All Newspaper editorials in one place – January 23, 2024



January 23, 2024

From fear to hope

The Ram temple must help in healing wounds and creating harmony


The opening of the Ram temple in Ayodhya is a sharp turn in the course of the nation. The central role of the state in the rituals associated with the inauguration of the temple is being celebrated by the proponents of the temple, while its opponents fear it is the beginning of a dangerous slide. Two divergent visions of Indian nationhood inspire the two sides. The inauguration of the temple marks a definitive milestone, if not a comprehensive victory, for the vision of the BJP and Prime Minister Narendra Modi. Mr. Modi said it was the beginning of a new era in the history of the country, an era that will last for centuries. He called for humility alongside the celebration of victory, and invoked the universality of the spirit of Ram that encompasses all of humanity. Portraying the temple as a link between India’s rich cultural inheritance and ambitions for the future, across the various regions and communities of the country, Mr. Modi exhorted fellow citizens to think big and work purposefully for progress. Ram Rajya has had multiple imaginings. The temple in Ayodhya must inspire and promote the conception of a polity determined not by an obsession with the past, but by an appreciation of the difficulties of the present, and the challenges and opportunities of the future.


The Prime Minister also noted the fact that the temple was facilitated by a judicial decision. The Supreme Court verdict that handed over the disputed land in Ayodhya to the Hindu petitioners had also unambiguously noted that the demolition of Babri Masjid on December 6, 1992 by kar sevaks was a “serious violation of law”. Devotees of the temple, in their moment of celebration, should not be unmindful of the past. Triumphalism and grievance must give way to reconciliation and harmony; and fear must yield to hope. The temptation to use the same template of settling contests over places of worship must be abandoned immediately. Seeking to settle historical grievances can trigger unpredictable social forces and risk national unity. Mr. Modi himself noted this fact, while appreciating the relative ease with which the temple was built after the Supreme Court verdict in 2019. In the making of present-day politics, the past is often used as malleable material. It can surely be deployed for the purpose of forging unity and creating harmony, instead of for accentuating differences. The wisdom of statecraft is in making the right choice.





January 23, 2024

Spiking tensions

Dialling down aggressive rhetoric is crucial for peace in Korean Peninsula


Kim Jong-un’s decision to declare South Korea as an enemy state of the North and abandon the idea of peaceful reunification signals that Pyongyang is adopting a more aggressive stand. Recent months also saw increased war rhetoric from Mr. Kim as well as a series of weapons tests by the North. Last week, Pyongyang claimed to have fired a medium-range hypersonic missile that could travel at low altitudes. It has also tested underwater, unmanned, nuclear-capable drones. Earlier this month, the North fired hundreds of artillery shells near the South’s islands of Yeonpyeong and Baengnyeong, closer to the Northern Limit Line, a disputed inter-Korean maritime border. It is evident from these actions that the Kim regime is seeking to alter the status quo. But Mr. Kim’s actions were not entirely unprovoked. He sees the growing military convergence between South Korea, Japan, and the U.S. as a security threat. The three countries recently linked up their missile-radar data with one another. The U.S. and South Korea also routinely conduct joint military exercises, which triggers sharp reactions from the North. South Korean President Yoon Suk Yeol, who assumed office in May 2022, has also maintained a hawkish stand towards Pyongyang, saying that peace can be achieved only through strength.


In the past, despite its rhetoric, North Korea was open to diplomatic engagement with the South and the U.S. In 1994, it reached the Agreed Framework with the Clinton administration. As part of this, it agreed to freeze the operation and construction of its nuclear reactors. It was after the collapse of the Agreed Framework during the George Bush Jr. administration that Pyongyang went nuclear. President Donald Trump reached out to the North, which temporarily stabilised inter-Korean ties. When the Trump initiative failed, tensions spiked again. The North’s leaders, given what happened to Libya, Iraq, and the Iran nuclear agreement, have little incentive to give up their nuclear weaponsfor an agreement with the U.S. In an apparent rejection of the path of reconciliation with the U.S., Pyongyang has ruled out talks on denuclearisation of the Korean Peninsula and has taken measures to strengthen ties with China and Russia. But even a complicated diplomatic path would be preferable to a military path any day. A direct conflict between the two Koreas, one a nuclear power and the other backed by the world’s most powerful country, would be disastrous for the entire region. Dialling down tensions and rebuilding confidence in inter-Korean relations should be an immediate priority for all stakeholders — Seoul, Pyongyang, and Washington.





