The 75th anniversary of Bretton Woods is an ironically low point in global trade

This month marks the 75th anniversary of the Bretton Woods conference. In July 1944, 44 nations agreed to new rules for establishing an international monetary order and open trade system. The World Bank and International Monetary Fund were then created to promote international trade and development, and facilitate greater exchange rate stability minus the gold standard. Such coordinated decisions were an important step by countries to rebuild the world economy after World War II. Multilateral cooperation strengthened thereafter, morphing into the rules-based international trading system at World Trade Organization in 1995. But since then, dissatisfaction over the international monetary ‘non-system’ has grown; the asymmetric World Bank and IMF governance structure has diluted their legitimacy. But all countries nonetheless progressed steadily towards greater openness in trade, finance and exchange rate flexibility. That is, until recently. Multilateral cooperation has consistently weakened since the global financial crisis in 2008, marking a distinct reverse turn in recent years. It is ironic that the Bretton Woods anniversary coincides with possibly the lowest point in international economic cooperation.

Divisive trade policies and retaliatory import tariffs have reached dangerous levels, dragging down world growth. Outstanding damage is inflicted by trade tensions between the United States of America and China, triggered by Donald Trump’s trade policies. The downshift is significant: manufacturing activity has shrunk across advanced and emerging economies as exports contract; Chinese growth has slipped to its lowest in three decades, and the US economy is slowing too. The IMF lowered its world output growth forecast by 0.2 percentage points to 3.3 per cent in April 2019 and pared this by 0.1 point last week, underpinned by weaker-than-anticipated global activity owing to sluggish global trade. In April, the WTO estimated goods’ trade volume growth to fall to 2.6 per cent in 2019 from 3.0 per cent last year from heightened trade tensions and economic uncertainties.

It is worth recalling that trade was the key propeller of the pre-crisis global boom that dramatically reduced the number of global poor, including in India. Over 2003-08, trade volumes grew an average 3 percentage points (8.5 per cent) each year above the preceding five-year average. World trade plunged to -10.5 per cent in 2009 with the 2008 crisis. It was outstanding multilateral cooperation and macroeconomic policy coordination led by the G-20 that averted a global recession and financial meltdown. An informal forum of 20 countries representing 80 per cent of world gross domestic product and two-thirds its population, the G-20 constantly avowed its commitment to free trade, shunning protectionism. Positive outcomes followed: global trade rebounded to 12.5 per cent and 7.3 per cent in 2010-11, weakening thereafter to an average 3.1 per cent annually in 2012-16. An uplift in 2017 (5.4 per cent) proved short-lived and global trade slipped back into the 3 per cent region last year. This year’s performance looks set to worsen.

The interesting feature in relation to declining volumes of world trade is the progressive increase in trade restrictions imposed by G-20 members since 2012, that is, inversely proportional to world trade growth. The WTO computes the total number of restrictive measures — at 145 from mid-October 2015 to mid-May 2016, these reached an all-time high in 2018-19. The reasons why world trade never recovered its pre-crisis levels are many — structural changes induced by demography, low productivity and secular stagnation in advanced economies, the changing nature of global manufacturing and restructured supply chains, technology shifts, and so on. But the adverse effect of increased trade barriers upon exports and imports is undoubted.

It is unfortunate that the world’s largest nations fail to see this. The captive hold of trade protection to combat domestic depression and high unemployment — beggar-thy-neighbour trade policies that temporarily benefit the endorsing country but harm trading partners — is proving counterproductive. Worse, this is threatening to spill over into competitive currency devaluation as the US mulls weakening the dollar to spur its exports. Trump hopes its import barriers will force China into agreement on liberalizing its trade policies, leading to their eventual removal. These talks are on a bilateral basis. The G-20 leaders’ meeting in Japan last month was unable to resolve the US-China trade impasse. The US has shifted towards bilateralism in trade matters elsewhere too, undermining the multilateral framework built since Bretton Woods. Global growth is the chief casualty of the weakened multilateralism in global trade, capital and labour flows. Many countries, including India, still have to reap the full benefits of free trade.

The weak economic cooperation observed today contrasts with the joint cross-country efforts seen at the time of Bretton Woods. The latter aimed to revive the world economy; the former is actually pulling it down. This raises the question as to who exactly safeguards global economic objectives in the current times. In a somewhat different but equally concerning context, the G-20 arose to be the premier forum for global economic cooperation to combat the 2008 crisis shock and forestall a worldwide recession. Since then, the G-20’s effectiveness has steadily diminished as national interests dominate, eluding consensus and cooperation at the forum. At its leaders’ summit in Argentina last year, even the G-20’s steadfast commitment to “fighting protectionism” yielded to “strive to realise a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, to keep our markets open”. After 75 years of Bretton Woods, the turn from multilateral cooperation is notable as is its drag upon the global economy.

Source:The Telegraph

Logged out: On protecting Amazon rainforest

It is a matter of global concern that deforestation in the Amazon rainforest in Brazil is increasing rapidly since January, when Jair Bolsonaro took office as President. Satellite images show that about 4,200 sq km of forests have been destroyed up to July 24 under the new government. While most nations tend to view their land and forests through the narrow prism of short-term economic gain, climate science data show that they play a larger environmental role. The Amazon basin, spread across millions of hectares in multiple countries, hosts massive sinks of sequestered carbon, and the forests are a key factor in regulating monsoon systems. The rainforests harbour rich biodiversity and about 400 known indigenous groups whose presence has prevented commercial interests from overrunning the lands. Much of the Amazon has survived, despite relentless pressure to convert forests into farmlands, pastures and gold mines, and to build roads. That fragile legacy is now imperilled, as Mr. Bolsonaro has spoken in favour of “reasonable” exploitation of these lands. Although the forest code has not been changed, his comments have emboldened illegal expansion into forests. Armed gold-hunting gangs have reached tribal areas and the leader of one tribe has been murdered in Amapa in an incursion. These are depressing developments, and the Brazilian leader’s criticism of satellite data and denial of the violence are not convincing at all.

As the custodian of forests in about 5 million sq km of Amazon land, Brazil has everything to gain by engaging with the international community on meeting the opportunity cost of leaving the Amazon undisturbed. Mr. Bolsonaro lost a valuable opportunity to seek higher funding for forest protection by refusing to host the annual convention of the UN Framework Convention on Climate Change this year, but he has been wise not to exit the Paris Agreement. Abandoning that pact would jeopardise Brazil’s access to the important European Union market. Globally, there is tremendous momentum to save the Amazon forests. Brazil must welcome initiatives such as the billion-dollar Amazon Fund backed by Norway and Germany, which has been operating for over a decade, instead of trying to shut them down. Remedial funding, accounting for the value of environmental services, is the most productive approach, because forest removal has not helped agriculture everywhere due to soil and other factors. One estimate by the World Bank some years ago noted that 15 million hectares had been abandoned due to degradation. Brazil’s President must recognise that rainforests are universal treasures, and the rights of indigenous communities to their lands are inalienable. The international community must use diplomacy to convince Mr. Bolsonaro that no other formulation is acceptable.

