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शुक्रवार, 25 मार्च 2022

THE HINDU EDITORIAL- MARCH 22, 2022

THE HINDU EDITORIAL- MARCH, 22, 2022

 

A default choice

N. Biren Singh’s role in winning BJP a stable majority helped him return as Manipur CM

In choosing to retain Norgthombam Biren Singh as the Chief Minister of Manipur, the Bharatiya Janata Party (BJP) has decided to go with continuity in a State where only one former Chief Minister, i.e., Okram Ibobi Singh of the Congress, had managed to carry on after a full five-year term. This should not come as a surprise even though there was speculation in the run-up to the announcement that other contenders had thrown their hats into the ring. It was under Mr. Singh’s leadership that the BJP not only increased its seat share in the Manipur Assembly, from 21 (in 2017) to 32 (in 2022), but had also managed to weather several storms while running a minority government in the last five years. Unlike 2017, when the BJP formed the government in dubious circumstances – the Congress had emerged as the single largest party with 28 seats – the ruling party had a clear-cut majority on its own this time. Besides, the BJP government has received post-election support from the Janata Dal (United) and the Nagaland Peoples’ Front, with six and five MLAs each. The clear verdict from the electorate this time should help Mr. Singh run a stable government free of the shenanigans that dominated his previous tenure. Mr. Singh also ran a spirited campaign to secure an electoral majority for the BJP, with some of his initiatives such as the “Go to Hills” and “Go to Villages” bearing fruit.

    The stable majority should give Mr. Singh the ballast to focus more on governance and address the immediate need of the State. Manipur has a higher literacy rate – 79.8% compared to the country’s average of 74.04% - besides achieving a medium human development index of 0.697, as of 2019. Only Sikkim and Mizoram have better indices in the North-east. But chronic unemployment, especially of the youth, remains a key concern that needs to be tackled by the Government. The recurring border conflicts in villages in Manipur and Nagaland, with strikes and blockades, need to end quickly, and a majority government will be better placed to address this ticklish problem. While the BJP remained silent on the unpopular Armed Forces (Special Powers) Act in the course of the election and still managed to win handily in the State, it cannot assume that the electorate agreed with the views of the Union government and the party on the Act. This could come up as a problem, yet again. As for the weakened Opposition in the State, the BJP’s facile victory opens up fresh challenges for the Congress’s beleaguered leadership even as smaller parties such as the National People’s Party have tried to warm up to the BJP by offering outside support. Manipur is a vital border State, with a history of extremism and ethnic violence whose embers still remain. While a stable government is best placed to work out a lasting peace and focus on livelihood issues, it will be in the Opposition’s best interests to keep the Government on its toes by acting maturely.

 

On target

Lakshya Sen looks set for glory if he is able to add strength to mind and body

Lakshya Sen’s run to the final of the All England open Badminton Championships should rank high in the long list of great Indian sporting achievements. His crushing 10-21, 15-21 loss on Sunday to World No.1 and reigning Olympic champion Viktor Axelsen should not detract from the perception of his overall success. In terms of quality and prestige, no tournament quite comes close to All England. One of only three BWF super 1000 tournaments – the crown jewels of the sport – it attracts the world’s best. And like Wimbledon in tennis, it is the first among equals, the oldest badminton tournament in the world with more than a century’s history. Indians have long had an emotional connect with All England, the acme of which came with the legendary Prakash Padukone’s stunning come within one match of emulating his mentor, belying both his age and experience, is an astonishing feat. Lakshya is all of 20 and this was only his third-ever appearance at All England. But he shed the big-match nerves with ease, as he beat world No.3 and World Championships bronze-medallist Anders Antonsen (round-of-16), and World No.7 and defending champion Lee Zii Jia (semifinal) to go into the history books as the youngest of four players from independent India to reach the All England final (others being Padukone, P. Gopi Chand and Saina Nehwal).

