📰 ‘States have equal duty to comply with SC judgment on Sec. 66A of IT Act’
In affidavit, Centre says police and public order are ‘State subjects’ under Constitution
•States and their agencies share an “equal responsibility” to ensure that people are not booked by the police under Section 66A of the Information Technology Act for expressing themselves freely on social media, the Centre submitted in an affidavit to the Supreme Court.
•Section 66A was declared unconstitutional by the Supreme Court in a judgment in 2015.
•On July 5 this year, a Bench led by Justice Rohinton F. Nariman said it was “distressing,” “shocking” and “terrible” that people are still booked and tried under Section 66A even six years after the apex court struck down the provision as unconstitutional and a violation of free speech.
•NGO People’s Union of Civil Liberties, represented by senior advocate Sanjay Parikh and advocate Aparna Bhat, had drawn the court’s attention to the violations.
•Justice Nariman had authored the judgment trashing Section 66A in a petition filed by law student Shreya Singhal, who highlighted cases of young people being arrested and charged under the ambiguous provision for their social media posts.
•In its response, the Centre said the police and public order were “State subjects” under the Constitution.
•“Prevention, detection, investigation and prosecution of crimes and capacity-building of the police are primarily the responsibility of the States,” the Centre submitted in the affidavit.
•It said law enforcement agencies share equal responsibility to comply with the apex court judgment. They take action against cyber crime offenders as per the law.
Disseminating knowledge
•The Centre said the Ministries of Information and Technology and Home Affairs had done their best to disseminate knowledge about the Supreme Court judgment in Shreya Singhal case.
•Section 66A had prescribed three years’ imprisonment if a social media message caused “annoyance” or was found “grossly offensive”.
•The Supreme Court had concluded the provision to be vague and worded arbitrarily.
•Justice Nariman had agreed with Mr. Parikh on July 7 that the “state of affairs is shocking”.
•Mr. Parikh had urged the court to intervene and work out a mechanism to disseminate the Shreya Singhal judgment to every police station and trial court in the country.
•“Section 66A of the IT Act has continued to be in use not only within police stations but also in cases before trial courts across India. This information was available on Zombie Tracker website, developed by a team of independent researchers... The findings of the website reveal that as on March 10, 2021, as many as 745 cases are still pending and active before district courts in 11 States, wherein the accused are being prosecuted for offences under Section 66A of the IT Act,” the PUCL has submitted.
•The NGO has urged the apex court to direct the government, through the National Crime Records Bureau or any other agency, to collect all the data/information regarding FIRs/investigations under Section 66A and pending cases in district and High Courts.
All scenarios including a collusive threat of a two-front war from China and Pakistan played out, says official
•As part of the process of evolving consensus among the three services on the reorganisation of the forces into integrated tri-service theatre commands and fine-tune the model, for the first time a table-top war-gaming exercise was held on July 22 in which all scenarios including a collusive threat of a two-front war from China and Pakistan were war-gamed, according to a defence official.
•“At the meeting held on July 22, for the first time ever a table-top exercise was war-gamed with operational settings which was played across all theatres simultaneously, multi-domain and cross theatre. This was large in extent from the Northern Command to the Andaman and Nicobar islands and catered to the collusive threat we expect from two of our neighbours,” the official said.
•This was played for a full day and was attended by around 40 officers including the Chief of Defence Staff (CDS) Gen. Bipin Rawat, three Service Chiefs, Vice Chiefs and Director General of Military Operations equivalent from the three services.
Frank and free wheeling exchange
•There was a frank and free wheeling exchange to evolve the best process on theatrisation and many of the concerns put forward by various sides over the creation of the commands were addressed including that of the Air Force, the official said.
•Explaining the consultations, the official said when Defence Minister Rajnath Singh was briefed in June, he had advised two things — to form a consultative committee to address the concerns of the stakeholders outside the services and hold consultations to resolve service issues one more time.
•The committee headed by the CDS, with the three Vice Chiefs and representatives from other Ministries concerned had met and resolved most of the issues related to the functions, rotational nature of all commanders, need for a unified maritime structure including the Coast Guard and having the para military in border commands, the official said.
•Broad consensus emerged on the need to take forward the theatrisation process expeditiously and the Air Force too is on board, the official said. “Various views were heard and would be taken on board. It was made aware that sufficient time would be given for the structures to be formed, reviewed and stabilised.”
