[IndianExpress Explained Page] Assessing the Balance of Payments position New RBI data on India's Balance of Payments (BoP) for 2017-18 show current account deficit (CAD) at $48.72 bn, the highest since the record $88.16 bn of 2012-13. With CAD expected to widen to $75 bn during this fiscal, how vulnerable is the overall BoP position today? Foreign exchange reserves. Are they sufficient now? India's forex reserves, at $424.55 billion as on March 2018, are actually the eighth largest in the world (smaller chart right). Also, they can finance 10.9 months of imports, compared to 7.8 months in March 2014 (just before the Narendra Modi government came to power), 7 months in March 2013 (when there was a mini-BoP crisis, with the current account deficit hitting a peak), and 2.5 months in March 1991 (which forced the country to seek International Monetary Fund assistance) * Any allusion to a "crisis" from that standpoint is highly misplaced; the RBI's current forex war chest is clearly sufficient, both to meet immediate import needs and to stave off a run on the rupee of the kind that was seen during May-August 2013.
So, when economists speak of India's BoP vulnerabilities, what exactly are they trying to say? * Countries generally accumulate reserves by exporting more than what they import IMF data on the current account balances of the top 10 forex reserves holders reveal all of them they import IMF data on the current account baance barring India and Brazil to have been running surpluses year after year. India has always had deficits on its merchandise trade account, with the value of its imports of goods far in excess of that of exports * At the same time, the country has traditionally enjoyed a surplus on its 'invisibles' account. o Invisibles basically cover receipts from export of software services, inward remittances by migrant workers, and . tourism and on the other side _ payments towards interest, dividend and royalty on foreign loans, investments and technology/brands, besides on banking, insurance and shipping services. .But with the invisibles surpluses not exceeding trade deficits except during the three vears But with the i from 2001-02 to 2003-04- it has resulted in the country consistently registering CADs.
How then has India been managing all these years with CADs, and even accumulating reserves? A country gets foreign exchange not only from exporting goods and services, but also from capital flows, whether by way of foreign investment, commercial borrowings or external assistance. *For most years, net capital flows into India have been more than CADs. **The surplus capital flows have, then, gone into building reserves. *The most extreme instance was in 2007-08, when net foreign capital inflows, at $107.90 billion, vastly exceeded the CAD of $15.74 bilion, leading to reserve accretion of $92.16 billion during a single year. However, there have also been years, such as 2008-09 and 2011-12, which saw reserves depletion due to net capital inflows not being adequate to fund even the CAD
Is this model sustainable? How long can India continue to import more than it exports, and expect foreign capital to fully bridge the gap? DIndia and Brazil represent unique cases of economies that have built reserves largely on the strength of their capital rather than current account of the BoP. DIndia is even more unique because its currency, unlike the Brazilian real, is relatively stable, and not under frequent speculative attacks OIn theory, a country can keep attracting capital flows to fund CADs so long as its growth prospects are seen to be good, and the investment environment is equally welcoming. It would help, though, if such foreign investment also goes towards augmenting the economy's manufacturing and services export capacities, as opposed to simply producing or even importing for the domestic market. In the long run, that can help narrow the CAD to more sustainable levels.
What is the outlook vis- -vis the CAD and capital flows in this fiscal? The CAD fell sharply from $88.16 billion in 2012-13 to $15.30 billion in 2016-17, mainly because of India's oil import bill nearly halving from $164.04 billion to $86.87 billion. However, in 2017-18, the CAD rose to $48.72 billion, courtesy resurgent global crude prices, and is expected to cross $75 billion this fiscal. There are signs of capital flows slowing down as well. Foreign portfolio investors have, since April 1, made $7.9 billion worth of net sales in Indian equity and debt markets. This is part of a larger sell-off pattern across emerging market economies, in response to rising interest rates in the US, and the European Central Bank's plans to end its monetary stimulus programme by the end of 2018. OThe Swiss investment bank Credit Suisse has forecast net capital flows to India for 2018-19 at $55 billion, which will be lower than the projected CAD of $75 billion. In the event, forex reserves may decline for the first time since 2011-12. The RBl's data already show the total official reserves as on June 8 at $413.11 billion, a dip of $ 11.43 billion over the level of end-March 2018.
[TheHindu Ed1] Power crisis The immediate provocation for Chief Minister Arvind Kejriwal sitting on a dharna at the residence of the Lt. Governor might have been a run-in with the bureaucracy, but the crisis is rooted in the understanding (or misunderstanding) of the constitutional limits of the powers of the elected government in the National Capital Territory of Delhi The Aam Aadmi Party government has a history of confrontation with the Centre on the question of who is the administrative head of a region that is less than a State and more than a Union Territory Since the party came to power in 2015, the demand for Delhi to be given the status of a full-fledged State, allowing it among other things powers over the police, has become strident. Differences extend to the LG's discretionary powers to appoint the Chief Secretary, with the AAP nursing a grouse that the bureaucratic cadre came directly under the Centre. Matters came to a head when Chief Secretary Anshu Prakash was assaulted during a late-night meeting in Mr. Kejriwal's presence. Since then, officials have been in a non-cooperative mode, only attending statutory meetings, skipping what they term are "routine" meetings and not taking phone calls from Ministers. Mr. Kejriwal and his Cabinet colleagues decided on the dharna in protest, but instead of forcing a solution, they may have precipitated a crisis. O Members of the BJP responded with a dharna at the Chief Minister's residence, completing the political spectacle.