   It is fair to say that Lakshya has been building up to this. He was marked out for success since young, and he lived up to that promise with medals at the Youth Olympic and juniors is no harbinger of success at the senior level, Lakshya, under the tutelage of Dronacharya awardee U. Vimal Kumar, has transitioned rather well. The last four months performance, in fact, proves this. In December 2021, he secured a bronze medal at the World Championships to join a select band of seven Indians to have stood on the podium at the Worlds. In January, at the India open, he beat the reigning World Champion, Loh Kean Yew, to win his first BWF Super 500 title. In the German open earlier this month, he defeated Olympic bronze medallist Anthony Ginting and then shocked Axelsen himself en route to a runner-up finish. He is no longer just an object of observation but the provider of that emotional hook for many a young Indian fan and player. Elite badminton is no doubt an unforgiving and unrelenting genre, as he found out against Axelsen on Sunday. But if Lakshya continues to sharpen his game, spruce up his body and develop a champion’s mindset, the possibilities are endless.

A Ukraine peace plan that needs a U Thant

The elements of viable peace exist, and all that is required is for someone to step forward and pursue it with urgency

SHASHI THAROOR

One of the questions longtime watchers of the United Nations like myself kept asking as the Ukraine crisis unfolded was what the UN Secretary-General, the able former Portuguese Prime Minister Antonio Guterres, was doing. When the Americans were crying themselves hoarse about an imminent invasion for weeks before it actually happened, did the Secretary-General seek to use his “good offices” to resolve the crisis? Did he send an emissary to Moscow to find out its intentions and understand its irreducible demands, then have the same person try in Kyiv to get Ukraine to agree to the terms of a compromise?

Hardly inspiring

While such efforts do not necessarily have to be public, there was no evidence of any “shuttle diplomacy” conducted by the UN Secretary-General. Indeed, there seems to have been no high Un official sent in the couple of months preceding the Russian invasion to either capital, nor even to Washington DC or the North Atlantic Treaty Organization (NATO) headquarters in Brussels. Unlike the legendary U Thant, who intervened between Moscow and Washington during the Cuban Missile Crisis in 1962 (albeit through telegrams rather than travel), Secretary-General Guterres seems to have limited himself to earnest exhortations to Russia to observe the peace it had already violated when he spoke. The implication that when a permanent Member is a belligerent, the Un is reduced to helplessness is inaccurate. The Secretary-General can act. In 1998, when the United States was about to bomb Iraq, UN Secretary-General Kofi Annan unilaterally undertook a trip to Baghdad (I was with him) to stave off the resort to war.

    If the UN thought that brokering peace was a hopeless undertaking, this does not seem to have deterred Israeli Prime Minister Naftali Bennett, who did travel to Moscow and is reported to have proposed a 15-point peace plan to his interlocutors. It seems to include provisions that would deny Ukraine the right to join NATO, disallow any foreign troops on its soil, and enable the Russians to keep some presence in the east While withdrawing the bulk of their forces and stopping their assault. The Ukrainians are already saying that this is a catalogue of Russian demands and does not fully reflect their point of view.

Putin and his objectives

I have long been of the view that having undertaken such a highrisk enterprise as launching a military invasion, Russian President Vladimir Putin is unlikely to stop before his strategic objectives are realized. But what exactly are those objectives? Ending any prospect of NATO troops and weapons on his doorstep is obviously a priority. But to ensure that, does he aim to bring about “regime change” in Kyiv, replacing the defiant Ukrainian President Volodymyr Zelensky with the pro-Russian deposed former President Viktor Yanukovych? Does he intend to annex some of Ukraine’s territory? Is his aim to create a “buffer state” in Ukraine between Russia and the West? Or could he, as the Chinese did to India in 1962, declare that his enemies had been “taught a lesson”, decide to cut short his losses and unilaterally withdraw?

    No one really knows, not even our omniscient mandarins in South Block. Russia is already paying a huge price, economically, geopolitically and diplomatically, for its Ukrainian adventure. The higher the price goes up, the greater will be Moscow’s unwillingness to end the conflict without some tangible gains that it can point to, in order to demonstrate to its own people that the price was worth paying. What might the key gains be that would fulfil Moscow’s war aims?

