS III Economy
RBI’s Approach to De-Dollarization and Diversifying Risks
Introduction
The Reserve Bank of India (RBI) has clarified that its recent policy measures aim at diversifying risks rather than pursuing full-scale de-dollarization. De-dollarization refers to reducing reliance on the US dollar in international trade and reserves. It is often driven by geopolitical tensions, economic sovereignty, and the need to mitigate vulnerabilities associated with overdependence on a single currency.
India’s cautious yet strategic stance acknowledges the dominance of the US dollar in global financial systems while promoting resilience and economic stability in the face of global uncertainties.
Key Highlights
Diversification Over De-Dollarization
1. Local Currency Trade Agreements: ○ RBI Governor Shaktikanta Das highlighted the importance of diversifying trade mechanisms. ○ Measures such as Vostro accounts facilitate trade in local currencies and reduce reliance on third-party currencies like the dollar. ○ These efforts aim to mitigate risks from currency volatility without entirely displacing the dollar.
2. Strategic Gold Reserves:Global uncertainties, such as the Ukraine war and fears of secondary sanctions, have prompted central banks to increase gold holdings as a hedge against dollar risks.In 2024, the RBI added 27 tonnes of gold in October alone, reflecting its proactive approach to diversify reserves.This aligns with global trends, as central banks acquired over 2,000 tonnes of gold in 2022 and 2023, signaling a growing shift away from exclusive dollar reliance.
3. Encouraging Domestic Currency Trade:India is actively promoting rupee-based trade with countries like Russia and the UAE.However, India’s trade deficits with most countries, barring the US, limit the feasibility of large-scale rupee trade.Despite these challenges, these initiatives reduce exposure to dollar-dominated global financial systems.
Impact of Dollar Dominance
Declining Dollar Share in Reserves:
- The dollar’s share in global foreign exchange reserves has gradually declined, with currencies like the Chinese yuan gaining prominence.
- Emerging markets, including India, are seeking alternatives to dollar dominance to mitigate risks posed by geopolitical and economic dependencies.
Regional Challenges:
- South Asian neighbors such as Sri Lanka, Pakistan, and Bangladesh face severe economic instability due to surging oil prices and declining dollar reserves.
- Although India has maintained robust reserves, it remains vigilant against volatility associated with the dollar’s fluctuations
Geopolitical Context
BRICS and the Shared Currency Debate:
- BRICS nations have explored the idea of a common currency but face hurdles due to divergent economic policies, geographic spread, and the dominance of the Chinese yuan within the bloc.
- India has resisted adopting the yuan for Russian oil imports, prioritizing economic sovereignty over regional currency alignment.
Global Economic Realignments:
○ The US dollar’s dominance in global trade is increasingly being contested by emerging economies, partly driven by geopolitical tensions and the pursuit of economic multipolarity.
Challenges in Reducing Dollar Dependence
Trade Deficits:
- India’s trade deficits with key partners limit the extent of international trade in rupees.
- This reduces the feasibility of widespread rupee settlement mechanisms
High Transaction Costs:
Domestic currency trade incurs higher transaction and administrative costs, making it less attractive for global trading partners
Lack of Global Acceptance:
The Indian rupee has yet to gain significant acceptance as a reserve currency due to limited international liquidity and convertibility
Conclusion
India’s approach to de-dollarization reflects a balanced strategy of risk diversification without destabilizing global trade frameworks. By enhancing gold reserves, promoting domestic currency trade, and carefully navigating geopolitical complexities, the RBI aims to bolster economic sovereignty while safeguarding national financial stability. However, challenges such as trade imbalances, high costs of rupee trade, and limited international acceptance of the rupee persist. Moving forward, India must prioritize policy innovations and global partnerships to overcome these hurdles, ensuring resilience and sustainable economic growth in an increasingly volatile global economic landscape
Quotes for Enrichment
- Shaktikanta Das: “The objective is to manage risks through diversification, not to eliminate the dollar.”
- John Maynard Keynes: “The avoidance of risk is the beginning of financial wisdom.”
- Raghuram Rajan: “Emerging markets must adopt a strategic approach to global financial integration, balancing risks and opportunities.”
