Topic 1 : Calling China’s bluff
Introduction: The Chinese tamasha of releasing “standardised” geographical names in “Zangnan”, their name for Arunachal Pradesh, started with the renaming of six places in 2017. Then they added 15 places in 2021 and another 11 in 2023. In 2024, the list included 30 new places, among which were 11 residential areas, 12 mountains, four rivers, one lake, one mountain pass and even a piece of land.
India’s response to China’s latest provocation
- The Indian External Affairs Ministry did the right thing by dismissing the renaming tamasha.
- “China has persisted with its senseless attempts to rename places in the Indian state of Arunachal Pradesh. We firmly reject such attempts,” External Affairs Ministry spokesperson Randhir Jaiswal said.
China’s ‘invented’ historical claims
- There is a method in this madness of China, a civilisational nation with an “invented” historical memory.
- Its claims are for the long term. For example, the historical figure Zheng He was invoked in a novel in the early 1900s.
- A century later, this novel is a reference point in Chinese plans to explore the routes and destinations of his voyages with the aim of making historical claims to them.
- It sent so-called research ships to the Sri Lankan coast recently, claiming that Zheng had visited that country in the 15th century.
- In the case of Arunachal Pradesh too, the Chinese leadership had once claimed that graves of their people’s ancestors were in that state and that the descendants should have the right to worship them.
- Such claims sound senseless and invented today. But that is China’s way of using history as a weapon for expansion.
India’s firm stand
1. Expanding the theatres of engagement: the QUAD
- India has traditionally avoided expanding theatres of engagement.
- To the chagrin of its friends in the QUAD, Delhi steadfastly refused to commit itself to a role in any potential conflict in the Western Pacific.
2. Signalling from Manila
- To tackle China, we must understand its civilisational character and know how to hit back where it hurts the most.
- That is precisely what External Affairs Minister S Jaishankar did during his visit to the Philippines in the last week of March.
- However, in the Philippines, Jaishankar made an important departure from that position by telling the hosts that India would stand by them.
- The Philippine News Agency also reported that Jaishankar assured President Ferdinand Marcos Jr that India is “very resolute” in its position on the South China Sea disputes and acknowledges the validity of the 2016 Hague-based Permanent Court of Arbitration’s ruling, which invalidates China’s claim on the Philippines’ waters.
- He is also reported to have expressed his willingness to become a “charter member” of the Philippines, as far as efforts against China’s aggression in the South China Sea are concerned.
- He said India was ready to help the Philippines, “whatever consequences they may be confronted with”.
- This is a bold move from the Indian leadership.
- India has always been an abiding signatory to the UNCLOS regime, even when rulings have gone against its own positions.
- However, an explicit statement calling on China to adhere to the tribunal’s 2016 ruling came for the first-time last year when Enrique Manalo, the Foreign Minister of the Philippines visited New Delhi for a bilateral dialogue.
- While reciprocating the visit last week, Jaishankar not only reiterated that statement but also demonstrated India’s arrival on the global stage by indicating its readiness to get involved in a conflict far from its neighbourhood.
A predictable response — and futile threats
- India’s firm stand had a predictable response from China.
- “Jaishankar’s visit is not purely for diplomatic purposes”, Global Times wrote, alleging that “(India’s) motivation was to draw countries that have conflicts with China, especially over territorial sovereignty disputes” closer to itself.
- The Chinese mouthpiece said that India’s hope was that “the Philippines will engage in a long-term entanglement with China in the South China Sea, depleting China’s strategic resources, tarnishing China’s image in the international community, and diverting China’s attention in India-related issues.”
- That Jaishankar’s statement has had the desired effect can be gauged from the futile threats issued by Chinese spokesmen, that “India’s involvement in the South China Sea will also have a significant negative impact on China-India relations, forcing China to be vigilant against the Indian government’s potential intention to stir up more trouble”.
- India is a responsible nation, not a warmonger. Its leadership wants to play a “responsible and influential” role in global affairs.
Recent phone call between President Biden and Xi
- In his recent phone call with US President Joe Biden, Chinese President Xi Jinping enumerated three principles for good relations between China and the US.
- First, peace must be valued.
- Second, stability must be prioritised.
- Third, credibility must be upheld.
- India wants the same from the Chinese leadership in its engagement with itself and other countries.
- India wants all nations, including China, to adhere to a rules-based international order.
- That was Jaishankar’s core message from Manila.
Conclusion: On his recent visit to the Philippines, External Affairs Minister S Jaishankar took a firm stand against China’s aggression towards neighbours. The response from Beijing was predictable. India signalled to Beijing that it must follow the international laws, which it preaches others to follow.
Topic 2 : Waiting for summer
Introduction: The Reserve Bank of India’s (RBI) non-action on April 5 was par for the course. With growth stronger than expected and inflation above target, the market widely expected the RBI to stay put on the rate action as well as its stance. Therefore, the policy announcement was unsurprising.
