PM IAS JULY 15 EDITORIAL ANALYSIS

Editorial 1: Virtual summit, virtual silence

Context

India’s lack of a credible explanation in hosting a virtual Shanghai Cooperation Organisation (SCO) summit indicates New Delhi’s diplomatic drift as far as the SCO is concerned.

About

At a media briefing on July 4, India’s Foreign Secretary Vinay Kwatra vehemently asserted that the fact that the Shanghai Cooperation Organisation (SCO) summit was held virtually in no way signifies, hints, insinuates the dilution in the objectives that we are trying to seek of the SCO Summit.
He did not disclose, however, any reason for not holding the summit physically or in hybrid mode.
Mr. Kwatra’s failure to give even one credible reason for having a virtual summit indicates that India is moving away from the approaches which led it to become an SCO full member in 2017.

China’s acts as reason

China’s actions towards India in 2020 and the evolving international order have obviously compelled a re-appraisal of Indian interests in the SCO.
This is evident from the point of not only holding a virtual summit but also Mr. Modi’s combative assertiveness on issues of concern to India (terrorism and connectivity) on which it rightly has fundamental differences with China and Pakistan.
While neither Pakistan nor China will change course on terrorism, the issue resonates in the Central Asian Republics that continue to have deep concerns of terrorist groups using Afghanistan.
On connectivity, though, which is a core issue for the SCO, India’s isolation in the organisation is apparent.
Prime Minister reiterated India’s position that connectivity projects should respect national sovereignty.
His target was China’s Belt and Road Initiative (BRI) and its flagship China-Pakistan Economic Corridor (CPEC) which violates Indian sovereignty.

The BRI and the Eurasian game

The BRI’s negative consequences have not inhibited the enthusiasm of SCO members for it.
India, therefore, needs to be alive to the danger of China integrating Eurasia and shutting it out of the region with Pakistan’s active support.
This is not to suggest that India should endorse the BRI, which is an instrument of Chinese expansionism, but it has to find ways to maintain close ties with Eurasia.
Certainly, the promotion of Buddhist heritage, however laudable the endeavour, will not help in drawing SCO members towards India and prevent their growing links with China.
Besides, the Chabahar project (Iran) has not moved ahead as it needs to.
India has to devote far greater resources and energy to develop connectivity through Iran though it is not easy to deal with it.
Active air corridors with the Central Asian Republics and a pragmatic policy towards Afghanistan are also essential to remain, howsoever tenuously, in the Eurasian game.

A silence on the Ukraine war

Expectedly, the SCO Declaration was silent on the Ukraine war.
India, Pakistan or China also did not refer to it in their summit statements.
The virtual summit ensured that Mr. Modi did not have to meet any of the leaders, including Pakistan’s Shehbaz Sharif, personally.
That avoided ripples of the kind the SCO Foreign Ministers meeting generated in Goa, in May 2023.
The price though paid in avoiding controversies and embarrassment including what would have been caused by the optics of Mr. Putin in India was in the demonstration of where India currently stands in Eurasia and its western neighbourhood.

Conclusion

Many eyes will now be on the BRICS summit in South Africa in August where Mr. Xi and perhaps Mr. Putin will be present. Many wait to see if India goes to South Africa or prefer to avoid any chance of muddying the waters before his great moment in the diplomatic sun — the G-20 summit in Delhi in September.

Editorial 2: Roiling resurgence

Context

The latest Consumer Price Index data showing a resurgence in retail inflation proves exactly why the RBI’s monetary authorities have reiterated the need to keep the policy approach firmly tilted towards ensuring price stability.

The Inflation figures

With food prices becoming unmoored and spiralling up, June’s CPI-based provisional inflation reading accelerated by half a percentage point to a three-month high of 4.81%.
Inflation in the food and beverages group, the single-largest constituent of the CPI that contributes almost 46% of its weight, led the resurgence, quickening from May’s level to 4.63%.
The food price inflation was broad-based with 10 of the 12 sub-groups witnessing year-on-year increases: cereals registered 12.7% price gains, eggs logged 7%, dairy experienced 8.56% inflation, pulses posted 10.5% and spices saw gains exceed 19%.
Month-on-month, vegetable price inflation soared to 12.7%, the highest sequential rate of price gains in the essential food group since October 2021.
With the exception of three vegetables, including lady’s finger and lemon, in the 19-member basket, all the others including the most widely used potatoes and onions registered sharp sequential inflation.
Of the non-food items, clothing and footwear, as well as health and personal care saw price gains that exceeded 6% in June.
Education prices too continued to keep rising steadily.

Tackling Inflation

1. Monetary Policy Measures

Using contractionary monetary policy, the money supply in the economy can be decreased. This leads to decrease in aggregate demand in the market and thereby reduces inflation.
Decrease in supply of money → rate of interest increases → Investment decreases → Aggregate demand decreases → prices decline → rate of inflation is lower
Rates like CRR, SLR, Repo Rate and Reverse Repo Rate are increased to impact the money supply in the economy by the RBI to control inflation.

2. Fiscal Policy Measures

Fiscal Policy refers to the revenue and expenditure policy of the government. Contractionary Fiscal Policy can be useful to tackle high inflation rates.
The process is as follows: Increased taxes (keeping government spending constant) → disposable personal income decreases→ consumption decreases → aggregate demand decreases → prices decline → rate of inflation is lowered
Similar process follows if the government cuts down on its expenditures without raising taxes (or reduces its deficit/ increases surplus).
Some of the fiscal policy measures are – reducing import duties, banning exports or Imposing minimum export prices, suspending the futures trading of commodities, raising the stock limit for commodities, etc.

Supply Measurement Measures

Supply Management Measures aims to increase the competitiveness and efficiency of the supply chain, putting downward pressure on long-term costs.
Some of the supply management measures taken are- Restricting exports of commodities in short supply and increasing their imports.
Effective implementation of the Essential Commodities Act, 1952 to prevent hoarding and speculation.
Incentivizing the increase in production of commodities through tax concessions, subsidies, institutional support etc.
Higher MSP has been announced to incentivize production and thereby enhance the availability of food items which may help moderate prices.
Fixing the ceiling prices of the commodities and taking measures to control the black marketing of those goods.
Reforming the supply chain through infrastructure development, foreign investments etc.

Constraints in Controlling Inflation

India imports more than 80 percent of its oil requirements. Oil prices are volatile owing to the various Political and Economic events in the international arena.
Long overdue supply-side reforms.
Inefficiencies in the monetary policy transmission.
Limited control of Government and RBI in controlling rupee depreciation.
Political compulsion in reducing expenditure and fiscal deficit.
Populist measures of the government.

Conclusion

Policymakers must tighten their grip over prices to prevent the broader economic recovery from floundering.

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