•“The creation of integrated theatre commands West, East, Maritime Theatre Command (MTC) and Integrated Air Defence Command are accordingly being progressed,” officials said. As stated by Gen. Rawat earlier, the Northern Command would be left out of the ambit of the process for now and integrated at a later stage.
•Once in place, operational planning will be made at the integrated theatre commands, by the joint structures under the CoSC which will translate the Defence Minister’s operational directive into operational directives to be issued to the Theatre Commanders, the official said. “The Theatre Commanders will be the war fighters. They will design their own war plans.”
•Separate budget head needs to be created as new joint structures will have to be raised under the Integrated Defence Staff (IDS) since the Theatre Commanders will report to the Chiefs of Staff Committee (CoSC).
Misgivings clarified
•It is envisioned that post commencement of the process it would take up to one year to raise the commands and another year before they are operationalised. Various misgivings that the process was being rushed through were clarified and there was unanimity on the process of creating the theatre commands and the fact that the time for the transformation of armed forces has come, an official said.
•Commanders would be tasked with raising the various commands and Threatre Commanders are expected to be appointed a year later once the structures are in place.
•The final structures would be refined based on the recommendations of the commanders nominated to raise these commands. This would evolve adequate feedback from the field level for operationally effective structures, the official said.
•As reported by The Hindu earlier, the Prime Minister is expected to make an announcement on August 15 on the theatre command and the process initiated in couple of months.
•All other specialised agencies created, special operations, cyber and space, also need to be further strengthened and integrated into the theatrisation process which are also being looked at, the official said.
📰 Long overdue: On OBC reservation in All-India Quota medical seats
OBC reservation in All-India Quota medical seats puts an end to a discriminatory policy
•Reservation for students from Backward Classes in seats surrendered by States to an ‘All-India Quota’ (AIQ) in medical colleges run by State governments was long overdue. The Centre’s decision to extend its 27% reservation for ‘other backward classes’ to all seats under the AIQ is a belated, but welcome development, as Other Backward Class (OBC) candidates have been denied their due for years. And in concord with its keenness to balance OBC interests with those of the socially advanced sections, the Union government has also decided to provide 10% of the AIQ seats to those from the Economically Weaker Sections (EWS). This is almost entirely the outcome of a Madras High Court verdict and the efforts of the Dravida Munnetra Kazhagam, which approached the court with the demand. The AIQ is a category created by the Supreme Court to free up some seats from residential or domicile requirements in some States for admissions to their medical colleges. Introduced in 1986, the AIQ comprised 15% of undergraduate medical and dental seats and 50% of post-graduate seats surrendered by the States for admission through a central pool. There was no reservation in the AIQ, and, once in the past, the Supreme Court set aside a Madras High Court order directing the Centre to implement Scheduled Castes/Scheduled Tribes quota in the category.
•In 2007, the Supreme Court allowed 15% Scheduled Caste reservation and a 7.5% Scheduled Tribe quota under the AIQ. Meanwhile, based on a central law favouring Backward Class reservation in educational institutions, the Union’s 27% OBC quota was introduced in central educational institutions. There was no move to implement OBC reservation in the category. In the courts, the Medical Council of India argued against OBC reservation, but the Union government said it was not averse to the reservation, subject to an overall 50% limit. The omission of OBC reservation in the AIQ seats was obviously discriminatory. There were OBC seats in medical institutions run by the Centre, as well as State-specific quotas in those run by the States. It was incongruous that seats given up by the States to help the Centre redistribute medical education opportunities across the country were kept out of the ambit of affirmative action. There was even a case to argue that, as AIQ seats originally belonged to the States, the quota policy applicable to the respective States ought to be applied to them. The Madras High Court, in July 2020, held that there was no legal impediment to OBC reservation, but, given that the policy varied from State to State, it left it to the Centre to decide the modalities for quotas from this academic year. The Centre has now decided on the 27% OBC quota, but not before the High Court termed the delay in doing so “contumacious”.
