07 April 2023 : The Indian Express

Editorial 1: Decoding RBI’s pause on repo rate hike

Recent Context:

Recently, The Reserve Bank of India (RBI) has decided to not increase the repo rate amid continuing hikes by important central banks such as the US Federal Reserve (Fed) and European Central Bank (ECB), and domestic inflation concerns.
Given that market rates have effectively risen more than the 250-basis-point yank in the repo rate since May 2022, it decided to pause and assess the impact of rate hikes.

Global economic events and their influence over India’s monetary policy

Current decision could prove to be only a pause in the rate hiking cycle. Options remain open since there is no change in the stance of the withdrawal of accommodation policy.
To be sure, monetary policy tradeoffs have become sharper and choices difficult amid the banking stress that started with the failure of Silicon Valley Bank.
Inflation too hasn’t been controlled yet despite steep rate hikes on both sides of the Atlantic and the US banking sector tumult hasn’t swayed the Fed.
But tightening financial conditions in the US amid the banking stress will create a downside to growth and reduce the need for the Fed to hike the rate to control inflation.
The market and Fed’s communication seem at odds on how quickly that will happen. The Fed dot plot hints at another rate hike and a higher-for-longer rate scenario after that, whereas markets are pricing in an end to the rate hike and quicker rate cut.

The Reasons for not tightening the monetary policy:

The key reason behind the MPC decision on Thursday is the expectation of a decline in inflation driven by a healthy rabi crop, normal monsoon, moderating international commodity prices and the impact of rate hikes to 5.2 per cent in the current fiscal.
It acknowledged the upside risks and stated its readiness to fight any unexpected rise in inflation.
It is expected that consumer inflation is about to reduce to 5 per cent this fiscal from an estimated 6.8 per cent in the last, for three reasons
1. Easing of crude oil prices, It is expected that fuel inflation to reduce to 3 per cent from a high of over 10 per cent in the current fiscal because some easing of crude oil prices is likely as global growth slows down. We have assumed crude at $85 per barrel.
2. Two, slowing domestic growth will ease core inflation from very sticky levels of over 6 per cent last fiscal 2023 to 5.5 per cent in the current one.

The decline in core inflation will be limited as input cost pressures have not dissipated.
To protect their margins, firms will continue to pass on input costs to end-consumer. Services inflation will also continue to exert pressure as the rotation of consumption demand from goods to services continues.
1. Normal monsoon: Three, food inflation, which has a high weightage in the Consumer Price Index and has driven headline inflation in the past, is projected to moderate to slightly below 5 per cent, assuming a normal monsoon.

However, food inflation has always been volatile and carries upside risks largely because of climate-related factors affecting agriculture output and prices.
The ongoing freak weather events continue to threaten rabi cereal, fruit and vegetable production. After three years of La Nina, 2023 is expected to see El Niño play out.
The Indian Meteorological Department will issue clear guidance later this month. Over the past two decades, we have observed a very close association between El Niño and scanty rains in the monsoon season. So, fingers crossed on that.
Government intervention in the wheat market has moderated wheat inflation. Given the increasing frequency and intensity of freak weather events, the role of government policy in addressing supply shocks to inflation will gain prominence

Global geopolitical and economic situations which affect India’s export:

It is expected that GDP growth to slow to 6 per cent from 7 per cent this fiscal as slowing global growth, domestic interest rates, and messy geopolitics bite.
Slowing global growth will be net negative for our exports for three reasons. This will have a net negative effect on our exports for three reasons.

One, the impact of the growth slowdown in the US and Europe (whose combined GDP is twice that of China) is deeper than the recovery in China.
Two, India’s exports to the US and Europe are more than to China by a factor of six.
Three, our growing dependence on commodity exports (petroleum products and steel) makes us more vulnerable to global growth volatility.

Though some of the newer and fast-growing export categories such as electronic items, together with resilient services exports, offer some cushion, it is not enough to offset the impact of global headwinds.
Therefore, Fiscal 2024 will test the resilience of India’s domestic demand amid rising interest rates.

Conclusion:

Recent, monetary policy stand is taken while considering the domestic and international geopolitical and economic situation such as
Central banks raise interest rates to tame inflation and high rates work their way towards this goal by first slowing the economy.
- As A combination of 250 bps cumulative rate hike since May 2022 and tightening of liquidity have pushed the nominal lending rates above pre-pandemic levels, therefore, some more transmission left.
And finally, geopolitical tensions imply India will have to reckon with volatility in crude and commodity prices. As crude prices to remain around $85 per barrel in 2023.
Along with India’s external vulnerability is expected to decline with a narrower current account deficit (CAD) and modest short-term external debt.
However, Banking turmoil playing out amid interest rate hikes by important central banks and elevated debt levels.
This has tightened financial conditions in the US and increased financial sector fragility and risk of volatility in capital flows to emerging markets. In such a situation, financing of CAD will remain a key monitorable.