Why New Delhi is cautious about events in Syria: history of rebels, to their geography
Source: Indian Express
Syllabus context: GS II International Relations
Syrian Rebels Overthrow Assad: End of 13-Year Civil War and the Future of Syria
Introduction
The Syrian Civil War, a protracted and devastating conflict lasting over 13 years, has culminated in the overthrow of President Bashar al-Assad. This marks a significant turning point in the region’s geopolitics, with the rise of rebel groups, led by Hayat Tahrir al-Sham (HTS),establishing control over key territories, including the capital Damascus. While this development may signify the end of one phase of the crisis, Syria faces daunting challenges in its pursuit of stability and reconstruction.
The Syrian Civil War: A Brief Overview
Origin
The Syrian Civil War began in March 2011, influenced by the Arab Spring uprisings.
Triggers:
- Authoritarian Rule: Decades of oppressive governance under the Assad family created widespread resentment.
- Economic Hardship: High unemployment, corruption, and inequality exacerbated discontent.
- Sectarian Divide: Syria’s Sunni majority resented the dominance of the Alawite minority, to which Assad belongs.
- Arab Spring Influence: Successes of uprisings in Tunisia, Egypt, and Libya inspired Syrians to demand democratic reforms.
Evolution into a Proxy War
The conflict escalated into a multifaceted proxy war, involving various actors with competing interests:
Internal Fragmentation:
Assad’s regime faced opposition from rebel groups, Kurdish forces, and extremist organizations like ISIS
Regional Involvement:
- Iran and Hezbollah: Supported Assad to maintain influence.
- Turkey: Backed opposition factions to counter Kurdish autonomy
Global Power Rivalry:
- Russia: Intervened militarily to support Assad, safeguarding its Middle Eastern foothold.
- USA: Supported Kurdish-led forces and moderate rebels to counter ISIS and Assad’s regime
Extremism: The rise of groups like ISIS turned Syria into a focal point in the fight against global terrorism.
The Fall of Assad’s Regime
Assad’s Rise and Legacy
Ascendancy:
Bashar al-Assad assumed power in 2000, succeeding his father, Hafez al-Assad.
Initially seen as a modernizing leader, his economic liberalization policies deepened inequalities.
Prelude to Civil War:
- Growing economic struggles, authoritarianism, and democratic aspirations culminated in protests during the 2011 Arab Spring, which were met with a brutal crackdown.
- Accusations of chemical weapon usage and harsh suppression of dissent further delegitimized Assad’s regime.
The Role of HTS
- Evolution:Originating as Jabhat al-Nusra in 2012, HTS transitioned from extremist roots to pragmatic governance, focusing on consolidating control over Syrian territories.HTS rebranded itself as Hayat Tahrir al-Sham in 2016, severing ties with Al-Qaeda.
- Shifting Dynamics (2023–24):Weakening of Assad’s allies—Russia (distracted by the Ukraine war) and Iran (clashes with Israel)—created vulnerabilities in the regime.
Daunting Challenges Ahead
Political Transition
Transitional Government:
The rebel coalition has announced plans for a transitional government and free elections, but unifying Syria’s deeply fragmented society remains a monumental task.
Reconciliation:
Achieving reconciliation among diverse factions, including rebel groups, Kurds, and minority communities, is critical for long-term stability.
Humanitarian Crisis
Displacement:
Millions of Syrian refugees remain in neighboring countries like Turkey, Lebanon, and Jordan. Their return hinges on restoring stability and rebuilding trust in governance
Reconstruction:
Decades of conflict have devastated infrastructure, requiring massive international aid for rebuilding homes, schools, and healthcare facilities.
Strategic Losses for Allies
Russia:
Preoccupied with the Ukraine war, Russia’s diminished presence in Syria represents a strategic setback
- Iran and Hezbollah:
Geopolitical Implications
Regional Impacts
Turkey’s Role:
Turkey’s strategic support for rebel groups highlights its growing influence in post-Assad Syria, particularly in curbing Kurdish autonomy.
Arab World’s Reaction:
The Arab League’s reintegration of Syria earlier in 2023 underscores a pragmatic approach, but Assad’s ouster raises questions about regional stability.
Global Perspective
Western Concerns:
The rise of Islamist factions like HTS raises fears of a return to extremist ideologies, reminiscent of the post-Gaddafi chaos in Libya.
India’s Stance:
India remains cautious, recalling the Arab Spring’s unintended consequences in countries like Libya and Egypt. It advocates a balanced approach prioritizing stability and counter-terrorism.