Source: The Hindu

Burning bright: on India’s tiger census

If India has increased its population of tigers to an estimated 2,967 individuals in 2018-19, putting behind fiascos such as the Sariska wipeout 15 years ago, it adds to its global standing as a conservation marvel: a populous country that has preserved a lot of its natural heritage even amid fast-paced economic growth. Since the majority of the world’s wild tigers live in India, there is global attention on the counting exercise and the gaps the assessment exposes. The National Tiger Conservation Authority (NTCA) has asserted in its report, ‘Status of Tigers in India 2018’, that 83% of the big cats censused were individually photographed using camera traps, 87% were confirmed through a camera trap-based capture-recapture technique, and other estimation methods were used to establish the total number. Previous estimates for periods between 2006 and 2010 and then up to 2014 indicated a steady increase in tiger abundance. Such numbers, however, are the subject of debate among sections of the scientific community, mainly on methodological grounds, since independent studies of even well-protected reserves showed a lower increase. It is important to put all the latest data, which are no doubt encouraging, through rigorous peer review. Conservation achievements — and some failures — can then be the subject of scientific scrutiny and find a place in scientific literature to aid efforts to save tigers.

There are several aspects to the latest counting operation — a staggering exercise spread over 3,81,400 sq km and 26,838 camera trap locations — that are of international interest, because some tiger range countries are beginning their own census of the cats. Moreover, even developed countries are trying to revive populations of charismatic wild creatures such as wolves and bears through a more accurate outcome measurement. For India’s tigers, not every landscape is welcoming, as the official report makes clear. The less accessible Western Ghats has witnessed a steady increase in numbers from 2006, notably in Karnataka, and Central India has an abundance, but there is a marked drop in Chhattisgarh and Odisha; in Buxa, Dampa and Palamau, which are tiger reserves, no trace of the animal was found. It is imperative for the NTCA to analyse why some landscapes have lost tigers, when the entire programme has been receiving high priority and funding for years now at ₹10 lakh per family that is ready to move out of critical habitat. Ultimately, saving tigers depends most on the health of source populations of the species that are estimated to occupy a mere 10% of the habitat. The conflict in opening up reserves to road-building has to end, and identified movement corridors should be cleared of commercial pressures. Hunting of prey animals, such as deer and pig, needs to stop as they form the base for growth of tiger and other carnivore populations. As some scientists caution, faulty numbers may hide the real story. They may only represent a ‘political population’ of a favoured animal, not quite reflective of reality.

Source:The Hindu

Bending the rules — on nod for Neutrino project

A year after the National Green Tribunal suspended the environmental clearance granted to the India-based Neutrino Observatory (INO), the Expert Appraisal Committee (Infra 2) of the Ministry of Environment, Forests and Climate Change has overturned the NGT verdict and granted environmental clearance for the project. The observatory, which is to come up in Bodi West Hills in Theni district, Tamil Nadu, is regarded as a symbol not just of India’s push for research in particle physics; it also signals the intent to nurture centres of excellence. Neutrinos are subatomic particles that are extremely difficult to detect. The laboratory cavern will be located 1,300 metres underground, with an access tunnel. The rock cover is necessary to minimise the naturally occurring cosmic ray backdrop. The project has become controversial on environmental grounds, given the proposed site’s proximity to the Mathikettan Shola National Park in Kerala’s Western Ghats, a global biodiversity hotspot. However, considering the project’s national importance, the Environment Ministry had taken up the proposal for clearance as a “special case”. The green signal is conditional on getting the consent of the Tamil Nadu Pollution Control Board and the National Board for Wildlife. Despite the 17 conditions laid down by the Expert Committee while granting approval, the manner in which the clearance was granted leaves much to be desired.

The project has been approved under category B item 8(a) — building and construction projects — of the Schedule to the Environmental Impact Assessment (EIA) Notification, 2006. But it should have been treated as category A as the project lies just 4.9 km from the national park in Idukki district of Kerala. The NGT had ruled that it was indeed a category A project and the Tamil Nadu State expert appraisal committee also noted that it could not be appraised under category B 8(a) as tunnelling and other activities went beyond the scope of the section. According to the 2006 notification, projects or activities that come under category A require “prior environmental clearance” from the Environment Ministry. Side-stepping the EIA requirement on technical grounds both by the project proponents and the Ministry is surely not the ideal way to go about such matters. For one, the EIA was done by the Salim Ali Centre for Ornithology and Natural History, which is an “unaccredited agency”. And though a public consultation with local people who have a “plausible stake” in the project was conducted in July 2010, the details of the meeting were submitted only by the end of February 2018. The importance of the project notwithstanding, treating it as a special case and bypassing the environmental clearance protocol sets a wrong precedent.

Source:The Hindu

Accord under strain — on Colombia peace pact

Colombia’s presidential election, due in May 2018, will have a bearing on the fragile peace accord of 2016 that ended one of the longest civil wars in history. The result of the parliamentary election held this month has framed the stiff challenge the pro-peace parties face. The accord between the Colombian security forces and the Revolutionary Armed Forces of Colombia (FARC) had won President Juan Manuel Santos the Nobel Peace Prize; it is to his credit that the government managed to implement the accord in bits and pieces despite unremitting hostility from the right-wing opposition led by former President Álvaro Uribe. Now, in the March 11 parliamentary vote, Mr. Uribe’s Democratic Centre Party has emerged as the largest bloc in the Senate with 19 seats. Two other right-wing parties, Radical Change and Conservative Party, finished second and third with 16 and 15 seats, respectively. In all, the anti-accord parties have 50 seats in a House of 102. They may not have a clear majority, but the popular support they have mustered is undeniable. The ruling Social Party of National Unity won just 14 seats. FARC, contesting polls for the first time, finished with less than 1% of the vote, but is assured representation in parliament thanks to the accord.