On neutrality

The first basic requirement for peace appears crystal clear: a declaration of formal, binding neutrality for Ukraine. Finland and Austria already have such neutrality embedded in their constitutions, as do Switzerland and Sweden by long-standing policy, and this has worked well, allowing these nations to appear indistinguishable from other western democracies while at the same time having no military relationship with NATO. Russia had believed it had assurances of Ukrainian neutrality in the past, but Kyiv’s flirting with NATO had raised the spectre of those assurances unraveling. Having them in writing, enshrined in Ukraine’s Constitution and guaranteed by other powers, would seem to be a sine quanon for Moscow to end its military campaign.

   But would neutrality alone (which President Zelensky has reportedly indicated his willingness to concede) be enough? I imagine that while Ukraine, as a sovereign state, would retain its army and related defence forces, Moscow would also want restrictions on the kind of weapons Ukraine could station on its soil, their power and range. Missiles that can strike Moscow, for instance, could be outlawed. Just before Russia invaded Ukraine on February 24, Moscow officially recognized the independence of the two separatist provinces of Luhansk and Donetsk in Ukraine’s eastern Donbas region. Preserving that arrangement or at least ensuring de facto Russian control over the Donbas region, to which Luhansk and Donetsk belong, by retaining Russian “peacekeepers” there, would give Moscow the buffer zone it seeks. Moscow would probably also wish to achieve formal international recognition of its 2014 annexation of the Crimean Peninsula, which did not attract the kind of condemnation its current actions have – since Crimea’s residents do largely see themselves as Russians, unlike the people of the rest of the country. A comprehensive peace settlement would probably have to include Crimea too.

   A settlement covering the above elements would probably be enough for the Russians to declare victory and go home, but would Ukraine accept it? This is far from clear, as initial reactions to Mr. Bennett’s efforts suggest. And if Ukraine did – just to stop the suffering and destruction – what would they want in exchange? Some suggest Kyiv would only accept formal neutrality provided there were assurances from powerful western countries (especially the United States) to come to its aid if it were attacked in future. That, in turn, is unlikely to be acceptable to Moscow, which would see western security guarantees as the thin end of a NATO wedge into its neighborhood. Could the United Nations be an acceptable alternative as a guarantor of Ukraine’s neutrality? That would have the merit, as well as the disadvantage, of involving Russia also, in committing itself to upholding such a guarantee of security.

EU membership

Ukraine may also seek to trade surrender on NATO membership for a path towards joining the European Union (EU). Russia has so far said no to Ukrainian adhesion to the EU as well, but if peace is in the interests of both sides, this could be the one issue on which Moscow would have to concede. After all, Austria, Finland and Sweden have stayed neutral while serving as flourishing members of the EU. Perhaps Russia could bargain for an end to sanctions that are currently crippling its economy and trade, in return for making this concession.

   In other words, the elements of a viable peace plan exist. What is needed is for someone to step forward and pursue it with urgency. Russia is already paying a higher price than it expected to, suffering greater battlefield losses than it anticipated, and making much slower progress than most experts had predicted when the invasion began. It may soon realise that winning the war militarily will take too long and cost too much to be worthwhile. That is the moment for a skilled peace-maker to move.

    Mr. Secretary-General, could you get on a plane please?

 

 

Realising the potential of ‘maitri’ and ‘mateship’

Deepening investments in Australia-India strategic, economic, and community ties highlight their stronger relationship

BARRYL O’FARRELL

Australia is celebrating India’s 75 years of Independence by making the largest singly investment in our bilateral relationship.

   We do so because Australia and India share a long and special relationship, one we are now working together to make even stronger.

Deep histories

We are natural partners because we are each ancient and modern countries and cultures, vibrant and full of energy and optimism.

   Australia recognizes the depth and diversity of India’s magnificent culture. We know the importance of connection to history.

   Like India, Australia’s story stretches back tens of thousands of years. Australia’s Indigenous peoples are custodians of the oldest continuing civilization in the world: which is why the Australian government was delighted to return 29 culturally significant artifacts to the people of India this month.