January 23, 2024

A seminal milestone, the journey ahead

January 22 asks the nation for nothing less than a new self-description. Bridging of distance between Ram and Rashtra, as the Prime Minister framed it, will need a determined exploring of the common ground


JANUARY 22 2024 will no more be just another day in the life of a nation. It will be the moment when a temple was consecrated in Ayodhya and when a country in the throes of a transition arrived at a seminal milestone. A political movement that began as a challenge to the ruling consensus, having made its way to the system’s centre, stamped its dominance and become the establishment, has now, almost 10 years later, brought a never-before convergence — of popular will, state power, religion.


In a country where secularism was defined not as the strict separation of the state and religion, but, in its best version, as equal respect for all religions, and where, 73 years ago, its first Prime Minister cautioned its first President against state involvement in a temple inauguration, the just consecrated temple in Ayodhya, the prime minister doing the honours, calls for a new word in place of the old. January 22 asks the nation for nothing less than a new self-description.


As consequential as this moment is, however, as transformative as it is in its larger significance, it has not caught the nation by surprise. The BJP’s serial electoral victories since it first won the Centre with a single party majority in 2014, steadily paved the ground for it. A Ram temple on the site where the Babri Masjid was felled in 1992 was the party’s promise to voters, even when its coalition allies forced it to push that commitment onto the backburner, and later when consecutive decisive mandates made it possible to bring it squarely front and centre. This was the manifesto with which the BJP rose and rose, politically and electorally. After the early years, its ascendance sidelined not its “core” issues, but its political opponents, who, even as another parliamentary election draws closer, have yet to find the language to fight it, or to regain their own lost equilibrium.


SPEAKING AT Ayodhya on January 22, both Prime Minister Narendra Modi and RSS chief Mohan Bhagwat, marked the end of a long wait and the present celebration. They also sought to expand the moment of the temple consecration into something more encompassing. Saying that it fell on him to inject a cautionary note, “josh ke mahaul mein hosh ki baat”, Bhagwat asked: “Ab ham kya karenge (now what will we do)?” He spoke of the need to sidestep “ahankaar” or arrogance, to act with “karuna (compassion)” and “sayyam (restraint)”, and to banish conflict and controversy. He spoke of “sahmati ka samvaad (dialogue that forges common ground)”.


The figure of Ram, PM Modi said, was the binding thread for the nation (“desh ko samayojit karne wala sutra”), and that this was a moment not just of victory but also of humility, “vinay” as well as “vijay”. Many countries get trapped in their own pasts, the PM warned, “kayi desh apne hi itihas mein ulajh jaate hain”. India must continue to untangle the knots of history, “itihas ki gaanth”, as it has already done, with “bhavukta” and “gambhirta”, seriousness and sensitivity, he said.


For PM Modi, the temple was joined to rashtra or nation, and together they would turn to the future. “Ram aag nahin, oorja hain”, Ram is creative energy, not destructive fire. “Ram hamare nahin, sabke hain (Ram is not ours alone, he belongs to everyone)”. “Dev se desh”, “Ram se rashtra” — the temple will inaugurate a new and better chapter for the whole of India, and for all its citizens.

THESE invocations of larger wholes, and those exhortations to face the future, will have to face the challenges of history and the imperatives of politics. The temple that has been consecrated at Ayodhya was built not on a clean slate, but on a troubled back story that must be acknowledged and remembered if it has to be transcended. It cannot be erased. The BJP-led movement has vanquished its political opponents and won the day, but its government’s slogan of “sabka saath, sabka vikas, sabka vishwas” will not automatically segue into “sabka mandir” or “sabke Ram”. For that, much work still needs to be done.


