Maharashtra Governor Bhagat Singh Koshyari kicked up a controversy on Saturday by what was viewed by many Maharashtrians as an insult to them “so that he could please his political masters in Delhi’’. The Governor while addressing a gathering said that Mumbai would cease to be the financial capital of the country if the Gujaratis and Rajasthanis (Marwaris) were to leave the city. Although he later tried to do course correction by stating that he had the highest regard for all the people, the damage had been done and provided the Shiv Sena, a political point to attack the newly formed government. Koshyari’s statement virtually meant that Mumbai’s primary position in India was on account of the Gujaratis and Marwaris contribution to its economy which had little to do with people from Maharashtra. Uddhav Thackeray was quick to respond and accused the Governor of attempting to divide the Hindus in the State. He demanded that he should be recalled or sacked as he had let down the people of the State despite eating their food for the past three years. The MNS Chief Raj Thackeray warned Koshyari and asked him not to provoke the Maharashtrians. The newly elected Chief Minister Eknath Shinde while realizing the wide ramifications the statement could have, tried to distance himself from the Governor’s views while deputy CM, Devendra Fadnavis made an effort to perform a balancing act by stating that people from various communities including Gujaratis and Rajasthanis had helped the Maharashtrians in making Mumbai the Financial capital of the country. The NCP which does not have a vote bank in Mumbai was quick to also jump into the battle and criticized the Governor for insulting the Maharashtrians. The reason for the Governor who himself has been the Chief Minister of a state (Uttrakhand) making such a statement is not fully known, but he is obviously not familiar with the evolution of Mumbai, which was the first cosmopolitan city of the country, much before Delhi, Bangalore, Kolkata and some other places achieved this distinction. When one looks at Bombay as it was originally known, the Parsis, the Gujaratis, the Sindhis, the Punjabis, the South Indians, the Marwaris and of course the Maharashtrians played a major role in its metamorphosis. The contribution of the Film Industry to the city is also immense which allowed people from all over to come and shine, regardless of their background but through sheer talent. The Shiv Sena was originally founded to reclaim the city for the Maharashtrians and its first agitation was against the South Indians and the Gujaratis though later on it also started targeting North Indians, particularly people from the Poorvanchal region, who are in large numbers in this metropolis. Thus, at a time when there is a struggle for the control of the Shiv Sena, with Shinde faction staking its claim, the Governor’s statement has nothing but bad timing all over it. Moreover, it is not acceptable to the people who live in Mumbai. The moral of the story is that Governors of various States including Maharashtra should not try and delve into politics of the region and should confine themselves to doing duties assigned to them under the constitution. Insulting any community or region is not a part of their brief. The Centre should take note of this transgression and advise Koshyari accordingly. There is no place for pursuing divisive agendas in this country and this applies to all.
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Digital Independence: Are we too late?
In this century each of our lives is in a world where both our Physical beings and Digital being is playing a significant role in our daily lives. In contrast to our physical lives, we are barely aware of how our data sourced from our digital life is being used by its custodians, which might not necessarily be a government, but can instead be a multinational corporation which is based in a developed country, such as the United States.
People who live within the sovereign boundary of a country, their identity, information, and privacy are kept secured by the country or precisely by the government, like India. The Indian government relentlessly puts effort to safeguard the data of the citizens. But who does look after the very data– when people coexist across numerous virtual locations within a ‘web’? How much are our identity and our data “safe” in that connected world? As data turns increasingly digital, a fierce race for ownership of data emerges simultaneously.
Facebook can be considered a bright example to understand the phenomenon. According to Wikipedia, “if India’s Facebook audience were a country then it would be ranked in terms of the largest population worldwide”. Although Facebook is not a country, this American company holds a huge amount of data, including personal and private information, of more than 239.65 million Indians. Facebook not only holds our personal information but also tracks our daily routines, habits, behaviour, and communication. This extent of information about 239.65 million Indians is enough to help Facebook to influence decisions, both democratic and consumerist, at an individual level. The influence of Facebook on individual choices is known to all when it comes to what product they are to buy next. It is now a well-known fact that how it unleashed the prowess of its data bank during the Presidential elections in its own country. That makes one wonder, would they have any restrictions when it comes to the sovereignty of a democratic nation? Will they care to spare, for their benefit?
