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  • India-China Trade in ancient times: Southern Silk Route

    India-China Trade in ancient times: Southern Silk Route

    To follow the Silk Road is to follow a ghost. It flows through the heart of Asia, but it has officially vanished leaving behind the pattern of its restlessness: counterfeit borders, unmapped peoples. The road forks and wanders wherever you are. It is not a single way, but many: a web of choices.

     Colin Thubron, Shadow of the Silk Road.

     

    Introduction

    India and China, two Asian giants, share a lot of similarities in terms of history and culture. Both countries represent age old civilizations and unique history. Cultural and economic ties between the two countries date back to about 2000 years ago. The Silk Route, which is an ancient network of trade routes, formally established by the Han Dynasty, served as a connection between the two countries. It was also through this route that Buddhism spread to China and East Asia from India. The routes were more than just trade routes; it was the carrier of ideas, innovations, inventions, discoveries, myths and many more.

    The earliest mention of China can be found in the Indian text “Arthashastra” which was written by Kautilya in the fourth century BC. Kautilya made a remark about Cinapattasca Cinabhumjia (Cinapatta is a product of China)[1]. Whereas, the earliest mention of India in Chinese records dates between 130 and 125 BC.  Zhang Qian, a Chinese envoy to Central Asia, referred to India as Shendu, in his report about India to Emperor Wu of the Han dynasty.

    This article will look into the ancient trade route that existed between South Western China and India’s North East region via Myanmar and the future of the trade route.

    Ancient trade links between India and China

    Shiji, which is the first Chinese dynastic history, compiled between 104 and 87 BCE talks about the existence of a trading route between India and South West China. According to Chinese records, Emperor Wu of the Han dynasty, tried to establish a trade route from Changan, the Chinese capital to North East India through Yunnan and adjoining areas. However, the rulers of Yunnan were against the idea of establishing a direct trade between India and China and Emperor Wu failed to establish the trade route. Even though the trade route failed to take off, the trade in Cinapatta and Chinese square bamboo continued without any hindrance.

    Political Geography of the Southern Silk Route

    The Southern Silk route (SSR), one of the least studied overland route, is a trade route which is about 2000 km long and linked East and North East India with Yunnan Province of China via Myanmar. This is a relatively unknown, ancient trade route that is considered a part of the larger web of Silk Roads. This route existed before the Central Asian Silk route became popular. This trade route between Eastern India and China came to be known during the early 3rd century BCE, and it became popular by the 2nd century BCE. By 7th century AD various other branches of the SSR emerged to create web of trading routes.

    Traders carried silk from Yunnan through Myanmar, across India and joined the main silk route in Afghanistan. In addition, silk was also transported from South West China through the Shan states and North Myanmar into East India and then down to the Coromandel Coast.

    The Qing dynasty which ruled China from 1644-1912, recorded the cross cultural exchanges that took place across SSR. This route contributed to cultural exchanges between China and the West. It also promoted interactions among different nationalities.

    Indian sources have failed to provide abundant evidence about the SSR and the interaction that took place across this route but there is enough evidence that indicates that trade and migration did take place in the Eastern India-Upper Myanmar-Yunnan region. For example, modern scholars believed that the Tai Ahoms were originally from Yunnan but they migrated to North East India and founded a small kingdom around 13th century, which grew to become the powerful Ahom Kingdom of Assam.

    The areas through which the SSR passed were inhabited by various ethnic groups whose political, social and economic organizations were primitive and backward. As a result, the safety of the route was often questioned. Archeological evidences have been found along the Southern banks of Brahmaputra up to Myanmar border, which shows that trade did exist along this route.

    The main items that were exported from China via this route included Silk, Sichuan cloth, Bamboo walking sticks, ironware and other handicrafts items.  Sichuan, a South Western province was the main source of silk. Glass beads, jewels, emeralds etc were some of the items that were imported to China.

    Another important trade route is the South West Silk route or the Sikkim Silk route, which connected Yunnan, and India through Tibet. A section of the route from Lhasa crossing Chumbi Valley, Nathu La Pass connected to the Tamralipta Port (present day Tamluk in West Bengal). From the Tamralipta port, this trade route took to the sea to traverse to Sri Lanka, Bali, Java and other parts of the Far East.  Another section of the route crossed Myanmar and entered India through Kamrup (Assam) and connected the ports of Bengal and present day Bangladesh.

    Over time, the Southern Silk Route lost its prominence and it was in 1885 that it re- emerged as a strategic link as the British tried to control some parts of the route in order to access and gain control over Southern China.

    The strategic importance of the route increased during World War II. In 1945, Ledo Road or Stilwell Road was constructed from Ledo, Assam to Kunming, Yunnan to supply aid and troops to China for the war with Japan. Ledo Road is the shortest land route between North East India and South West China. However, after the war the road was left unused and in 2010, BBC reported that much of the Ledo road has been swallowed up by jungle.

    The Assam-Myanmar-Yunnan road is very difficult to traverse not only in the present times but also during the ancient times. However, despite the hard conditions, it is through this route that a golden triangle of drug trafficking, movement of terrorist and smuggling functions today.

    Future Potential: Reviving the Southern Silk Route Economy

    North-East India and the Yunnan province share many similarities. Both are landlocked as well as under developed regions. Both are home to a large number of ethnic groups and have witnessed secessionist movement from time to time. Apart from this, Yunnan and North East India are geographically isolated from their political capitals.

    Yunnan and North East India, home to rich varieties of subtropical fruits with high nutritional values and medicinal plants, can cooperate and transform the hills of North East India and South West China into plantations, factories, laboratories to produce processed food products and lifesaving drugs that can find a huge market in developing and developed countries.

    In a bid to revive the Southern Silk route, Bangladesh, China, India and Myanmar, signed the Kunming Initiative, a sub-regional organization, in 1999. This initiative was replaced by the Bangladesh-China-India-Myanmar Economic Corridor (BCIM-EC) in 2015. The BCIM-EC was announced by China as a part of its Belt-Road Initiative, which has been boycotted by India since the beginning. In 2019, the BCIM-EC was dropped from the list of 35 projects that are to be undertaken under BRI, indicating that China has disreagrded the project. However, in the same year India has sought to keep the BCIM-EC project alive.

    If the BCIM-EC project does take place, it will reduce the travel time, cut transportation cost, open up markets, provide way for joint exploration and development of natural resources and create production bases along the way. Before the BCIM-EC takes off, it is important to develop the roadways infrastructure of India’s North East region.

    Even though the BCIM-EC promises to elevate the economic conditions of the backward North-East region of India, it has not gained sufficient steam as both China and India have different apprehensions. China sees India’s reluctance to support BRI as the barrier for any progress in the project. Given the current stand-off in Ladakh, India’s apprehensions about China seeking to exploit the insurgent groups operating in the region gains significance. Either way realizing the Southern Silk Road as a viable project in the form of BCIM-Economic Corridor looks distant now.

     

    [1]Haraprasad Ray, “Southern Silk Route: A Perspective,” in The Southern Silk Route : Historical Links and Contemporary Convergences (Routledge, 2019).

    References

    Ray, Haraprasad. “Southern Silk Route: A Perspective.” Essay. In The Southern Silk Route: Historical Links and Contemporary Convergences. Routledge, 2019.