Over the last year, the record of implementation of the steps in the peace accord has been patchy, though major strides were made in the form of demilitarisation and disbanding of the FARC and its conversion into a legitimate political force. The other key aspects of the accord required Bogota to protect mainstreamed FARC leaders and to prevent right-wing militias from targeting left-wing leaders sympathetic towards the FARC. Yet, in the past year, several left-wing activists — such as leaders of teachers’ unions and mining workers’ unions — have been assassinated by right-wing militia groups. This has prevented the possibility of a similar peace accord with the other remaining insurgent group, the National Liberation Army (ELN), whose leadership fears reprisal by militias if they lay down their weapons. Moreover, while the FARC leadership is committed to the accord, some elements of the group are holding out in the jungles, refusing to demilitarise and instead keep fighting. The next couple of months will be crucial for the pro-accord forces, with the parliamentary vote showing how much work they have ahead of them if they want to convince a sceptical electorate — for which memories of the civil war are still quite raw — that peace deserves a chance. For this, they will have to take dedicated steps to overcome the urban-rural disconnect in Colombia. If this not done, the chances of the accord coming undone are dispiritingly high.

Curbing misuse: on SC ruling on the anti-atrocities law

Will laying down procedural safeguards to curb false accusations work against the interest of protecting the oppressed from discrimination and caste-based atrocities? This is the salient question that arises from the Supreme Court verdict that has taken note of the perception that the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989, is being rampantly misused to settle personal scores and harass adversaries. On the face of it, it is difficult to fault the court’s approach. It is settled law that the mere scope for misuse of an Act is not a ground to invalidate it. Constitution courts seek to preserve the spirit of such legislation on the one hand and to evolve guidelines to prevent its misuse on the other. This is precisely what the two-judge bench has aimed to do. It has ruled that Section 18, which bars grant of anticipatory bail to anyone accused of violating its provisions, is not an absolute bar on giving advance bail to those against whom, prima facie, there is no case. In addition, the Bench has prohibited the arrest of anyone merely because of a complaint that they had committed an atrocity against a Dalit or a tribal person. In respect of public servants, no arrest should be made without the written permission of the official’s appointing authority; and for private citizens, the Senior Superintendent of Police in the district should approve the arrest.

In doing this, the Supreme Court has sought to strike a balance between protecting individual liberty and preserving the spirit of a law in favour of oppressed sections. Without any doubt, atrocities against Dalits are a grim social reality, necessitating a stringent law to combat it. The Act was amended in 2015 to cover newer forms of discrimination and crimes against Dalits and tribals to add teeth to it. It is true that conviction rates under the Act remain low. The lackadaisical approach of investigators and prosecutors to bring home charges against perpetrators of such crimes among the dominant castes is reflected in statistics. Even if courts are right in taking note of the tendency to misuse this law, society and lawmakers must be justifiably worried about the sort of messaging contained in their rulings and observations. In an ideal system, as long as every charge is judicially scrutinised and every investigation or prosecution is fair and honest, one need not worry about misuse and its adverse effects. However, social realities are far from being ideal. It ought to concern us all, including the courts, that some laws designed to protect the weakest and most disempowered people do not lose their teeth. Words of caution and rules against misuse may be needed to grant relief to the innocent. But nothing should be done to de-fang the law itself.

Source:The Hindu

Xi unlimited: on Xi Jinping's presidential term

The Chinese Communist Party’s proposal to abolish term limits on the presidency, and thereby allow Xi Jinping to stay on in power beyond 2023 when his second term ends, is not completely unexpected. When he was re-elected party chief and President for a second term in October, no one was projected as a potential successor. This was a break with tradition and triggered speculation about him remaining President beyond the second term. Mr. Xi is arguably the most powerful leader of China since Mao Zedong. At the 19th Party Congress in October, “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” was written into the party charter, setting him apart from his recent predecessors. He does not just control the main pillars of the Chinese state — the party, the government and the military. In 2016, the party accorded him special stature by making him the “Core Leader”. Just as Deng Xiaoping oversaw China’s economic rise, Mr. Xi has raised its profile in global geopolitics. He has pursued a more assertive foreign policy in China’s neighbourhood and launched massive infrastructure programmes across the world as part of the Belt and Road Initiative. But despite the power amassed, long-term projects launched and his own apparent ambitions, the constitution was seen as a limit to his stint in power. With the latest proposal on removing the term limit, which is certain to be endorsed by parliament, Mr. Xi may find greater room for manoeuvre in speeding up the next generation of economic reforms.

The timing of the announcement itself, however, has taken many by surprise. Mr. Xi was about to begin his second term as President next month, and so has five years to introduce the constitutional changes needed. But with a proposal moved to amend the constitution a week ahead of a People’s Congress convention, Mr. Xi has made it clear he does not want to leave anything to chance while consolidating his position. At present there is no rival power centre within the Communist Party to challenge Mr. Xi. But the centralisation of so much power in one individual, which is the antithesis of China’s professed commitment to ‘collective leadership’, may well impact the power dynamics, given the succession battles of the past. The party introduced the term limit in the post-Deng era principally to bring in order and stability at a time when China was becoming an economic powerhouse. Two of Mr. Xi’s immediate predecessors stepped down after their second term, having groomed the next generation of leaders, including Mr. Xi. By breaking with this pattern, Mr. Xi risks taking China back to the days of personality cults, internal power struggles and possibly chaotic successions.

Going grey: on Pakistan and the FATF watch list

The Financial Action Task Force (FATF) that monitors countries on action taken against terror-financing and money-laundering has decided to place Pakistan back on its watch list, or “greylist”, from June. The decision is both appropriate and overdue, given Pakistan’s blatant violation of its obligations to crack down on groups banned by the Security Council 1267 sanctions committee that monitors groups affiliated to the Taliban (which originally included al-Qaeda affiliated groups), such as the Lashkar-e-Taiba, Jaish-e-Mohammed and the Haqqani network. Their leaders like Hafiz Saeed and Masood Azhar continue to hold public rallies and freely garner support and donations. In the process, both the LeT and JeM, which continue to praise and claim credit for terror attacks in India, have grown their bases in Pakistan, with fortress-like headquarters in Muridke and Bahawalpur that the authorities turn a blind eye to. By doing this, successive Pakistani governments have jeopardised ties with India, and shown disregard for the outcry against terrorism worldwide. One violation was a Pakistani court’s bail to Zaki-ur-Rehman Lakhvi, LeT operational commander and a key planner of the November 2008 Mumbai terror attacks. Under the 1267 sanctions ruling, banned entities can get no funds, yet Lakhvi received the bail amount, and the authorities have since lost track of him.


