Editorial 1 : The Bridge to Moscow
Context: 5 ways in which India-Russia relationship will shape the world in 2025.
Introduction: Foreign policy trends in 2025 will be shaped by shifts in great power relationships and the most consequential bilateral relationship in 2025 will be between India and Russia.
Significance of India-Russia Ties
- India-Russia ties touches core mutual areas: Trade in energy, technological co-development, and strategic interests.
- Russia remains India’s most accommodating partner when it comes to high-tech supplies.
- Importance of India-Russia relationship for the West
- The BrahMos missile, co-developed by India and Russia, has been given to the Philippines to fend off the Chinese.
- It is only through India that Russian technology can be used to preserve the rules-based order.
Five Ways in which India-Russia relationship is vital for the preservation of global order
- It serves as a bridge between the rest of the world and a Russian polity that has been alienated by, and has set out to further alienate, the Western ecosystem.
- India’s commitment to multilateralism and the global order anchors Russia, its close partner, to a system that it otherwise seeks to disrupt.
- India-Russia relationship prevents the Russian bear from totally entering the dragon’s den i.e. Russia going completely under Chinese influence.
- India’s outstretched hand grants Russia the ability to manoeuvre and allows it to avoid capitulating completely to China’s demands.
- Russia expects a partnership of equals. India provides one, China does not.
- Trade between India and Russia in fossil fuels is designed to be compliant with sanctions meant to limit Russian profits.
- It brings valuable price stability and predictability to energy markets, which is vital for the West and for Europe in particular.
- The relationship allows for new possibilities in the crucial Arctic region.
- Without India’s increasing strategic presence in the Arctic, in partnership not just with Russia but also with European and Nordic friends, a new Russia-China axis would have shaped the region’s future.
- A Chennai-Vladivostok corridor, co-owned by Russia and India, might be a first step towards a more effective and inclusive connectivity and governance architecture for the region.
- India’s presence in groupings with growing power and influence like BRICS and the Shanghai Cooperation Organisation ensures that these are not weaponised against the West.
- India is non-Western, it is not anti-Western.
- This moderate and reasonable attitude shapes the actions and positions of such groupings.
- Conclusion: The ability to partner with nations that are deeply divided by geopolitics has been a feature of Indian diplomacy since Independence. The India-Russia relationship serves not just the two countries in question, but the world.
Editorial 2 : A Hawkish Approach
Context: US Fed cut: A signal to RBI to rework policy.
Introduction: In its last meeting of 2024, the US Federal Reserve as expected cut interest rates by 25 basis points. The target range for the federal funds rate is now at 4.25-4.5%.
Key Highlights from Fed’s Meeting
- Fed's forward guidance was hawkish, indicating a cautious approach to further rate cuts.
- The Fed is entering a new phase, signalling reduced likelihood of aggressive rate cuts.
- Projections for 2024 and 2025 show limited scope for further easing.
- 2025 federal funds rate forecast: Revised upward to 3.9% from 3.4%.
Inflation Projections and Challenges
- Inflation has been stubbornly high, thus complicating the monetary policy.
- Inflation Projection in US
- 2024: 2.4%
- 2025: Revised upwards to 2.5% from 2.1%.
- New fiscal policies under a potential Trump administration could further exacerbate inflation.
- Proposed tariffs on major US trading partners.
- Tax cuts that could raise the government deficit.
- If these fructify, it would force the Fed to keep rates high for long.
Market Reactions
- US bond yields rose, global stocks declined, and the dollar strengthened.
- The Dollar Index rose to 108.26, the highest since November 2022.
- BSE Sensex fell by 1.2% and the Indian Rupee weakened, breaching the 85/dollar mark.
Implications for Future Fed Policy
- There is an expectation of a pause on rate cuts in the next Fed meeting in January.
- The Fed awaits clarity on potential economic policy changes under the Trump administration.
Impact on the Reserve Bank of India (RBI)
- Narrowing policy options for the RBI due to strengthening of dollar and intensifying pressure on the Indian Rupee.
- Balancing inflation control and currency stability remains a critical challenge for the RBI.
Conclusion and Way Forward
- The Federal Reserve's cautious stance reflects ongoing uncertainties in the global economic environment, coupled with domestic inflationary pressures.
- Fed’s decision reverberated across financial markets, highlighting the interconnectedness of global economies and dominance of US Dollar.
Indian policymakers need to navigate the present conditions and future turbulence carefully to maintain economic stability.