    “Continental and Maritime Silk Routes: Prospects of India- China Co-operations.” In Proceedings of the 1st ORF-ROII Symposium. Kunming, 2015.

    Mukherjee, Rila. “Routes into the Present.” Essay. In Narratives, Routes and Intersections in Pre-Modern Asia, 37–40. Routledge, 2017.

    UNESCO. Accessed June 20, 2020. https://en.unesco.org/silkroad/content/did-you-know-great-silk-roads.

    “The Silk Route.” Accessed June 21, 2020. http://www.sikkimsilkroute.com/about-silk-route/.

    Ray, Haraprasad. Introduction. In North East India’s Place in India-China Relations and Its Future Role in India’s Economy, n.d.

    Chowdhury, Debasish Roy. “’Southern Silk Road’ Linking China and India Seen as Key to Boosting Ties.” South China Morning Post, October 23, 2013.

    “China Wants to Revive ‘Southern Silk Road’ with India.” The Times of India, June 9, 2013.

     

    Image: Stilwel Road from Ledo in Northeast India to Kunming in Yunnan province, China

     

  • India’s Agriculture: The Failure of the Success

    India’s Agriculture: The Failure of the Success

    It was around the mid-1960s when the Paddock brothers, Paul and William, the ‘prophets of doom’, predicted that in another decade, recurring famines and an acute shortage of food grains would push India towards disaster. Stanford University Professor Paul R. Ehrlich in his 1968 best selling book The Population Bomb warned of the mass starvation of humans in the 1970s and 1980s in countries like India due to over population.

    Their prophecies were based on a rising shortage of food because of droughts, which forced India to import 10 million tonnes of grain in 1965-66 and a similar amount a year before. Little did they know that thanks to quick adoption of a new technology by Indian farmers, the country would more than double its annual wheat production from 11.28 million tonnes in 1962-63 to more than twice that within ten years to 24.99 million tonnes. It was 71.26 million tonnes in 2007. Similarly rice production also grew spectacularly from 34.48 million tonnes to almost 90 million tonnes in 2007.

    Total food grains production in India reached an all-time high of 251.12 million tonnes (MT) in FY15. Rice and wheat production in the country stood at 102.54 MT and 90.78 MT, respectively. India is among the 15 leading exporters of agricultural products in the world. The value of which was Rs.1.31 lakh crores in FY15.

    India is among the 15 leading exporters of agricultural products in the world. The value of which was Rs.1.31 lakh crores in FY15.

    Despite its falling share of GDP, agriculture plays a vital role in India’s economy. Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood. Census 2011 says there are 118.9 million cultivators across the country or 24.6 per cent of the total workforce of over 481 million. In addition there are 144 million persons employed as agricultural laborers. If we add the number of cultivators and agricultural laborers, it would be around 263 million or 22 percent of the population. As per estimates by the Central Statistics Office (CSO), the share of agriculture and allied sectors (including agriculture, livestock, forestry and fishery) was 16.1 per cent of the Gross Value Added (GVA) during 2014–15 at 2011–12 prices. This about sums up what ails our Agriculture- its contribution to the GDP is fast dwindling, now about 13.7 per cent, and it still sustains almost 60 per cent of the population.

    If we add the number of cultivators and agricultural laborers, it would be around 263 million or 22 percent of the population. As per estimates by the Central Statistics Office (CSO), the share of agriculture and allied sectors (including agriculture, livestock, forestry and fishery) was 16.1 per cent of the Gross Value Added (GVA) during 2014–15 at 2011–12 prices.

    With 157.35 million hectares, India holds the world’s second largest agricultural land area. India has about 20 agro-climatic regions, and all 15 major climates in the world exist here. Consequently it is a large producer of a wide variety of foods. India is the world’s largest producer of spices, pulses, milk, tea, cashew and jute; and the second largest producer of wheat, rice, fruits and vegetables, sugarcane, cotton and oilseeds. Further, India is 2nd in global production of fruits and vegetables, and is the largest producer of mango and banana. It also has the highest productivity of grapes in the world. Agricultural export constitutes 10 per cent of the country’s exports and is the fourth-largest exported principal commodity.
    According to the Agriculture Census, only 58.1 million hectares of land was actually irrigated in India. Of this 38 percent was from surface water and 62 per cent was from groundwater. India has the world’s largest groundwater well equipped irrigation system.

    There is a flipside to this great Indian agriculture story.The Indian subcontinent boasts nearly half the world’s hungry people. Half of all children under five years of age in South Asia are malnourished, which is more than even sub-Saharan Africa.

    More than 65 per cent of the farmland consists of marginal and small farms less than one hectare in size. Moreover, because of population growth, the average farm size has been decreasing. The average size of operational holdings has almost halved since 1970 to 1.05 ha. Approximately 92 million households or 490 million people are dependent on marginal or small farm holdings as per the 2001 census. This translates into 60 per cent of rural population or 42 per cent of total population.

    Approximately 92 million households or 490 million people are dependent on marginal or small farm holdings as per the 2001 census.

    About 70 per cent of India lives in rural areas and all-weather roads do not connect about 40 per cent of rural habitations. Lack of proper transport facility and inadequate post harvesting methods, food processing and transportation of foodstuffs has meant an annual wastage of Rs. 50,000 crores, out of an out of about Rs.370, 000 crores.

    There is a pronounced bias in the government’s procurement policy, with Punjab, Haryana, coastal AP and western UP accounting for the bulk (83.51 per cent) of the procurement. The food subsidy bill has increased from Rs. 24500 crores in 1990-91 to Rs. 1.75 lakh crores in 2001-02 to Rs. 2.31 lakh crores in 2016. Instead of being the buyer of last resort FCI has become the preferred buyer for the farmers. The government policy has resulted in mountains of food-grains coinciding with starvation deaths. A few regions of concentrated rural prosperity.

    The total subsidy provided to agricultural consumers by way of fertilizers and free power has quadrupled from Rs. 73000 crores in 1992-93, to Rs. 3.04 lakh crores now. While the subsidy was launched to reach the lower rung farmers, it has mostly benefited the well-off farmers. Free power has also meant a huge pressure on depleting groundwater resources.
    These huge subsidies come at a cost. Thus, public investment in agriculture, in real terms, had witnessed a steady decline from the Sixth Five-Year Plan onwards. With the exception of the Tenth Plan, public investment has consistently declined in real terms (at 1999-2000 prices) from Rs.64, 012 crores during the Sixth Plan (1980-85) to Rs 52,107 crores during the Seventh Plan (1985-90), Rs 45,565 crores during the Eighth Plan (1992-97) and about Rs 42,226 crores during Ninth Plan (1997-2002).

    With the exception of the Tenth Plan, public investment has consistently declined in real terms (at 1999-2000 prices) from Rs.64, 012 crores during the Sixth Plan (1980-85) to Rs 52,107 crores during the Seventh Plan (1985-90), Rs 45,565 crores during the Eighth Plan (1992-97) and about Rs 42,226 crores during Ninth Plan (1997-2002).

    Share of agriculture in total Gross Capital Formation (GCF) at 93-94 prices has halved from 15.44 per cent to 7.0 per cent in 2000-01. In 2001-02 almost half of the amount allocated to irrigation was actually spent on power generation. While it makes more economic sense to focus on minor irrigation schemes, major and medium irrigation projects have accounted for more than three fourth of the planned funds
    By 2050, India’s population is expected to reach 1.7 billion, which will then be equivalent to nearly that of China and the US combined. A fundamental question then is can India feed 1.7 billion people properly? In the four decades starting 1965-66, wheat production in Punjab and Haryana has risen nine-fold, while rice production increased by more than 30 times. These two states and parts of Andhra Pradesh and Uttar Pradesh now not only produce enough to feed the country but to leave a significant surplus for export.