It is surprising, then, that the first round of talks of the International Cooperation Review Group that makes its recommendations to the FATF plenary failed to reach the consensus needed to list Pakistan, despite a formidable team of the U.S., U.K., France and Germany proposing the resolution against it. That the initial support for Pakistan came from China, Saudi Arabia, Turkey and the Gulf Cooperation Council countries is cause for concern in New Delhi, given the recent diplomatic outreach by India. Equally significant, however, is China’s turnaround in the plenary session two days later, when it dropped objections to the resolution, indicating that its support for Pakistan is negotiable and not set in stone. The FATF listing will not miraculously change Pakistan’s behaviour, and this is not the first time it has been listed as a country with “strategic deficiencies” in countering terror-financing and money-laundering. However, if the greylisting comes as part of a concerted campaign to hold Pakistan accountable, and pressure is ratcheted up with financial strictures on its banks and businesses and targeted sanctions imposed against specific law enforcement and intelligence officials, it may yet bear fruit. The hope is that such sanctions will persuade Pakistan to stop state support for these terror groups and become a responsible player on the global stage and a responsive neighbour.

Spirit of Paris: on the climate change meet in Bonn

The 23rd conference of the UN Framework Convention on Climate Change under way in Bonn faces the challenge of raising the ambition of the world’s leaders, and giving practical form to the provisions of the Paris Agreement. Although 169 countries have ratified the accord, and there is tremendous support for greener, low-risk pathways to growth worldwide, the Trump administration in the U.S., one of the top emitters of greenhouse gases (GHGs), has announced it will withdraw from the pact. Even if it will take until 2020 to achieve an actual withdrawal, the U.S. action reverses the overall momentum achieved in Paris in 2015, and negates President Barack Obama’s legacy of regulations designed to reduce America’s GHG emissions, especially from the use of coal. It is heartening that China, which has achieved rapid economic growth and leads in GHG emissions, is firmly behind the pact to reduce the risk of climate change. There is steady progress in the growth of renewable energy sources as they become cheaper and the efficiency of solar, wind and energy storage technologies improves. As UNFCCC Executive Secretary Patricia Espinosa has said, the time is now to firm up the tasks set out in the agreement reached in Paris, notably on funds to mitigate and adapt to climate change. The Agreement has a benchmark of raising $100 billion a year by 2020.

Major risks from climate change, such as extreme weather phenomena, loss of agriculture, water stress and harm to human health, pose a threat to millions around the world. For some countries, such as Fiji, which holds the presidency of the Bonn conference, and other small island-states, the future is deeply worrying because of the fear that sea levels may rise sharply due to climate change. The recent Emissions Gap Report from the UN underscores the terrible mismatch between the voluntary pledges made by countries for the Paris Agreement and what is necessary to keep a rise in global average temperature below 2º C, preferably 1.5º C. All major countries, especially those that have depleted the global carbon budget by releasing massive amounts of GHGs since the Industrial Revolution, have to respond with stronger caps in their updated pledges under the Paris Agreement. India’s emissions have been rising overall, but it has committed itself to lowering the emissions intensity of its GDP by 33-35% by 2030 from the 2005 level. By some estimates, India has been awarded among the highest levels of multilateral climate funding at $745 million since 2013. Securing funds for mitigation and adaptation is a high priority for India, but it must ensure that States acquire the capacity to absorb such assistance efficiently. While the emphasis on a giant renewable energy programme has won global acclaim, the focus is equally on India’s readiness to embrace green technologies across the spectrum of activity, including buildings and transport.

Source:The Hindu

Royal flush: on the Saudi Crown Prince's surprise crackdown

Ever since he was named the defence minister of Saudi Arabia in 2015, Mohammed bin Salman has had little patience for the way the kingdom is being ruled. In June, two and a half years into the reign of his father King Salman, he replaced Mohammed bin Nayef as Crown Prince. In recent weeks, he had taken on the Salafi religious establishment. On Sunday, he sprang another surprise by ordering the arrest of senior government ministers, officials and 11 Princes, including the billionaire Alwaleed bin Talal, and the powerful chief of the National Guard, Mutaib bin Abdullah. The immediate reason for the arrests is not known. The palace version is that they were carried out as part of a new campaign against corruption that is spearheaded by Prince Mohammed. But the recent crackdowns suggest that Prince Mohammed is consolidating his power. He first had Prince Nayef removed from his path to the throne as Crown Prince. As one of the richest among Saudi royals, Prince Alwaleed is known for his cosy ties with Western governments and less conservative views. Prince Mutaib, a favourite son of the late King Abdullah, is an influential figure within the palace. By arresting both, Prince Mohammed has potentially neutralised the money and power centres that could pose challenges to him in the future.

With the latest arrests, at just 32 years of age Prince Mohammed appears to have established himself as the most powerful Saudi Crown Prince in decades. He is practically in charge of key policy decisions and has taken control of all branches of the Saudi security services — the military, internal security and the National Guard. He clearly has the King’s ear. Still, Prince Mohammed is playing a risky game. In a short span of time, he has opened multiple fronts in the still-unfolding internal power struggle. In Saudi Arabia, where the rulers traditionally distribute power among the different branches of the royal family as a balancing tactic and get their decisions approved by the ulema for legitimacy, Prince Mohammed’s moves are upending tradition. By concentrating power in his own hands and turning against other Princes as well as some clerics, he has upset the balance in the system. Quick consolidation of power could perhaps allow him to reshape the governance model. The anti-corruption campaign, which sounds much like that led by Chinese President Xi Jinping, will have popular support, which he could use to continue to target his rivals. But Prince Mohammed’s track record so far is devoid of any major achievement. His ambitious plan to reform the economy has been a non-starter. His foreign policy moves also backfired with the Yemen war spinning further out of control and the Syrian civil war turning in favour of President Bashar al-Assad, who is seen as an adversary by Riyadh. If he continues to make mistakes the game could go awry, triggering an open power struggle within the House of Saud. With the Riyadh-Tehran rivalry in West Asia hotting up again, these developments are also bound to have repercussions beyond Saudi Arabia.