    Even our words for friendship have a similar ring: India says maître, Australians say mateship. Both stand for respect, understanding and equality. Friends looking out for each other.

    That is the warm friendship share between our Prime Ministers, The Hon Shri Narendra Modi and the Hon Scott Morrison MP.

    On March 21, the two prime Ministers held their Virtual Summit and took stock of the remarkable pace we are implementing the Australia-India Comprehensive Strategic Partnership. To drive closer cooperation and regularly review relations, the Prime Ministers also established an Annual Summit mechanism.

    Since we elevated our relationship in 2020, we have advanced practical actions on cyber and critical technologies, maritime affairs, defense ties, economic and business links and Quadrilateral cooperation.

    The Virtual Summit market another milestone as our prime ministers announced a range of tangible and practical initiatives spanning the breadth of our share economic, strategic, and regional interests.

    These initiatives are investments into promise and potential of our nations. They address the most pressing challenges and opportunities of our time.

    Because when it comes to friendship, we know actions speak louder than words.

    Together, we are harnessing the technology, the talent, and the trading spirit of our people to deliver resilience, prosperity, and security.

     Together, we are focused on the Future.

Technology and research

 We are working on a new and renewable energy partnership, to support the development of technologies such as green hydrogen and ultra-low cost solar. We are also supporting research an investment to unlock Australian critical minerals for Indian advanced manufacturing.

     We will boost collaboration on innovation, science and entrepreneurship, to scale up ideas that address global challenges.

     We are also increasing investments into our countries’ rapidly growing space sectors.

     And we are establishing the Australia-India Centre of Excellence for Critical and Emerging Technology Policy – and a Consulate-General – in Bengaluru.

     Our governments know that resilience relies on strong economies.

     We have made significant in-roads on negotiations on a deal that will open new two-way trade and investment opportunities, build more secure supply chains, and unlock our complementary economies, increasing the flow of goods, services and people.

Focus on students

We are investing in India’s talented young people through our new Future Skills Initiative between education and training providers and industry.

     This complements the Australian government’s significant new Maitri scholarships and fellowships, giving Indian students and researchers the chance to experience Australia’s world class education system.

     Australians value highly the Indian Diaspora and student contributions to our community – whether economic, social, or cultural.

     Prime Minister Morrison announced dedicated Centre for Australia-India Relations to deepen that friendship between our communities.

     Australia and India are also working to ensure a peaceful and stable region.

     We are each committed to a free and open Indo-Pacific. We are advancing our cooperation all the way from the Indian Ocean to the Pacific Islands.

     Last month we announced initiatives to enhance Australia’s engagement in the Northeast Indian Ocean in Support of India’s natural leadership.

     In our defense relationship, we are enhancing information sharing and operational cooperation.

     Such arrangements also help us continue delivering quality humanitarian support to the region, seen recently when Indian helped Australia’s Pacific family, Tonga and Kiribati.

     Finally, Australia was saddened at the tragic loss of Chief of Defense Staff General Bipin Rawat last year. Our governments are recognizing his contributions by announcing an Australia-India Young Defense Officer Exchange Program named in his honour.

     These investments in our strategic, economic, and community ties show what we can achieve when two multicultural democracies join in a spirit of trust and understanding.

     Australia knows that in India we have a natural partner who will help build a region where every nation can prosper.

    I hope India sees a similar friend in Australia.

    We are closer than ever and our transformational commitments and collaborations will continue to bring us together. We are realizing the potential of our maitri and mateship.