The distance between Ram and rashtra, as the Prime Minister framed it, will be bridged not just by words but on the ground. It will call for outreach to the Muslim community; those who were not a part of the Mandir movement; and all those who remain apprehensive about the reverberations of temple consecration. It will require, in an age of polarisation, the determined exploring of common ground.


That task involves all — political parties, civil society, communities, the nukkad and the street — but it must necessarily be led by the BJP. A prime minister who performed the rituals of temple consecration has underlined the responsibility of tempering triumph with generosity and wisdom. He needs to hold that line and everyone to it. So that the winner does not take all, nor is seen to do so. And so that in a large and diverse country, every voice is heard and democracy’s argument can go on.




January 23, 2024

First, listen

One Nation, One Election panel will be seen as a rubber stamp unless it gives space to Opposition, which must join the process.


The official consultation process set in motion for gauging the viability of simultaneous elections is unfolding like a chronicle foretold. According to the Union Law Ministry, 81 per cent of the 20,000-plus responses received by the High Level Committee on One Nation, One Election have favoured the idea. The Committee headed by a former president, Ram Nath Kovind, issued a public notice asking for suggestions between January 5-15. Unfortunately, given its constitution, manner of functioning and the larger context of one-party dominance, the Kovind Committee gives the impression of being partisan at best and a rubber stamp at worst. The blame for the lack of robust debate on the proposal also lies with the Opposition, particularly Congress. On an issue with far-reaching consequences, it has refused to engage.


The eight members of the Committee have either openly expressed support for simultaneous polls — as president, Kovind did, in Parliament, in 2019 — or are seen to be close to the government and therefore broadly in agreement with its pet projects. Congress Leader in the Lok Sabha, Adhir Ranjan Chowdhury, refused to be a part of the Committee arguing that it is imbalanced. The Committee’s very terms of reference assume that One Nation, One Election is in “national interest”. But despite this, an Opposition leader could have played an important role — by voicing concerns the government may not want heard and by pushing for greater transparency in the process. As things stand, the concerns of the Opposition and the states look scattered and are being voiced piecemeal: Congress has called it “undemocratic”, AAP has said it will give an “unfair advantage” to the ruling party, the DMK has labelled it “dangerous”, and the TMC described it as “against the federal structure”.


Admittedly, a near-constant election cycle, and the short-termism this engenders, places a great burden on the exchequer. But while these issues are important, they cannot be used as an excuse to artificially keep governments that lose the support of the legislature and by extension, the people, in power. Certainly, such a fundamental change in the democratic structure and process must not be brought about without adequate engagement with the Opposition’s concerns. The legitimacy of the electoral system does not flow only from the Treasury Benches or the corridors of power at Kartavya Path. It also emanates from those without executive office continuing to have a voice. The elected Opposition, all but silenced in the last session of Parliament with the expulsion of 146 MPs, must have a say, and not just a token one, in the consequential matter of the design of elections.





January 23, 2024

After Consecration

Modi’s speech was impressive. But his election strategy is Ayodhya-plus. Town’s quick infra upgrade is a lesson


Consecration of Ram Lalla idol in Ayodhya yesterday was the logical outcome of Nov 2019’s Supreme Court verdict. So, Ayodhya’s ceremony, rhetorical sniping between BJP and opposition aside, was as uncontroversial as it was grand. And even his critics would acknowledge, Modi’s speech rose to the occasion.


Speedy infra ramp-up | Ayodhya has seen a lightning scale-up and expansion of urban infra. Roads have been widened and improved. Transport upgrades include a redeveloped railway station and an international airport, which will eventually be able to cater to 6 million passengers annually. In scale and speed, these projects are like Mumbai’s Atal Setu, a 21.8 km bridge of which 16.5 km is over the sea. It was completed in seven years.


Replicate this elsewhere | These projects showcase India’s ability to deliver quality infra in quick time. But it cannot be limited to special projects. Urban India’s infra is in poor shape. Last few months have shown that it doesn’t have to be so.


A 1991 law | Nov 2019’s SC verdict mentioned Places of Worship Act, 1991. It mandates maintaining the religious character of a place of worship as it existed on Aug 15, 1947. SC had said, via the law, Parliament determined Independence as a cut-off for a constitutional basis for dealing with the past. This law operationalises a basic feature of the Constitution, SC had pointed out. Both lower judiciary and constitutional courts must use SC’s Ayodhya verdict as the touchstone of other cases relating to places of worship.