Source:The Hindu

The Abe manoeuvre

Prime Minister Shinzō Abe’s Liberal Democratic Party has secured a resounding victory for a third term in the poll to the Lower House of Japan’s Diet. The development bucks the recent trend in advanced economies of incumbents being returned with much-reduced margins. A vindication of his decision to call elections a year ahead of schedule, the outcome increases Mr. Abe’s prospects of winning a third term next year as leader of his conservative party and becoming Japan’s longest-serving premier. The deeper import of the verdict, however, lies in the requisite two-thirds mandate to press ahead with plans to revise the country’s U.S.-backed post-War pacifist constitution to reflect current geopolitical realities. The prospect of securing such a large majority had seemed in doubt given the public scepticism over amending the charter, coupled with a drop in Mr. Abe’s personal ratings. Now, having cleared that hurdle, he would hope to garner support to accord legal status to the Japan Self-Defence Forces, leaving intact the no-war provisions in the 1947 constitution. In this, he would count on the backdrop of escalating tensions over North Korea’s nuclear belligerence and China’s growing military influence in the region. But public approval of the proposal in a plebiscite will be the all-important challenge. Sunday’s verdict was otherwise largely a foregone conclusion, as the charismatic Governor of Tokyo, Yuriko Koike, did not even contest the race from the new platform she had launched, the Party of Hope. In any case, her fundamentally conservative orientation, even on the constitution, left voters with no real alternative. The opposition Democratic Party, facing months of internal turmoil, initially considered fielding candidates under the banner of Ms. Koike’s party. But the latter’s insistence on a loyalty test for nominees led to a split within the opposition.

With a firm mandate, the government should be able to focus more on the Abenomics strategy to further stimulate growth and demand. A June assessment of the International Monetary Fund points to the country’s sustained growth and record unemployment as evidence of the success of the model. Also significant is the Fund’s support for the Bank of Japan’s continued loose monetary policy in the face of weak demand. Mr. Abe’s poll promise to further boost the fiscal stimulus should please critics who say that concerns over public debt were being overplayed. Whereas Mr. Abe is weighing a sharp increase in the controversial consumption tax up to 10% by 2019, the Fund has proposed a more calibrated approach. Such an alternative may be the right course in a country with a declining working-age population, and faced with persistently low consumer spending. Mr. Abe has his eyes set on seeing the country through the 2020 Tokyo Olympics. Japan will by then be a very different country from what it was in 1964, when it first hosted the Summer Games.

Source:The Hindu

The life of Xi

When Xi Jinping was elected the leader of China and the Communist Party five years ago, many had predicted that he would become the most powerful leader since Deng Xiaoping, the architect of the country’s economic rise. They may be wrong. With the 19th party congress, which concluded on Tuesday and has written his name and ideas into the party constitution, Mr. Xi now appears to be the strongest leader since Mao Zedong. This amassing of Mao-like powers could also allow Mr. Xi to stay in power beyond the usual two terms. Two of Mr. Xi’s predecessors had stepped down after two terms to ensure an orderly transition in the party and the government, where there is no dearth of talented and ambitious leaders. The practice has been for the mid-term party congress to choose the likely successor of the incumbent and groom him over five years to eventually take over the reins. However, the party doesn’t seem to have chosen anyone this time. All five new faces in the seven-member Politburo Standing Committee, the highest decision-making body in China, are in their 60s, which lends credence to speculation that Mr. Xi is not planning to step down when his second term ends in 2022. Even if he does step down from the government, given the stature he has already achieved within the party, he could retain a Deng-like sway over policy matters.

In Mr. Xi’s world view, China has passed two eras — the revolutionary era launched by Mao and the economic reforms spearheaded by Deng. The “Xi Jinping thought on socialism with Chinese characteristics for a New Era” that has been written into the party charter marks “a new era”. This one is about making China economically stronger and geopolitically more influential. In his three-and-a-half-hour speech at the congress, Mr. Xi placed great emphasis on strengthening the military and resisting “the whole range of erroneous viewpoints”. The message is that the era of “peaceful rise” is over. The more combative foreign policy Mr. Xi’s administration is pursuing will continue, perhaps more aggressively, while at home he will consolidate more power. But this doesn’t mean it will be a cakewalk. If China takes a more aggressive, militaristic view of its neighbourhood, it could trigger an aggressive response from neighbours such as India and Japan. North Korea remains as much a foreign policy problem for Mr. Xi as for President Donald Trump. China’s export-oriented economy is still not free from the global economic whirlwinds. Mr. Xi will have to factor in global market concerns while taking key economic decisions at home. Besides, though the transition in the Communist Party has been orderly at least in the last 30 years, it was not free from troubles. Mr. Xi would be mindful of how he projects his own power, lest it triggers a backlash. The challenge before him is to find a balance between his ambitions and the realities that China confronts today.

Source:The Hindu

A pivot to China?

Till 1750, the Asian giants produced half of global economic output before gunboats and colonisation reshaped trade, and subsequently production and consumption. There is now a consensus that the locus of global wealth is again going to be in Asia. The implication of the interruption, or reversal, has not been explored as the strategic dimensions continue to be seen through a Western prism.

Western analysts focus on the relative decline of the U.S. rather than on Asia’s re-emergence. The underlying assumption is that the world needs global institutions, rules and agreements to solve problems that countries cannot solve on their own, while not addressing the question that has now come centre stage — who sets the worlds standards and for what purpose?

Containment, relevant during the Cold War, is not proving effective in Asia with China emerging as the largest global economy. Alliances are also losing relevance in Asia as countries are gaining influence more because of the strength of their economy than the might of the military. Moving away from global rules, for example the climate agreement, questions their relevance for meeting global concerns.

Globalisation, driven by the ‘Washington Consensus’, dominated global policymaking, with the World Bank, International Monetary Fund and World Trade Organisation as the institutional centres of gravity. Developing countries have complained for decades about the ‘terms of trade’, ‘conditionalities’ and intellectual property rights linked with trade sanctions. The limits to trade liberalisation are now also being raised in the West.

David Ricardo’s arguments of comparative advantage of countries and Adam Smith’s emphasis on competition creating wealth are not relevant in today’s knowledge-based, urbanised world of middle-class consumers and global value chains. The problem is not trade, which has been happening for over 2,000 years, but the nature of recent rules going beyond facilitating commercial transactions.

Donald Trump, recognising global trends, is reviewing the role of the U.S. based on alliances, rules and values. He prefers an “America First” approach, wants to “reset” ties with Russia around “mutual respect”, and wishes for the “strongest relationship” with China, with trade as the foundation of bilateral ties.

Asian views

The thought leadership for shaping global politics, with Asia restored at its economic centre, should revert to the 2,000-year-old pattern of commercial transactions, with trade rules limited to standardisation and dispute settlement. Asian prosperity is more than a geo-economic or geopolitical concept, underlined by President Barack Obama’s failed attempt to prevent Asia from setting the new rules for trade.

China and India have much in common, if we move out of the Western frame, as both are civilisational states whose contours were shaped by major snow-fed rivers. In both states, no strategic thinker advocated conquest of lands outside this sphere, in sharp contrast to Western strategic thinking on control of the seas, security alliances and rules pushing common values as the best way of organising international relations.

In political thought also, Amartya Sen has pointed out, religious tolerance and human rights are not Western concepts. Chinese civilisation has had a more secular orientation than any other civilisation. In Indian political thought, authority was based on the interests of all. In both civilisations, the king was regarded as guardian and not creator of the law.