📰 Pegasus, a blemish on democracy
The hour has come to oppose excessive oppression through serious political action
•Pegasus, the mythical winged horse from Greek mythology, is known to have allowed Bellerophon, the Corinthian hero, to ride him in order to defeat the monstrous Chimera before flying off to the heavens where he was turned by Zeus into an eponymous constellation. He has now returned to earth in the guise of a malware designed to fight terrorism, criminality and national insecurity. Though interpreted as an allegory of soul’s immortality in modern times, Pegasus becomes a symbol of poetic inspiration, only to be turned into a reprehensible cyber weapon in the hands of dictators and bigots with the purpose of putting down dissent and killing critical thought. The constellation still glows in the heavens, but no longer evokes the age-old mythical sensations for humanity.
Where science has brought us
•How science has aided in the inadvertent political game of demolishing basic human rights has finally fructified in the production of a technology that infiltrates human privacy right up to the bedrooms of its targets. When C.P. Snow walked into the Senate House at Cambridge in 1959 to deliver his Rede lecture, ‘The Two Cultures’, he sparked a global debate that would put a nail in the coffin of humanities, giving a boost to the study of science for the advancement of humanity. The two distinct cultures that emerged led to the confrontation between the technocrats and ‘literary intellectuals’. While the former stood in favour of social reform and progress through technology and industry, the latter, who Snow disparagingly called “natural Luddites”, had insignificant consideration for progress through industrialisation. We now know where science has finally brought us. The shadowing of our every move in a cyber-savvy world has resulted in escalating military and police repression. Mounting security concerns have been met with mounting technological responses. It is a world ridden with tensions between security and freedom, secrecy and transparency. Democratic structures along with fundamental liberties stand eroded in the face of unrestrained free market economics that exists only to direct every facet of life. This is a system of the Panopticon, an architectural edifice where the warden in a central tower can monitor the prisoners in their cells without the prisoners seeing the warden.
•The use of Pegasus, therefore, poses a stark danger to democracy and freedom, particularly in 10 governments believed to be the customers of NSO Group: Azerbaijan, Bahrain, Kazakhstan, Mexico, Morocco, Rwanda, Hungary, India and the UAE, all believed to have a dismal record in the protection of human rights. The obsession with power through surveillance has brought in its wake not just the blitzkrieg of information, but also given rise to political systems that aim at behaviour control, destroying the sanctity of the individual’s privacy and thereby threatening democracies with serious consequences. We are caught in a world where the harsh reality of power and its exercise takes predominance over the constitutionally guaranteed right of self-determination and freedom of expression. The central motive, however, remains political domination through the control of any dissent or ideological variance with the state.
•The security agencies of democracies and dictatorships are engaged in gathering the phone ‘data’ of citizens who show any signs of opposition, heaping it all away for any contingency that might arise in the future. Working against all norms of jurisprudence, the national security state remains ‘legitimately’ above board, blatantly pursuing acts of social control through surveillance on the basis of national security. The new metamorphosised role of Pegasus has finally become the terror of a devastating hacking scandal, a means of punishing people and threatening to drown the world of freedom.
•This is at the heart of the contemporary debate on the use of Pegasus, a battle between the totalitarian state and dissidence. In such circumstances, living in confrontation with the state apparatus is tantamount to being labelled as “anti-national”. There are many incarcerated without a trial for years. True to the concept of fascism, the interrogation of state policy becomes a betrayal in the Orwellian sense, where free thought and debate are an anathema.
•The utopia promised by the government of Oceania in George Orwell’s 1984 is an illustration of the logic of totalitarianism. Such an over-organised system represents the purging of history and free human thought for the smooth and peaceful running of the state apparatus. Criticism is not permitted by a management that has at its disposal highly developed surveillance technology, the ‘thought police’ that incarcerates or eliminates any ‘thought criminal’.
•As Hannah Arendt argues, the state ensures not just the transformation of the outside world but also the very dysfunctionality of the unpredictable nature of human creativity and its spontaneity. In Orwell’s novel, O’Brien, an agent of the thought police, owing complete allegiance to the Party, explains to Winston, the central character, the unending process of persecution that can appease the ruling class so as to give it an assurance of its immortality. The state manipulates the rebirth of Winston, turning his rebellious old self into a faceless believer. Similarly, in his classic, Brave New World, Aldous Huxley envisages material progress all right, but with enormous dangers to human creativity. In such a world, no prodigies or rebels can be born. It is a world of the “hatchery” in which “hobbits” are “manufactured” at various stages of arrested physical and mental development whose strength lies only in falling into line.