    Since food production is no longer the issue, putting economic power into the hands of the vast rural poor becomes the issue. The first focus should be on separating them from their smallholdings by offering more gainful vocations.

    Farm outputs in India in recent years have been setting new records. It has gone up from 208 MT in 2005-06 to an estimated 251 MT in 2014-15. Even accounting for population growth during this period, the country would need probably around 225 to 230 MT to feed its people. There is one huge paradox implicit in this. Record food production is depressing prices. No wonder farmers with marketable surpluses are restive.

    India is producing enough food to feed its people, now and in the foreseeable future. Since food production is no longer the issue, putting economic power into the hands of the vast rural poor becomes the issue. The first focus should be on separating them from their smallholdings by offering more gainful vocations. With the level of skills prevailing, only the construction sector can immediately absorb the tens of millions that will be released. Government must step up its expenditures for infrastructure and habitations to create a demand for labor. The land released can be consolidated into larger holdings by easy credit to facilitate accumulation of smaller holdings to create more productive farms.

    Finally the entire government machinery geared to controlling food prices to satisfy the urban population should be dismantled. If a farmer has to buy a motorcycle or even a tractor he pays globally comparative prices, why should he make food available to the modern and industrial sector at the worlds lowest prices?
    Why should Bharat have to feed India at its cost?

    Image: Kanyakumari farm lands during onset of monsoon. 

     

  • Covid 19: India uses Crisis to bring-in Economic Reforms as Package

    Covid 19: India uses Crisis to bring-in Economic Reforms as Package

    India’s four-phase lockdown of 68 days to deal with the Covid-19 threat has, while slowing the spread of the virus, come at huge economic costs. The lockdown for a vast majority of the people is, undoubtedly, the harshest in the world.

    The coronavirus triggered lockdown and its ensuing series of extensions have disrupted more than 60 percent of economic activities in the country, posing a huge threat to the  economy. The crisis was underway when the global economy was slowing down and India, in particular, had to deal with a poor health care system and an economy already under distress. Unemployment rate is estimated to be around 27 percent post lockdown and has resulted in nearly 12.2 crore people losing their jobs. In addition, a  severe slump in consumer demand is expected to persist for the next few quarters. Almost 85 percent of India’s workforce is engaged in the informal sector – quite naturally the government is under stress to implement effective policy reforms to counter the downturn. 

    In response to the contraction in the economy, the Prime Minister has announced a second round of economic package that stands at roughly around 10 percent of the Gross Domestic Product. The USA and Japan have announced relief packages of 13 and 21 percent of their GDP respectively. In comparison, India has seemingly provided a substantial Rs 20 lakh crore stimulus- highlighting the concept of ‘self-reliance’ as a way forward to deal with the economy post the pandemic. The stimulus package includes previous steps taken by RBI such as moratorium on loan repayments, interest rate cut, etc. In the five tranches of the stimulus package, the Finance Minister has announced a slew of measures to address the structural issues of Indian economy. However, it is estimated that the immediate fiscal boost will be only around 1 percent of GDP and most of the fiscal and monetary policies will attract long term capital with medium run  stabilization of the economy.

     

    Micro Medium and Small Scale Enterprises 

    Focusing on reviving the small businesses and micro enterprises, under this tranche Rs 3 lakh crore is allocated for collateral free loans for business enterprises. This package is estimated to be around Rs 5.94 lakh crore including RBI measures to improve liquidity in the economy. However, the direct fiscal cost for the government is around Rs 16,500 crore. For the stressed MSME units, the central government is planning to facilitate Rs 20,000 crore as subordinate debt and Rs 50,000 crore through equity infusion. Non Banking Finance Companies (NBFC) that serve the MSMEs will receive Rs 30,000 crore under investment guarantee scheme. While the six broad measures look attractive, the MSME sector in India is dominated by micro enterprises that are largely unregistered. However, these measures will not immediately benefit the micro business units with necessary working capital. Most of the enterprises and small business units are cash strapped and are on the verge of disappearing. Ninety-nine percent of the sector comprises micro enterprises – businesses with less than 10 working employees.

    Most of the enterprises and small business units are cash strapped and are on the verge of disappearing. Ninety-nine percent of the sector comprises micro enterprises – businesses with less than 10 working employees. 

    While the government has taken supply side measures to incentivize businesses, two important challenges remain intact. One, the large number of unregistered micro businesses might not benefit from the credit line offered by the government. Two, if the demand recovers slowly, it is likely the business sector especially small enterprises will suffer despite credit being infused. It is important to note that the supply and demand side has to be revived at the same rate to ensure sustainability of the MSME business. 

     

     

    Migrant labourers and Farmers: 

    Second stimulus of the Finance minister’s announcement was focused on migrant labourers and farmers. Close to 150 million internal migrants are present in India according to the latest census report.  Rs 3500 crores is to be spent on migrant labourers not covered under the Public Distribution System (PDS). Rs 5000 crore is set aside to facilitate easy access to street vendors. Funds worth Rs 6000 crore is planned for enhancing employment among adivasis and tribal groups. For the next two months, around 8 crore migrant labourers not covered under PDS will be provided 5kgs of grains per person and 1 kg chana per family in a month. ‘One Nation One Ration Card’ is a welcome move given the leakages present in the PDS, but the national coverage of this scheme is expected only by March 2021.  Additionally, in the National Food Security Act, 2013 , based on the 2011 census data, it is estimated that around 100 million people do not fall under this safety net accounting for growth in population over the past decade. The initiative to record and track the data on unregistered labourers is important for fiscal stimulus response to a COVID hit economy. National portability of ration cards is important but the execution is time consuming and does not address the problem of people being excluded from the ration card system. Universalizing PDS and decentralizing decisions to achieve food security with an efficient supply chain should be an immediate intervention. States with higher migrant labourers and people with less access to PDS should be targeted to universalise food distribution.  Acknowledging the shortcomings of the PDS and food supply channel, an emergency plan to ensure food supply to people below poverty line for the next six months needs to be prioritised.

     

    ‘One Nation One Ration Card’ is a welcome move given the leakages present in the PDS, but the national coverage of this scheme is expected only by March 2021. 

     

    Agriculture and Allied activities:

    Under the third tranche of the economic stimulus package, the government has taken bold measures to invest in agriculture and allied activities. Total package announced was worth Rs 1.63 lakh crores – relatively less compared to earlier stimulus packages. The main focus was on enhancing agriculture infrastructure, financing farm gate produce and improving post harvest supply.  A series of other funds were allocated for disease control for animal husbandry, promotion of herbal products and fisheries. Rs 10,000 crore was unveiled to support 2 lakh Micro Food Enterprises on a cluster based approach. 

    Lack of cold storage and supply chain was identified by the government to create an Agriculture Infrastructure Fund of Rs 1 lakh crore. A big push for agriculture reforms was spelled out by the decision to deregulate six commodities including cereals, pulses, oil and vegetables by amending  the Essential Commodity Act, 1955.

