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The Hindu Editorial Analysis | PDF Download

Date: 01 July 2019
  • Economic relations between India and the United States are on a knife-edge after the U.S. took a series of unilateral actions against India’s exports, that began in 2018, followed by India’s recently announced retaliatory move of increasing tariffs on 28 products imported from its largest trade partner. As a result of these developments, India has become the Trump administration’s most significant target after China.
  • No one could have summed up the essence of the U.S.’s unhappiness over India’s policies as well as U.S. Secretary of State Mike Pompeo in his recent statement in New Delhi. He said, “The United States has been clear we seek greater market access and the removal of trade barriers in our economic relationship.” Soon after, U.S. President Donald Trump sought withdrawal of tariff increases effected recently by India, saying that for years, India has “put very high tariffs against the United States”. What needs to be noted is while similar complaints have been made by successive U.S. administrations over the past few decades, the tone and tenor of the Trump administration has distinctly upped the ante.

Some background

  • Let us recall some of the major instances where the U.S. has questioned India’s trade and other related economic policies. In the past, U.S. agencies — in particular, the Office of the United States Trade Representative (USTR) and the United States International Trade Commission (USITC) — have “investigated” India’s trade policies, the conclusions of which have been used by the administration to demand changes in policies that would benefit American businesses. The latest demands stem from two extensive USITC investigations which were conducted between 2013 and 2015 on India’s trade, investment, and industrial policies.
  • These investigations were carried out at the request of the U.S. House Committee on Ways and Means and the U.S. Senate Committee on Finance “under section 332(g) of the Tariff Act of 1930 (19 U.S.C. 1332(g)) regarding Indian industrial policies that discriminate against U.S. imports and investment for the sake of supporting Indian domestic industries, and the effect that those barriers have on the U.S. economy and U.S. jobs”. The first of these investigations, the report of which was submitted towards the end of 2014, covered only the opening months of the first Narendra Modi government, following which a second request was made by the two Congressional Committees to investigate the performance of the government in its first year in office. This report was submitted in September 2015.
  • Propriety and procedures
  • The main message that was conveyed by these investigations was that American businesses strong disapproved several of India’s key policies on trade and investment and that these policies had to be amended. Although in 2014, the USITC seemed to support the direction of the Modi government’s economic policies in its first few months, in the second report, which covered the government’s first year in office, the familiar tone of disagreement over India’s trade and investment policies appeared once again.
  • The investigations conducted by the U.S. agencies raise several issues of propriety, procedures and substance. These three dimensions need to be understood well for this is the only way in which the Government of India can prepare appropriate responses to the persistent questioning by the U.S. administration of its trade and investment policies.
  • The first is the issue of propriety. It is important to mention here that all of India’s trade-related policies (which include intellectual property rights that were investigated and questioned in the two USITC reports were done under the cover of the U.S.’s domestic laws. This is tantamount to unilateralism, the response to which should be an unequivocal “no” in this age of multilateralism, where differences on policy issues between sovereign countries must be resolved in the appropriate multilateral forums. The possibilities of a stronger power using unilateral means should be eliminated. It is in this spirit that the General Agreement on Tariffs and Trade (GATT) was established as an integral part of the post-war global economic governance. GATT was replaced by the World Trade Organization (WTO) in 1995.
  • The areas that were investigated by the USITC during the two investigations were also those that are covered by the WTO. Therefore, propriety and global trade rules demanded that the concerns of American businesses about India’s policies had to be addressed within the WTO through consultations among the members. The main purpose of the GATT/WTO is to provide a forum for the resolution of disputes by following multilaterally agreed rules. The global community agrees that this would be the best way of preventing countries from getting into trade wars, which had pushed the global economy into the depression of the 1930s. The only country disagreeing with this position is the U.S.; it seems intent on pushing its trade partners into trade wars.