There was a time when the British, Dutch, French, Portuguese or Spanish, all went on “expeditions” to faraway lands. The British Queen Elizabeth the first was known for her enthusiasm for “exploring the sea”. History records the account of how their expedition turned into “Business” before they unleashed their spree to colonise. Eventually, they took complete control over the countries, making the indigenous territories to be their “subjects”. Though after the Second World War, this way of capturing markets fell out of fashion and later became extinct.
It is often said that «Data is to this century what oil was to the last one: a driver of growth and change. Flows of data have created new infrastructure, new businesses, new monopolies, new politics and—crucially—new economics.» Governments in various parts of the world are already fighting battles with tech giants for the fear of losing sovereignty over their people or jeopardising their security. It is essentially because colonising a country no longer requires an invasion with the military and war, but can simply be done by controlling activities through networks and databases with a single click from distant lands.
The use of the internet has exponentially increased in the last decade with the evolution of the Web from Web2.0 to Web 4.0, offering individuals a plethora of benefits of a connected world—be it communication or making a payment with a single click. When we give our data to Google Maps, we know we’re giving our private information in exchange for a traffic-free route to our destination — and we do this without thinking about how our personal data may be used by Google. And in the due course, we all are entangled in the apparently free web! Aren’t we?
Today our data is monitored, controlled and sold off by America to the whole world. This dominance of data is creating and contributing to the hegemony and monopoly of multinational corporations all around the world. This leaves us extremely vulnerable to the entire world. Because we do not expect a thief to be morally righteous. Gradually, borders will not decide control over people or a nation. Instead, control over data will be the key power. The future will become the slave of s/he who owns the data!
The Prime Minister leads the government with the mighty vision of making India Self-reliant—be it Food, Vaccines, Commodities or Defense machinery. It is about time that the government takes bold steps to make India “Self-Reliant” in the Digital space, to let not India become a colony once again! Before it becomes too late, all governments should join hands with the Union government to bring policies and techniques to safeguard our integrity and data sovereignty. The government must pledge to march for digital self-reliance.
But, what can an ordinary person do?
“We the people of India” should also realize the threat which we are already in and how malicious it can become. We need to raise our voices against this daylight robbery. But then, the question emerges “How could it be stopped? Where is the way out from this?” How can one live without the Digital World? After all, India certainly doesn’t want to fall behind in the race for growth and prosperity!
India is a country which is praised across the world for its innovations. If we look at the statistics, all the tech giants, those who are robbing us of, are run by none other than the Indian nationals, now settled abroad. Hence, would it be too much to dream that the Indians in India can make apps? Yes, it is difficult. But is it impossible?
“Qmamu”, the search engine stands shining bright as an alternative to Google and an answer to that doubt. Besides, Koo as an alternative to Twitter has already caught the attention of the netizens as per the data. Chingari, Josh, Moj, Mirtron, Leher, Kutumb all are made in India. There is no dearth of innovation and options in India.
India can robustly come up with search engines like Qmamu and apps like Koo, Josh, Chingari for each digital need, then one day the world will not only praise India as a nation with one of the most powerful militaries but also as a nation which is “Digitally Independent” with a strong Digital Defense Mechanism.
We must act, before it’s too late to become Digital Atmanirbhar Bharat.
PKD Nambiar is a Marketing Strategist, Entrepreneur and
a Political Anaylist.
INDIA NEEDS TO NUDGE NEPAL NOT TO FALL PREY TO CHINA’S DEBT-TRAP DIPLOMACY
Nepal’s foreign minister Narayan Khadka visited China and held a meeting with his Chinese counterpart Wang Yi early this week amid apprehensions expressed by several experts that “Beijing is encouraging Kathmandu to live luxuriously with it on loan”. There are reports also, saying that the Nepalese foreign minister has “returned a happy man from China who offered Nepal a huge grant in return for Kathmandu’s assurances to stick to “One China’ policy. Is this an alarm bell for another debt-trap? This question is being raised now as India watched closely the Nepalese foreign minister’s visit to China and his various diplomatic and economic engagements out there. While India has been regularly cautioning all the neighbouring countries including Kathmandu against China’s debt-trap diplomacy, it needs to nudge Nepal more vigorously not to fall prey to this trap, given the reports about Beijing intensifying efforts to expand its influence in the Himalayan region. That Nepal should learn from Sri Lanka’s experience is what External Affairs Minister S Jaishankar has underlined on several occasions. At the Munich Security Conference in February this year, Jaishankar without naming China, criticized Beijing for the debt-trap diplomacy it indulges in and cautioned the countries in the neighbourhood not to fall into the trap. He advised them to make “informed decisions”.
