Read The Hindu Notes of 17th April 2019 for UPSC Civil Service Examination, State Civil Service Examination and other competitive Examination

The Hindu Notes for 17th April 2019
  • Topic Discussed: The Hindu Notes of 17th April 2019

    • Indian elections, South Asian concerns

    South Asia wants the very best of democracy for India, plus to share in the peace dividend, growth and camaraderie

  • The staggering scale of the election that is under way in India with just under a billion voters is hard for the mind to grapple with, even in this densely populated neighbourhood that includes Bangladesh and Pakistan. The level of worry is also at a pitch, for India should be the bulwark against weakening democracy in a world of Bolsonaro (Brazil), Duterte (the Philippines), Erdoğan (Turkey), Putin (Russia) and Trump (the U.S.) not to mention the People’s Republic of China.

    • Redefining India

  • Modern India, created by M.K. Gandhi and Jawaharlal Nehru and their cohort, should be raising the standard for social justice and grass-roots democracy, and against destructive right-wing populism. This has not quite been Prime Minister Narendra Modi’s record, and hence the concern that another five years would redefine the very idea of India.
  • Already, the term ‘world’s largest democracy’ is achieving banality as India gains majoritarian momentum. Centralised control of society would never be possible in such a vast and variegated society of sub-nationalities, we were told, but look at what is happening.
  • The high principle and probity of India’s political class, bureaucracy, academia and civil society are now exceptions rather than the rule. India’s Ambassadors are no longer the self-confident professionals we knew for decades, they act today like timid note-takers. Higher education is directed by those who insist that the achievements of Vedic era science included flying machines and organ transplants. Meanwhile, the adventurism that marked economic management, including immiseration through demonetisation, has been ‘managed’ through loyal social and corporate media.
  • Intellectual toadyism and crony capitalism have overtaken New Delhi on a subcontinental scale, but sooner than later this drift towards regimented society and whispered dissent must be reversed. Too much is at stake for too many citizens — India must revert to the true, messy and contested democracy we have known and appreciated.

    • Soft power

  • Parliamentary democracy is the governance procedure adopted by each and every country of South Asia, and the Indian practice has always been held up as the example. The precedents set by India’s courts are studied elsewhere, the professionalism of the civil service is regarded as the benchmark, and everyone else seeks the aspirational welfare state set in motion in India in the middle of the 20th century. This is why we watch worried as Indian democracy weakens in step with its economy, as inter-community relationships within India descend to one-sided animus, and as New Delhi’s global clout decreases in inverse proportion to Beijing’s.
  • To cover weaknesses in governance and promises undelivered, Mr. Modi as the solo electoral face of the Bharatiya Janata Party (BJP) has whipped up a tornado of militarised nationalism that projects Pakistan as the exclusive enemy. No one dares remind the Indian voters that Pakistan is the far weaker power; its people are battling fanatical demons more than are Indian citizens; Pakistan is a large potential market for India’s goods and services; and the future of Kashmir must be based on Article 370 of the Indian Constitution.
  • Meanwhile, Lahore intellectuals watch with apprehension as India copies the excesses of Pakistan’s theocratic state. Dhaka observers are numbed into silence with New Delhi’s vigorous backing of Prime Minister Sheikh Hasina Wajed as she constructs an intolerant one-party regime. Colombo rides a geopolitical see-saw as New Delhi shadow-boxes Beijing. And Kathmandu wonders whether New Delhi has it in itself to concede that the amplified Chinese involvement in Nepal is the result of the Great Blockade of 2015-16.

    • Coy on Beijing

  • India has been reduced to a giant nervously finger-counting friends made or lost to China. The media triumphalism that greets even modest shifts in India’s favour — be it in Male or Thimphu — marks unnecessarily low self-esteem. New Delhi seems preoccupied with ‘managing’ South Asian countries when it should be commanding the global platforms on climate alteration, protection of pluralism and correcting imbalances in global wealth.
  • Few note the incongruity of a New Delhi loudly daring Islamabad while acting coy on Beijing, which one would have thought was the real adversary or competitor. Meanwhile India’s celebrated soft power wilts even as the Chinese work to wipe out their English deficit, and Beijing places Confucius Institutes in far corners. Chinese goods flood the Indian market, Chinese research and development gallops ahead of India’s, and Beijing convincingly moves to tackle environmental degradation.
  • India seems drowsy and lethargic in contrast. South Asia as a whole — much of it the historical ‘India’ — roots for Indian democracy even while welcoming Chinese investment, infrastructure loans and tourists. Also because it has the largest population in the Subcontinent, India is expected to lead South Asia on myriad issues including the death-dealing Indo-Gangetic smog, fertilizer and pesticide use, cross-border vectors, arsenic poisoning, regional commerce and economic rationalisation, social inclusion and the Human Development Index and so on. But leadership requires humility, to study, for example, how adjacent societies have successfully tackled great challenges — look at Bangladesh surging towards middle income country status.
  • Nepal has long been regarded by exasperated New Delhi policy-makers as the South Asian basket case sending out migrant labour to India. This much is true, but it also emerges that the Nepal economy is the seventh largest sender of remittance to India after the UAE, the U.S., Saudi Arabia, the U.K., Bangladesh and Canada. Unlike these others, Nepal’s remittances go to India’s poorest parts, in Bihar, Odisha, Uttar Pradesh and West Bengal.
  • We switch on India’s news channels and find an abysmal common denominator in terms of civility and rationality. The national intelligentsia seems intimidated, unable to challenge the rigid, dangerously populist narrative of the BJP/Rashtriya Swayamsevak Sangh (RSS). We watch as the National Register of Citizens propels statelessness, as the refoulement of Rohingya refugees points to a reckless disregard for fundamental humanitarian principles, and as majoritarianism weakens the pillar of representative democracy that is the protection of minorities.