•The Pegasus upheaval finds a parallel in Orwell’s ‘Big Brother’ symbolising the modern state and its authoritarian apparatus. Governments have lied about intelligence operations, illegally spied on millions of innocent people, and collected data from every conceivable electronic source to be potentially used to censor dissent, blackmail people or just intimidate those who struggle to make corporate and state power accountable. The post-Snowden years have seen new technologies like Pegasus enhancing surveillance to the point of exposing us to the danger of losing our very grip over our day-to-day private affairs.
Expansive interrogation
•The ills of the modern state emerging from the culture of secrecy is therefore apparent. There would probably be a world of feasible peace and openness if there were no classified documents. One thing has become clear after the revelation of many governments illegitimately engaging in spying on their citizens: the hour has come to oppose all such excessive oppression through serious political action. Like Edward Snowden, we all live online and indeed, there really is no place to hide. However, the future is not foreclosed, and as long as there is critical inquiry, there is hope. As Howard Zinn, the historian, once said: “We are supposed to be thinking people. We are supposed to be able to question everything.”
•A more expansive interrogation of the treachery inherent in the return of the Pegasus affair and its fallout for rights activists, investigative journalists and writers calls for a serious probe. Or else, the gradual diminishing of our individual right to free speech and the dismantling of democratic institutions would culminate in the return of Orwell’s Oceania.
📰 The benefits of breastfeeding
The promotion of breastfeeding should be a continuous process, not an event restricted to a week
•UNICEF states that “breastfeeding is among the most effective ways to protect maternal and child health and promote healthy growth and optimal development in early childhood.” Infants should be breastfed within one hour of birth, breastfed exclusively for the first six months of their lives, and be breastfed after six months in combination with solid, semi-solid and soft food until they are about two years old.
Many advantages
•Breastfeeding provides greater immunity for children against infection, allergies, cancers and obesity; and improves brain maturation. It is also beneficial for the mother: it promotes faster weight loss after birth, reduces postpartum bleeding, and protects her against breast cancer, ovarian cancer, and osteoporosis. Data from The Lancet show that more investment in breastfeeding could add $300 billion to the global economy and prevent about 8,20,000 child deaths every year.
•The advantages of breast milk are evidence-based, yet globally only 25%-40% of babies are breastfed. Breastfeeding and later wet nursing were the norm for millions of years. During the Renaissance period, breastfeeding came to be seen as unfashionable. Feeding bottles and formula milk were aggressively advertised leading to a reduction in breastfeeding between the 17th and 19th century. However, during the late 19th century, an increase in infant mortality rate and rise in noncommunicable diseases during adulthood were attributed to bottle feeding. This prompted experts and leaders everywhere to push for breastfeeding across the world.
•The World Alliance for Breastfeeding Action (WABA) was established in 1991 to create awareness about the importance of breastfeeding. In 1992, WABA in coordination with UNICEF introduced World Breastfeeding Week during the first week of August every year. India enacted the Infant Milk Substitutes, Feeding Bottles and Infant Foods Act in 1992 with stringent regulations. However, the National Family Health Survey-5 data show that there has been a decline in early breastfeeding in as many as 12 of the 22 surveyed States and Union Territories while the share of institutional births has increased.
Maternity and paternity leave
•The Dravida Munnetra Kazhagam (DMK) has promised in its manifesto that maternity leave in Tamil Nadu would be extended to 12 months. This is essential as women are entering the workforce in large numbers while society has shifted to a nuclear family system. Such a move will ensure uninterrupted breastfeeding. Nevertheless, counselling and educating the parents, establishing breast milk banks, providing lactating mothers with subsidised breast milk pump equipment, and setting up exclusive facilities to breastfeed will prove to be beneficial for mothers to provide exclusive breastmilk for children up to six months.
•The inclusion of husbands in this conversation is incumbent. Both the mother and newborn are vulnerable for the first 12 weeks. Getting used to breastfeeding takes at least 14 days. Therefore, assistance from the partner is indispensable during this time. However, Indian law only allows for 15 days of paternity leave. It is imperative to extend this to 12-16 weeks.