Flawed step

  • Now to the procedure of conducting the investigations. This was deeply flawed for it provided a platform for vested interests in the U.S. to make common cause against India’s policies. What is more, in these investigations, U.S. government agencies have been not only acting as the judge and the jury but also actively engaged in getting the findings of the investigations implemented.
  • As mentioned earlier, the substance of the investigations touched trade-related issues that are covered by the WTO agreements. Since the establishment of the WTO, India’s policies have mostly been consistent with its commitments; where they have not been, other WTO members, including the U.S., have approached the dispute settlement body of the organisation to make India fall in line.
  • The fact that the U.S. is not approaching the WTO to challenge India’s trade and investment policies that American businesses find detrimental to their interests implies the following: India’s largest trade partner is acting in defiance of agreed rules to target India’s WTO-consistent policies. Take, for instance, India’s high tariffs which have left Mr. Trump greatly perturbed. These tariffs were agreed to in the Uruguay Round negotiations in consultation with all members of the organisation.
  • Moreover, in the period since, India has lowered tariffs on many agricultural and industrial products. Contrast this with the U.S.’s position wherein it continues to defend its high levels of agricultural subsidies which are used for lowering commodity prices to levels at which no other country can have access to its domestic market. Thus, the U.S. does not need tariffs to protect its agriculture; it uses subsidies, instead. The WTO also informs us that the U.S. also uses very high tariffs on tobacco (350%), peanut (164%) and some dairy products (118%).
  • What is at the core
  • The India-U.S. discord over trade stems from a deep-seated desire of U.S. businesses to have a bigger footprint in the Indian economy, and to achieve this goal, the administration is stepping beyond legitimate means. This discord defies Mr. Pompeo’s simplistic formulation that “great friends are bound to have disagreements”. In fact, the basis of the discord lies in the way the U.S. has been targeting India’s policies, disregarding the rule of law. Early resolution of this discord seems difficult as the U.S. has decided to undermine the WTO’s dispute settlement mechanism and walk down the path of unilateralism instead. Under these circumstances, the Government of India would have focus on two fronts: to remain engaged with its largest trade partner and to also engage actively with the global community to make the U.S. understand the imperatives of a rules-based trading system.
  • The European Council is a collective body that defines the European Union's overall political direction and priorities. It comprises the heads of state or government of the EU member states, along with the President of the European Council and the President of the European Commission. The High Representative of the Union for Foreign Affairs and Security Policy also takes part in its meetings.
  • Established as an informal summit in 1975, the European Council was formalised as an institution in 2009 upon the entry into force of the Treaty of Lisbon. Its current president is Donald Tusk, former Prime Minister of Poland.
  • Good governance, clean nature, a silent people, midnight sun, frosty winters, heavy metal and saunas are some of the features commonly associated with Finland and Finns. As Finland’s Presidency of the Council of the European Union (EU) begins from July 1, the country has an opportunity to bring forth and present the values it believes in. Openness, transparency and equality are not just words for Finns; they are in Finland’s DNA.
  • Seeing these values increasingly emerge in cooperation between India and the European Union is great news. Finland wants to strengthen the EU as a global actor and sees India as a key partner in tackling global challenges. India and the EU share the same values of democracy, tolerance and a strong rulesbased international order.
  • The union was formed to ensure peace and prosperity in Europe after the Second World War. It began as purely economic cooperation between the six founding member states. Today the EU is an organization with common laws and regulations which span policy areas from climate, environment and health issues to external relations, justice and migration.
  • This is Finland’s third engagement with the EU Council Presidency. In 1999, its slogan was ‘Europe into the new Millennium’. In 2006 the integration of 10 new EU member states was a cross-cutting theme. The Presidency rotates between the member states, and the Finnish Presidency is preceded by the Romanian Presidency and succeeded by the Croatian Presidency. The three countries form a troika, agreeing on certain principles together. While the Lisbon Treaty (2009) reduced the role of the Presidency, it is still important in trade, development cooperation, enlargement, legal and consular affairs.
  • The task of the Presidency is to bring forward the EU agenda.
  • The buzzword
  • Sustainability runs through the identity of Finland’s Presidency. Delegates attending meetings in Helsinki will be served organic, and locally produced Finnish food; the emphasis will be on vegetarian fare, with the use of plastic reduced. Finland wants to lay stress on the importance of a circular economy by replacing the use of paper and plastic material with digital applications and Finnish innovations. During Finland’s six-month tenure, there will be six informal ministerial meetings in the country.
  • The implementation of the EU-India Strategy is close to Finland’s heart. The EU Council adopted the strategy in November 2018. As an ambitious document, it spells out clear priorities to develop further already excellent EU-India relations in sectors such as trade, terrorism, defence, science and global affairs.
  • In New Delhi, the EU delegation and member states will implement the strategy together. It goes without saying that Finland hopes for a breakthrough in free trade negotiations and a resumption of the dialogue on human rights.
  • The EU is complex by nature. The responsibilities of the EU institutions and the member states need to be explained repeatedly and this applies to Finland and India. However, for Finns it is easy to speak about the EU in positive terms.
  • Finland’s membership is a value-based choice because it has anchored the country permanently to the West. The support for the EU is at a record high in Finland. Its currency is the Euro. Further, most Finns consider themselves both Finnish and European. The EU is a unique economic and political union that binds 28 countries together.