The Asian giants have yet to reconstruct international relations theory around a global vision of sharing natural resources, technology and prosperity — issues they have together fought for over 50 years in the United Nations.

India’s strategic priorities

China took advantage of global value chains shaping long-term economic calculations, redefining global power and securing a head start over India. China will remain the world’s largest producer of goods and India can be the largest producer of services. The services sector will be the real driver of future growth in Asia, with affluence concentrated in cities, giving a younger India future advantage.

India has the capacity for global leadership as the hub of the new knowledge-based order, including new pharmaceuticals and crop varieties, as it is the only country with both extensive endemic biodiversity and world-class endogenous biotechnology industry. Along with global leadership in software-led innovation, foundation of the new low-carbon digital-sharing economy, India is developing low-cost solutions for urbanisation, governance, health and education problems. Sharing solutions to common problems as a new form of international relations will provide legitimacy to reshape the global order with sustainability as the defining value.

China is keen to have India on board its One Belt, One Road (OBOR) initiative for connectivity-led trade in Eurasia. It has suggested a free trade agreement and both countries recognise the synergies for achieving the ‘Asian Century’. India’s knowledge-based strengths complement those of China in infrastructure and investment. India should seek to ‘redefine’ OBOR, adding a stronger component for a ‘Digital Sustainable Asia’, and for Eurasian connectivity to have two nodes, as has been the case throughout civilisation.

A mutual recognition of ancient special interests in the South China Sea and the Indian Ocean should be a strategic objective. This step will enable an understanding on issues like membership of the Nuclear Suppliers Group, global terrorism, and Gwadar, which are irritants in the development of stronger ties. Prime Minister Narendra Modi must recognise that trade will trump security.

Source:The Hindu

Myths about Israel’s security model

Prime Minster Narendra Modi’s veiled comparison of India’s strike against militants along the Line of Control with Israel’s military operations in its neighbourhood exposes the admiration India’s ruling elite have for the West Asian country’s aggressive foreign and security policy. Speaking at a public event in Himachal Pradesh on Tuesday, Mr. Modi said, “Our Army’s valour is being discussed across the country these days. We used to hear earlier that Israel has done this. The nation has seen that the Indian Army is no less than anybody.” His comments raise once again the question whether the Israeli security model is desirable for India.

Feeble deterrence

In fact, such an aggressive, militarist policy is not a successful model even for Israel if we look at the broader picture. Decades of war have pushed Israel to a security dilemma — whatever its leadership does to minimise the security threats it faces actually deepens the crisis further. Take a quick look at Israel’s military operations against groups it calls terrorist. In 1982, Israeli Prime Minister Menachem Begin sent troops to Lebanon to defeat the Palestine Liberation Organisation which was targeting Israel from southern Lebanon. Begin then famously said Israel would win “forty years of peace” after the war. But the outcome was more complicated than the status quo. The PLO retreated from southern Lebanon, first to Tripoli and then to Tunis. But the Israeli intervention stirred up the Lebanese civil war, kicking off another protracted bloody phase of fighting between different sects. Instead of winning peace for 40 years, Israel continued the Lebanese occupation for 18 years. By that time, the PLO had moved to the West Bank, but Hezbollah, a Shia militia which was formed during the civil war, had established itself as a sizeable military force in southern Lebanon and as an influential sociopolitical movement among the country’s disadvantaged Shia community.

In 2006, six years after it pulled troops out of Lebanon, Israel had to return to the neighbouring country to stop Hezbollah’s cross-border attacks. Israel bombed the country for 34 days and also conducted a major ground offensive. But throughout the war, Hezbollah continued the rocket attacks into Israel (almost 4,000 rockets in a month). Israel claims the operation was a success as it destroyed much of Hezbollah’s military infrastructure. But in reality the war left Hezbollah more powerful in Lebanon’s fractious politics, while it amassed weapons and rebuilt its military might over the next several years. So the security threat Israel faces from southern Lebanon still very much remains.

Backfiring bombings

The story of Israel’s wars on Hamas is not substantially different. To be sure, Hamas is a violent group that has targeted both the Israeli military and civilian centres. But Israel has been unable to claim a moral anti-terror position against Hamas because of the continuing occupation and, to be more specific, its policy of collectively punishing the Palestinian people. Israel withdrew forces and settlers unilaterally from Gaza in 2005, but it never stopped punishing the people of Gaza, and Hamas never stopped firing rockets into Israel. Ever since the withdrawal, Israel tried everything its mighty military could do to weaken the Hamas in Gaza. In 2007, it imposed a brutal land, air and sea blockade on Gaza, and between 2005 and 2014, it bombed Gaza thrice. Both the blockade and the wars have triggered widespread international criticisms and even allegations of war crimes. The United Nations Fact Finding Mission on the 2008-09 Gaza war, led by the South African jurist Richard Goldstone, accused both Israel and Palestinian militants of war crimes and possible crimes against humanity.

Another UN report, on the 2014 Gaza war, also reached similar conclusions. During the war, Israeli bombings killed 2,165 Palestinians, including 1,644 civilians, while militant attacks killed 66 Israeli soldiers and four civilians. But what has Israel achieved from this bloodshed? Hamas continues to rule Gaza and still possesses the capability to fire rockets into Israel. Even after all these military operations, if Israel is not feeling secure or doesn’t possess credible deterrence against militant groups, realists would suggest it should well rethink its strategy.

Low risk potential

Another argument why the Israeli model is not desirable for other countries is that Tel Aviv’s cross-border attacks were against relatively weaker powers. Israel is the only nuclear armed state in West Asia. By conducting cross-border strikes in Lebanon, Palestinian territories, or even in Syria, Israel doesn’t face an immediate escalation of a conventional war. Hezbollah and Hamas have the potential to file rockets into Israel, target its citizens and mount pressure on the country's political leadership. They could also make any Israeli ground operation costly. But they are largely guerrilla forces who use asymmetric tactics rather than posing any existential threats. So the risk Israel takes with its cross-border attacks is the human cost of such operations and hostile international public opinion. Israel’s history shows that it is not very bothered about either of these things.

India, on the other side, has two nuclear armed powers in its neighbourhood. The source of overseas terrorist threat it faces is Pakistan, a nuclear power with considerable conventional military prowess. It doesn’t mean that India shouldn’t act, but it should play within a limited hostility doctrine. It can’t risk a nuclear war. Moreover, India is a country that cares about its international image and international laws. It can’t go about violating global norms and then hope to play a responsible role in international politics.