•India is a low-middle-income country with a meagre allocation of the GDP towards health. Communicable and non-communicable diseases hamper our economic growth. The theme for World Breastfeeding Week this year is ‘Protect Breastfeeding: A Shared Responsibility’. With a change in social, cultural and environmental factors, breastfeeding is no longer mother-centric. Governments must allocate specific funds, rigorously implement the law, invest in educating parents and health workers and involve civil society organisations and the media in spreading awareness. Breastfeeding has decreased during the COVID-19 pandemic. Therefore, it is important that the promotion of breastfeeding should be a continuous process, not an event restricted to a week.
📰 The draw of space and nuclear technologies
It remains to be seen whether the new ventures of Jeff Bezos and Bill Gates will strike a chord and benefit mankind
•Even as billionaire Jeff Bezos was preparing to blast off into space last month, another billionaire, Bill Gates, took an equally momentous decision to launch his own nuclear reactor with an eye on the possibility of exporting fast breeder reactors to power hungry nations. Both of them characterised their initiatives as essentially aimed at the environment to reverse climate change. Answering criticism on his expensive and wasteful adventure, Bezos insisted that he had an environmental vision: “We need to take all heavy industry, all polluting industry and move it into space, and keep Earth as this beautiful gem of a planet that it is,” he said. Mr. Gates stressed the importance of nuclear power as the clean energy required to meet the requirements of the world, even though the safety of nuclear reactors and the risk of proliferation of nuclear weapons are a growing concern.
The future of atomic energy
•Back in 2007-08, the then Director General of the International Atomic Energy Agency (IAEA), Mohamed ElBaradei, had established a Committee of Eminent Persons to look at the future of nuclear power in 2020 and beyond. As an Executive Director of the Commission, I had helped to produce a report, which asserted that “the international community has both auspicious opportunities and significant challenges to tackle as the world moves into its seventh nuclear decade. Expanded use of nuclear technologies offered immense potential to meet important development needs. In fact, to satisfy energy demands and to mitigate the threat of climate change — two of the 21st century’s greatest challenges — there are major opportunities for expansion of nuclear energy”. The report predicted that a “nuclear renaissance” will solve not only the world’s energy problems, but also alleviate climate change.
Fukushima and after
•But the expectation was short-lived because the Fukushima Daiichi accident in Japan on March 11, 2011 completely transformed the nuclear power situation beyond recognition and dealt a blow to plans for swiftly scaling up nuclear power to address not only climate change but also energy poverty and economic development. An IAEA article, Nuclear power 10 years after Fukushima: the long road back, says, as the global community turned its attention to strengthening nuclear safety, several countries opted to phase out nuclear power. The nuclear industry was at a standstill except in Russia, China and India. Even in India, the expected installation of imported reactors did not materialise because of our liability law and the anti-nuclear protests in proposed locations. India had to go in for more indigenous reactors to increase the nuclear component of its energy mix. More than 50 nations, which were knocking at the door of the IAEA for nuclear energy for peaceful purposes, quietly withdrew their requests.
•After intensive efforts to strengthen nuclear safety, as said in this article, and with global warming becoming ever more apparent, nuclear power is regaining a place in global debates as a climate-friendly energy option once again. Countries such as Japan and Germany reopened their reactors to produce energy. But even as organisations such as the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA) recognise the ability of nuclear power to address major global challenges, it remains uncertain whether the value of this clean, reliable and sustainable source of energy will achieve its full potential any time soon.
•The Fukushima Daiichi accident, adds the article, continues to cast a shadow over the prospects of nuclear power. Furthermore, in some major markets, nuclear power lacks a favourable policy and financing framework that recognise its contributions to climate change mitigation and sustainable development. Without such a framework, nuclear power will struggle to deliver on its full potential, even as the world remains as dependent on fossil fuels as it was three decades ago.
The Gates plan
•Even when the uncertainty continues and the anti-nuclear lobby is gaining momentum, TerraPower, the nuclear company founded by Mr. Gates, has just announced an agreement with private funders, including Warren Buffett, and the State of Wyoming, U.S. to site its Natrium fast reactor demonstration project there. Moreover, since it falls within the “advanced” small modular reactor project of the U.S. Department of Energy (DOE), the Department will subsidise the project of one of the richest men in the world to the extent of $80 million this year.