New Framework

 The SEBI regulations for mutual funds will help restore investor confidence

  • After the European parliamentary elections that were held in May 2019 in all 28 countries, a new leadership and a new Commission will be appointed. In addition, there will be challenging issues brought to the table during the six months Finland holds the Council Presidency. These include the multi-annual budget, migration and Brexit, the process of the United Kingdom’s departure from the EU. Finland wants to deepen security cooperation in the EU. If at the end of December, Finland has contributed to this agenda having been brought forward, then there will be reason to be content. New Framework The SEBI regulations for mutual funds will help restore investor confidence
  • After introducing a new standard framework for credit rating agencies last month, the Securities and Exchange Board of India came up with more stringent regulations to govern the management of mutual funds. The mutual fund industry came under its scrutiny after some mutual funds in the last few months had to postpone redemption of their fixed maturity plans (FMPs). HDFC Mutual Fund and Kotak Mutual Fund came to grief and had to roll over or proportionately reduce redemption of their FMPs in April after some Essel group companies failed to redeem their non-convertible debentures where the funds had invested. According to the new SEBI regulations, liquid mutual fund schemes will have to invest at least 20% of their funds in liquid assets like government securities. They will be barred from investing more than 20% of their total assets in any one sector; the current cap is 25%. When it comes to sectors like housing finance, the limit is down to 10%. These measures are aimed to prevent situations such as the one being witnessed now. While the mandated investment in government securities will ensure a modicum of liquidity, the reduction in sectoral concentration will discipline funds and force them to diversify their risks. Some mutual funds entered into standstill agreements with companies in whose debt instruments the funds had invested. This is not a welcome practice and goes against the interests of investors in the mutual fund. SEBI has done the right thing by banning funds from entering into such standstill agreements. Further, SEBI has required that assets of mutual funds be valued on a mark-to-market basis in order to better reflect the value of their investments.
  • While SEBI’s intent to deal with the risks within the financial system is commendable, there could be unintended consequences to the regulator’s actions — which need watching. One of the new regulations introduced by SEBI is to increase the exit load on short-term investments in liquid mutual funds to discourage sudden demands for redemption. This could possibly hinder fund flow into the bond market, which in India is already quite undeveloped when compared to the rest of the world. While SEBI is doing a commendable job in disciplining the markets and intermediaries, the larger question is whether the regulator can really protect investors beyond a certain point. Market investments involve risk, and investors seeking high returns may in fact be willing to assume the increased risk that comes with such investment. That said, what the regulator is probably more concerned about is the ripple effect of defaults and roll-overs on the system. Investor confidence can be shaken by defaults and that will have consequences for the economy. Viewed from this perspective, the regulator’s latest rules should be welcomed.

