Open to review of cattle slaughter notice: Harsh Vardhan
May 23 notification not “to influence food habits, or affect slaughtering business”, the Union Environment Minister says.
•The government on Sunday said it was open to suggestions from various groups on the May 23 cattle slaughter notification and was not viewing it as a prestige issue.
•Speaking to reporters here, Environment Minister Harsh Vardhan said the intention behind the notification was not to harm any particular group, influence food habits or affect the slaughter business.
•“Suggestions that have been submitted will be reviewed. It is not a prestige issue for the government,” the Minister told the media on the sidelines of a function to mark World Environment Day.
•Mr Vardhan was asked if these representations were being reviewed and if the government was open to considering alternative views.
•The row over cattle trade curbs sparked a nationwide controversy with protests in several States, including Tamil Nadu, Kerala and Karnataka. West Bengal Chief Minister Mamata Banerjee described the ban as unconstitutional and said her government would not accept it.
•On May 30, the Madras High Court had stayed for four weeks the enforcement of the contentious notification banning sale and purchase of cattle at animal markets for slaughter.
•The order had come on a petition challenging the bar as inimical to personal liberty, people’s rights to livelihood and an encroachment into matters that are within the domain of the States.
•Mr Vardhan said, “Rules under the Prevention of Cruelty to Animals Act, are not to influence food habits, or affect slaughtering business.”
•After announcement of the ban under the Prevention of Cruelty to Animals Act, the Environment Ministry has received several representations, asking the government to consider alternative views, he said.
•The decision is expected to hit exports and trade in meat and leather.
•The rules define cattle as a bovine animal including bulls, bullocks, cows, buffaloes, steers, heifers and calves and camels.
•Finance Minister Arun Jaitley had earlier said the ban had nothing to do with State laws on cow slaughter and concern only with the place of sale.
•Protests have been held in several parts of Tamil Nadu including Madurai, Coimbatore, Erode and Hosur. Several activists of a little known Tamil group were detained in Madurai where they had organised a beef-eating contest.
Quick reaction surface-to-air missile test-fired
Indigenous surface-to-air missile test-fired
•India on Sunday successfully test-fired an indigenously developed quick reaction surface-to-air short range missile from Chandipur along the Odisha coast. The missile, which has a strike range of 20 to 30 km, is capable of engaging multiple targets.PTI
Trump knows climate is changing: Haley
Envoy defends U.S. pullout of Paris pact
•U.S. envoy to the UN Nikki Haley has defended President Donald Trump’s controversial decision to withdraw from the landmark Paris accord but underlined that America was committed to curbing climate change.
•“Just because the U.S. got out of a club does not mean we are not going to care about the environment,” the Indian-American senior diplomat said on Saturday.
•Ms. Haley, 45, has defended Mr. Trump’s decision, saying he “knows climate is changing.”
•Mr. Trump “knows that it is changing and that the U.S. has to be responsible for it and that is what we are going to do,” Ms. Haley said, adding that withdrawing from the Paris agreement would not change the country’s commitment to curbing climate change, the CNN reported.
•“President Trump believes the climate is changing and he believes pollutants are part of the equation,” Ms. Haley said.
Blames Obama
•When asked why the U.S. pulled out of the climate agreement, Ms. Haley blamed former President Barack Obama for agreeing to regulations that were “too onerous,” too strict and ultimately unachievable.
•Ms. Haley said the regulations from the Paris agreement were disadvantaging the companies.
•“I knew that as a governor. The jobs were not attainable as long as we lived under those regulations. It was not possible to meet the goals had we attempted to,” she said. Ms. Haley’s comments are the closest acknowledgement by an administration official since Mr. Trump took office that the President believes global warming is occurring and humanity has a role in it.