Political tea leaves | Modi’s Ayodhya speech was peppered with smart messaging – on Hindu cultural revivalism, economic progress and tech, all of it feeding a political narrative. Equally significant, his itinerary prior to Monday included temple visits in Tamil Nadu and Kerala. Most of these temples draw significance from Ramayan. Big question now is whether and how far yesterday’s consecration will help BJP in states such as TN and Kerala where its electoral performance has been lacklustre.


Political analyst Hilal Ahmed argued on this page (Mandir Mathematics, Jan 22) that BJP is aware that it needs to build its campaign on more than one issue. That’s what Modi is doing. His every Ayodhya speech, yesterday’s included, has highlighted welfare and infra. Economic realities matter in an election. BJP hopes Ayodhya will pay electoral dividends. In northern states that’s likely to happen. But equally likely, Modi will direct his party managers to bank on more than Ayodhya to build BJP’s election strategy.





January 23, 2024

Bibi’s Selfish Games

Netanyahu’s rejection of two-state solution is about his political survival, not Israel’s security


Netanyahu has reiterated his rejection of two-state solution to Israel-Palestine conflict. This comes after US insistence that he look for an exit strategy on Israel-Hamas war. Israel’s PM cites security as a reason. Real reasons may lie elsewhere – he is fighting for his political survival and can’t end the war.


Hamas threat or bogey? | Netanyahu’s official goal in the ongoing conflict is destruction of Hamas. Logically, this should have been accompanied by empowering Palestinian Authority in West Bank. But since the start of Israel’s offensive in Gaza, its strong-arm tactics in West Bank have led to 369 deaths. So, forget Gaza, Netanyahu doesn’t want a viable Palestinian administration in West Bank either.


Failed objectives | US intelligence agencies estimate Hamas has lost only around 20-30% of fighters so far. That’s far from Israel’s objective of destroying the group. Plus, polls show Hamas’s popularity among Palestinians is growing. So, Netanyahu’s military/ tactical objectives haven’t been met either.


Growing protests in Israel | Israelis too are losing patience with Netanyahu. Family members of hostages still held by Hamas – 132 remain in captivity – are protesting, demanding an immediate deal for hostage release.


Bibi’s political game | Leading the most right-wing government in Israel’s history, Netanyahu knows he can’t agree to a Palestine state if he wants hardliners to prop up his administration. Surveys show his Likud party would lose half its seats if polls were held today. Plus, conflicts delay conclusion of corruption trial pending against him.


Playing America | Netanyahu thinks he can manipulate US. Washington is Tel Aviv’s most important supporter. However, Israel-Hamas war is stretching US resources and aiding China and Russia. Biden should give Netanyahu a firm deadline to end the conflict and ask him firmly to agree to a Palestine state. He has the leverage.




January 23, 2024

Temples of Modern India for Mfg Export

ASAP: Infra upgrade to boost manufacturing


India is attempting to put manufacturing on steroids just about the time the over-dependence of China’s growth on investment is coming into question. Foreign investment is establishing beachheads in India to manufacture for the world. The notable accomplishment has been Apple’s decision to diversify its supply chain across Asia, including in India. New Delhi is eager that more manufacturing companies choose India as a production hub, and has offered investment sweeteners. The wait is on for the trickle of FDI to turn into a flood. Marquee names, such as Tesla, are being courted. Infrastructure is being created furiously to make the country hospitable to global manufacturing.


This would appear to be a perilous course with the Chinese model showing up its limitations. But it is the only available course for India to become an upper-middle-income country over the next quarter-century. Manufacturing’s share of economic output has been stagnating. Energy purchase creates persistent trade deficits. And services do not have the capacity to absorb excess labour from agriculture. Strong manufacturing exports solve all of these. Production capabilities on a global scale also get around constrained domestic consumption. Besides, India has fallen off its peak investment rate as credit locked up in dodgy lending was freed.