Nepal’s Foreign Minister Pradeep Gyawali with Chinese Foreign Minister Wang Yi as he arrived for a meeting at the Great Hall of the People in Beijing last month.
But what is worrisome is that China is consistently trying to convince Nepal to be mindful only of its own development “which is not possible without financial assistance from Beijing’. The Chinese diplomats over the last few months have reportedly been meeting their Nepalese counterparts with one luring offer or the other. The Chinese foreign minister Wang Yi during his talks with the Nepalese counterpart is learnt to have mounted pressure on Kathmandu to accept Beijing’s investment (read irrevocable debt) proposals. Wang Yi is also understood to have tried hard to carry forward the agenda to increase Chinese influence in Nepal by ensnaring the Himalayan nation in an “endless cycle of debt”.
According to Nepal’s Ministry of Foreign Affairs, Yi and Khadka discussed enhancing, among other things, “bilateral trade, connectivity network, health, tourism, agriculture, education.” Beijing reportedly assured Kathmandu to provide it with a 118 million USD grant for certain projects. This is what the Chinese government led by Xi Jinping used to do for Sri Lanka. What exposes Chinese ulterior motive is that not a single project has, so far, been completed under the Belt and Road Initiative (BRI) for which an MoU had been signed in 2017 when Pushpa Kamal Dahal was the prime minister of Nepal. Why is China not working on the existing projects under the BRI when it is so caring about development in the Himalayan nation? It means that the Chinese government is using the BRI agreements as a weapon only to entrap the smaller and economically weaker countries like Nepal under the garb of infrastructure development, promising cheap loans. This is something that Kathmandu should avoid getting into. Unfortunately, Colombo could not resist the temptation of cheap Chinese loans offered on the pretext of development of infrastructure in the island nation. Many fear that China is trying to implement the same Sri Lankan formula to boost its debt-trap diplomacy in Nepal as well by luring it with Beijing sourced cheap projects.
India needs to drive home the message in Nepal more forcefully that New Delhi’s goodwill comes with no strings attached. Moreover, Kathmandu should be vigilant and should learn from what happened in Colombo and other countries which signed ‘so-called’ agreements with China. Nepal needs to be reminded time and again that China through its infrastructure projects is making inroads in the Himalayan region in a bid to work against New Delhi’s interests only. In fact, China has nothing to do with the development of Nepal as its motive is something else. This is something that the Nepalese government should not close its eyes to. What is relieving is that Nepal under Sher Bahadur Deuba has so far played it safe. Unlike KP Oli who was pro-China, Deuba is moving cautiously in terms of diplomacy with Beijing. After assuming charge last year, he made his first international trip to India this April, with a visit to the holy city of Kashi added to the itinerary. He also promised not to allow use of Nepal’s soil for any anti-India activities, with an obvious reference to the Chinese agenda. However, India needs to maintain a close watch over dynamics of ties between Kathmandu and Beijing. After all, it is money that matters.
Global geopolitics at the Line of Actual Control
It causes concern in New due to its striking similarity with the Chinese display of strength through the violation of Taiwanese Air Defence Identification in East China Sea. The article investigates the patterns behind the Chinese expansionist designs in its neighbourhood and whether India already has begun to be treated as an actor which can thwart such efforts.
Since the Galwan Valley incident in June 2020, Indian and Chinese armed forces have been locked in an intense standoff at the Line of Actual Control (LAC) in Eastern Ladakh. To resolve the issue, the 16th Round of talks on the LAC at the Chushul-Moldo meeting point ended recently. Several issues pertaining to patrolling and location of forces have already been resolved in preceding deliberations. The current round holds significance for two reasons. First, it is happening in the backdrop of United States House of Representatives Speaker, Nancy Pelosi’s visit to Taiwan. China has reacted very strongly to the visit, both diplomatically and militarily. Second, China has with increasing frequency flown its combat aircraft and Remotely Piloted Aircraft Systems (RPAS) close to the LAC. It causes concern in New Delhi due to its striking similarity with the Chinese display of strength through the violation of Taiwanese Air Defence Identification (ADIZ) in East China Sea. The article investigates the patterns behind the Chinese expansionist designs in its neighbourhood and whether India already has begun to be treated as an actor which can thwart such efforts.