The economy in the time of Narendra Modi
Three years since 2014, standard indicators show little sign of an economic transformation
•As the Bharatiya Janata Party reportedly prepares for “Modifests” to celebrate the completion of three years in power the citizen would be interested in knowing how their government has performed in respect of the economy. This because in his election campaign in 2014 Narendra Modi had chosen to highlight his ability to turn the economy for the better, notably to raise its growth rate. Once he became Prime Minister, he quickly presented his idea of how this could be done. Manufacturing was to be the key and “Make in India” the government’s programme to actualise it. Pressing ahead to produce in India can hardly be faulted as an objective, for in a market economy income generation depends upon making something. As for the focus on manufacturing, its relevance cannot be exaggerated. Indian agriculture is overcrowded. With shrinking farm size, the returns to this activity is set to shrink and only manufacturing can absorb the labour that will have to be transferred out of agriculture. Also manufactures are often easier to export than the services that India specialises in. So, “Make in India” is eminently sensible of itself. But how successful has this initiative been?
A slow starter?
•Turning to the evidence, we would find that far from taking Indian manufacturing to new heights, the performance since 2014 does not match what has been achieved in the last boom in India, which was obtained during 2003-08. During this period, for the first time in decades, manufacturing had led the growth acceleration in the economy. In most of these years, annual growth of manufacturing had exceeded 10%, which has not been matched since. Interestingly, the performance of this sector in the last three years is not superior even to that at the tail end of United Progressive Alliance (UPA) II. Clearly, “Make in India” is yet to fulfil its promise.
•Now, could it be that the programme has actually had a favourable impact but the fruits are yet to appear? This is possible, and would be the case if the programme has led to a surge in investment. But there is no evidence of this either. If we take a wider measure of investment — that for the economy as a whole — we see that capital formation as a share of total output has declined even more sharply since 2014 than it had been since the decline began in 2011. Private investment, seen as the bellwether of an economy, has not been forthcoming despite this government’s business-friendly orientation. As the decline in investment had commenced in 2011, the development itself cannot be laid at the present government’s door but it is unambiguously the case that it has not been able to reverse it. Part of the reason has to do with the fact that the focus of “Make in India”, such as the ease of doing business, has mostly been on the supply side. But there is demand to reckon with. Firms invest in anticipation of demand, and when they perceive slow growth of demand, they are likely to hold back.
Explaining slow growth
•It is clear that some part of the slow growth of demand in India is beyond the grasp of government due to the weather cycle. Two of the past three years have been years of very poor agricultural GDP growth, with the figure actually negative in 2014-15. But agriculture’s performance cuts both ways, serving also as windfall when it turns out to be buoyant. Thus, for 2016-17 the Central Statistics Office’s advance estimates indicate a more than three-fold increase in agricultural growth while industry and services register a reduction in theirs. Had agricultural growth not risen so dramatically, growth in 2016-17 would have slowed even more than it actually did. The government just got lucky.
•Whatever may have been the demand-constraining impact of slow agricultural growth in the first two years of this government’s tenure, the independent role of its macroeconomic policy is evident. At a time of declining private investment the prudent thing for a government to do is to raise public investment. This has not happened on anything like the scale necessary. Indeed, with regard to fiscal policy, the government had been guided by fiscal consolidation defined in terms of deficit reduction. Admittedly, in this the National Democratic Alliance-II has only taken forward a programme initiated by UPA-I. But the slowing of capital formation was not a feature then, and economic policy is meant to respond to a changing environment. In 2016-17, gross fixed capital formation in the economy turned negative. This worrying development requires addressing. But having tied itself down to a dogmatic policy stance, the government can do little. The centrepieces of this policy package are fiscal consolidation and inflation targeting. This combination leaves no room to address concerns of growth. The government’s response to suggestions that it respond to the situation is that it will not sidetrack fiscal consolidation. Actually, no one is asking it to! It is possible to adhere to fiscal deficit targets while expanding public capital. You do this by switching expenditure from consumption to investment.