    Many experts believe the reforms undertaken were long due for India to enhance productivity of the agriculture  sector. But deregulation of essential products during the time of lockdown with poor food supply chains might not be beneficial especially for marginal farmers.  Almost 92 percent of the Food Supply Chain is controlled by the private sector and most of the farmers are not informed about Minimum Support Price and adopt unscientific farming practices. With liquidity constraint in the economy, demand for essential food is substantial. Factoring the drawbacks of PDS in supplying food items to the bottom section – a high probability of market failure is underway potentially hurting both farmers and consumers. Except for concessional credit for farmers and agriculture loans, the package has  limited scope to reduce the distress faced by the agrarian sector in near future. As far as the reforms are concerned, there was a clear bias towards post harvest investment. However, the productivity and scale of production has been the biggest problem in India that requires effective land reforms. India’s agriculture sector also suffers without adequate investment in Technology and Research & Development. During an unprecedented crisis, Indian government is pushing for big reforms but the structural issues of marginal-land farming are largely ignored. Even as a reform package─it is evident that it is likely to benefit primarily large farmers in the medium term.

    Except for concessional credit for farmers and agriculture loans, the package has  limited scope to reduce the distress faced by the agrarian sector in near future.

     Infrastructure, Defence  & Aerospace 

    Under this package, eight key sectors: coal, minerals, defence production, aerospace management, airports, power distribution, space and atomic energy were in the spotlight. In an effort to boost employment, a proclamation of structural reforms was stated in the fourth  tranche. The coal and mining industry is expected to receive an infrastructure development fund – making the sector self-reliant in production. The Foreign Direct Investment limit in defence has been increased from 49 percent to 74 percent to encourage foreign investment in production. In the aviation industry, India decided to open up 6 airports for auction. Additionally, three airports are to be operated under the Public Private Partnership model. Optimization of air space, building a hub for aircraft maintenance and overhaul are some of the important measures covered under this package. 

    Privatization and Globalization (New Economic Policy, 1991)- COVID-19 crisis has offered a space for the government to initiate certain radical measures to privatise a few industries.

    Private partnerships in the areas of space exploration and atomic energy offers an immense potential for private companies to get incubated for research and development. Sharing an economic pressure similar to the 1991 Balance of Payment crisis that resulted in Liberalization, Privatization and Globalization (New Economic Policy, 1991)- COVID-19 crisis has offered a space for the government to initiate certain radical measures to privatise a few industries. The measures will undoubtedly help the business ecosystem in India to develop in the medium term.  Though there seems to be a claim about substantial job creation this is not likely to happen immediately. 

    Rural Employment & Public Health

    In the final announcement, Rs 40,000 crore was allotted to Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) to replace direct transfer from central government to migrant workers. Inadequate data about inter state informal labourers has placed limitations on policy formulation during the time of crisis. Under the Pradhan Mantri Garib Kalyan Yojna, Rs 50 lakh per person insurance cover will be applicable for health professionals. To ensure ease of doing business, non adherence to the Companies’ Act will be decriminalised. The government also committed to increasing health expenditure to face pandemics in the future. The finance minister also encouraged companies to entertain the idea of digital India to conduct meetings and businesses online. 

    The last two announcements together accounted for Rs 48,500 crore and experts criticize that most of them do not provide immediate relief for the people in distress. 

    Conclusion

    India has evidently seized the opportunity during the crisis to introduce reforms to boost the economy in the long run. The reform package undoubtedly is impressive on paper but in terms of immediate support to various sectors in distress it offers little. For example, a large part of the package – Rs 8.04 lakh crore- is additional liquidity injected by monetary policy in the last three months.  An investment bank has predicted that India will face a deeper recession in the short term but the economic stimulus would help the economy after a few quarters. As a consequence the real growth rate is to drop down by 5 percent year-on-year in 2020. Even after a massive package, the situation of poor and middle-class people remains bleak. The reforms might bear fruits in future but deferring the policy response to address current challenges will manifest into huge burden on vulnerable sections of the people. Current economic crisis has undoubtedly offered the central government to take advantage of the weak bargaining power of the stakeholders to push reforms but low attention is paid to immediate distress.

    The author was supported by Ms S P Bharani, on summer internship at TPF.

    Image Credit: Adobe Stock

  • CDS: A Welcome Reform and the Challenges Ahead

    CDS: A Welcome Reform and the Challenges Ahead

    The Year 2020 ushered in a momentous reform for higher defence management (HDM) in India with the government implementing PM Narendra Modi’s announcement made earlier from the ramparts of the Red Fort on 15th Aug 2019, on establishing the institution of the Chief of Defence Staff (CDS). Retiring Army Chief General Bipin Rawat, not surprisingly, was appointed as the first CDS of the Indian Armed Forces. The unique honour brings with it myriad challenges lying ahead for the new appointee.

                To those at home and abroad who are accustomed to the working of governments of all political hues in India it should not be a surprise that this  critically vital appointment  took over 18 years to materialise. To recall, as part of the many HDM reforms this appointment was also approved by the NDA led Vajpayee government way back in 2001, after the 1999 Kargil War, based on the recommendations of the Subramanyam led Kargil Review Committee (KRC). Bureaucratic sluggishness, lack of will among different political dispensations as also the fact that there could be indifference on matters of even national security broadly explain the long delay. Thus, the Modi government deserves full credit for institutionalizing the long overdue appointment of the CDS. However, the designated role of CDS, the status and the government charter laying down all the details are still being worked out.

    Chief of the Defence Staff (CDS)

    As promulgated by the government, the CDS will be a ‘four star’ officer and will be considered as the ‘first among equals’ in relation to the chiefs of the Army, Navy and the Air Force. He will be the permanent Chairman of the Chiefs of Staff Committee (COSC) and can serve till 65 years of age. KRC recommended that CDS appropriately should  be a ‘five star officer’ considering his onerous responsibilities and role.

    Now that the government has given the green signal for the CDS to commence functioning to provide the desired levels of integration in all tri-service matters including policy, operational, training, communications, logistical aspects and so on, the CDS will be confronted with myriad challenges in achieving his onerous missions. Apart from an unwavering encouragement support from the Prime Minister’s Office (PMO) and the Ministry of Defence (MOD), the CDS will require more than a willing assistance from the three services to truly get-off the ground. As is natural and customary, no service likes to shed its resources and time honoured responsibilities to newer organizations. Having raised the Defence Intelligence Agency (DIA) way back in 2002, as a result of the same KRC recommendations, I am more than aware of the reluctance of the three Services to shed some of their assets and roles which will now be managed by the CDS. Thus, General Rawat will have to orchestrate extracting resources from the three Services for the new organizations, formations and units directly under his command being raised, with tact and sensitivity.

    Re-organisation of MOD: an analysis

                The MOD, till recently,functioned with four departments namely the Departments of Defence (DOD), Defence Production, Defence Research and Development as well as Ex Servicemen Welfare – each headed by a Secretary – ranked officer. On 30th Dec 2019, the government promulgated a gazette notification establishing the fifth department to be called the Department of Military Affairs (DMA) to be headed by the newly appointed CDS. The Rules of Business existing since 1961 and reallocation of certain responsibilities with the Defence Secretary have been modified though this has also invited adverse comments from defence analysts in India on the ground that the desired level of responsibilities had not been given to the CDS.