The macro-economic statistics of the Indian economy
- The second advance gross domestic product (GDP) estimate released in February had shown the economy ticked at over 8 per cent in the first three quarters, lifting the fiscal’s growth to 7.6 per cent.
- High-frequency data shows the momentum has continued into the fourth quarter.
- The composite Purchasing Managers’ Index (PMI) for March at 61.8 was in a very strong expansion zone.
- Direct and indirect tax collections have exceeded targets with the solid performance continuing in March.
- This highlights the resilience of non-farm sectors, particularly construction, manufacturing and financial services.
- Agricultural growth, though, was an anaemic 0.7 per cent in 2023-24.
- Viewed from the expenditure side, GDP growth has been largely investment-driven with private consumption growth trailing GDP.
- That said, private consumption, vital for balanced and sustainable growth, will remain a key monitorable.
- CRISIL expects India’s GDP growth to moderate to 6.8 per cent in the current year.
- The transmission of the RBI-effected rate hikes between May 2022 and February 2023 is underway and is likely to modestly weigh on demand in 2024-25.
- Regulatory actions to tame unsecured lending will also have a bearing on credit growth.
- Additionally, a lower fiscal deficit will mean a lower fiscal push to growth.
The last leg of disinflation difficult
- Despite the expectation that growth and inflation would moderate in 2024-45, the RBI has been wary of declaring an early victory.
- Mint Road retained its February forecast of 7 per cent GDP growth in 2024-25, marginally higher than CRISIL’s expectation.
- Inflation is projected to drop to 4.5 per cent assuming a spell of normal monsoon and range-bound crude oil prices.
- The India Meteorological Department believes that the El Niño’s impact will fade away by the second half of the year and La Niña conditions, associated with abundant rains, would set in.
- This will help cool food prices, which has been the key worry.
- Food inflation has averaged 7.4 per cent in the first 11 months of this year, whereas non-food inflation was only 4.1 per cent.
- The latest print for February showed food and non-food inflation were at 8.7 per cent and 2.9 per cent respectively.
- Core inflation, computed after removing food and fuel from the headline inflation, was at a benign 52-week low of 3.4 per cent.
- Within food, foodgrain inflation softened somewhat, but vegetables inflation has stayed high and volatile, flaring up to 30.2 per cent in February from 27.1 per cent in January.
The persistence of food inflation is a concern for RBI
- The RBI can generally look through vegetable inflation since it is volatile.
- Moreover, vegetables have short crop cycles and their prices correct fairly quickly.
- However, vegetable price shocks have been quite persistent this time around, keeping inflation in this category high.
- The bigger worry has been foodgrain inflation which, despite softening, was still at a high of 9.8 per cent in February.
- While central bank policy moves cannot bring down supply shock-driven food inflation, it certainly can prevent high prices from travelling to non-food inflation.
- This is especially so when growth is high and food inflation persistent, as in India.
Inflation hurts the poor more
- Another worry stemming from food inflation is that it hurts the lower income deciles more than the upper ones.
- In February, the bottom 20 per cent of the urban population faced 5.5 per cent inflation compared with 4.7 per cent faced by the top 20 per cent since food has a higher weight in their consumption basket.
- The pattern in rural areas was similar. This should correct with expected softening of food inflation in 2024-25.
- High food inflation is likely to have contributed to weak consumption demand since it erodes discretionary spending of households.
- The government’s free foodgrain programme does provide a cushion to low-income households, but an overall reduction in food inflation will bring bigger relief.
- Expectation of normal monsoons, healthy agriculture and lower food inflation will be positive for rural consumption this fiscal.
- There is not any significant risk to fuel inflation since crude prices will likely be $80-85 per barrel in 2024-25.
- However, the recent surge in crude prices in an uncertain geopolitical setting does raise some concern.
Globally, central banks are also moving towards cutting rates
- The Federal Reserve and the European Central Bank have not been in a hurry to cut rates since headline and core inflation remain high despite the softening trend.
- In its March meeting, the Fed hinted it would cut interest rates in the coming months.
- S&P Global believes inflation will likely remain above the Fed’s target of 2 per cent through 2024 reflecting persistently higher service price inflation, even as goods prices ease modestly.
- To be sure, India’s monetary policy decisions are based more on domestic conditions and inflation dynamics than on US rate moves.
- But in an interconnected world, rate cuts by systemically important central banks do nudge rates cuts in emerging markets.
- S&P Global expects Latin American emerging market central banks that have already cut rates to continue with the same through this year.
- Central banks in emerging Asian economies will likely start cutting rates in the second half.
Conclusion: The overall macro environment is turning conducive for central banks to begin cutting rates by the end of summer. For India, though, a poor monsoon, extreme weather events and crude oil prices could throw a spanner in the works.