 


THE HINDU EDITORIAL- MARCH, 24, 2022


 THE HINDU EDITORIAL- MARCH, 24, 2022

 

Freeze out

Routinely freezing fuel prices is an unfair and distortionary poll ploy

One Tuesday, after possibly the longest pause, of 137 days, in India’s retail fuel prices in recent years, oil marketing companies raised petrol and diesel prices by about 80 paise a litre, following up with a similar increase on Wednesday. A 50 rupees hike was also affected in domestic cooking gas prices. Fuel prices were last tweaked in November 2021, following the Deepavali-eve cut in petrol and diesel excise duties. The interregnum between then and now, coinciding with the five Assembly election battles, also witnessed the sharpest spike in global crude oil prices among recent instances of price freezes in India’s ‘deregulated’ petroleum products market. From around $73 a barrel on November 4, crude prices are now around $110 after shooting past $130, immediately after Russia’s invasion of Ukraine. Ordinarily, oil marketing companies reset retail prices daily, based on an average of the previous 15 days’ global prices for their preferred basket of crude. The Government has distanced itself from fuel pricing decisions, asserting there was no official directive to keep prices down. There is no evidence that oil firms had built up such large strategic reserves at earlier prices that they did not need to react to an over 50% cost surge for a commodity whose demand is met largely through imports. That price hikes, in small doses, have begun only after government formation in poll-bound States makes it abundantly clear that a nudge and a wink from the majority owner of the state-runoil players had goaded them into swallowing higher costs, compelling private players to follow suit to compete.

   Holding free market prices hostage to electoral politics, deployed ever so often in recent years, including the last time these five States went to the polls and the 2019 Lok Sabha campaign, is politically unfair, economically untenable and reflects an extremely cynical state machinery deployment tactic. That bulk diesel prices have been raised by 25 rupees per litre to 122 rupees indicates that several more hikes are in the offing to close the gap between costs and pump prices. Inflation, already above the comfort level, may rise further and the Government may intervene with more duty cuts at some point. But there are larger red flags to fret about. No sane global investor will bid for Bharat Petroleum Corporation Limited, for instance, if pricing freedom is effectively curtailed after an Election Commission of India (ECI) briefing. This practice warrants wider consternation, not only because it undermines a level-playing electoral field in favour of the ruling dispensation but also opens the door for more such creeping diktats or deviations from policy positions for temporary gains in voter perceptions. Just as mysterious fuel pricing decisions have become par for the course, other transient departures from stated policy can also become governance habits. While governments are obviously tempted to create optics of benevolence towards the common voter, the ECI needs to rise up to take a firm stand on reversals or deferrals of routine decisions in poll season.

 

Tired, and retired

As commerce sucks out the off-season from the sports calendar, there is more burnout

Athletes rarely retire in their prime, not when they are numero uno in the sport. Tennis star Ash Barty’s sudden announcement that she is quitting the game, at just 25, less than two months after she won the Australian open and extended her hold on the top ranking, has triggered shock waves within the tennis fraternity. For Australia, Barty was more than a tennis champion; she is also a symbol of inclusivity because of her indigenous ancestral roots. Aesthetics and grace defined her and tennis could not have asked for a better ambassador. But fatigue and a loss of motivation derailed her. Earlier, Naomi Osaka had spoken about dealing with depression and taken a break from the sport while still in great form. At the other end of the spectrum, the legendary Rafael Nadal seemed ready to fight off age and injuries. But, even his indomitable will must submit to the demands of his body, and he is now ruled out for four to six weeks following a rib injury. His great rival Roger Federer is keen to extend his career into his forties. But he will have to cope with the slow recovery from knee surgeries. The real surprise is when the athletes feel low on motivation even when they are in great shape physically, and in fine form with their game. In the early eighties, Bjorn Borg, like Barty, retired in his mid-twenties after tiring of the game mentally. Although Borg and Barty shocked the world with their retirement decisions, they are not the exceptions in the world of sports: Nadal and Federer are, as they push their body to extraordinary exertion.

   Sport can often juxtapose opposites, blending pulsating adrenaline with mind-numbing tiredness. Be it a triumph or a debilitating loss, it is played out in the open and it ushers in gargantuan expectations and immense pressure. Away from the limelight, the sportsperson has to deal with frenetic travel, cobwebs of the mind, sore limbs, and relentless scrutiny. The money and the perks may be good but a heavy price is often paid. With sport having become a commercial engine drawing top dollar, the athlete has to play all through the year. The off-season, when rest and recuperation could be indulged in, no longer exists. Barty’s retirement, which seems permanent unlike the break she took in 2014, may not be the last exit. Unless sports administrators show empathy, more sportspersons will seek an early closure. Borg attempted a feeble come-back in the nineties; whether Barty will return remains a matter of conjecture. For now, the shock is real, and tennis is poorer.