Source:The Hindu

Darjeeling deadlock: On elusive peace

Delhi and Kolkata must urgently sink their differences and hold tripartite talks

The 104-day shutdown in the Darjeeling hills called by the Gorkha Janmukti Morcha (GJM) may have been lifted in late September, but peace remains elusive. A host of factors is responsible for this, not least the sparring between the Centre and the West Bengal government over who should determine the next steps. That they are not on the same page was evident in the way the deployment of troops in the region was handled. On October 15, the Union Home Ministry wrote to the State government that it was calling back 10 of the 15 companies of the Central Armed Police Forces posted in the hills. In response, two days later Chief Minister Mamata Banerjee moved the Calcutta High Court and got a stay. What is more worrying is that the situation on the ground remains tense and fluid. GJM chief Bimal Gurung is on the run. While the announcement to end the shutdown had come from him after the Centre appealed to protesters and offered to talk, the State government has raided his properties, lodged several cases against him, including for misappropriation of funds and triggering violence. It has issued an arrest warrant against Mr. Gurung and declared him a “proclaimed offender”. In an attempt to exploit differences within the GJM, the State government propped up rebel Gorkha leader Binoy Tamang, naming him chief of a new board of administrators to head the Gorkhaland Territorial Administration, which had been set up in 2012 as a semi-autonomous body. Mr. Tamang’s elevation has divided GJM followers. Ms. Banerjee has also been holding all-party meetings — the next one is to be on November 21 in Darjeeling — to arrive at a solution, with the GJM represented by the rebel faction.

With peace yet to be restored fully, the Central and State governments need to urgently sink their differences, hold tripartite talks and meaningfully empower the GTA. The economy of the Darjeeling hills has taken a severe hit with both the tea and tourism industries having suffered huge losses and struggling to chart a way out. The tea industry, for example, lost almost all its second flush crop, with losses estimated at ₹400 crore and counting. With uncertainty prevailing in the hills and winter setting in, there is anxiety over whether the gardens will be ready for the premium first flush crop which is harvested between February and April. Tourists have begun to trickle back, but the peak season is over. With the West Bengal government looking to be in no mood to talk to Mr. Gurung, the political crisis is far from over. It was Ms. Banerjee’s initial statement that Bengali would be made compulsory in the State, including in the hills, that revived the Gorkhaland stir. She later retracted it — but securing the peace will take a more conciliatory attitude by all stakeholders — the Centre, the State government and the GJM factions.

source:The Hindu

H-1B visa in the spotlight

There are disconcerting signals from the Trump White House and Capitol Hill of likely changes to the H-1B non-immigrant visa programme in the U.S. for skilled workers in tech jobs. Indian IT firms have been among the top recipients of the 65,000 such visas made available annually via a lottery system, in some years garnering well in excess of 80% of them. However, President Donald Trump, driven by his campaign promise of “Buy American, Hire American”, now has this “specialty occupation worker” visa in his crosshairs. Shares in Indian IT majors took a nosedive last week when an unconfirmed draft executive order leaked to U.S. media houses appeared to call for reform of immigration rules for skilled foreign workers that would raise the salary eligibility for such visas to $130,000, reverse the extensions granted by the Obama administration to the Optional Practical Training programme for foreign graduates in the U.S., and institute a rigorous monitoring system for companies employing L-1 visa holders, intra-company transferees. Any hope that India Inc. may have of such executive orders not gaining the requisite support in Congress is likely to come to naught: at least two bills with bipartisan backing were introduced in the House of Representatives last month, both urging tightening of conditions for skilled-worker visas that are, in the government’s view, costing Americans jobs.

Notwithstanding the shadow of protectionism that it would cast on the bilateral relationship with New Delhi, this visa crackdown in the making raises troubling questions for the U.S. tech sector and the broader economy as well. Any significant hike in the minimum salary levels for the specialised jobs held by H-1B visa recipients will hit not only Indian IT firms but also the tech titans of Silicon Valley, including Microsoft, Google and Facebook. This will inflict pain on the U.S. economy. Similarly, unless skill-based criteria are used in addition to wage-level restrictions, numerous U.S. firms will struggle to fill mid-level jobs with qualified Americans. Indian firms have for years been the most rapidly growing investors in the U.S. economy. If IT companies within this group are impacted by onerous new restrictions, they would likely prefer to entirely offshore their operations to India. Ironically, that could lead to job losses for American workers. While Mr. Trump was elected into office campaigning for economic revitalisation and job-creation for Americans, his administration would be wise to think through all the possible outcomes that could result from ham-fisted policies in the immigration space.

Source:The Hindu

Not a full-fledged State- Delhi crisis

In maintaining that Delhi is just a Union Territory, the Delhi High Court has answered some major and unresolved questions about the constitutional status of the National Capital Region. The Court has held that the special provisions incorporated for Delhi, under Article 239AA of the Constitution, do not negate the effect of Article 239, which empowers the Lt Governor to act independently of his Council of Ministers; in other words, the concurrence of the Lt Governor is mandatory for administrative decisions. Unless the Supreme Court adopts a diametrically opposite view, the Aam Aadmi Party, which has engaged in a turf war with the Centre over who rules Delhi, will have to abide by the categorical ruling that the Lt Governor is not bound to act on the aid and advice of the Council of Ministers. Given that the Supreme Court had taken a similar position in the NDMC vs State of Punjab case, the Delhi High Court judgment is no surprise. But the popular debate will continue about whether the right balance has been struck between the Union government’s responsibility in exercising control over an area in which Parliament, other key central institutions, and foreign missions are located and the democratic principle that people are ruled by a representative government.

At the political level, one may read into the developments a political setback to Delhi Chief Minister Arvind Kejriwal, whose AAP enjoys a massive majority in the Delhi State Assembly. Mr. Kejriwal had been locked in a power struggle with Lt Governor Najeeb Jung and had championed the cause of making Delhi a full-fledged State. As for the Bharatiya Janata Party, it may read the judgment as a vindication of its position that Mr. Kejriwal must accept the constitutional limitations of his office. The AAP has questioned the relevance of holding elections if the winning party is not going to run the territory. It is also a fact that such a tussle for supremacy arises from personality clashes and particularly when rival parties are in power at the Centre and in the NCT. However, in the public perception, some questions will remain. Is it wise to put in place structures that are open to multiple interpretations about who really runs what aspect of the administration? Is it necessary to have an ‘aid and advice’ clause when the LG has a virtual veto, and the Union government the final say, over matters concerning Delhi? Would it also not be prudent to have a much less ambiguous legal and constitutional framework?