Impact of demonetisation
•All this is from a macroeconomic point of view. To be fair to the government, we must acknowledge its other programmes. Admittedly there are several but it is demonetisation that it thinks of as its showpiece. Claims made have been the ending of corruption and tax evasion. So far we can only be certain that there was an immediate slowing of growth in the formal sector of the economy after November as reflected in the Index of Industrial Production. It is too early to establish what the impact will be on tax revenues but it is difficult to imagine that demonetisation will achieve more for revenues than the Goods and Services Tax. Interestingly, in his book The Curse of Cash , the guru of the “less cash” movement, Kenneth Rogoff, presents data that show countries with a relatively high cash-to-GDP ratio, such as Japan and Switzerland, having smaller underground economies than some such as the Scandinavian ones recording “far far” less cash. It may be noted that in Japan the said ratio is 50% higher than in India. No one thinks of Japan as backward. So, with demonetisation, has the government caused output loss without clear gains elsewhere in the economy? And if the argument was that large denomination notes abet corruption, it is difficult to comprehend the replacement of the Rs. 1,000 currency note with a Rs. 2,000 note, with its inconvenience. It is clear from this that politicians and economists do not employ daily-wage earners.
•Prime Minister Modi is not a man for the understatement. He had come promising a transformation of the economy. Three years later the standard indicators show no sign of his government bucking the trend. It may be seen in the latest “Economic Survey” that growth had began to rise and inflation fall before 2014. Since then the growth acceleration has tapered off, with the year just ended actually recording a slowdown. Finally, in what must come as an embarrassment of sorts considering the slogan of “minimum government”, among the most prominent drivers of growth in the past three years has been a record growth of government consumption expenditure. The stock market, however, exults! Apparently the punter holds something close to his chest.
Accounting for three good years
India now has a positive image and the NDA is delivering on its promise of clean, responsive governance
•By glossing over the positives in the three-year rule of the National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi, our political adversaries, especially the Congress party, are trying to project a false narrative.
•When the NDA took over the reins from the Congress-led United Progressive Alliance in 2014, it had to overcome all-round despondency after scam-ridden UPA rule. Now, there is an all-round, positive image for India and the NDA leadership has delivered on its promise of clean, responsive and transparent governance.
A global ‘bright spot’
•The economy which was almost in a shambles, is now estimated to grow at 7.5% this fiscal. India is being hailed as the “bright spot” by the International Monetary Fund and other international bodies amid global gloom.
•The Prime Minister believes that development would be incomplete without the poor benefiting from economic growth. With his stress on “reform, perform and transform”, people feel that he is the biggest transformer.
•The 7.5% growth projections for this fiscal clearly indicate that economic resilience is due to efficient management. Fiscal prudence has been the watchword of this government. The golden indicators of the economy show that fiscal deficit is under control; the current account deficit is down to 0.7% from 4% in 2014; inflation is at a low of 4% as against a high of 11% in 2014; foreign direct investment inflows have touched $62.3 billion, and India’s foreign exchange reserves have touched a new high of $379 billion for the week ended May 19.
•The introduction of the landmark GST regime from July 1 is set to improve the economy further. Another important reform is the abolition of the Foreign Investment Promotion Board.
•The Bankruptcy and Insolvency Code, which helps in the quick resolution of insolvency cases, is one of the government’s biggest reforms. As part of governance reforms, the share of States from the divisible pool of taxes has been increased to 42%.
•The other big reform has been the enactment of Real Estate (Regulation and Development) Act, 2016.
•On the foreign policy front, the Prime Minister’s pro-active engagement with world leaders has ensured widespread backing for India’s claim for UN Security Council membership.
•The Prime Minister has made it clear that “Gaon, Garib, Kisan, Mazdoor, Mahila, Yuva” form the core of the NDA’s people-centric policies and schemes have been formulated for their uplift. Agriculture has been accorded highest priority and the goal is to eventually double the income of farmers.
•Credit facility to agriculture has been increased to a whopping Rs. 10 lakh crore — this will go a long way in preventing farmers from falling prey to usurious money lenders.