In adopting the politics of protest as part of its quest to expand the powers of the elected government, the AAP is putting governance at risk Instead of mounting a legal challenge to the Centre's efforts to further curtail the limited powers of the Delhi government, Mr. Kejriwal chose to respond politically. OWhile he might like to be seen as a constitutional functionary whose hands are tied by an overbearing Centre, he is coming across as someone who is keener on a bigger fight on a bigger stage than as one eager to fulfil his constitutional mandate. The dharnas might end, but the underlying causes of the present crisis will not disappear without the Centre and the Delhi government agreeing on the terms of engagement through the office of the Lt. Governor. The BJP cannot mock Mr. Kejriwal out of politics; the Centre will have to deal with him, and something it has work jointly with the AAP government for the welfare of Delhi's citizens failed to do. OThe way to fight the AAP cannot be by placing handcuffs on the Delhi government. As for the To push AAP, it should learn to make the best of the system before demanding more autonomy. To push the constitutional limits to acquire more meaningful powers is fine, but it cannot be at the cost of failing to do whatever is possible within the current framework. of faliling to do whatever is possioe meaningtlpoe isine
[IE Ed1] Get to work, please [GS4 Ethics] In no particular order: The terrible breakdown of a working relationship between the elected government and Lieutenant Governo ** The long-festering debate on Delhi's statehood, waiting to be joined more fully on a calmer day. * The dysfunctional antagonism between political opponents, AAP and BUP, which has infected institutions of the state and, more unforgivably, the Centre. And caught in the BJP vs AAP crossfire, the bureaucracy, on strike, by another name. That last crisis merits closer attention, more outrage. In fact, it is even incorrect to characterise Delhi's officialdom as hapless, caught in-the-middle, and to accept the officers' claim to victimhood * In an unprecedented press conference, they sought to draw a distinction between "statutory" meetings that they attend and the "routine" meetings that they don't. They skip only those meetings in which they felt their "safety" and "self-respect" were at risk. *The reference was obviously to the alleged assault of the Chief Secretary by AAP members at a midnight meeting in February at the Chief Minister's residence.
ed It is quite clear, however, that Delhi bureaucrats' non-cooperation with an elected government has to do with more than just that criminal case, in which, notably, due process is on, and both Chief Minister Kejriwal and his deputy, Manish Sisodia, have been questioned. On show in Delhi is a bureacracy that seems to have plunged into the fray, and is seen an bethcihed wnth me to be taking political sidesagrave abdication of its role and responsibility to be the faceless steel frame In these times of polarised politics, if the unfortunate impression is gaining ground that Delhi's bureaucracy has shed its political neutrality, it must take full responsibility. It won't do to whinge or pass the blame to the political actors or the mess they have created. Delhi's bureaucracy has much at stake. Its institutional integrity is on the block, and so is its good work as part of the state machinery, also in the tenure of the Kejriwal government. * After all, the government's remarkable strides in health and education could not have been possible without its officers. Delhi's bureaucrats need to get back to work, to recommit themselves to due process and to abide by it, regardless of any political turbulence.
[IE Ed2] Water for thought In recent years, there has been a growing awareness in policy circles of the over exploitation of the country's water resources The Atlas of India's Aquifer Systems, released by the Central Ground Water Board (CGWB) in 2012, highlighted the falling levels of groundwater in the country Four years later, the Mihir Shah Committee argued that there is little "understanding of river systems or their interconnections with the health of catchment areas or groundwater" Now, a Niti Aayog report, Composite Water Management Index, released last week, flags factoids which show how grim the situation is: o Seventy per cent of the water resources in the country is polluted, o 75 per cent households do not have drinking water and o more than 600 million people in the country face high to extreme water distress.
The Mihir Shah Committee had pointed out that "focus [of water policy in independent India] had been on augmenting supplies with little attention being paid to the demand- side management of water". IThis policy direction played a major role in meeting the imperatives of food security, but as the Shah Committee pointed out, there has been little emphasis on institutional innovations in the water sector That is why returns to public investments in the country's water infrastructure have been poor. OThe Shah Committee had talked of a paradigm shift in the country's water governance: From a predominantly engineer-centred approach of the CWGB to one involving hydrologists, geologists, agronomists, and ecologists. Two years after the committee submitted its report, there has been little action on its recommendations. The report needs to be pulled out of the shelves, especially after the grim figures thrown up by Niti Aayog's survey.
The envoy's request for support from India, for the Arab coalition's Yemen campaign has added a broader context to the upcoming visit by the Foreign Minister and leading royal of the UAE, Sheikh Abdullah bin Zayed, who is expected to hold bilateral meetings in Delhi next week. The Ambassador pointed out that the UAE was not yet offering a military role to India in the ongoing operation "India can help by extending diplomatic support to the Hodeidah operation on the international platforms. The campaign is in accordance with the resolutions of the UN and invitation from the legitimate government of Yemen. Yemen's port of Hodeidah was under the control of the Houthi rebels who are believed to be drawing support from Iran. OThe Arab coalition, led by Saudi Arabia and the UAE, claims that the Iranian military has used the port to supply the Houthis with weapons and ammunition OMr. Albanna declared that the Houthis have been supporting pirates in the western Indian Ocean region. The campaign will ultimately help Indian maritime goals as the Houthis used the port for facilitating the piracy network in the western Indian Ocean region that is vital for India's energy security, the envoy said in support of India's interest.
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