•As an article by the non-proliferation sentinels in the U.S, Henry Sokolski and Victor Gilinsky, titled Bill Gates’ Fast Nuclear Reactor: Will It Bomb? says, Mr. Gates believes that the fast breeder reactors will replace the current reactors. The DOE and other nuclear enthusiasts also believe that small, factory-built, modular reactors will be cheaper and safer, and will be so attractive to foreign buyers that they will revive America’s nuclear industry and enable the United States to compete in an international market now dominated by China and Russia. Another benefit envisaged is that fast breeder reactors will provide a solid nuclear industrial base for meeting U.S. military nuclear requirements. DOE has found bipartisan Congressional support for funding the project.
•Mr. Sokolski and Mr. Gilinsky have challenged the move on several grounds such as the failure of earlier efforts to develop such reactors, and the risk of the turning of inert uranium to plutonium, and then using the plutonium as fuel. They have argued in their article that it can even “breed” excess plutonium to fuel new fast reactors. What concerns them most is that plutonium is a nuclear explosive which can be used for developing a bomb. They are afraid that the availability of plutonium through commercial channels would be fraught with dangers.
•As their article says, TerraPower announced in March that Natrium would be fuelled with uranium enriched to 20% U-235 rather than explosive plutonium. But the question being asked is if Natrium reactor takes off and is offered for export, will the same restraint apply. Currently, only a handful of nations can make 20% enriched uranium. The critics believe that there will be a rush to make 20% enriched uranium world wide. The main objection to nuclear enrichment beyond a point in Iran arises from the fact that it would lead to weapon grade uranium being available for them.
•The other objection being raised against the Gates project, as cited in the article, is that the principal reason for preferring fast reactors is to gain the ability to breed plutonium. That is surely what foreign customers will want. The way it is configured, the reactor would make and reuse massive quantities of material that could also be used as nuclear explosives in warheads.
Focus on India and China
•India’s fast breeder reactor, which is not subject to international inspections, is seen as capable of feeding the nuclear weapons capability of India. And the recent reports that China is building two more fast reactors have immediately provoked international concerns about China’s possible weapons plutonium production. The opponents of TerraPower believe that India and China will be encouraged in their efforts to develop fast breeder reactors and may even want to buy them from Mr. Gates. They also think that the characterisation of TerraPower as small is a gimmick and they will have to be made big to make them economical. The claim that fast reactors are safer than light water reactors has also been called into question.
•It has been pointed out that U.S. Presidents Gerald Ford and Jimmy Carter made it U.S. policy to discourage the commercialising of plutonium-fuelled reactors. President Ford had announced that the U.S. would not support reliance on plutonium fuel and associated reprocessing of spent fuel until “the world community can effectively overcome the associated risks of proliferation.”. The critics do not think that the world has reached such a stage.
•No one can predict whether the space adventure of Mr. Bezos or the nuclear venture of Mr. Gates will benefit the U.S. and the wider world. But billionaires have the sixth sense to know how to multiply their own billions.
📰 A cycle of low growth, higher inflation
Unless policy action ensures higher demand and growth, India will continue on the path of a K-shaped recovery
•In recent times, right-leaning economists have been arguing that the Government does not need to do anything with the economy and that it will revive by itself. They call those who disagree with them, doomsday merchants. These economists reason that, like after the Great Depression, the economy rebounded worldwide, and so will it with us. The argument is fallacious on four accounts:
•The first factor, demand. In the case of the Great Depression, demand was created by the Second World War effort. Especially in the United States, which was largely spared of the destruction, its industrial capabilities could be used as a supply base for the entire Allied effort. In the current scenario, there is no war to create demand. On top of it, the COVID-19 pandemic has resulted in demand destruction. This is because many jobs have been lost, and even where jobs were retained, there have been pay cuts. Both of these trends were confirmed in the Centre for Monitoring Indian Economy and other surveys. The only bright spot in this dismal scenario is that the western world has spent a lot of money stimulating the economy. From the point of view of the Indian exporter, rising freight costs and non-availability of containers is a significant impediment along with structural issues such as a strong rupee relative to major competitors. Only the Indian IT sector is placed well to capitalise on rising demand in the world markets.