•Another major pro-farmer scheme has been the Pradhan Mantri Fasal Bima Yojana, which covers all food grains and all risks in the crop cycle. With an outlay of Rs. 50,000 crore, the Pradhan Mantri Krishi Sinchayee Yojana seeks to provide water to every field (Har Khet ko Pani) in five years. The highest ever expenditure of Rs. 51,902 crore was made in 2016-17 under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
•There is also the Blue Revolution to ensure economic prosperity for fishermen and nutritional security where integrated development and management of fisheries, with an outlay of Rs. 3,000 crore, has been envisaged for five years.
•The NDA government had to rework tax agreements with some countries. The series of measures to unearth black money include constituting a Special Investigation Team to announcing the successful Income Declaration Scheme (IDS). With the Benami Transactions (Prohibition) Act, the government has blocked a key route to generate and hold black money.
•Finally, the game-changing invalidation of Rs. 500 and Rs. 1,000 notes has dealt a major blow to the twin menaces of black money and corruption, which became all too pervasive during the UPA regime.
•The entire amount of black money has come into the banking system through demonetisation and every rupee is being verified whether it is black or white. Post-demonetisation, 91 lakh people have been added to the income tax net. There has also been unprecedented growth in digital payments.
•This government has ushered in an infectious sense of honesty, accountability and transparency in the bureaucracy. The biggest example of this is the transparent auctioning of coal blocks and spectrum. Auctioning of 82 blocks over the life of the lease period would net Rs. 3.94 lakh crore. Compare this with the astronomical loss of Rs. 1,86,000 crore in the coal blocks allocations, as the Comptroller and Auditor General computed it, under the UPA dispensation.
•There has also been decisiveness in resolving the four-decade old One Rank One Pension for ex-servicemen and the long-pending Land Boundary Agreement with Bangladesh.
•I move back to welfare for the needy. Under Jan Dhan Yojana, a record 28.52 crore bank accounts were opened. Another 13 crore people have availed social security cover at nominal rates under Jan Suraksha. Capital of Rs. 3.17 lakh crore as collateral-free loans has been provided to 7.45 crore small entrepreneurs under the Micro Units Development & Refinance Agency Ltd (MUDRA) scheme.
•Other pro-poor initiatives include Atal Pension Yojana, Pradhan Mantri Suraksha Bima Yojana and Jan Suraksha Yojana benefiting 16 crore people.
•After the Prime Minister’s appeal, about 1.2 people have surrendered their LPG subsidy, which is being given to the poor under Ujjwala Yojana.
•As many as 224 schemes have been brought under the Direct Benefit Transfer platform and over Rs. 1.92 lakh crore transferred to 32 crore beneficiaries, resulting in a saving of Rs. 49,560 crore. Rural development, infrastructure and housing have been given a huge thrust through ‘Housing for All’; rural electrification (about 13,432 of 18,456 un-electrified villages have been electrified) and rural connectivity (1.20 lakh km of rural roads constructed in last three years) are others.
•Several schemes to empower women have been successfully implemented which include Beti Bachao, Beti Padhao (BBBP), Sukanya Samriddhi Yojana (over one crore accounts opened), Maternity Benefit (Amendment) Act ( increasing maternity leave to 26 weeks) and Pradhan Mantri Surakshit Matritva Abhiyan (safe pregnancy). After BBBP, there has been a remarkable improvement in the child sex ratio in Haryana — 950 girls to 1,000 boys.
•Another important reform-driven outcome has been the cancellation of 23 million fake ration cards following Aadhar-linked public distribution in the States. With the mass movement of Swachh Bharat, 40 million toilets have been built and 1,94,000 villages have become open defecation free.
Need for corrective action
Revised estimates show that demonetisation hurt, but a deepening investment slowdown remains the challenge
•India’s economic growth estimates lately seemed out of sync with the dampened feel-good sentiment in the economy. The GDP was growing at a world-beating rate, the stock market was booming, but little on the ground suggested that people were feeling better off. Consumption and investment behaviours suggested probably not. So when in February this year, the state statistical apparatus estimated that the impact on the economy of demonetisation was muted, doubts were cast on its credibility.
•Dissonance between the statistics and ground reports considerably reduced in the latest released batch of data into which the updated Index of Industrial Production was plugged in.