Global uncertainties, India’s growth prospects

Normalization of the economy has been disturbed and the growth objective would be served by apt fiscal policy moves

C. RANGARAJAN & D.K. SRIVASTAVA

On February 28, 2022, the National Statistical Office (NSO) released India’s GDP data for Q3 of 2021-22 along with Second Advance Estimates (SAE) for 2021-22. Post COVID-19, the normalization of the Indian economy has now been disturbed by the ongoing geopolitical uncertainties.

Growth performance

In the COVID-19 year of 2021-22, both real GDP and GVA contracted by minus 6.6% and minus 4.8%, respectively. The NSO’s SAE show that real GDP and GVA growth are estimated to recover to 8.9% and 8.3%, respectively, in 2021-22. Despite this improvement, the magnitude of real GDP at 147.7 lakh crore rupees in 2021-22 is only marginally higher than the corresponding level of 145.2 lakh crore rupees in 2019-20. The NSO’s GDP data highlights that in 2021-22, the nominal GDP growth at 19.4% is significantly higher than the real GDP growth due to an inordinately high implicit price deflator (IPD)-based inflation rate of 9.6%. Monetary policy authorities need to take note of this.

   The magnitudes of all demand components in 2021-22 have surpassed their corresponding levels in 2019-20. However, the growth of consumption and investment demand – as measured by private final consumption expenditure (PFCE) and gross fixed capital formation (GFCF) in 2021-22 over 2019-20 is only 1.2% and 2.6%, respectively, suggesting sluggish revival in domestic demand. On the output side, the 2021-22 magnitude of the trade, transport et.al sector, which has many contact-intensive segments, has remained below its corresponding level in 2019-20 by 2.9 lakh crore rupees. Growth in the construction sector in 2021-22 was at only 1.9% over 2019-20.

   On a quarterly basis, both GDP and GVA show normalizing growth with waning base effects. Real GDP growth moderated from 20.3% in Q1 to 5.4% in Q3 of 2021-22. Similarly, real GVA growth also fell from 18.4% to 4.7% over this period. The implied Q4 GDP and GVA growth rates are estimated to be even lower at 4.8% and 4.1%, respectively. Thus, without a base effect, quarterly growth performance appears to be averaging at less than 5%. Assuming some base effects to continue in the first two quarters, the annual growth in 2022-23 may not be more than 7%. Even this may not be realised due to the ongoing geopolitical conflict.

Crude upsurge impact

It is difficult to arrive at precise estimates of the impact of the increase in global crude prices, but some idea can be provided using the Reserve Bank of India (RBI)’s recent estimates (2021) of the growth and inflation effects of an increase of U.S.$10/bbl., ceteris paribus. The estimated impact is a reduction in real GDP growth by 27 basis points and an increase in CBI inflation by 40 basis points. This is based on using the baseline global crude price level of U.S.$75/bbl. For the full year of 2022-23, we may consider an average global crude price of U.S.$100/bbl. As a benchmark, although in the short run, it has already surged to U.S. $123.21/bbl. (average Brent crude price for the week ending March 7, 2022). An increase of U.S.$25/bbl. From the baseline price of U.S.$75/bbl. Would lead to an estimated reduction in growth of 0.7% points and an increase in inflation of nearly 1% point. With reference to baseline growth for 2022-23 at 7% and CPI inflation at 5%, the revised levels of these may be put at 6.3% and 6%, respectively, due to the impact of crude price upsurge by an assumed margin of U.S.$25/bbl. Through the year. The impact would be much larger if the margin of increase is enhanced. If the prices of other imported commodities also increase, the inflation impact will be higher.