                In the last many years, right from the acceptance of the KRC and its approval by  LK Advani led Group of Ministers and subsequently by the Vajpayee government in 2001, it had been accepted by all that the CDS was urgently required as a major reform of  India’s higher defence management. The CDS was required to provide single-point professional military advice to the political leadership. However, what apparently has happened now is that the CDS will be providing his advice to the Defence Minister only and not to both the Prime Minister and Defence Minister. Many see in this, a case of bureaucratic play to reduce the importance of the CDS.

                 In the orders recently issued by the government, four key responsibilities have been taken away from the DOD under the Defence Secretary and now put under the DMA which includes the three services and their headquarters, the Territorial Army and works relating to the army, navy and the air force. Non-capital purchases and promoting jointness in procurement, operations, training, communications, logistics (including repairs and maintenance) and encouraging use of indigenous equipment and platforms will be in the CDS charter.

                Entry 1 of the amended charter for the DOD states that “Defence of India and every part thereof including defence policy and preparation for defence and all such acts as may be conducive in times of war to its prosecution and after its termination to effective demobilization” will be with the Defence Secretary.  This has apparently been done to ensure the primacy of the civil bureaucracy. Why can’t the responsibility of defence policy and the mandate for defence of India not rest with the Defence Minister if this charter, was to be kept away from the CDS?

    Why can’t the responsibility of defence policy and the mandate for defence of India not rest with the Defence Minister if this charter, was to be kept away from the CDS?

                The other amendment is in the field of defence purchases where the earlier formulation of “procurement exclusive to the defence services” has been altered to “capital acquisition exclusive to the defence services.” This means that big-ticket acquisitions will be in the Defence Secretary’s ambit creating an impression of paucity of faith in the CDS in this matter.

    The existing HQ Integrated Defence Staff could have been the backbone for this new integrated structure within the MOD brining about cost-effectiveness as well. 

                The Department of Military Affairs will have a structure that rightly includes civilian bureaucracy as well. The CDS will be assisted by two joint secretaries and a dozen deputy secretary level officers. Ideally not only the CDS but the entire MOD should have seen complete integration of the civil bureaucracy with the military. The existing HQ Integrated Defence Staff could have been the backbone for this new integrated structure within the MOD brining about cost-effectiveness as well.  Military and civil officers should be working in various departments of the MOD in unison. The Defence Secretary could have been retained, as the coordinator of all the departments. The DMA could have been headed by a Secretary level Vice Chief of the Defence Staff (VCDS) to enable the CDS, in the MOD, to concentrate primarily on critical strategic issues for advising the Prime Minister and Defence Minister on macro-management of defence strategy.

                The Defence Secretary’s charter also includes  military cantonments, veterinary and military farms, land acquisition for defence, Border Roads Organisation, purchasing food items for defence and even the Canteen Stores Department – virtually covering all issues and portfolios related to financial expenditure and management! Surprisingly, even the management of the National Defence College (NDC) and the Institute of Defence Studies has been kept with the Defence Secretary!

    The DMA could have been headed by a Secretary level Vice Chief of the Defence Staff (VCDS) to enable the CDS, in the MOD, to concentrate primarily on critical strategic issues for advising the Prime Minister and Defence Minister on macro-management of defence strategy.  

    Theatre commands

                One of the critical issues, after the establishment of the CDS system, would be the widely discussed recommendation that integrated inter-service theatre commands should be established to exercise control over all operations in each theatre as practiced in many nations of the world including US and China. Currently the three services have their own operational commands that make for a total of 17 command HQs.  In addition, the Indian Armed Forces through HQ IDS have under their control only one tri-service command headquarters, namely the Andaman and Nicobar Command (ANC). The Strategic Forces Command (SFC), though led, manned and operated primarily  by personnel from the three services have their ultimate command authority  vested in the Nuclear Command Authority directly under the PM/National Security Council.

                The CDS has been tasked with the responsibility of restructuring military commands for optimal utilization of resources by bringing in jointness in operations through the establishment of joint theatre commands. However, many Indian analysts opine that the armed forces should commence this integration after coursing out exhaustive trials initially for one command headquarters. The significant change must be analysed in its entirety and not rushed through. It may be prudent to adopt ‘best practices’ of some other formidable armed forces in the world and suitably adapt them for our own challenges and genius. Theatre commands, once finally agreed to, can be implemented in a graduated manner employing the incremental concept. In the services even with the current structures, far greater jointness in operational doctrines and plans, training, communications and logistics should be ensured first to establish synergy.

    Theatre commands, once finally agreed to, can be implemented in a graduated manner employing the incremental concept.

                The newly appointed CDS at a recently conducted press conference outlined the likely contours of the envisaged theatre commands. He stated that two integrated commands, namely the Air Defence Command and the Peninsular Command respectively will be raised in the coming year while they will endeavour to raise the first theatre command by 2022. Preliminary studies on the geographical and operational spans for five theatre commands along the northern and western borders are underway. In addition, the services are also carrying out an in-depth study to examine if Jammu and Kashmir should have a separate theatre command.

                The Air Defence Command will be integrating all air defence assets including air defence missiles with the three services, coastal guns, air defence radars and air surveillance systems presently held with the three services.  In view of potent air and ballistic missile threats from India’s adversaries, the Air Defence Command, to be headed by an air force officer, will assume critical significance in terms of its efficacy.

                The Peninsular Command which, some naval officers want to call the Indian Ocean Command will look to merging the western and eastern naval commands. This command to be headed by a naval officer would be given dedicated air force assets and army troops. It would work to ensure India’s maritime security interests in the Indian Ocean region, both on the western and eastern sea-boards, and would also acquire the capably of conducting amphibious operations.

    National Security Doctrine

     As one of his top priorities, the CDS must have the Government Issue a National Security Doctrine which lays down a well-conceived and comprehensive strategic policy for the nation in the short, mid and long term perspective. It will be primarily an articulation of the nation’s overall vision and strategic intent. This document should naturally have both the non-classified and classified objectives which can be disseminated on a ‘need to know’ basis among concerned institutions and personalities in the country. The existing HQ IDS have endeavoured in the past to produce perspective plans for the Indian Armed Forces and have the requisite expertise to produce such policy documents for approval by the government.

    HQrs Andaman and Nicobar Command and newer agencies

                As mentioned earlier, the Indian Armed Forces have under their direct ambit only one tri-service command, namely HQ ANC. This Command HQ is of critical significance for its role in dominating the sea-lanes of the Indian Ocean and preventing the ever-assertive PLA Navy from indulging in mischief in these waters.  The CDS would no doubt accord adequate attention to a further strengthening of the strategic combat capabilities of HQ ANC for handling maritime challenges that will only multiply on India’s eastern seaboard and in the entire Indo-Pacific region.

                For CDS challenges emanating from the entire spectrum of warfare encompassing all domains are a priority. The CDS will also be overseeing the establishment of the recently sanctioned Cyber and Special Forces agencies besides the Defence Space Agency. These entities in the years ahead could qualify for being upgraded to the levels of Command HQs. As widely known, the domains of cyber and space are the battlegrounds of the future – and there the foresighted Chinese have stolen a march even over hi-tech western agencies including those of the US. India, despite being an IT super power, has still a long way to go to bridge the gap between itself and China in this aspect.