•The GDP data for the fiscal year 2016-17 present a sharp picture of the state of the economy. GDP growth has slowed for the first time in five years, in 2016-17, to 7.1%. The economic recovery that was gathering pace year after year abruptly lost speed last year. Corrective action should help the economy regain the lost momentum. Quarterly estimates show that demonetisation certainly hurt the economy, but growth impulses had started weakening six months earlier. A thorough understanding of the slowdown’s causes will be crucial to the choice of policy tools.
Demonetisation’s disruption
•Demonetisation’s damage is discernible in the last two quarters of 2016-17. It is more pronounced in the later one, when from January to March this year, coinciding with the peak cash crunch, gross value added (GVA) grew at its slowest pace in at least eight quarters. The loss of momentum is considerable. Growth slumped to 5.6%. Just four quarters earlier it was a robust 8.7%.
•Construction and manufacturing, crucial sources of jobs, have been most severely affected. The GVA growth received a boost from agriculture that benefited from last year’s good rains and Government spending, largely immune to demonetisation. The growth in the rest of the economy, minus this contribution, was barely 3.8%. In the same quarter a year ago, this was 10.7%.
•Given the extent of the disruption, a sharp, sustained reversal in GVA growth looks difficult. Projections of a quick bounce back seem optimistic. At the time demonetisation was announced, GVA growth had been on a downward slope. It had decelerated in the two quarters preceding demonetisation. The shock dragged it further in the next two quarters. From the peak of 8.7% in the January-March 2016 quarter, it lost momentum consistently, decelerating for four straight quarters.
Risks to the recovery
•In the boom years during the United Progressive Alliance government’s tenure, four engines had powered the economy. Of those, just two were still running before demonetisation: government investments and private consumption. The other two, exports and private investments, were, and remain, out of steam. Demonetisation briefly killed the third, private consumption. As the cash crunch eases, consumption will probably revive. But the risk to the recovery is from the credit crunch that demonetisation worsened.
•Credit growth plunged to a multi-decade low as banks were devoted to exchanging notes that ceased to be legal tender. This overburdened banks and took attention away from the pressing problem of bad loans, the impact of which is visible in the continuing slide in the gross fixed capital formation, a measure for investments. Decreasing for the fifth straight year, the share of gross fixed capital formation in GDP shrunk to 27.1% last year. It was 34.3% in 2011-12.
•Investments, the principle engine of growth, remain unresponsive to macroeconomic stimulus. The government stepped up its public investments, even deferring fiscal deficit targets, but the increase is more than offset by the fall in private investment. Liberalising foreign investment policies and improving the ease of doing business has not pulled the economy out of the investment slowdown.
•The message in the revised estimates relevant to policy decisions is that unresolved bad loans are restricting banks’ lending capacities, which is choking investments.
Investment slowdown
•The investment slowdown is neither a recent development nor has data captured it for the first time. The government has so far played a passive role, first by relying on banks, and now on the Reserve Bank of India, to tidy up the bad loans mess. Unless addressed on a war footing, the credit crunch could stall the economy’s recovery. The quicker the banking sector recovers its health, the speedier will be the pullback. The stress, if unattended, will limit the effectiveness of the monetary support of lower interest rates.
•Since the economy was on a smooth recovery path for the last four years, the slowdown should probably no longer be ascribed to the policy paralysis that characterised the dying years of Prime Minister Manmohan Singh’s government. The fresh bout of pain in the economy is to a great extent a fallout of decisions — both that were taken and those that should have been taken but were not — of Prime Minister Narendra Modi’s government.
Silencing the media is political suicide
Those in power should realise that an enabling environment for the media is beneficial both to them and the people
•There were two interesting reports in The Hindu last week that once again emphasised the need for an enabling environment for the news media to hold those in power to account. One was an in-depth investigative report in the Ground Zero section. “The Sasikala web: how a maze of shell companies link up to her, her family and friends” (May 27, 2017) looked at how late Chief Minister J. Jayalalithaa’s close friend and aide, Sasikala, and her family amassed wealth during the AIADMK rule.
