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The Hindu Editorial: Pre-emptive Strike

Mahendra Guru
Title: Pre-emptive strike 

(As inflationary trends harden, the RBI’s rate hike will quell uncertainty in the markets) 

Context:- At the end of an unusually long three-day meeting, the Monetary Policy Committee of the Reserve Bank of India opted for a hike in key interest rates by 25 basis points — the first such increase in four and a half years. 

This hike, the first during this NDA government’s tenure, was approved unanimously by the six-member committee, citing worries about hardening inflation trends and a firming up of growth recovery at home. 

Global uncertainties affecting emerging markets in particular have played a role. Already, between January and May, outflows from foreign portfolio investors have reached their highest level in 10 years, and by June 4, $6.7 billion was pulled out on a net basis from the domestic capital market. The rupee, along with other emerging market currencies, is hurting too, but RBI Governor Urjit Patel dismissed suggestions that the rate hike was a bid to stem outflows. 

The MPC, he asserted, is driven purely by its inflation management mandate, and there is no contradiction between the rate hike and the committee sticking to its neutral policy stance. 

To be sure, while retaining its growth projections for 2018-19 at 7.4%, the MPC has revised upwards its inflation projections for the year since its April meeting — from 4.7-5.1% in the first half and 4.4% in the second half to 4.8-4.9% and a significantly higher 4.7%, respectively. This should worry a government gearing for parliamentary elections next year. 

Crude oil prices have been the biggest factor at play, rising 12% from $66 a barrel when the MPC met in April to $74 a barrel. 

The committee said this rise is “sharper, earlier than expected and seems to be durable”, and termed it a major upside risk to its earlier inflation projections. Industry has expressed concern, but effective borrowing rates and bond yields had been firming up even before this rate hike. 

Final Words 
The government has, surprisingly, welcomed the RBI’s stance as one that could help steady the markets and dampen uncertainties. 

Title: No longer seeing eye to eye? 

(With India recalibrating its relations with other powers, the India-U.S. equation is not quite balancing out) 

Context:- At his speech at the Shangri-La Dialogue in Singapore last week, billed as a major foreign policy statement, Prime Minister Narendra Modi spoke of India and the U.S.’s “shared vision” of an open and secure Indo-Pacific region. 

Yet his words differed so much from those of U.S. Defence Secretary James Mattis, who spoke at the same event, that it seemed clear that New Delhi and Washington no longer see eye-to-eye on this issue, and several others as well. 

Oceanic gulf: 
To begin with, Mr. Modi referred to the Indo-Pacific, a term coined by the U.S. for the Indian and Pacific Oceans region, as a natural geographical region, not a strategic one, while Mr. Mattis called the Indo-Pacific a “priority theatre” and a “subset of [America’s] broader security strategy” for his military command, now renamed the Indo-Pacific Command. 

A year ago, the Modi government seemed clear in its intention to counter China’s growing clout in its neighbourhood, especially post-Doklam, challenge the Belt and Road Initiative (BRI), and back a Quadrilateral grouping of India, the U.S., Japan and Australia to maintain an open Indo-Pacific. 

Today, the Doklam issue has been buried, the BRI isn’t as much a concern as before, and the government’s non-confrontational attitude to the Maldives and Nepal indicates a softened policy on China in the neighbourhood. 

Meanwhile, Mr. Modi now essays(attempt) a closer engagement with Chinese President Xi Jinping and a relationship reset with China after the Wuhan meeting. 

The Quad formation, which is holding its second official meeting today in Singapore, has also been given short shrift. India rejected an Australian request to join maritime exercises along with the U.S. and Japan this June, and Navy Chief Admiral Sunil Lanba said quite plainly last month that there was no plan to “militarise” the Quad. 

Era of summits 
In a world where summits between leaders have replaced grand strategy, the optics are even clearer. Mr. Modi will have met Mr. Xi and Russian President Vladimir Putin four-five times each by the end of the year, if one counts informal and formal summits, as well as meetings at the SCO, BRICS and G-20. In contrast, nearly half the year has gone in just scheduling the upcoming 2+2 meet of Indian and U.S. Ministers of Defence and Foreign Affairs. 

Trade protectionism is clearly the other big point of divergence between India and the U.S., which have in recent months taken each other to the World Trade Organisation on several issues. 

There has been a surge in disputes between the two countries: on the new American steel and aluminium tariffs, the proposed cuts in H1B professional visas and cancellation of H4 spouse visas, on India’s tariffs and resistance to U.S. exports of dairy and pork products. 
The biggest challenges to a common India-U.S. vision are now emerging from the new U.S. law called Countering America’s Adversaries Through Sanctions Act and the U.S.’s withdrawal from the Iran nuclear deal with the threat of more secondary sanctions. 

(The Countering America's Adversaries Through Sanctions Act, CAATSA, is a United States federal law that imposed sanctions on Iran, North Korea, and Russia). 

Both actions have a direct impact on India, given its high dependence on defence hardware from Russia and its considerable energy interests in Iran. 

In particular, India’s plans to acquire the Russian S-400 missile system will become the litmus test of whether India and the U.S. can resolve their differences. 

Clearly the differences over a big ticket deal like this should have been sorted out long before the decisions were made; yet there is no indication that the Trump administration and the Modi government took each other into confidence before doing so. 

In the face of sanctions 
It is equally clear that the India-U.S. equation isn’t balancing out quite the way it did last year, when Mr. Modi and Mr. Trump first announced the idea of the “2+2” dialogue. 

Ms. Swaraj, Ms. Sitharaman and their American counterparts have their work cut out for them during their upcoming meeting in Washington on July 6. 

Final Words: 
If a week is a long time in politics, in geopolitics today a year is an eternity(अनंत काल). 

Upside risk is the uncertain possibility of gain. 

Vocabulary words: 

Quell (verb) = Suppress, end, finish 

Exodus (noun) = Mass departure, withdrawal 

Headwinds = (in business) Situations or conditions that make growth harder/difficult 

Exacerbate (verb) = Make a problem worse (ख़राब करना) 

Eye to eye (idiom) = To agree with someone 

In the cross hairs (idiom) = In a position in which other people are eager to criticize or attack 

Clout (noun) = Influence or power, especially in politics or business (ताकत) 

Chink (noun) = A narrow opening or gap 

Compliance (noun) = The fact of complying with a wish or command (अनुपालन) 

Cess (noun) = A tax or levy (उपकर) 

Evasive (adj) = Tending to avoid commitment (कपटपूर्ण) 

Jitters (noun) = Feeling of extreme nervousness 

Alleviate (verb) = Make a problem less severe (कम करना) 

Loom (verb) = Appear as a vague (धुंधला दिखाई देना) 

Abolition (noun) = The ending of a system or practice (समाप्ति) 

Aspersion (noun) = An attack on the reputation of someone 

Denigrate (verb) = Criticize unfairly (बदनाम करना) 

Burnish (verb) = Enhance, improve 

Fidelity (noun) = Faithfulness to a person, loyalty (निष्ठा) 

Unsavoury (adj) = Disagreeable to taste (बेस्वाद)

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