Other challenges              

In regard to fiscal implications, reference may be made to the budgeted nominal GDP growth forecast for 2022-23 at 11.1%. Assuming a revised real growth component of 6.3% and an IPD-based inflation component of 6.5%, which may be slightly higher than the corresponding CPI inflation, we may have a revised nominal GDP growth close to 13.0%. Applying on this, a tax buoyancy of 1, the resultant Centre’s gross tax revenues (GTR) would be higher than the budgeted magnitude of 27.6 lakh crore rupees by a margin of about 3.2 lakh crore rupees. Alongside, there would also be increases in some components of expenditures linked to prices of petroleum products, including petroleum and fertilizer subside. The Government should attempt to keep the fiscal deficit at the budgeted level.

   Other economic challenges emanating from global uncertainties may include a worsening of the current account balance due to higher import bills with a depreciating rupee. A study by the RBI in 2019 had estimated an increase in the current account deficit (CAD) following a U.S.$10/bbl. Increase in global crude price, to be nearly 0.4% points of GDP. Thus, for an increase of U.S.$25/bbl. In global crude prices, the CAD may increase by 1% point of GDP. The RBI professional Forecasters Survey’s median estimate of CAD at 1.9% of GDP for 2022-23 may have to be revised upwards to 2.9%.

There would also be some sectoral supply-side bottlenecks and cost escalation. Sectors that draw heavily on petroleum products, such as fertilizers, iron and steel foundries, transportation, construction and coal, would be adversely affected. Due to the discontinuation of transactions through SWIFT, there would be some disruption in trade to and from Russia and Ukraine. However, the respective shares of imports and exports from these countries relative to India’s overall imports and exports are limited. There would also be some adverse effects with regard to financial flows. Net foreign portfolio investment (FPI) outflows during October to December 2021 increased to U.S. $6.3 billion. Net foreign direct investment (FDI) inflows have also been falling during this period although they have remained positive.

   Policymakers may have to exercise a critical choice regarding who bears the burden of higher prices of petroleum products in India among consumers and industrial users, oil marketing companies and the Government. If the oil marketing companies are not allowed to raise prices of petroleum products, the bill for oil sector-linked subsidies would go up. If the central and State governments reduce excuse duty and value-added tax (VAT) on petroleum products, their tax revenues would be adversely affected. If, on the other hand, the burden of higher prices is largely passed on to the consumers and industrial users, the already weak investment and private consumption would suffer further. If growth is to be revived, maximum attention should be paid to supporting consumption growth and reducing the cost of industrial inputs with a view to improving capacity utilization. The Government may have to strike an appropriate balance among these options.

    As developed countries are being forced to raise their interest rates and inflationary pressures continue to mount in India and abroad, the RBI may find it advisable to raise the policy rate with a view to stemming inflationary pressures and outward flow of the U.S. dollar even as the growth objective would be served by fiscal policy initiatives.

                                                              

Tracking the persistent growth of China

In the post-pandemic era, the country is positioning itself to cause an unprecedented change in industrialization

M. SURESH BABU

“When the wind of change blows, some build walls, while others build windmills.” In his speech during the plenary session on ‘The Global Impact of China’s Economic Transformation’, Li Keqiang, Premier of the People’s Republic of China lobbed this idea of facing volatile economic situations. He was speaking at the annual meeting of the World Economic Forum in Davos on January 21, 2015.

Evident in the numbers

Since then turbulent winds have blown in the form of trade wars and the COVID-19 crisis, and China has perhaps created more windmills. In 2020, when other economies were struggling to cope with the effects of the novel corona-virus pandemic, China’s manufacturing output was $3.854 trillion, registering an increase from the previous year. According to official data from China’s National Bureau of Statistics, China’s economy grew 8.1% in 2021, aided by growth in industrial production. The gross domestic product (GDP) growth in the fourth quarter was 4%, faster than the 3.6% forecast by a Reuter’s poll. Industrial production rose by 4.3% in December 2021 compared to 2020. Fixed asset investment for 2021 grew by 4.9% surpassing expectations of 4.8% growth. Investment in manufacturing grew by 13.5% in 2021 from a year ago, with that in special purpose machinery rising the most – up by 24.3% on a year-on-year basis. In 2021, overall retail sales grew by 12.5% from the prior year’s contraction, and also bettered the levels in 2019. China’s gross domestic product grew by 2.2% in 2020 from the previous year, according to media reports.