A silent move
•The other was a scoop, “Confiscation of properties begins in disproportionate assets case against Jayalalithaa, 3 others” (May 30, 2017), that looked at how the government, in order to comply with the Supreme Court’s order that upheld the trial court’s verdict, was initiating the process in a silent manner. The ruling faction of the AIADMK is forced to do in a silent, discreet and sly manner something it is bound to do anyway. This is because its legally and morally correct action is in effect an indictment of the party and its former Chief Minister. Any transparent initiative in this matter would further undermine the rudderless party.
•The first story should have happened long before Jayalalithaa’s death. A variant of this should have been the lead investigative report during her first term as Chief Minister between 1991 and 1996. There should have been a follow-up series during the subsequent terms when she was in power — 2001-2006, 2011-2016, and May 2016 to December 2016. But, the story is out only now. This posthumous revelation is a pointer to understand how the media works, what the basic requirements are for its independent functioning, and what happens if a ruling dispensation can create a chilling atmosphere that muzzles the press.
•Today, the AIADMK is the third largest party in India in terms of Electoral College, which is computed on the basis of its strength in the Parliament and in the Legislative Assembly. The numbers, which once gave the party an enormous power, are not giving it any special comfort now. It is paying a huge price for its years of centralising tendencies, which did not permit a credible second-line leadership, coupled with a maze of moves to silence critics through defamation cases, physical threats and the use of legislative privileges which are not codified.
•Excess by the state machinery because the numbers are stacked in favour of the ruling dispensation is not new. Indira Gandhi pursued this path in the mid-1970s, Rajiv Gandhi was no different in the mid-1980s, and one can produce a list that illustrates the brazenness of various State governments at least from the late 1970s that cast a shadow on democratic practices.
•Those in power have to realise that their authority is not eternal and an enabling environment for the media to do its mandated work not only benefits the people but also helps them.
•When there is no fear of the state’s draconian intervention, journalists tend to bring out the mistakes at a very early stage. It is important for political parties to realise that a well-documented investigative report offers them a protective cover to effect a course correction and to minimise damage to their own reputation.
Defamation threats
•One of the questions I have faced is: why should the media succumb to the pressure from the government? It is extremely romantic to imagine every reporter to be a warrior. Journalists are as vulnerable as any other human being. Physical threats or threats to family members do send shivers down the spine of any brave reporter. The lower court usually issues a notice in the defamation cases filed by the government, without even examining its claims and contents. The onus on proving otherwise lies with the reporter and the news media organisation. The state machinery has a full-fledged legal arm, headed by a law officer, to handle these cases. However, for a journalist and a news media organisation, this process is extremely time consuming, expensive and a drain on the meagre resources.
•It is important for those in power to internalise the 448th couplet of Thirukkural, which in Gopalkrishna Gandhi’s translation reads: “The King whom no one checks, no minister corrects/ Does not have to wait for foes, himself he vivisects.” Silencing the media is an act of political suicide.
Mind the diversity
It’s inherent to our nation’s character and defiling it will be counterproductive
•Multiculturalism is part of the Indian society and any attempt to monochrome it will be self-defeating. It was on display recently in Kerala through two opposing developments — a ‘Modifest’ and many beef-eating festivals. One represented the illustration of a report card for development and the other the right to assert a personal choice.
•Humans are an interesting species whose history is defined by greed in gaining and maintaining control over resources and sustaining power. Cultural identity has been a central tool in this. A cultural identity is a phenomenon which, among other things, comprises choices by individuals and communities that define aspects like religion, ethnicity and personal habits. However, these identities have also been repeatedly used by the power elite to serve their own interests.
•Manipulation and politicisation of cultural symbols relating to these identities has resulted in chaos and destruction. The most glaring example relates to the debasement of the symbol of swastika — in its uncorrupted form a metaphor for the Sun representing time, good health, and positive energy.
•Across the world, markers of cultural identity have aided individuals and communities in comprehending their interests, and forming a perception of themselves and that of the ‘other’. They remain a device for empowerment and influence as much as they are potent seeds to generate conflict.