•Next is inflation. India is suffering from stagnant growth to low growth in the last two quarters. At best, any growth in the current quarter will be illusionary because it comes on top of substantial negative growth in the first quarter of last year, perpetuating a statistical phenomenon known as the “low base effect”. The base effect states that when measuring YoY, or year-over-year growth, we take the previous year’s numbers as the base and measure the growth as a percentage. As in the low initial base set by last year, almost any growth this year is seen as a significant growth percentage. In comparison, the absolute growth figure is negligible. This scenario is eerily similar to the early 1970s in the United Kingdom and the United States, where low growth was combined with rising inflation.
Causes in India
•Inflation in India is being imported through a combination of high commodity prices and high asset price inflation caused by ultra-loose monetary policy followed across the globe. Foreign portfolio investors have directed a portion of the liquidity towards our markets. Compared to a developed capital market such as that of the U.S., India has a relatively low market capitalisation. It, therefore, cannot absorb the enormous capital inflow without asset prices inflating. This might be seen as a welcome move, but it is to be noted that most of India’s population do not own equity or bonds, which means that they cannot cash in on asset inflation. The wealthy upper class gets richer due to access to financial assets. The middle and lower-middle-class get destitute due to regressive indirect taxes and high inflation, with their wealth eroding due to said inflation. Especially in the case of the lower middle class, inflation is lethal as they do not have access to any hard assets, including the most fundamental hard asset, gold.
Fuel prices
•Additionally, supply chain bottlenecks have contributed to the inflation we see in India today. Essential goods have increased in cost due to scarce supply because of these bottlenecks caused by COVID-19 and its reactionary measures enforced. India’s usurious taxation policy on fuel has made things worse. Rising fuel prices percolate into the economy by increasing costs for transport. Furthermore, the increase in fuel prices will also lead to a rise in wages demanded as the monthly expense of the general public increases. This leads to the dangerous cycle of inflation and depleting growth.
•The Reserve Bank of India (RBI) has chosen to look the other way, claiming that this inflation is transitory in nature while inflationary expenses are entrenched. Inflation is here to stay because the RBI is infusing massive liquidity into the system by following an expansionary monetary policy through the G-SAP, or Government Securities Acquisition Programme. This is designed to keep the interest rates of government bonds at 6.0% and thereabouts. An added threat of rising rates is the crowding out of the private sector, which corporates are threatening to do by deleveraging their balance sheets and not investing.
•The third is interest rates. The only solution for any central banker once he realises that inflation is entrenched is tightening liquidity and further pushing the cost of money. If this does not dampen inflation, repo rates will need to go up later this year or early next year. Tightening the money supply is a painful act that will threaten to decimate what is left of our economy. Rising interest rates lead to a decrease in aggregate demand in a country, which affects the GDP. There is less spending by consumers and investments by corporates.
On NPAs
•Finally, rising non performing assets, or NPAs. Rising interest rates, lack of liquidity, and offering credit to leveraged companies instead of direct subsidies to support small and medium-sized enterprises (SMEs) and micro, small and medium enterprises (MSMEs) to counter the COVID-19 pandemic and its effects will result in NPAs of public sector banks climbing faster. Our small and medium scale sector is facing a Minsky moment. The Minsky moment, coined by the economist Hyman Minsky, states that every credit cycle has three distinct stages. The first stage is that of cautious lending and risk aversion by the bankers. The second stage is lending to trustworthy debtors who can pay the principal and its interest. The third stage is a state of euphoria caused by rising asset prices where bankers lend to debtors regardless of their ability to pay back interest, let alone the principal.
Minsky moment
•The Minsky moment marks the decline of asset prices, causing mass panic and the inability of debtors to pay their interest and principal. India has reached its Minsky moment. This means that the public sector unit and several other banks will need capital in copious amounts to make up for bad debt. Several banks and financial institutions have collapsed in the last 18 months in India. The Union government’s Budget is in no position to infuse large amounts of capital. At best, we can expect a piecemeal effort as in the past seven years. As a result of the above causes, credit growth is at a multi-year low of 5.6%. Banks do not want to risk any more loans on their books. This will further dampen demand for real estate and automobiles once the pent-up demand is over. The Indian economy is in a vicious cycle of low growth and higher inflation unless policy action ensures higher demand and growth. In the absence of policy interventions, India will continue on the path of a K-shaped recovery where large corporates with low debt will prosper at the cost of small and medium sectors. This means lower employment as most of the jobs are created by the latter.