    CDS: Nuclear Military Adviser   

                The CDS will now be overseeing the functioning of the SFC far more intimately than was done earlier by the COSC as he has also been designated as the Nuclear Military Adviser to the government. The presence of a senior military officer in the Nuclear Command Authority is a step in the right direction for he would be able to provide the necessary expertise and fillip to the nation’s nuclear preparedness. The CDS may wish to advise the government to review its entire Nuclear Doctrine and revisit the policies of “No-First Use” and “Massive Retaliation”. Also, it may be necessary to re-examine whether India should go in for the development of tactical nuclear weapons for limiting a nuclear exchange. India’s two adversaries, China and Pakistan, are both reckonable nuclear powers and India’s nuclear preparedness has, therefore, to match up to them.

    Defence budgets and inter service prioritization

    It is a strategic truism that the Indian Armed Forces have to be prepared to confront a “two-front war”. Mandated to provide integrated “single-point military advice” to the government, the CDS will have to rise above service loyalties and professionally prioritize conflicting inter-service requirements in the larger interests of the nation. This assumes greater significance in the current scenario where the combat capabilities of the Indian Armed Forces have to be accorded substantial accretions in an environment of great financial strain facing the nation. The volatile situation in West Asia will be greatly impacting the energy security of India and this will further tax India’s currently faltering economy. Thus, the first test for the newly appointed CDS will have to be to convince the financially stressed government to make larger allocations in the capital budget for speedy acquisition of much needed modern weapon systems. As is known, India’s depleting fighter aircraft and submarine fleets, other deficiencies in other platforms, various types of ammunition and spares, force-multipliers etc need concerted attention. Last year’s defence budget had been allocated merely 1.49 per cent of the GDP whereas successive parliamentary committees have recommended at least 3 per cent of the GDP to be assigned for defence. Unfortunately, even this year’s recently announced defence budget has been dismal – considering the big-ticket acquisitions required by the armed forces.

    In the current charter issued by the government, any big-ticket acquisitions will remain in the Defence Secretary’s purview and thus final negotiations with foreign collaborators, Indian Defence Public Sector Undertakings or Indian private industry would rest with the DOD and the Defence Secretary. Delays as earlier are likely to occur. With “Make in India” and “Start-up India” initiatives not yet taking off, the government needs to revisit these areas involving the CDS institution.

    Coordination with civil agencies

                One of the tasks that can do with better handling is improving the coordination between the armed forces and other civilian governmental agencies who are, also handling various other aspects of national security. The CDS structure now will be an important institution to improve coordination between the MHA, MOD, NSAB and NSC Real-time information or intelligence sharing between the Defence Intelligence Agency (DIA) and the other national intelligence agencies like the Intelligence Bureau, Research and Analysis Wing, National Technical Research Organisation and other newer intelligence that had come up in the last few years will hopefully improve. However, to start with, the CDS must put the Service Intelligence Directorates of the three services directly under command of the DIA for better effectiveness in the exacting intelligence domain.

    Recommendations: overall mandate for CDS

                The CDS has been formally appointed and his role enunciated and as the appointment matures in the immediate future, a further refinement of his responsibilities should be undertaken. These should include the following: –

    • The CDS should be designated as the Principal Defence Advisor to the Prime Minister (through the Defence Minister) on all matters pertaining to India’s national security.
    • The CDS should provide an overarching ‘strategic vision’ to the government and be responsible for all strategic planning for the armed forces, including all war plans and contingency planning. During peacetime, preparedness for future operations, in the strategic domain, should be one of the prime responsibilities of the CDS. He will have to synergize the mission and assets of the three services in various theatres to achieve the nation’s strategic objectives.
    • The CDS must be made responsible for overall financial planning, budgetary allocations and force structuring for the three services.
    • The CDS should oversee the preparation of the annual Defence Intelligence Estimate which obtains requisite strategic intelligence inputs for overall defence planning.
    • The establishment of theatre commands, the functioning of other tri-service commands like the Strategic Forces Command, Andaman and Nicobar Command and others which may come up in the future like the Air Defence, Cyber, Space and Special Forces Commands must get the utmost attention of the CDS.

    Conclusion

    The coming years in an increasingly troubled world and especially in our volatile neighbourhood portend diverse and formidable challenges to India’s security and economic resurgence. Consequently, an earnest effort must be made to meet them. A major HDM reform like the recent establishment of the CDS edifice goes a long way in the optimal utilization of India’s resources for defence and enhancing its operational preparedness across the entire spectrum of warfare.  All new institutions at their start do face various problems and the office of the CDS will be no exception. But it must get whole-hearted support from the PMO, MOD and the three services themselves in successfully fulfilling the onerous responsibilities and roles assigned to it.

    Views expressed are the author’s own.

    This article was published earlier in Chanakya.

  • Lebanon’s Economic Crisis and Political Unrest

    Lebanon’s Economic Crisis and Political Unrest

    The Lebanon crisis illustrates the outcome of an inefficiently regulated market economy, shaped by long-term instant gratification of economic policies. Economy is run by corrupt institutions with ingrained crony capitalism, bureaucratic regulations and over-reliance on foriegn exchange.

    Lebanon is a free market economy in West Asia, bordered by Syria and Israel and the Mediterranean Sea, and hence, was a frequent recipient of spillovers of unrest and refugee crisis from the neighbouring countries. It is a service-sector dominated (majorly, banks and tourism) economy with a GDP of $56.9 billion─ growth rate of 0.2%, compared to 0.6% the previous year and a workforce of 2.4 million out of which 30 percent include Syrian refugees. The country relies heavily on imports (consumer goods, machinery and equipment etc) with a low dependence on exports (vegetables, non-precious metals and textiles). For years, Lebanon used foreign remittances such as transfers from non-resident Lebanese, foreign deposits and high government loans to balance the trade deficit. Lebanon exchange rate had been kept fixed at 1500 pounds per dollar which was also a fiduciary currency in Lebanon. Thus the higher demand for dollars to fixate the exchange rate, and meet the domestic demand for dollars, is levelled using foreign deposits by offering high yield rates, which had to be further funded by more deposits at even higher interest rates. These faulty policies had sustained the economy until interest payments had snowballed into heavy burden.

    Figure 1: trend of GDP per capita in Lebanon

    Source: Trading Economics

    Lebanese economy is also characterized by high government debt, substantially from domestic banks, borrowed primarily for reconstruction of the economy post civil war (1975-90). Over the years, the government relied more heavily on deficit financing to meet government spending, while the weak governance and corrupt politicians moved along with unfulfilled reforms and poor economic development. There was an underprovision of basic necessities like hassle-free electricity supply, regular water and waste management. On the other hand, crony capitalism had built up, with favours laid out to private businesses which were ultimately owned by rich, exploitative politicians. The debt-to-GDP ratio peaked to 150% by 2019, with a budget deficit of 11.5% of GDP and 50% of the revenues are consumed in debt servicing. This led to an economic crisis, followed by a political crisis, and ultimately snowballed into a financial crisis, rendered vulnerable and  in desperate need of foreign aid to see the day.

    Evidently, though Lebanon crisis started in late 2019, it is the result of long term economic policies mismanaged by corrupt political elite; when the government proposed to tax ‘free-calls in Whatsapp’ to meet the mounting budget deficit in October 2019, protests erupted across the country, catapulting into political unrest and ousting the prime minister. Investors and citizens lost confidence in the system, and led to reducing capital inflows.