Among Members

  •  Glaring bilateral and global issues were highlighted at the G-20 summit
  • As a forum, the G-20 is often watched more closely for the meetings the event affords on its sidelines, than for substantive outcomes. The countries that make up the G-20 (19 nations and the European Union) account for 85% of the world’s nominal GDP, and each has pressing issues it wishes to discuss with other members on bilateral, plurilateral and multilateral levels. Prime Minister Narendra Modi used the occasion of the G-20 summit at Osaka for as many as 20 such meetings, including nine bilaterals, eight pull-aside engagements, and of the Russia-India-China, Japan-U.S.-India and Brazil-Russia-IndiaChina-South Africa groupings. The most anticipated were President Donald Trump’s meetings with his Chinese counterpart Xi Jinping and Mr. Modi, given the escalation in trade tensions. Both ended on a cordial note, but with no breakthrough or “big deals”. The Indian and U.S. Commerce Ministers will sit down again, as they have on at least three occasions in the past year, to try to resolve the impasse over trade issues, and the U.S. and China have called a halt to raising tariffs until they resolve issues. Both come as a relief to India, given the impact of those tensions on the national and global economies. Mr. Modi raised several Indian concerns at the G-20 deliberations, including the need for cooperation on dealing with serious economic offenders and fugitives, as well as climate change funding.
  • This found its way into the final declaration. India sent a tough message by refusing to attend the digital economy summit pushed by Japanese Prime Minister Shinzo Abe, as his plan for “data free flow with trust”, included in the G-20 declaration, runs counter to the Reserve Bank of India’s proposed data localization guidelines. The U.S. wrote in a counter to the paragraph praising the Paris accord, while trade protectionism was not mentioned in the document. On issues such as ocean pollution management, gender equality and concerted efforts to fight corruption, the G-20 found consensus more easily.
  • With Saudi Arabia hosting the next G-20 in 2020, followed by Italy in 2021, all eyes will soon turn to the agenda India plans to highlight when it holds the G-20 summit in 2022. Many global challenges, such as climate change and its impact, the balance between the needs for speed and national security with 5G networks being introduced, as well as technology-driven terrorism, will become even more critical for the grouping, and the government must articulate its line. India should lead the exercise in making the G-20 more effective in dealing with some of the inequities in its system. The G-20 is an important platform to discuss pressing issues, and it must not be detracted from its original purpose of promoting sustainable growth and financial stability by grandstanding by one or two members.
  • In its first 100 days, Prime Minister Narendra Modi’s second government has begun yet another rethink of higher education policies through the draft NEP (National Education Policy) and EQUIP (Education Quality Upgradation and Inclusion Programme). This is the latest, and seemingly among the most elaborate, in an endless series of official reports and programmes aimed at improving higher education in independent India.
  • The Radhakrishnan Commission of 1949, the National Education Policies of 1968 and 1986, the Yashpal Committee of 2009, the National Knowledge Commission in 2007, and the draft NEP of 2019 have all basically said the same thing.
  • While it is always valuable for various government committees to point to the importance of higher education for economy and society, it is not necessary to convene many experts through initiatives such as EQUIP to tell the government and the academic community what they already know. Perhaps the time, energy and resources that EQUIP will require can be better spent implementing the obvious. Everyone agrees that higher education needs significant improvement, especially as India seeks to join the ranks of the world’s premier economies.
  • Inadequate allocation of funds
  • However, central to both quality improvement and increased access is money. Higher education in India has been chronically underfunded — it spends less than most other BRICS countries on higher education.
  • The last Budget allocated only ₹37,461 crore for the higher education sector. Other related ministries and departments such as Space, Scientific and Industrial Research, Skill Development and Entrepreneurship, Science and Technology, Health Research and Agricultural Research have been allocated only modest support. Inadequate funding is evident at all levels. All State governments, which provide the bulk of higher education money, also fail to adequately support students and institutions.
  • The Central government, responsible mostly for the top of the academic system, does not provide sufficient resources. Even the Institutions of Eminence scheme falls short of requirements and is dramatically behind similar programmes in China and several European countries. Funding for basic research, which is largely a Central government responsibility, lags behind peer countries.
  • Apart from Tata Trusts, Infosys Foundation, and Pratiksha Trust, industry provides little support. Thus, India requires substantial additional resources for higher education to improve quality and build a small but important “world class” sector. Massive effort is needed at both State and Central levels — and the private sector must contribute as well.
  • A key goal of EQUIP and the NEP is that India must expand the percentage of young people enrolled in post-secondary education significantly.
  • It is interesting to note that while the draft NEP aims at increasing the gross enrolment ratio to at least 50% by 2035, EQUIP targets doubling the gross enrolment ratio to 52% by 2024.