Comprehending China’s proclivity for assertions of sovereign claims is a task that has confounded both policymakers and strategists alike in the region. In East China Sea, the region where Taiwan is located, the Chinese claims reach further east to threaten Japan over Senkaku Islands. The South China Sea is rife with claims and counter claims by China, Philippines and Vietnam apart from Indonesia, for which the Exclusive Economic Zone (EEZ) overlaps with China. Chinese approach, since its increased stature due to its growing economic clout has been to subdue states into submission and agreements. It has been successful in most of the border and territorial disputes viz. Russia, Laos, Cambodia and Myanmar. In the case of Vietnam, Japan and India it has been less successful diplomatically and militarily. Therefore, it adopts a gradual and incremental approach to achieve its objectives. In turn, this may be reflection of the regional standing and power of these countries. The dispute with Taiwan, in its historical circumstances, may be different. The Taiwanese situation, however, and the latest Chinese response to Nancy Pelosi’s visit provides hints and clues to its actions.
Taking a cue from the Chinese actions over Taiwan strait and frequent violations of the ADIZ, the Indian establishment has raised concerns over the recent activity in Ladakh. Chinese approach is to normalize People’s Liberation Army Air Force’s air sorties and RPAS flights very close to the LAC. New Delhi and its armed forces must be attentive and ready that the frequency of air activity will increase and gradually the aircraft will fly more closer to the LAC. The recent standoff and subsequent negotiations have focused on reducing the tensions and desisting from provocative actions from either side. At the end of the current round of deliberations, a Chinese Defence Ministry spokesperson revealed that a four-point consensus was arrived at during the talks between the top-level commanders. These four points don’t yield much in terms of their content regarding the issues at the LAC. Focusing on the need to carry on the negotiations and improving upon the bilateral relations in other fields is the gist of the consensus. The third point of the consensus refers to “effectively manage and control differences, as well as safeguard the security and stability in border areas until the issue is solved”, which means naught and is another way to convey that discussions should continue. This definitely works in favour of Beijing which may be biding this tough phase owing to the Taiwan crisis in the East. Point four of the consensus is a step back in time as it refers “to maintain communication and dialogue, and reach a mutually acceptable solution as soon as possible” and is effectively the phrase used by the Chinese during the beginning of the crisis. New Delhi and the commanders may do well to refer to the initial phase of the talks when the crisis started in May 2020.
The broader ramification of the protracted nature of the negotiations at the LAC is that India now has clarity on Chinese deeds and words. India has entered into a new phase of the global geopolitical competition. A significant strategic component of the United States of America’s (US) pivot to Asia is its sustained attention and effort to India. Recent announcement of joint annual exercise ‘Yudh Abhyas’, literally meaning War Practice by the US and India is another instance of military cooperation between the two countries. ‘Yudh Abhyas’ will be carried out in October and happens approximately 100 kms. from the disputed border between India and China. It will focus on ‘high-altitude warfare training’. The larger context is explained by a statement of the US Defense Department that “Partnership with India is one of the most important elements of our shared vision for a free and open Indo-Pacific region”. The connect with global geopolitics is made amply clear. In a first, US Navy Ship Charles Drew arrived at Kattupalli Shipyard near Chennai for repairs following the agreements signed with the United States.
It will be an understatement to say that the new Cold War has set in, and New Delhi has major stakes as China has disputed land borders with India where friction is normal. Territorial and border disputes may not evoke the nationalist fervour as does the issue of Taiwan in China; however, they are matters of national prestige. Going by Chinese actions and intentions at the border, India needs to emphasize an early resolution of remaining issues at the border. Chinese remain the masters of the gradual encroachments and waiting game.