    Their sovereign bonds were rated as highly risky assets (probable default),  leading to interest rates as high as 15%. The political uncertainty and the liquidity crunch, led to freezing of external deposits, while the steady domestic and foreign demand for dollars persisted, leading to a shortage of USD. The banks levied restrictions (weekly quotas) on dollar withdrawals, the dollar rate spiked, depreciating the pound, and reducing the purchasing power of the pound. This had squeezed the middle and low income strata the most, draining their last pounds of savings, since their debts substantially constituted dollar repayments. Businesses relying on dollars for most part were affected as the price of imports sky-rocketed, and the oil crunch tightened until the central government stepped in to ease the situation. The condition degraded further by the onset of Coronavirus and the lockdown, which led to widespread unemployment and inflation. The World Bank estimated that 50% of Lebanese population could be pushed below the poverty line by 2020 if immediate action is not taken.

    The debt of Lebanon has built up to 124464 billion LBP, i.e nearly $82 billion and the country has become the 3rd most indebted country in the world. In March 2020, Lebanon government, as a decisive step to prioritize the domestic concerns of the country and retain sustainable foreign exchange reserves in the economy, had defaulted on the Eurobond debt of $1.2 billion for the first time. The ailing economy seeks to restructure the other outstanding debts amounting to $31 billion and has been seeking advice, especially from the IMF on debt restructuring measures. There is a need for an ‘economic rescue plan’ to protect the depositors from this worst economic crisis Lebanon has faced.

    Figure 2: trend of Lebanon government’s debt

    Source: Trading Economics

    Foreign aid from the institutions is a big responsibility, as it would demand austerity measures from the economy that had dwelled in capitalistic pleasures for so long. Though, CEDRE and foreign countries like France and UK have promised ‘soft’ loans to the Lebanese government, economists believe that external aid would be unproductive, and will become an additional debt burden on the already bleeding financial system unless government inculcates greater transparency and accountability to the public, ousting corruption and following through on long-term economic policies with commitment.  Lebanon government is also seeking aid from the IMF. But  this would certainly entail strict reform targets linked to the outflow of credit and hence, is very unlikely.

    For the immediate future, Lebanon’s economic policies should be directed towards increasing  self-reliance in the economy, with higher focus on manufacturing sectors to create employment. Financial policies to stabilize the economy are of primary concern. It is time to make up for the blunders of non-performing investments in the electricity industry. Investments on infrastructural development should be realized and substantial attention should be given to improving  socio-economic conditions of the people. Construction and manufacturing industries should be supported. Actions should be taken to handle the refugee situation, and check the drain of human capital out of the country.   It could be said that Lebanon’s government has a long way to go before it can regain the confidence of its people and the foreign investors in order to stabilize the economy.

    Current Scenario

          Covid 19 has a destructive and deleveraging impact on all the economies, and Lebanon is no exception. The economy is heavily dependent on the service sector, especially tourism, and foreign remittances. The impact of the coronavirus pandemic has been devastating on the money the expats send home, which makes up nearly 12.7% of the GDP, making Lebanon the second-most remittances dependent middle-eastern country, only behind Palestine. Amid the collapsing economy and the disruption triggered by the Covid-19 pandemic, the only certainty is the gathering pace of Lebanon’s political unrest.

     

    REFERENCES

    https://www.nytimes.com/2019/11/15/world/middleeast/lebanon-protests-economy.html?action=click&module=RelatedLinks&pgtype=Article

    https://www.nytimes.com/2020/05/10/world/middleeast/lebanon-economic-crisis.html

    https://www.trtworld.com/magazine/what-s-behind-lebanon-s-economic-crisis-35874

    https://www.nytimes.com/2020/03/07/world/middleeast/lebanon-debt-financial-crisis.html

    https://www.nytimes.com/2019/12/03/world/middleeast/lebanon-protests-corruption.html?action=click&module=RelatedLinks&pgtype=Article

    https://www.theguardian.com/world/2020/mar/07/lebanon-to-default-on-debt-for-first-time-amid-financial-crisis

    https://www.nytimes.com/2020/03/07/world/middleeast/lebanon-debt-financial-crisis.html

    https://www.nytimes.com/2019/10/23/world/middleeast/lebanon-protests.html

    DATA- https://data.worldbank.org/country/lebanon

    https://www.britannica.com/place/Lebanon/Trade

    https://tradingeconomics.com/lebanon/government-debt

     

    Image Credit: Adobe Stock

  • COVID-19 Challenges for India: Tackling MSME Sector and Unemployment

    COVID-19 Challenges for India: Tackling MSME Sector and Unemployment

    The COVID-19 pandemic has shaken global markets as countries struggle to battle national and global health crisis. Indian government has announced an economic stimulus of  Rupees 20 lakh crore (Rs 20 trillion corresponding to $ 267 billion), roughly 10% of GDP for FY 21, in which six measures were framed for the Micro Small Medium Scale Enterprises (MSME). Government has allocated 3 lakh crore for collateral-free loans, additional debt and equity infusion with slew of other measures to protect the bruised MSME sector. The rise in the number of casualties and infected cases  all over the world present a grim picture. This is expected to result in a global recession that could lead to a loss of over $ 3 trillion to the global GDP. India, in an effort to contain the spread, has extended the lockdown at the cost of freezing almost 60 percent of its economy. Third extension of lockdown on May 3rd in order to flatten the curve will further contract the demand for next few quarters. IMF has revised India’s growth downwards to 1.9 percent for the year 2020 and 7.4 percent for the year 2021. Although the growth projection is not negative as in the cases of Eurozone and the US, India will need to overcome significant structural challenges to bring the economy back into a high growth trajectory. The cost of battling COVID-19 is not limited to the dip in growth but also includes the bleak prospects of a sizable percentage of the population being pushed below the poverty line.

    Apart from the virus, India faces two key challenges. Firstly, almost 80 percent of its labour force is part of the informal sector, which is expected to take major hit as a result of  the lock-down. Secondly, as India’s working age population will continue to expand  till 2055─ the cost of missing this demographic dividend will directly impact the future growth trajectory. Japan, China, South Korea and Singapore have capitalized on their demographic dividends and experienced double digit growths. The current disruption in the global economy will have a significant impact on India’s growth for the next few years. Therefore, diagnosing the systemic problems in the economy is crucial to developing a viable strategic economic policy. The Periodic Labour Force Survey (PLFS) notes that only nine percent of Indian workers are employed with organizations having more than 20 workers. Rest of the labour force are employed with small enterprises which have been forced to lay-off most of their employees due to the extended lockdown.

     Business Supply versus People Demand

    Contributing 30-35 percent of the GDP— Micro, Medium and Small scale industries face a higher risk of shutting down their production due to cash flow constraints. All India Manufacturers association reported that 43 percent of the MSMES will cease to operate with the lockdown extension. Around 99 percent of the MSMEs are dominated by Micro enterprises in which labour intensive production units are already under stress with restricted labour movements. Finance minister’s attempt at redefining MSME by including businesses with higher investment and turnover does not address the main problem of majority of unregistered micro enterprises shutting down due to less or nil operating capital.