  • At present, India’s gross enrolment ratio is 25.8%, significantly behind China’s 51% or much of Europe and North America, where 80% or more young people enroll in higher education.
  • India’s challenge is even greater because half of the population is under 25 years of age. The challenge is not only to enroll students, but to ensure that they can graduate. Non-completion is a serious problem in the sector.
  • And of course, the challenge is not only to enroll students and improve graduation rates but also to ensure that they are provided with a reasonable standard of quality.
  • It is universally recognized that much of Indian higher education is of relatively poor quality. Employers often complain that they cannot hire graduates without additional training. The fact that many engineering colleges even today have to offer “finishing programmes” to their graduates underlines the pathetic state of quality imparted by these institutions.
  • India needs a differentiated academic system — institutions with different missions to serve a range of individual and societal needs. Some “world class” research-intensive universities are needed. Colleges and universities that focus on quality teaching and serve large numbers of students are crucial. Distance education enters the mix as well. The draft NEP’s recommendations for a differentiated system of research universities, teaching universities, and colleges are in tune with this. However, the ways suggested to achieve these objectives are impractical.
  • The private sector is a key part of the equation. India has the largest number of students in private higher education in the world. But much of private higher education is of poor quality and commercially oriented. Robust quality assurance is needed for all of post-secondary education, but especially for private institutions.
  • The structure and governance of the higher education system needs major reform.
  • There is too much bureaucracy at all levels, and in some places, political and other pressures are immense. Professors have little authority and the hand of government and managements is too heavy. At the same time, accountability for performance is generally lacking.
  • Recommendations
  • India needs: (a) dramatically increased funding from diverse sources, and the NEP’s recommendation for a new National Research Foundation is a welcome step in this direction; (b) significantly increased access to post-secondary education, but with careful attention to both quality and affordability, and with better rates of degree completion; (c) longitudinal studies on student outcomes; (d) to develop “world class” research-intensive universities, so that it can compete for the best brains, produce top research, and be fully engaged in the global knowledge economy; (e) to ensure that the private higher education sector works for the public good; (f) to develop a differentiated and integrated higher education system, with institutions serving manifold societal and academic needs; (g) reforms in the governance of college and universities to permit autonomy and innovation at the institutional level; and (h) better coordination between the University Grants Commission and ministries and departments involved in higher education, skill development, and research.
  • The latest draft NEP and EQUIP have reiterated the importance of some of these points. There is really no need to spend money and attention on a new review. The needs are clear and have been articulated by earlier commissions and committees. The solutions are largely obvious as well. What is needed is not more research, but rather long-neglected action.
  • Philip G. Altbach is research professor and founding director, Centre for International Higher Education at Boston College, U.S. Eldho Mathew is an independent higher education
  • The Navy has lined up several multi-billion dollar deals for helicopters, long-range maritime patrol aircraft (LRMPA) and submarines which are in important stages of the procurement.
  • The deals for 24 MH-60R multi-role helicopters (MRH) and 10 more P-8I LRMPA are at an advanced stage with the U.S. through their Foreign Military Sales route. The process for 111 Naval Utility Helicopters and six conventional submarines under Project-75I has kicked off through the much-delayed Strategic Partnership (SP) model.
  • “The case for 24 MRH is at the cost negotiation stage and is expected to be concluded by September,” a Defence source said. In April, the U.S. formally approved the sale potentially valued at $2.6 billion.
  • The Navy has moved a proposal for 10 more Boeing made P-8Is estimated to cost over $3 billion as a follow-on case to the 12 aircraft acquired earlier. The proposal has been cleared by the Defence Ministry’s Capital Acquisition Plan Categorisation Higher Committee. “The file will now go to the Defence Acquisition Council (DAC) for approval,” the source said.
  • The Navy had initially procured eight P-8Is in a $2.1-billion deal in 2009. It exercised the optional clause for four more in a deal worth over $1billion signed in 2016. The aircraft are part of the 312A Naval Air Squadron based at Arakkonam in Tamil Nadu.
  • “The process for selection of qualified Indian private partners will begin shortly,” another Defence source said. The Navy has already discussed the qualitative requirements with the OEMs and as per the SP model, the Request for Proposal (RFP) has to be issued to the Indian SP partner.
  • The P-75I for six submarines will be the second deal to be processed under this model. Early this month, the Navy issued the Expression of Interest for shortlisting potential Indian strategic partners for the project estimated over ₹45,000 crore. “It felt like a race against global warming,” said Sebastian Kienle, who finished second in the men’s race.