On the other hand, India over the last two decades has built a network of partnerships which will be crucial to overcome Chinese belligerence in the region, both at the land borders and in the Indian Ocean/ Indo-Pacific region. Strategic thinkers and policy makers alike have been keen to see India as an important actor in global geopolitics. Therefore, it is required that clarity and focus on Chinese words and actions remains a primary objective while strengthening Indo-Pacific partnerships intact.
The author is Associate Professor of Political Geography and Geopolitics at the Centre for International Politics, Organization and Disarmament, JNU.
Challenges in ameliorating death penalty sentencing
For several decades, there has been an extreme and perpetual unfairness in announcing the death sentence in India. Procedural unfairness has consistently been reflected in the judgements of the Supreme Court of India by our erstwhile judges, lawyers, researchers, et cetera. In the middle of such a crisis, they are concerned about an unwelcome prevalence of lack of control of the authority in sentencing methods that inflict the death penalty. Additionally, experts have noticed that the courtroom witnesses almost no information about the accused during the passage of a death sentence. The recent judgement of Manoj and Ors. vs the State of MP pursues the long snubbed, but a pivotal aspect of sentencing the death penalty. One must observe this particular attempt in Manoj with the Supreme Court’s evident uneasiness in the previous year where lower courts executed unfairness in the declaration of the death sentence.
The Supreme Court validated the constitutionality of the death sentence in 1980 in the case of Bachan Singh vs the State of Punjab and brought individualised sentencing to the foreground. It also instructed courts to examine the crime and life situations of the accused. Since the case of Bachan Singh, there have been various disagreements about which criminal cases require death sentences and what type of information is needed to validate the sentence. Most prisoners are poor and cannot afford top-class lawyers to represent them. So, the courts make little effort to gather information and know the circumstances of the accused during the passing of a death sentence.
In September 2021, Justice N.V. Ramana was the Chief Justice of India. At this time, three benches of the Supreme Court of India heard arguments over 13 death penalty appeals and provided judgements in 10 cases. It declared three acquittals in one case and commutations in the other. A common point of profound concern runs through these cases—the amount of fairness in passing the death penalty and the lack of complete information available to the court about the accused.
Another bench headed by Justice U.U. Lalit and comprising Justices Ravindra Bhat, Bela Trivedi and P.S. Narasimha have presented their concern about the lack of information about the accused. Having recognised the importance of such information for passing a fair death sentence, the Bench in September 2021 ordered the presentation of reports of probation officers, prison officers and mental health professionals for the Manoj case. From the final judgement passed by the Supreme Court, it is evident that the court has taken necessary steps towards the realisation of the need for “individualised sentencing inquiry” as envisioned by the court 42 years earlier in the case of Bachan Singh.
The life-history approach furnishes a framework to view the circumstances of life as connected to each other. Courts have acknowledged the socio-economic circumstances of an individual as a mitigating factor in several death penalty cases. The fact that the socio-economic circumstances of a person are interconnected to other factors, like the impact of poverty on the individual’s access to proper housing, education, and health facilities, makes the matter quite engrossing, and all of these combined impact the life choices of that person.
For the first time, the Supreme Court has presented information like family background and any record of violence or ignorance (called remote factors or experiences) that would act as a mitigating factor. Negative experiences are not a one-day case, but amass over a period. The life-history approach is a perfect solution for such an inquiry. It helps to gain cognizance of how early life situations have played a role in shaping a human character and how these situations affect the choices of an adult.
While we hope that the life-history approach adopted by the Supreme Court in affecting the passing of the death sentence would find its way into the lower courts, the real difficulty lies in comprehending such rich information by these courts. The requirements of individualised sentencing are poles apart from the conventional checklist-based method of presentation of mitigation. Individualised sentencing is a vital fundamental principle of the criminal justice system of our country. Also, one should remember that with the introduction of non-legal expertise into courts, courts need preparation to acknowledge the evidence. Questions on contradicting findings from reports and opinions while the passage of the death sentence may also arise, and courts should address these by acknowledging the existence of evidentiary standards and judicial dicta. Hence, courts should remain curbed by the boundaries of the evidence act during death sentencing.
The decision in the “Manoj” case is a big and positive step towards a more significant and enlightened sentencing inquiry. More inquiry into complicated questions regarding sentencing will be inexorable to offer procedural fairness for the accused under death sentences.