    A total of 114 million people are employed in MSMEs and the shortage in working capital as a consequence of the lockdown would drive most businesses out of the market. Furthermore, an extended demand shock would curb the production and supply, as a result of which small industries with limited capital will most likely shut down. Additionally, 86 percent of the enterprises are unregistered and 71 percent of labourers have no written job contracts. Since most of the enterprises function in highly unorganised sectors, they would have been forced to lay off employees.  Thus relevant policies will need to be recalibrated in order to address the problem of unemployment– currently estimated to be 27.11 percent. The share of MSME exports is valued at $147.7 billion– showing an impressive jump from the previous value at $75 billion. The small number of exporting businesseswill be clamped down due to insufficient liquidity especially with weak global demand.  Hence, the policy must focus on balancing to keep the interest rates low in the long run and enhance discretionary spending to boost investors’ confidence. One of the six measures announced by the government is to protect the local MSMEs from unfair foreign competition. Pursuing a protectionist policy in the business sector before the recovery of domestic demand would imply higher risk of the economy being caught in a low demand cycle. Additionally, the recent exemption of labour laws threatens the workers’ income─ reducing the revival rate of consumer demand. According to a latest reading of the consumer demand risk map, casual labourers in both rural and urban areas are at highest risk of salvaging potential expenditure.

    Need to Reorganize MSME and Boost Employment

    Although strong relief packages are demanded, India has limited fiscal space. The slew of measures announced by the central bank to ease the liquidity will cushion the MSME sector during the lockdown period. However, incentivizing small scale businesses to operate amidst weak demand would need recapitalizing finance based on the firm’s productivity. A structural makeover of the business sector will call for measures beyond just monetary policy. While current economic stimulus aims at protecting the business sector, challenges remain in adopting a medium term policy given the unorganized structure. The OECD countries have broadly undertaken measures to reduce the impact on their Small and Medium Enterprises (SMEs) by providing wage subsidies, loan guarantees, direct lending and modified structural policies. The Reserve Bank of India (RBI) has similarly offered a much-needed loan moratorium, cuts in the Cash Reserve Ratio (banks minimum reserve requirement to be held with RBI) and working capital financing. Although the second round of relief package has focused on small industries, the expectation of a burgeoning fiscal deficit to 5.07 percent from revised estimate of 3.8 percent means that financial  stimulus is somewhat of a double edged sword.

    Even prior to the pandemic, unemployment was at a 45 year’s high at 8.5 percent and consumption was on downtrend. The economic response for India must factor in the welfare loss while assessing the economic consequence. In five out of the first ten years of entering its demographic dividend phase, Japan was experiencing double digit growth.  If India is not to lose out on growth momentum during the current stage of its youth bulge, it would require effective and radical policy measures to counter the problem. Economic relief packages during the crisis must be followed with strategies to provide economic security to the working age population across the country.

    To keep up with the growth of the working age population, estimates suggest that India must create 10 million jobs annually. Ease of doing business becomes a crucial factor in creating employment opportunities. Indian policymakers are tasked to identify the methods to sustain the operations of MSME sector post lockdown. The large workforce resulting from India’s youth bulge cannot be undermined by this crisis. Policy prescription to create rapid employment and facilitate business operations is the priority. For India, it is important to endeavour to balance the immediate financial response with continuous public and human capital investment. Biting the fiscal bullet is inevitable in a crisis situation but assessing the cost of growth foregone is crucial to strategize policies for future. The real challenge lies in the transition of role from being protective to promotional through structural operations by factoring in the consumption demand. Temporary infusion of money in businesses and renovation of MSME sector is much needed to realize the ‘Make in India’ dream.

    Image Credit: Adobe Stock

  • Responding to COVID-19: A Framework for Analysis

    Responding to COVID-19: A Framework for Analysis

    Beginning December 2019 in Wuhan in China’s Hubei province, Coronavirus (Covid -19) has overwhelmed the healthcare systems and affecting education, travels, events and the economies worldwide. Governments all over have taken or bracing themselves to take extraordinary measures to contain the threat. In some countries, the measures taken to contain the epidemic appear as putting the nation under a state of siege. Some governments are adapting rather extreme measures – complete lock-down of the cities, the provinces and even the country itself, school closures, travel ban, cancellation of flights. Questions are being asked about how much freedom we are prepared to give up, for how long and onto whose hands?

    The paper argues that with threats and vulnerabilities transcending national boundaries and challenging most advanced knowledge and information systems in this era of intense globalization, the need for harsh and often draconian measures can hardly be over emphasized. At the same time there could be problems and unwelcome consequences in putting too much power in the hands of the governments dealing with the threat for an indefinite period of time. In view of this, the securitization framework as put forth by the Copenhagen School could be a better tool to deal with situations of unexpected crises such as what SARS epidemic proved it to be or what Covid-19 would inevitably entail.

    This paper is originally published in Vol 7 No 5 (2020): Advances in Social Sciences Research Journal and is republished by TPF under the Creative Commons Attribution 4.0 International Licence.

    Download Full Research Paper

  • Multilateralism in the Indian Ocean Region

    Multilateralism in the Indian Ocean Region

    A number of multilateral initiatives have emerged in the last two decades in the Indian Ocean Region. The composition has been varied, comprising of inside powers, some comprise of a combination of inside and outside powers, given the geographical construct of the region. Their efficiency has been varied. As such, trends indicate that the older, post-world war II multilateral institutions are gradually losing relevance. Newer coalitions appear to hold promise, some to deal with the foregoing challenges and other to facilitate economic aspirations. Dr Sunod Jacob makes an assessment of multilateralism contributing to an inclusive rule based order in the IOR.

    This article is being published as a chapter in the book titled – “Foreign Policy Perspectives for Sri Lanka 2021”.
    Image Credit: Photo by Kyle Glenn on Unsplash.

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    The Law of Armed Conflict and its continuing relevance to the South Asian Region

  • The Law of Armed Conflict and its continuing relevance to the South Asian Region

    The Law of Armed Conflict and its continuing relevance to the South Asian Region

    The South Asian region has had its share of recent historical experiences with large scale violations as well as allegations of large scale violations of international humanitarian law (IHL).2 This applies as much to instances of international and non-international armed conflict as it does to the situations created by new threats to peace and security such as terrorism. Memories of some of these unfortunate events have not faded over the years. For the sake of convenience, the paper is divided into two parts. The first part elaborates specific examples of IHL related issues in South Asia and also deals with some of the major thematic issues in the context of the region. The second part highlights the challenges to IHL application and implementation in this region. The conclusion summarizes the main strands in IHL’s relevance to the South Asian context. The most interesting aspect of our enquiry that stares us in the face is the fact that IHL related issues apply to almost all South Asian countries. The degree of intensity may differ but the fact remains that acts that attract universally applicable IHL provisions are found aplenty in the region.

    Image Credit: New York Times

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    The Law of Armed Conflict and its continuing relevance to the South Asian Region

  • Some Crucial Lessons as we Prepare for ‘Lock Down 3.0’

    Some Crucial Lessons as we Prepare for ‘Lock Down 3.0’

    Category : Democracy & Governance/Public Health
    Title : Some Crucial Lessons as we Prepare for ‘Lockdown 3.0’
    Author : M A Kalam  02-05-2020Covid-19 is a jolt to the way we work and live. India has been under, what IMF has called, “The Great lockdown”. As India moves into ‘Lockdown 3.0’, M A Kalam explores, in his opinion piece, the challenges faced by different segments of the Indian population. The economic impact is seen to be huge, and as we return to work and business gradually, we will witness huge behavioural changes that will necessitate how we address the new economic challenges.

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