An organic phenomenon
•While in other countries such as Canada, multiculturalism is a recent phenomenon resulting from migration, in India it is organic and part of our DNA. Any kind of action to tamper with the idea of diversity will only result in conflicts and resistance, and will impede the country’s economic development, which characterises the aspiration of all Indians today.
•Handling cultural diversity is a complex process. Seeing and projecting the country as a unidimensional monolith may seem to be an easy way out but will be both fruitless and counterproductive, hindering our peaceful and sustainable development. Diversity is also existent in the very idea of free markets, especially in the mental make-up of the youth of the country whose aspirations and impatience to ‘acquire’ socio-economic upward mobility is defined by their sense of entitlement to have multiple choices in what they eat, wear and believe in. The ambition and expectations of Indians are heightened by the multiple choices available and accessed through information technology.
•The surge in confidence in individuals and communities in today’s India has resulted in a reinvention of identities and helped them express resistance to the emergent nationalism in innovative forms. Their expressions not just make us aware of the multicultural character of our country but also show that attempts to monochrome its composition will be a failure.
GST countdown
There is still no clarity whether the loose ends can be tied up in time for the July 1 deadline
•The Goods and Services Tax Council has finalised the rates at which tax will be levied for almost all products and services under the tax regime, just four weeks before the July 1 deadline for rollout. The decisions amount to a balancing act between competing demands. The Council has set the tax rate on gold, silver, diamonds and other jewellery at 3%, while uncut diamonds will attract a ‘notional’ duty of 0.25%; a credit can be claimed for exports of such diamonds after they are polished and cut in India’s gem clusters. Footwear and readymade textiles will have differential tax slabs based on sale price (with a concessional 5% for footwear below Rs. 500 and clothes below Rs. 1,000). But oddly, no such distinction has been made for mass consumption items such as glucose biscuits. Textiles, leather, diamonds and food processing already are, or have the potential to be, India’s biggest employment engines, and repercussions of tax structure anomalies can be felt hard and fast in a competitive global market. Though the low rates on gold and diamond can dampen smuggling opportunities, they introduce two more rates to an already complex GST structure of five rate slabs plus a variable cess on ‘sin’ goods. Taken together, with the exemptions for critical sectors such as real estate, electricity, petroleum and alcohol, GST in its current form is far from the ‘One Nation, One Tax’ it purports to be.
•Not surprisingly, fresh demands for differential tax treatment have begun already, including for bidis. States and sections of industry want a review of rates finalised earlier for products ranging from biogas, fertilizers and tractors to agarbathis, human hair and cashew. Actor Kamal Haasan has threatened to quit cinema as it has been included in the 28% ‘sin’ category, and States have backed the demand that regional cinema be treated differently. The Council is slated to meet again on June 11 to discuss these demands while taking a call on a few pending items such as lotteries, and finalise rules pertaining to accounting and e-way bills (to be generated to transport goods). An assurance of input credit on existing stocks with dealers and simpler rules for filing returns should help industry gear up for the transition. But in the absence of final accounting rules or clarity on the anti-profiteering framework, there is concern whether all the loose ends can be tied up this month. The government is sticking to the July 1 deadline despite reservations about the readiness of the administration and the GST Network that would have to manage billions of invoices. The Council must take a realistic and honest stock of ground realities at its next meeting. A sub-optimal GST design can be corrected over time, but a hasty beginning could prove costly.