GoI is funnelling an increasing part of household savings into infra to revive private investment. RBI has imposed pre-emptive curbs on runaway consumer borrowing. India can afford to rebalance some demand away from consumption into investment. But it needs to exercise caution in overdoing it. The lesson from China is, social investment is as vital as physical investment for balanced growth. The immediate need is for an infrastructure upgrade to boost manufacturing. Down the line, the emphasis should switch to building an adequate social safety net that props up consumption lower down the ladder. It’s early days, though, for India and it can concentrate on building its manufacturing superstructure.





January 23, 2024

For IITs, Go Shake Your Moneymakers


IITs are one of India’s best-known educational brands — if not thebest-known brand. They are also the country’s best-funded public education institution. GoI’s budgetary allocation for IITs increased from ₹3,746 crore in 2015 to ₹9,600 crore in 2023, ensuring that the percentage share of the budget remains steady. The overall share of elite higher education, including IITs, in the budget has been constantly over 10%. Yet, the allocation is insufficient to support cutting-edge programmes and research that IITs would like to offer their students. So, they are doing what most top foreign universities have been doing for years: reaching out to their illustrious alumni for donations to their endowment kitties. This is a good step that will allow IITs to retain their intrinsic ‘public’ character while tapping into deep pockets and alumni networks.


Given IITs’ role in building India’s S&T muscle, a systematic approach to alumni contributions is necessary for expanding the fiscal space. Many IITs have done this successfully earlier. In 2019, IIT Delhi set up an endowment fund. Other IITs followed. In 2023, Infosys co-founder Nandan Nilekani donated ₹315 crore to IIT Bombay, his alma mater.


But IITs should focus on more than mega contributions from big-ticket alumni and also take a systemic approach to encourage smaller contributions. The endowment fund must be used to go beyond basic requirements, but kept aside for cutting-edge, experimental, socially responsible research. However, a steady inflow via alum contributions must not lead to a reduction in state budgetary support. The latter is essential to ensure these institutions remain ‘public’ in the truest sense of the term, and deserving students get a chance to study in IITs.




January 23, 2024

After Ayodhya

It’s time now for a politics of magnanimity


In spite of his myriad shortcomings, Winston Churchill could turn a good phrase. So, he said after Britain won the Second World War, “In War, Resolution; In Defeat, Defiance; In Victory, Magnanimity; and In Peace, Good Will.” Now that the BJP has won its 75-year old campaign for building a temple for Bhagwan Shri Ram at Ayodhya where He is said to have been born it should pay heed to Churchill, especially the last two exhortations. Magnanimity and goodwill should guide it in what is an absolutely watershed moment for the country.


There are three mutually complementary ways in which it can do this. This requires a prior recognition that the Constitutional, political and social aspects do not collide with each other. Absolutely the first step must be to allay fears that the opening of the temple might presage the announcement that India will have a state religion, namely, Hinduism. Or to put differently, Hindu Rashtra. Although this would require amendments to the Constitution that are mostly unlikely to get the required degree of support from the States, it’s nevertheless necessary that the BJP explicitly assure the country that it will not campaign for such a change. As so many countries have witnessed, and studies have shown, a state religion yields no positive benefits except politically and that too in an electoral sense. But the negative aspects easily outweigh these benefits.


From this flows the second aspect, namely, how to conduct politics. As long as the temple hadn’t been built, the BJP chose to use religion as an instrument to win elections taking advantage of the Congress’ minority appeasement politics. It justified this by conflating Hindu culture with Hindu religion and saying at the same time that Hinduism was a way of life that subscribed to the sarva dharma sambhava formulation of secularism rather than dharma nirapekshata. The hidden meaning was that the state will allow all religions but won’t promise neutrality. The BJP now needs to tell all Indians, through words and deeds, that it guarantees neutrality. Nothing less will meet the criterion of ‘In Victory, Magnanimity’. Thirdly, while the constitutional and political aspects can be easily distinguished and separated, the social and political aspects can’t. India is socially very diverse and Hindu society is even more diverse. This diversity should not be weaponised by politicians who call for unity at the national level and exploit it at the social level. Those who call for communal harmony can’t simultaneously deepen caste fault lines.