Editorial 2: ‘Natural Justice’ and ‘Proportionality’: Why Supreme Court ruled in Media One’s favour

Recent Context:

Recently, Supreme Court set aside the orders passed by the Ministry of Information & Broadcasting (MIB) and the Kerala High Court on refusing to renew Malayalam news channel Media One’s broadcast license.
In doing so, a bench of Chief Justice of India DY Chandrachud and Justice Hima Kohli upheld the appeal filed by media one’s parent company, Madhyamam Broadcasting

About the case:

The Ministry of Information and Broadcasting, on January 31, 2022, refused to renew the broadcast license of the Malayalam channel MediaOne on the ground that the Ministry of Home Affairs had declined to grant it security clearance while considering its request for renewal of license.
In the hearing before the SC, the channels’ promoters argued that they were not given a chance to defend themselves as the national security reasons cited to deny renewal of their license were submitted to the HC (Kerala) in a sealed cover.
- Further, it was contended that the fundamental right to freedom of speech and expression, which includes press freedom, can be restricted only on the grounds enumerated under Article 19(2) and
- there was no allegation that the channel violated the Programme and Advertising Code prescribed under the Cable Television Networking (Regulation) Act 1995 and the 1994 Rules.

Why the apex court ruled in favour of Media One

In its judgment, the Supreme Court upheld Media One’s appeal on two procedural grounds, namely, principles of natural justice and proportionality.

Principles of Natural Justice

The bench allowed the challenge to the order of the MIB and judgment of the High Court on account of the principles of natural justice constitutionalized by its judgment in its 1978 ruling in “Maneka Gandhi vs Union of India”.
The Court observed that “that there is an inherent value in securing compliance with the principles of natural justice independent of the outcome of the case.”
Actions which violate procedural guarantees can be struck down even if non-compliance does not prejudice the outcome of the case, the court held.
It also stated that “the core of the principles of natural justice breathes reasonableness into procedure”. Additionally, the court clarified that in the present case, the burden is on the claimant to prove that the procedure followed infringes upon the core of procedural guarantees.
In its judgment, the court also observed that the duty to act fairly that is derived from common law is not exhaustively defined in a set of concrete principles, and courts, in India and abroad, have demonstrated considerable flexibility in the application of the principles of natural justice by fine-tuning them to different situations.
However, the court also added that such a concept of natural justice “cannot be put into a ‘straitjacket formula’” and is “incapable of a ‘precise definition’”.
The Court asserted that “the non-disclosure of relevant material of MIB to the appellants, and its disclosure solely to the court.”
- In such a situation, the burden shifts on the Centre to prove that the procedure that was followed was reasonable and in compliance with the requirements of Articles 14 and 21 of the Constitution, the court noted while adding that the standard of proportionality was used to test the reasonableness of the procedure in the present case.

The court also upheld its judgments in Ex-Armymen’s Protection Services and Digi Cable Network that
while “principles of natural justice may be excluded when on the facts of the case, national security concerns overweigh the duty of fairness”, “the state has been unable to prove that these considerations arise in the present factual scenario.”
The Court added that though confidentiality and national security are legitimate aims for the purpose of limiting procedural guarantee, a “blanket immunity from disclosure of all investigative reports cannot be granted.”

Proportionality

The judgment went on to explain that the validity of the claim of involvement of national security considerations must be assessed on the test of

whether there is material to conclude that the non-disclosure of information is in the interest of national security; and
whether a reasonable prudent person would draw the same inference from the material on record;

“Even assuming that non-disclosure is in the interest of confidentiality and national security, the means adopted by the respondents do not satisfy the other prongs of the proportionality standard,”
The top court then reiterated that courts can assess the validity of public interest immunity claims albeit based on the “structured proportionality standard”.
On the practice of sealed covers, the court observed that “the power of courts to secure material in a sealed cover when contradistinguished with the scope of assessment of public interest immunity claims is rather unguided and ad-hoc.”
Additionally, the Court said that “while public interest immunity claims conceivably impact the principles of natural justice, sealed cover proceedings infringe the principles natural justice and open justice.”
It also suggested that the court could have taken the course of redacting confidential portions of the document and providing a summary of the document’s contents.

Conclusion:

The challenge to the order of MIB is allowed on substantive grounds. The non-renewal of permission to operate a media channel is a restriction on the freedom of the press which can only be reasonably restricted on the grounds stipulated in Article 19(2) of the Constitution.
The reasons for denying a security clearance to MBL, on the alleged charges are not legitimate purposes for the restriction of the right of freedom of speech protected under Article 19(1)(a) of the Constitution.

07 Apr 2023 : The Indian Express