SOURCE:THE HINDU

Turkey talks tough with the EU- Syrian refugee crisis

Turkey’s European Union Affairs Minister, Omer Celik, has yet again said his country cannot overhaul its counter-terrorism laws in return for visa-free travel facilities for Turks. The much-derided quid pro quo forms part of the deal reached in March to stem the influx of Syrian refugees into Greece. Mr. Celik’s tough talk, coming in the wake of the failed coup in Turkey last month, will comfort nobody and surprise none. Many elements of the agreement between Brussels and Ankara on the deportation back to Turkey of large numbers of Syrian refugees who get to European shores already remains suspended de facto following the crushed rebellion, as noted by the UN High Commissioner for Refugees. This suspension is obviously of concern to the EU. For the March deal had led to a substantial reduction in the flow of migrants, falling from a daily average of about 1,700 prior to the agreement to as few as 48 by June, according to official figures. Mr. Celik’s reasoning against any relaxation of counter-terrorism provisions is that the exiled cleric, Fethullah Gulen, whose followers allegedly masterminded the coup attempt, is a terrorist in the eyes of Turkey’s government. Even assuming the allegations against the cleric are merited, the argument that protection against extremism can be enforced only through repression is a disingenuous one.

Such an assertion at best gives a handle to the potent politics of anti-immigration that has fed into the already toxic atmosphere of euroscepticism in parts of the 28-country bloc. Its most serious ramification was felt when Britain recently voted in a referendum to leave the EU, emboldening right-wing parties in France and the Netherlands. Against this backdrop, hard-line right-wing resistance against the grant of visa-free travel facilities for those holding Turkish passports was perhaps to be expected. The EU’s Schengen visa-free travel area, covering more than 20 countries, made it possible for migrants reaching European shores to move to destinations of their choice with ease. One of the fundamental principles of the bloc thus became a bone of contention among some of the founding-members and more recent entrants. Some among the latter began to barricade their borders, much to the chagrin of EU leaders. In the absence of a concerted approach to deal with the refugee crisis, the move to allow Turks to travel without visas was always going to be controversial. The EU continues to drag its feet over the issue. Turkey’s President Recep Tayyip Erdogan, long reviled by Europe for his authoritarian inclinations, is clearly in no mood to be deterred by pious sermons after the failed coup.

SOURCE:THE HINDU

The crisis over Crimea

Russia’s claim that it had blocked attempts by Ukraine-backed saboteurs to carry out terror attacks in Crimea is the new flashpoint between the two countries. Ever since the annexation of Crimea from Ukraine in 2014, Moscow has had a heavy military presence in the peninsula. Russian President Vladimir Putin has now issued a stern warning to Ukraine against “supporting terrorists”, while Kiev has put its army on combat alert. It is not clear who is actually behind the latest flare-up. There are two theories afloat. One is that Mr. Putin is talking up the attack in Crimea to up the ante against Ukraine. The episode allows him to portray Ukrainian President Petro Poroshenko, an ally of the West, as a supporter of “terrorists”. The other theory, the official Russian version, is that militants and Ukrainian special forces were indeed involved in the sabotage attempt, and two Russian soldiers were killed in exchange of fire. For now, there are independent reports confirming that there was a firefight on the Crimea-Ukraine border on Saturday night. Militants had targeted Crimea earlier as well. Last November, anti-Russian saboteurs had blown up electrical pylons, plunging Crimea into darkness. The real question is whether such militant groups have the direct support of the Ukrainian government. If so, Ukraine may be committing a major mistake. Retaking Crimea from Russia using force is simply not practical. What it could possibly do is to destabilise Crimea by violent means. But even this won’t serve Ukraine’s interests as violence in Crimea by external forces is likely to prompt Moscow to step up proxy wars in Eastern Ukraine, destabilising the country further.

Russia sees Ukraine as a front of the West in a larger geopolitical game, and is unlikely to make major compromises unless there is a deal between itself and Western countries over Ukraine. Kiev is but a small player caught in a great power game. It should make its choices carefully as ties with Russia could be pivotal for its survival as a stable, peaceful nation in the long term. The West has to realise that its belligerent response towards Moscow over the annexation of Crimea, including sanctions, has only complicated the crisis further. It should rethink its policies and enter into meaningful talks with Moscow to dial down tensions over Ukraine. Restoring trust between Russia and the West is crucial in tackling several other global challenges as well, including the Syrian civil war and the fight against the Islamic State. For its part, Russia has to get its priorities right. What is it gaining from destabilising a tiny neighbouring country and damaging its own position as a global power when its economy is bleeding? There is room for all actors to make compromises in their mutual interest.

SOURCE:THE HINDU

Giving India a global-scale bank-merger of SBI and associate banks

The proposed merger of the State Bank of India with its five associate banks and the Bharatiya Mahila Bank is a long-delayed and welcome move on the path to banking consolidation, especially among state-owned lenders. SBI’s takeover of its five subsidiaries and the three-year-old niche provider of banking services for women will, once consummated, vault the merged entity higher up the rankings ladder on the global banking stage. The resultant benefits to the lender and the economy are evident. The increased balance sheet size will enable the bank to obtain better pricing on both internationally sourced funds and domestic deposits, thus helping it lower lending rates and improve profitability. The added branch network and customer base will also help it expand reach and enable the lender to rationalise resources across the board. There are various estimates of the potential cost savings, with one projection putting the possible reduction in cost-to-income ratio at 1 percentage point. The lender’s increased size, in terms of assets, will also give it the requisite muscle to take on new competition from larger banking entities that are likely to be created by consolidation in the banking industry. The Bank Board Bureau has been tasked with overseeing a restructuring among public sector banks in keeping with the government’s aim of reducing the number of state-owned lenders and improving their financial health.

The merger will, however, pose its unique set of challenges. The scale of the task is substantial given the total staff strength. With more than two lakh employees, the parent will add close to one-fifth that number by way of additions posing a huge test in terms of integration of roles, salary, perquisite and pension structures and, no less importantly, work cultures. Much of the opposition from the bank unions stems from concerns relating to these issues. Customers of the smaller, community or regional market-focussed subsidiaries such as the State Bank of Travancore may be discomfited by having to deal with a larger, more impersonal lender, one where the size of their accounts may be viewed as comparatively marginal. For regulators, the new entity will throw up interesting oversight issues. Already identified by the Reserve Bank of India as the country’s key Domestic Systemically Important Bank, or too big to fail in simple terms, the enlarged SBI’s capital adequacy norms will climb and may require far more by way of infusion of funds than the Centre has committed so far. But such challenges must not be used to undermine the obvious benefits of merger.

Source:The Hindu