India is thus at an inflection point where its politicians must manage the change that has come about in society and politics as a result of the RSS-BJP worldview. This has held that Hindus are in a majority and yet somehow victimised. An impression should not gain ground that it’s the turn of the Hindus now to cow down fellow citizens whose religious preferences are different. Vasudhaiva kutambakam surely must begin at home.





January 23, 2024

Stress testing

Evaluating equity funds is a good idea


The Securities and Exchange Board of India (Sebi) is looking to comprehensively stress-test equity mutual fund schemes and put in place mitigating measures to handle potentially dangerous situations. This is a relatively new initiative on the part of the regulator, but it follows the first round of stress tests, which is said to have resulted in unsatisfactory outcomes. There is a fair logic behind the policy move of instituting more comprehensive stress testing. Equity funds continue to draw huge inflows and most of these emanate from retail investors — indeed, the bulk of the equity assets under management is held in retail folios. Moreover, continuing large inflows force fund managers to commit to buying stocks within their mandates, even though valuations are high across most segments of the market due to a sustained increase in stock prices.


If there is a crash, it may lead to a spike in redemption demands, and funds may, in turn, find it difficult to meet redemption pressures since the money has to be returned quickly. If funds are forced to sell in a falling market to meet redemption demands, the selling pressure could lead to a cascade of further losses, causing a bad feedback loop of more redemption demands, further enforced selling, lower prices, and so on. If it happens at all, it is likely to be especially damaging to unitholders in schemes that track smallcap and midcap stocks because smaller scrips tend to have less liquidity. Hence, a large volume of institutional sales exerts a greater downward pressure on prices. Smaller stocks outside the futures & options segment also have circuit breakers that can lead to trading freezes and put a crimp in redemptions as trades become impossible.


Several asset-management companies have proactively put in place measures against such a scenario by, for example, refusing to take lump-sum investments in small-cap and midcap funds. Systematic investment plan commitments are easier to manage, both in terms of deployment in the market and possible redemptions. But the regulator is right to ask for a more comprehensive set of tests to establish which schemes may be more at risk, and to mark “trigger points” where redemption pressures could raise red flags. Mitigation measures could include judicious deployment of funds to prevent forced selling in such situations. At need, Sebi could also consider other measures like extending the period of redemption or allowing arranging short-term funds to meet the redemption demand.


Another question that arises is that of transparency. There are pros and cons. The stress-test criteria, assumptions and formats may be complex and opaque. Should the regulator consider publishing stress-test results if funds come close to the red zone? This would allow smart investors to redeem units in an orderly fashion, but it could also result in panic. But if results are not made public, it would not help investors and defeat the purpose. The regulator will have to take a call in this context. Stock markets are cyclical. Every bull-market is followed by a correction, and that correction may be extremely steep. Mutual funds are an important institutional segment and since they are directly answerable to retail investors, redemption pressures can build up quickly in the event of sentiment turning sour. It is better to consider such situations and be prepared.




January 23, 2024

Supply-chain efficiency

Improvements can reduce food price spikes


Episodes of food-price volatility are not unusual in India. Given that higher food prices are driving the headline inflation rate, it is important — for better preparedness — to understand the usual causes of a spike. Demand-supply imbalances and geopolitical tensions, along with the El Niño effect, are being seen as the key drivers of food inflation. At the same time, however, supply-chain inefficiencies may also be playing a role in keeping food inflation high. In this context, a recent research paper by economists at the Reserve Bank of India examined supply-chain dynamics and the role of markups charged by different agricultural-market intermediaries in creating a wedge between farm-gate and retail prices. The authors analysed data from a pan-Indian survey covering agricultural markets, or mandis, at 85 centres across 16 states for 15 kharif crops.