Conclusion
The fall of Assad’s regime marks a watershed moment in Syria’s history but leaves the nation at a crossroads. While the rebel coalition’s promises of free elections and reconstruction offer hope, the path to stability is fraught with challenges, including political reconciliation, humanitarian relief, and economic recovery.
For global powers, Syria’s future presents both an opportunity and a challenge. For India, balancing its commitment to stability, humanitarian aid, and counter-terrorism efforts will be crucial in navigating the evolving geopolitical landscape.
Way Forward
International Cooperation:
Global stakeholders must coordinate efforts to ensure effective governance, aid distribution, and rebuilding of infrastructure.
Combating Extremism:
Vigilance against extremist resurgence is essential to prevent Syria from becoming a breeding ground for terrorism.
Diplomatic Engagement:
India and other countries must engage with regional actors to ensure a stable transition while safeguarding their strategic interests.
The new oilfield bill, the concerns it raises
Source: Indian Express
Syllabus context : GS III Economics
Oilfields (Regulation and Development) Amendment Bill, 2024
Context: The Oilfields (Regulation and Development) Amendment Bill, 2024, was passed by the Rajya Sabha to modernize the framework for petroleum and mineral oil exploration, enhance domestic production, and foster private sector participation. This move aligns with India’s energy security objectives and its commitment to sustainable practices
Key Features of the Bill
- Expanded Definition of Mineral Oils
Inclusion: Covers all hydrocarbons such as natural gas, crude oil, shale gas, and coal-bed methane (CBM).
Exclusion: Coal, lignite, and helium are excluded from this definition, ensuring clarity in resource categorization.
- Introduction of Petroleum LeaseReplaces the term “mining lease” with “petroleum lease,” which encompasses exploration, production, and disposal of mineral oils.Ensures continuity for existing leases, maintaining their legal validity.
- Decriminalisation of Offences
Removes imprisonment as a penalty, replacing it with fines:- ₹25 lakh for initial violations.
- Removes imprisonment as a penalty, replacing it with fines:
- ₹25 lakh for initial violations.
- ₹10 lakh per day for continued non-compliance.
- Rule-Making Powers of the Central GovernmentProvisions for framing rules on:
- Environmental Obligations (e.g., emission reductions).
- Adjudication Mechanism
Designates Joint Secretary-level officers to adjudicate penalties for violations.Appeals to be handled by the Appellate Tribunal under the Petroleum and Natural Gas Board Act, 2006.
Significance of the Bill
Boost to Domestic Production:
Encourages the exploration of conventional and unconventional hydrocarbons to reduce India’s crude oil import dependency, enhancing energy security.
Private Sector Participation:
Clear lease regulations and reduced penalties create a conducive environment for attracting private investment in exploration and production activities
Environmental Sustainability:
Incorporates provisions to promote emission reductions and responsible extraction practices, aligning with India’s climate change commitments.
Ease of Doing Business
Decriminalisation of offences simplifies regulatory compliance, fostering investor confidence.
Modernisation of Framework:
Updates the regulatory framework to accommodate unconventional hydrocarbons, such as shale gas and coal-bed methane, aligning with global energy trends
Challenges and Concerns
State vs. Central Rights:
Changes in lease terminologies might lead to disputes over states’ taxation and royalty collection rights, affecting federal harmony.
Environmental Risks:
Increased private sector participation could result in over-extraction and potential ecological damage if stringent norms are not enforced
Implementation Issues:
Effective monitoring and enforcement of environmental and emission standards may face institutional and capacity challenges
Regulatory Overlaps:
Coordination between central and state authorities for lease approvals, royalty collections, and regulatory compliance remains a potential friction point
Way Forward
Balancing Development with Sustainability:
Strengthen monitoring mechanisms to ensure adherence to environmental norms and sustainable resource utilization.
Collaborative Federal Approach:
Foster dialogue between central and state governments to address potential taxation and regulatory overlaps, ensuring smooth implementation.
Collaborative Federal Approach:
Foster dialogue between central and state governments to address potential taxation and regulatory overlaps, ensuring smooth implementation.
Conclusion
The Oilfields (Regulation and Development) Amendment Bill, 2024 is a progressive step toward modernizing India’s petroleum exploration framework, boosting domestic production, and enhancing private sector participation. However, its success depends on addressing environmental concerns, ensuring federal harmony, and effective implementation of the regulatory provisions. This will be critical to achieving energy security while maintaining sustainability and balanced growth.