No ‘de-factorization’                

The discourse that emerged in 2021 was that a cocktail of COVID-19, geopolitical tensions and high tariffs would move factories away from the so-called ‘world’s factory’. There was expectation that the $4 trillion worth of manufacturing which is happening in China (which is more than the GDP of India), would get dispersed to new locations. The epicenter would shift to new settings and the scramble for a share in the manufacturing pie could result in the rise of the rest. Even a small share could yield benefits for other emerging economies as China accounts for about 30% of global manufacturing (equal to that of the United States, Japan and Germany put together). This could also open up new avenues for trade for them as China was the world’s biggest exporter in 2020-21, accounting for 13% of world exports and 18% of world market capitalization. While the rest of the world debated and waited for the next mega trend that was to come, ‘the de-factorization of China’, the Chinese economy seems to have recovered from a short-lived pandemic blip.

    When Chinese President Xi Jinping flagged the idea of ‘dual circulation’, two elements of the strategy were clear. First, there would be more reliance on ‘internal circulation’, which is the domestic cycle of production, distribution and consumption supported by innovation and upgrading in the economy. This was identified as the route for development. Second, the ‘external circulation’ intended to hasten the process of surplus accumulation would lose its primacy over time and only play a supplemental role. The centerpiece of this strategy was that China would continue its emphasis on industrialization and cut its dependence on global trade and markets. The two circuits are expected to complement each other.

It’s ‘advanced manufacturing’

Quite contrary to the conventional linear models of growth through industrialization was the significance of manufacturing fading overtime and services rising to predominance; China is stimulating overall growth by catalyzing the industrial sector, pursuing a radical shift in its approach. China is using its increasingly skilled labour force and strategic raw materials to enhance its already highly developed manufacturing capabilities. This is pushing industrialization toward ‘advanced manufacturing and higher levels of automation, which have been boosted by its world-beating adoption of artificial intelligence (AI). The effect of such a strategy is that Chinese manufacturing is moving toward a new kind of predominance in growing sectors that are less exposed to lower cost competition. These are the high-tech production sectors, which demand sophistication and reliability along with cost efficiency.

    As traditional Chinese industries confront rising labour costs due to demographic changes, a widespread application of AI has emerged as an alternative to reduce operational costs and enhance efficiency. The result is a slow but drastic transformation of China’s factories – from sweatshops to shop floors of the fourth Industrial Revolution through digitizing and automation. The recent economic recovery has been aided by a massive adoption of artificial intelligence. China has a significant lead over the rest of the world in AI patent applications and had overtaken the U.S. in 2014. It has also surpassed the U.S. in terms of the number of AI research publications and journal citations, according to a media report.

    The manufacturing sector in China is witnessing a wave of automation and AI infusion across sectors. During the pandemic there has been a surge in the use of a combination of software, hardware and robotics. Interestingly it is not just start-ups that are leading this; even established market leaders are also increasing the uptake of AI. For example, the Hangzhou-based EP Equipment, a nearly 30-year-old manufacturer of lithium-powered warehouse forklifts, has launched autonomous models that are able to manoeuvre themselves in factories and on warehouse floors. The Yutong Group, a leading bus manufacturer with over 50 years of experience, has come out with a driverless Mini Robobus on the streets of three cities, says a media report. The increased role of robots and AI in manufacturing is slowly spreading to design, delivery and even marketing. The net effect of it is that total costs would eventually be reduced to a small increment over the cost of materials.

    In the post-pandemic era, China is positioning itself in the forefront in manifesting an unprecedented change in industrialization. It might take years for the rest of the emerging economies to shift gears to move to such a phase of industrial production. As an early mover, ‘China is laying the groundwork for setting itself up to be a leader’. There seems to be a realization that not only how much an economy manufactures but also how adroitly it does it matters in the new era. It looks like the dividends are already evident in the GDP numbers.