It is not uncommon in India to see agricultural markets fraught with inefficiencies, with farmers receiving only a minimal share of the price paid by consumers, and multiple intermediaries taking a large proportion. The paper estimated that the average share of farmers in consumer prices varies between 33 per cent and 70 per cent. The high markup charged by traders and retailers includes membership fees, transport costs, shop rentals, local taxes, and storage costs. Farmers also incur post-harvest costs, including commissions, and charges for loading and unloading, packing, weighing, and grading. Expectedly, the paper found evidence of higher markups for perishable commodities like fruit and vegetables. Non-perishables like pulses and oilseeds, on the other hand, enjoy relatively low price wedges, reflecting farmers’ differential bargaining power in the price-formation process for each commodity. However, the markup for perishables has decreased since the previous survey held in 2018, indicating an improvement in farm-level storage structures, market-level cold storage facilities, and transport infrastructure. Further, in the movement from farm to fork, there are stages where products are lost within the supply chain. In this regard, the researchers noted that retailers enjoy a higher markup than traders across all commodities, reflecting significant product loss at the retail stage.


Export restrictions on agricultural products add to the existing woes of farmers. The paper found that the majority of traders seemed to have lowered the procurement prices paid to farmers in response to price-based export restrictions. Dominant use of cash in settling payments at mandis may add to the price wedge, motivating an increased adoption of digital payments by farmers and other agents along the supply chain. Further, better road infrastructure, increased market and tele-density have helped reduce markups for traders and retailers. High mandi concentrations in local areas can help farmers realise higher prices through spatial competition. Government initiatives in this direction, such as the creation of a unified national agriculture market (e-NAM), significant budgetary allocations for development of a robust agri-logistics system, and integration of the Kisan Rath mobile app with e-NAM are welcome steps for connecting farmers, farmers producers organisations, and traders, for seamless movement along the supply chain. In sum, increased competition in the supply chain, development of agri clusters, and digital modes of transaction can make the agricultural supply chain more efficient and contain spikes in food prices, thereby helping manage the overall food economy.




January 23, 2024

Behind high investment rate

Strong corporate profitability doesn’t guarantee an investment boom


Last week, an article on the state of the economy by the Reserve Bank of India (RBI) staff acknowledged “a shift from consumption to investment,” and said that this underpinned the upside surprise in the National Statistical Office’s first advance estimates of the national income (real GDP growth of 7.3%) for FY24. The authors including deputy governor Michael Debabrata Patra talked about the government’s thrust on capex “starting” to crowd-in private investment, and the “ebullience in residential housing.” The rate of real fixed investment is at a historic high (of nearly 35%) in 2023-24 and this “augurs well for enhancing the productive capacity of the economy and hence its potential,” they noted. In a recent interview to a news agency, Monetary Policy Committee (MPC) member Jayanth R Varma was more nuanced, in saying that, capacity utilisation has been “slowly creeping up” and approaching levels that prompt the private sector to undertake capital expenditure “at least in some sectors.”


However, all this optimism may require to be discounted for a host of reasons. The current spurt in investment rate—the ratio of gross fixed capital formation to the GDP—is predominantly the result of the peak reached by public investments. Apparently, it has very little to do with any small, incremental rise in private investments. To be sure, the Centre’s Budget capex grew an unprecedented 43% in the first half of this fiscal; large central public sector enterprises, the NHAI and the Railways have seen combined annual investment growth of 22.4% in April-December; states too have pitched in with 45% year-on-year growth in capex outlay in April-November, thanks to the Centre’s special capex loan scheme, faster tax devolution, and fairly strong “own tax revenues.”


The pace of government capex would inevitably moderate now. This is because any serious digression from the demanding medium-term fiscal glide path is unaffordable for the country. Incremental capex by the Centre, for instance, may be limited to less than Rs 1 trillion each in FY25 and FY26, compared with Rs 2.7 trillion (Budget Estimate) in the current fiscal. The last few quarters have witnessed the odd trend of public capex surpassing private investments in absolute terms (historically, even when private investments fell, this wasn’t the case). As per the CMIE, projects completed in the nine quarters to Q3FY24 in the public sector was nearly 1.5 times those in private sector in value terms. Private-sector project announcements in the period were, however, 3.5 times the government sector’s. Clearly, the private sector hasn’t yet picked up the baton from the government even as the latter is now left with much reduced fiscal firepower.