European variation
With global politics in a flux, India must make a careful choice of coalitions it forges
•Prime Minister Narendra Modi’s visit to Germany, Spain, Russia and France brings into sharp focus the shared dilemma India and Europe face with America’s shifting policies, and the resultant flux on the world stage. Mr. Modi’s first stop in Germany came a day after Chancellor Angela Merkel’s strong comments aimed at President Donald Trump, that Europe could no longer ‘depend’ on traditional partners. Europe’s disappointment with Mr. Trump at the G-7 and NATO summits was three-fold: his refusal to reaffirm NATO’s Article 5 on ‘collective defence’; his warning on the trade deficit with Europe; and his expected decision to pull America out of commitments in the Paris Agreement on climate change. For the past few months India has faced a similar disappointment as the U.S. has forged closer ties with China, indicating what Mr. Modi called a loosening of the world order, while the U.S. has targeted Indian professionals and businesses to protect American jobs. Another blow came from Mr. Trump’s comments on the Paris Accord when he blamed India and China for what he called an unfair deal. Mr. Modi’s meetings with Ms. Merkel and subsequently Spanish Prime Minister Mariano Rajoy and French President Emmanuel Macron saw those issues raised one way or another, as they tried to explore new ways to cooperate on multilateral issues, including terror, trade and climate change. In particular, Mr. Modi’s assurance in Berlin that the suspended India-EU free trade talks for the Broadbased Trade and Investment Agreement would resume soon has raised the hope that progress will be made before the EU-India summit in Delhi this year.
•However, while the EU and India have a clear convergence in many areas, a dependable alliance can only come from a concurrent worldview. It cannot be ignored, for example, that Chinese Premier Li Keqiang’s visit to Berlin and Brussels, also last week, saw the EU repose much more faith in Beijing than New Delhi would be comfortable with, given the current Sino-Indian tensions. European leaders praised President Xi Jinping’s leadership on connectivity and climate change. Europe perceives its single largest threat to be from Moscow, not Beijing. Mr. Modi’s attendance at the St. Petersburg International Economic Forum to unveil a new India-Russia vision statement for the 21st century along with President Vladimir Putin could cause similar discomfort in European capitals. This divergent worldview may be further highlighted this week as Mr. Modi travels to Kazakhstan to formalise India’s membership of the Shanghai Cooperation Organisation, seen as a counter-NATO coalition of Russia, China and Central Asian states. Standing at a crossroads few had expected at this stage, India will have to consider its options carefully as it decides which coalitions to forge as the U.S. overturns traditional ties in favour of transactionalism. The Centre must undertake a full review of India’s priorities and interests before Mr. Modi heads to Washington for a meeting with Mr. Trump at the end of June.
Will RBI correct its inflation forecast?
Monetary policy review on June 7
•The Reserve Bank of India, which surprised the market by changing its stance from ‘accommodative’ to ‘neutral’ in February due to inflation concerns, may well be on a course correction in the second bi-monthly monetary policy review scheduled on June 7, as price increases have been lower than what the central bank had projected.
•In the last policy review in April, the central bank projected retail inflation to average 4.5% in the first half of 2017-18 and 5% in the second half.
Inflation falls
•However, as consumer price index-based inflation dropped below 3% in April (aided by food prices not rising as expected and with international crude oil prices staying benign), economists said inflation will trend far below the central bank’s projected trajectory.
•“We now expect CPI to stay below 3% until September (with a sub-1.5% also a possibility) before moving up, but staying below 4% until December,” Soumya Kanti Ghosh, chief economist of State Bank of India, said in a report. For FY18, CPI inflation average could be decisively below 4% with a downward bias, he said.
•The question is whether the RBI also agrees that inflation would be trending below the projected figures and would change its tone, if not stance, accordingly.
Neutral stance
•Technically, a neutral stance means there is a scope for further reduction of the repo rate — which is at 6.25% — but the central bank’s hawkish tone in the last two policy reviews made the yields on benchmark government bonds head north since the market interpreted interest rates have bottomed out.
•“While many believe that RBI’s change of stance from ‘accommodative’ to ‘neutral’ may have been hasty, we believe the central bank did have some ‘special reasons’,” said Pranjul Bhandari, Chief India Economist, HSBC in a note. “However, we also believe that it’s time the RBI adjusts its inflation forecasts to strengthen its credibility. We expect it to lower inflation forecast for FY18 at the June 7 meeting. We continue to expect the RBI to be on a prolonged pause but with risks of a 25 bps rate cut in August if certain conditions are met,” Ms. Bhandari said.