Amaresh Rai is a political mentor.
NITISH’S MOVE IS A RESPITE FOR OPPOSITION, BUT QUESTIONS REMAIN
Nitish Kumar’s decision to dump BJP and pull out of the NDA government in Bihar may have come as a respite for an ineffectual and weak opposition, but the important question is whether the Congress will allow the JD(U) leader’s prime ministerial ambition to come to fruition. Nitish has now been pitched as a prime ministerial candidate for the 2024 elections by some of his supporters after he dumped BJP. This was not seen openly in 2017.
This is not the first time that he has taken a U-turn. The entire political journey of Nitish Kumar is marked by somersaults like this. Mindful only of his own political convenience, the JD(U) leader has been delivering blows to leaders like Sharad Yadav, Lalu Yadav and Ramvilas Paswan who have all been associated with Jayaprakash Narayan. He hurriedly went with the NDA as he was eyeing the post of Bihar CM. He strengthened his political position after becoming a Union minister during the NDA regime at the Centre. While holding various ministries in the Atal Bihari Vajpayee government, Nitish Kumar continued to keep the focus on Bihar politics. He became CM of Bihar for seven days for the first time with the help from BJP in 2000. Then in 2005, as an NDA partner, Nitish threw RJD out of power. He continued to be with NDA till 2014. But after massive defeat of the opposition in the 2014 parliamentary polls, Nitish appointed Jitan Ram Manjhi as CM in what was seen as a dramatic political development in Bihar. After this, Nitish removed Manjhi from the CM post and succeeded him. He dumped NDA and fought Assembly elections in alliance with his arch rival parties RJD and Congress, and finally got a big victory. It was then only that Nitish started having prime ministerial ambitions. Opposition leaders like Lalu Prasad and Sharad Yadav wanted Nitish to be prime ministerial face in view of the rapidly growing stature of Narendra Modi. But Congress did not agree. The grand old party made it clear that Rahul Gandhi will be the PM face. The relations started turning sour after this development. Nitish got disappointed and switched partners to join hands with the BJP. He formed the government with support from BJP. Nitish contested the 2020 Assembly polls in alliance with BJP. When his prime ministerial plan got derailed, Nitish started expecting to be considered for president or vice president posts. But his hopes got shattered again.
Now the latest Bihar development suggests that Nitish would like to be prime ministerial candidate in 2024. The politics has undergone a drastic change between 2017 and 2022. The opposition has been weakened tremendously, with Congress being involved only in existential fight. The opposition is looking for a face that could challenge PM Modi. Whatever allegations the JD(U) may be levelling against the BJP, the fact is that Nitish could rise in politics just because of the saffron outfit. What will be interesting to see is whether Congress will agree on Nitish as a PM candidate.
What needs to be taken into consideration is that the Congress has already rejected Mamata Banerjee’s proposal to project a non-Gandhi leader as PM face. Telangana CM K. Chandrashekar Rao is also trying to be prime ministerial candidate for which he is seeking to stitch a non-BJP and non-Congress alliance. He has met Tejashwi and Akhilesh Yadav as well.
Nobody had any prior idea about Nitish’s move to snap ties with BJP. Undeniably, the entire opposition would like Nitish to lead the bloc. But much of it will depend on Congress. The grand old party may also see big organizational changes. What will also be interesting to see is whether Nitish becomes a pivotal figure of opposition politics or Congress will bring up some other face. The question here is whether Nitish will not take another U-turn if his bid to be prime ministerial face comes a cropper. Lok Jan Shakti leader Chirag Paswan has already said that Nitish will again switch partners if his ambition remains unfulfilled. With all this in view, the turf ahead is not smooth for 71-year-old leader Nitish Kumar either.
Implications of the rupee going international
Internationalization would enable the Indian rupee to be transacted easily by both residents and non-residents; however, on the flip side, if not supported by strong domestic financial markets, it will hinder independent monetary policy.