True, corporate “profitability is rising quarter after quarter,” but it would be implausible to expect this to induce much fixed asset creation, when consumption is languishing. The current spell of robust corporate profitability is largely due to lower input costs, benign tax rates, and depletion of household savings. The marginalisation of a section of the unlisted firms and small enterprises has also bolstered the bottom lines of large listed companies. Durable signs of a private investment cycle is a reasonably leveraged corporate sector, and a moderately indebted household sector. The current account deficit is modest now, which implies limited inflow of foreign savings. At this point, scarce and unevenly distributed domestic savings would hardly suffice to finance (high) economic growth. More steps are urgently required to encourage household savings and corporate investments.



January 23, 2024

Defend ships in Red Sea, but tax them too


Ship owners are diverting vessels thousands of miles round the southern tip of Africa in response to Houthi attacks in the Rea Sea, boosting freight rates from low levels and encouraging investors to bid up shipping stocks. The crisis should draw renewed attention to an industry that mostly operates outside global taxation norms and now expects governments to protect it.


Western governments have dispatched navies to protect ships wanting to transit the Suez Canal—a key artery for global trade — and the US and UK have begun airstrikes on Houthi targets in Yemen to prevent more attacks.


These maritime defense efforts are essential; seafarers are in peril, manufacturers have been forced to curtail production and such upheaval could yet reignite inflation. But they’re not cheap. From this year large multinational companies are subject to a minimum 15% tax rate on their earnings, but the shipping industry successfully lobbied the Organisation for Economic Co-Operation and Development for an exemption.


This has preserved a system whereby ships are often registered in lightly regulated, low-tax jurisdictions known as open registries and fly a so-called flag of convenience rather than that of the country of ownership. Some 44% of the world’s ships by dead-weight tonnage are registered in just three countries — Panama, Liberia and the Marshall Islands. (This represents a dramatic change from the 1950s when open registries accounted for less than 5% of the global fleet.)


To counteract open registries, more than 20 European countries, plus South Korea and Japan, have offered ship owners preferential treatment whereby they are taxed according to their fleet’s tonnage rather than the profits earned.


The effective tax rate paid by the world’s shipping companies was just 7% between 2005 and 2019, according to a study by Olaf Merk, head of ports and shipping at the OECD’s International Transport Forum. Some categories paid considerably less: The average tax rate for liquid bulk carriers such as oil Bloom berg tankers was just 3%,        while cruise lines paid an average of 0%.


Trade unions have long criticized flags of convenience for undermining labor standards, but shipping firms’ cushy tax arrangements received little attention — in part because this cyclical industry often lost money. That changed when container-shipping companies suddenly began generating billions of dollars of profit during the Covid-19 pandemic, and some revealed they owed as little as 1% in taxes and governments forwent billions in potential revenue.


Even the boss of German container-shipping giant Hapag-Lloyd AG conceded in 202 2 that low tonnage tax rates aren’t fair. His discomfort didn’t prevent Hapag  paying out a total of €17.3 billion ($18.8 billion) of dividends for the 2021 and 2022 financial years. There’s been progress on promoting competition in shipping and penalising pollution, but exempting it from the global minimum tax was a missed opportunity.

The lesson of the pandemic and now the Houthis is that ocean trade is acutely susceptible to disruption; and in a multipolar world, freedom of navigation is no longer a certainty. The Houthis don’t differentiate between the nationality of the ship owner and the flag it flies. And nobody seriously expects the Marshall Islands, Liberia or Panama to sail to the rescue if a vessel is attacked. That’s up to the US, UK and allies.


This “freeloading” requires a “rethink” of flags of convenience once hostilities have ceased, according to a post on X(the service formerly known as Twitter) by Kevin Rowlands, head of Royal Navy Strategic Studies Centre, the British force’s internal

think tank. Meanwhile, a UK parliamentary committee warned in 2022 that the use offlags of convenience has created a “jurisdictional vacuum” on the high seas.


Ironically, the shipping industry argued for its exemption from the OECD minimum on the basis that maintaining a domestic shipping fleet via tax subsidies was important for national security. In fact, the need for governments to defend cargo vessels in international waters—at considerable expense—is a good reason to tax shipowners properly.



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