Editorial 1: Art of Let it be
Recent Context:
- Recently, Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) maintained the status quo on interest rates during its review meeting and retained its stance of withdrawing accommodation.
- The RBI prefers higher rates for longer periods for both domestic and external reasons.
Domestic reasons for upholding higher rates:
- Food based inflation: As in the beginning of the second quarter of this fiscal year prices of tomatoes and other food items rised significantly and then it became more concerning with volatile and rising crude oil prices.
- The RBI Governor also noted that the transmission of past rate hikes — 250 basis points since May 2022 — to bank lending and deposit rates remains incomplete.
- These factors have nudged the MPC to hold its stance of “withdrawal of accommodation
External reasons: Hawkish policy of major central banks of other nations
- The continuation of hawkish monetary policies by systemically important central banks, particularly by the US Federal Reserve, and the rise in crude oil prices have been external triggers.
- Global central banks have been on their toes since Covid-19 struck.
- First, they had to ease monetary policy rapidly to fight an economic collapse, and then hike repeatedly to tame inflation.
- For instance, policy rates have risen only 250 basis points in India in the current cycle compared with 525 basis points in the US.
- Central banks in the advanced countries could likely err on the side of caution and keep rates higher for longer given the challenges in inflation control.
- The upshot of this stance is the US 10-year treasury yield soaring to 4.8 per cent, the highest in 16 years.
- This is attracting capital to the US and away from the emerging markets, and strengthening the dollar. The rupee, not surprisingly, has been under the pump.
- To its credit, India’s growth has held strong despite costlier crude oil, weakening rupee and pressure on food inflation from an erratic monsoon. Supply shocks amid healthy growth will keep the RBI cautious.
- It has already raised its inflation forecast for this fiscal to 5.4 per cent from the 5.2 per cent made in June.
India’s policy to maintain growth with targeted inflation
- India’s growth has held strong despite costlier crude oil, weakening rupee and pressure on food inflation from an erratic monsoon.
- Supply shocks amid healthy growth will keep the RBI cautious. It has already raised its inflation forecast for this fiscal to 5.4 per cent from the 5.2 per cent made in June.
- Recently, fresh arrival of vegetables in the market have corrected vegetable prices, and crushed those of tomatoes, causing angst at farms.
- RBI’s inflation for the second quarter at 6.4 per cent implicitly assumes around 5 per cent inflation in September
Challenges ahead in controlling inflation
- The concern over cereals, pulses and spices inflation persists given their double-digit readings.
- To boot, overall kharif sowing is only marginally above last fiscal’s level and lags for pulses and jute.
- With El Niño conditions predicted till year-end, is also alarming.
- The southwest monsoon also influences groundwater and reservoir levels for the rabi or winter crop, which is produced in largely irrigated areas.
- According to the Central Water Commission, as on September 29, live storage at reservoirs was 82 per cent of the previous year’s corresponding levels and 92 per cent of the decadal average.
- New hike in crude oil prices have emerged as another potential risk. India is highly vulnerable here because around 85 per cent of its requirement is imported. Crude prices have been very volatile
- If they rise and sustain at elevated levels, headline inflation can rise via direct and indirect effects of higher production and transportation costs.
- In addition, higher crude prices create upside risks for the current account and fiscal deficit, and a downside risk to growth
Conclusion:
- The RBI has retained its GDP growth outlook at 6.5 per cent for this fiscal. Deepening global slowdown curbing exports, lagged impact of the series of domestic rate hikes manifesting and curbing consumption demand, and erratic weather and El Niño curbing agricultural growth.
- What’s more, persistent supply shocks, whether from food or fuel, can transmit to other parts of the economy and broadbase inflationary pressures. Ergo, the MPC is unlikely to take the scalpel to rates soon.
Editorial 2: TRAI can’t regulate OTT platforms
Recent Context:
- Recently, India’s telecom appellate panel held that Over the top (OTT) platforms like Hotstar are not in the jurisdiction of the Telecom Regulatory Authority of India (TRAI) and are governed by the Information Technology Rules, 2021, notified by the Ministry of Electronics and Information Technology (MeitY)
- Telecom Disputes Settlement and Appellate Tribunal (TDSAT) said that OTT platforms are outside the purview of the TRAI Act since they do not require any permission or a licence from the central government.
What is OTT?
- OTT or Over The Top Platforms are services that offer viewers access to movies, TV shows and other media directly through the Internet, bypassing cable or satellite systems.
- OTT services can be accessed through internet-connected devices like computers, smartphones, set-top boxes and smart TVs.
In what context did TDSAT pass this order?
- TDSAT’s findings came in a petition filed by the All-India Digital Cable Federation (AIDCF), which alleged that free streaming of matches of the ICC Cricket World Cup on mobile devices by Star India through its platform Disney+Hotstar is discriminatory under TRAI regulations, as the matches can be watched on Star Sports TV channel only if the viewer has subscribed by making a monthly payment.
- In its interim prayer, AIDC asked that Star India should be restrained from permitting viewers to have Star Sports on their mobile phones for free, or that they should also provide free access to Star Sports to AIDCF’s members, that is cable operators.
So why is this order significant?
- The rejection of AIDC’s plea by TDSAT is significant because, as TRAI is a statutory telecom regulator, and the Department of Telecommunications (DoT) under the Union Ministry of Communications, are attempting to regulate OTT services, which has been challenged by the Ministry of Electronics and Information Technology.
- The DoT had released a draft telecom Bill which classified OTT platforms as telecommunications services, and sought to regulate them like telecom operators. The TRAI, separately, has issued a consultation paper on how to regulate OTT platforms.
Why is the IT Ministry disagreeing with DoT over OTT regulation?
- The IT Ministry believes that under the Allocation of Business Rules, Internet-based communications services are not part of DoT’s jurisdiction.
- However, in this case, the conversation is centred around OTT communications services like WhatsApp.
- A copy of the draft Telecommunication Bill was sent to an inter-ministerial group for consultations in May.
- Following the objections raised by MeitY, the DoT is learnt to have gone back to the drawing board to reframe portions of the Bill which regulated OTT communication services.
What is TRAI’s attempt at regulating OTT services?
- Almost three years after it first recommended against creating a specific regulatory framework for OTT communication services like WhatsApp, Zoom, and Google Meet, TRAI has revisited its stance, and started consultations on how these services can be regulated.
- In the consultation paper released in June, the regulator asked stakeholders to send suggestions about regulating services, and asked whether a selective banning of OTT services could be done as opposed to entirely shutting down the Internet.
- Regulating such services has been a long-standing demand of telecom operators, who have been advocating for years for “same service, same rules”.
- In September 2020, TRAI had recommended against regulatory intervention for OTT platforms, saying that it should be left to market forces. However, it had also said that the sector should be monitored, and intervention should be done at an “appropriate time”.
Conclusion:
- India’s OTT regulatory model need to strike a balance between self-regulation and legal backing, aligning with global trends. These initiatives are crucial for achieving the objective of raising India’s stature at an international level and serving as a model for other nations to emulate.