As the rupee breached the psychological barrier of INR 80 vs USD, there are increased calls for internationalization of the INR. The Indian Rupee depreciated by around 7.5% from 74.4 to 80.0 from January to July 2022. During the same time, Indian forex reserves depleted by 9.1% (i.e., USD 569.9 billion at the beginning of 2022 to USD 518.1 billion in the first week of July) on the account of capital outflows. To strengthen the INR and halt depreciation, the Reserve Bank of India (RBI) sold around $30 billion in the open markets from October 2021 to May 2022, but with little success. Rising import prices contributed to current account deficit which increased to over 33.5 billion USD. At the same time, increased inflationary risks and subsequent rise in interest rates in the developing world contributed to a net outflow of foreign exchange, putting more pressure on the weak rupee.
In this backdrop, the Reserve Bank of India issued a notification on 11 July 2022 about trade settlements in Rupee; i.e allowing all cross-border transactions in Indian rupees. Internationalisation of currency would enable the Indian rupee to be transacted easily by both resident and non-residents, while at the same time be used as a reserve currency in global trade. Some of the positives of internationalization is that it lowers the transaction costs of trade and investments by reducing the currency fluctuation risks. However, on the flip side, if not supported by strong domestic financial markets, it will hinder independent monetary policy which is essential for developing countries in controlling inflation and credit growth.
To understand whether the RBI’s action will be successful, we must first examine global commerce as well as India’s trade with the rest of the world. It is significant that around 60% of global trade is conducted in US dollars, and this trend dates to the post-World War II rebalancing of the global power structure. When it comes to international trade, India conducts 86% of its business in USD, whereas trade in INR is less than 1%. However, there are many instances where India has engaged in INR trading. Rupee-Ruble trade during the erstwhile Soviet Union was a popular practise. Iran recently agreed to trade in INR, but with the US-led Western block’s imposition of partial sanctions, it ceased even before it began in full. Recently, the RBI has allowed trade settlements between India and Sri Lanka and Russia, in rupees in the wake of economic sanctions.
India’s trade with Bhutan and Nepal happens predominantly in rupees, and recently, India and Sri Lanka agreed to trade in rupees. Given their cordial ties, India and Japan have agreed to swap their respective currencies for US dollars. The large-scale trade in USD always puts the emerging economies like India at an exchange rate risk and the RBI’s notification last week is the first step in the right direction. However, the success of RBI’s attempt to internationalize the INR depends on multiple factors. The trading partners’ willingness to accept the INR is not as easy as it can be thought of since most of the exporters and importers invoice their products in USD. In addition, the prices of raw materials, intermediate goods and other input prices are set in USD. It is yet to be seen how India trades with countries like China, given the geopolitical problems. The biggest trading partners of India accept only USD. A quick look at India’s trade scenario shows that, except for Iraq (22.0%), UAE (15.2%) and Saudi Arabia (8.6%), India’s trade as proportion of total trade of its major trading partners is very meagre. Even India’s export share to total world exports is just around 1.7%. Moreover, around 60% of global currency reserves are held in USD dollars, followed by Euro (20%) and Yen (5%). Even though China accounts for nearly 15% of global trade, only 3% of global reserves are held in Renminbi, predominately due to shallow financial sector reforms.
A country’s currency strength is determined in the long run by fundamentals—roughly speaking, a country’s currency tends to settle at the level at which its industry is competitive on world markets. Inefficiencies in infrastructure, logistics and supply chains, and regulatory rent seeking practices contribute to low productivity and cost efficiencies for businesses operating in India. For example, it takes 22 days to clear a ship in Indian ports, compared to 5 in China; the median ship turnaround time globally is 0.97 days, compared to 2.59 days in India. India labour productivity at $8.3 (GDP per hour worked) is one of the lowest among its Asian counterparts. No wonder compared to industrialized economies, India’s trade openness is still quite low at 44%. Given such tepid performance over the years, internationalization of INR will not provide any quick fix solutions to the depreciating currency. On the other hand, India’s goal right now should focus on addressing the regulatory bottlenecks that restrict competitiveness in the markets which make our goods less attractive. India’s trade policy over the years has been overly protectionist, while at the same time ignoring global/regional value chain integrations. India’s record in preferential trade agreements and regional trade agreements, remain at best patchy. India’s intra-regional trade in South Asia is among lowest in the world. It should work out rupee denominated bilateral trade with friendly and nearby nations, especially in the South Asian region.
Dr Steven Raj Padakandla is an Associate Professor at IMT Hyderabad. Dr B.M. Rao works in the area of Open Economy Macroeconomics.
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