    • Regionalism’s import

  • India is indeed large and important, but the chest size of a country does not translate into equity, social justice or international standing. Because nearly 20% of humanity lives within its boundaries, when India falters, the pit of despair and the potential for violence open up wide and deep.
  • The South Asia that New Delhi’s policy and opinion-makers should consider is not the centralised Jambudvipa mega-state of the RSS imagination. Instead, the ideal South Asian regionalism is all about limiting the power of the national capitals, devolving power to federal units and strengthening local democracy.
  • Mr. Modi’s own idea of regionalism is one where he calls the shots. The start of his current term was marked by an attempt to dictate to the neighbours, after which the pendulum swung to the other extreme. The freeze put by India on the inter-governmental South Asian Association for Regional Cooperation (SAARC) is only a cynical means to keep Pakistan out of the club.
  • The sabotaging of SAARC can hardly be considered a victory, for that feather-light geopolitical stratagem fails to consider that regionalism is a potent means to bring economic growth and social justice to India’s own poverty-stricken ‘peripheral regions’ from Assam to Purvanchal to Rajasthan. For its own security and prosperity as well as that of the rest of us, India must re-connect with South Asia.
  • Subcontinental regionalism is also important to achieve New Delhi’s ambitions on the world stage, including that coveted seat at the UN Security Council. India’s global comeback will start the day New Delhi think tanks begin questioning South and North Block rather than serving as purveyors of spin. On South Asian matters, they should pull out a copy of the Gujral Doctrine from the archives, to be dusted and re-examined.
  • We seek an India that is prosperous and advancing at double digit growth, not only because what this would mean for its 1.35 billion citizens, but to the other 500 million South Asians. For its own selfish interests, the rest of South Asia wants India to succeed in the world.

    • Implications of the Indonesian vote

    The contenders for President may be very different, but either way ties with India are set to deepen

  • Indonesia’s single-day and complex elections are today. The rematch, after 2014, between incumbent President Joko ‘Jokowi’ Widodo of the Indonesian Democratic Party of Struggle (PDI-P) and his challenger, Prabowo Subianto of the Great Indonesia Movement Party (Gerindra) will decide what trajectory the country will take over the next five years.
  • The result will have an impact on the domestic economy and polity, with both candidates having fine-tuned their positions since 2014. Indonesian foreign engagements will also see a change depending on whether it pursues its own Indo-Pacific strategy and an Association of Southeast Asian Nations (ASEAN)-plus foreign policy. Given its large population, mainly Muslim, its growing middle class and market and its strategic location, the election is of interest to the region.

    • Political highlights

  • In 2019, the Election Commission approved 16 parties to run for parliament. Mr. Jokowi’s coalition has 338 out of 560 current MPs to Mr. Subianto’s 222 MPs. Indonesian law requires that political parties have at least 20% of the seats in Parliament, or 25% share of the popular vote, before they can nominate a presidential candidate in 2019. If the Democratic Party of former President Susilo Bambang Yudhoyono had not supported Mr. Subinato’s bid, his candidacy would have failed and Mr. Jokowi may have been the only candidate. The churning in parties like the Golkar and National Mandate Party (PAN) which were firmly with Mr. Subianto in 2014 has made a change in Indonesian politics.
  • Indonesia has a GDP of over $1 trillion (2017 figures) and a growth rate of about 5%. Its population is nearly 270 million. Its diverse natural resources include abundant coal and palm oil. Changing trade rules are having an effect on the Indonesian rupiah. In the run-up to these elections and after, the dominant themes are the growing debt, social and economic inequalities, the role of Islam in politics as well as fake news.
  • Mr. Jokowi remains the man to beat, as he is still popular and seen to be sincere and honest even though he has not fulfilled all his campaign promises of 2014. An election in 2017 for Jakarta Governor, seen as a barometer to the 2019 election, threw up a surprise result when ‘Ahok’ Basuki Tjahaja Purnama, backed by Mr. Jokowi’s party, lost to Anies Baswedan, supported by Mr. Subianto. In 2017, Mr. Ahok was sentenced to two years in prison on a charge of blasphemy. For 2019, Mr. Jokowi’s running mate is Indonesian Ulema Council Chairman Ma’ruf Amin, The choice of Ma’ruf Amin, 76, is seen as a response to the Muslim backlash faced in the Jakarta election. That Mr. Amin had a hand in toppling Mr. Ahok on charges of blasphemy is now just a footnote in these elections.

    • What they stand for

  • Mr. Jokowi is also seen to be pro-Chinese, having pledged support for the Asian Infrastructure Investment Bank and being a vocal supporter of the Belt and Road Initiative (BRI). Some analysts feel that Mr. Jokowi could face problems for the largesse he shows to China. He has even handed over to China a prestigious high-speed railway that was proposed by the Japanese in 2015, but which has still not taken off. His support to Chinese overtures to build infrastructure for Indonesia has often seen others shut out, at Chinese behest, or by a tweaking of rules. Most Chinese engagement is through public sector entities, which are now in heavy debt since the sovereign guarantee route was not applied to keep up with constitutional norms of debt and deficits. Due to the slow pace of the BRI projects, many public sector units have serious debt issues. But these are not the ideas which win elections and Mr. Jokowi’s finger on the popular pulse through welfare measures, including the ‘Indonesia Health Card’, has won him support.
  • Mr. Subianto presents a more nationalistic image with an emphasis on security, balanced foreign policy, more local manufacturing, and a just social order. He is seen to be more open to partnerships with countries besides China, having said so at an Indonesian economic summit in 2018. His support to business is seen through his choice of running mate for 2019, ‘Sandi’ Sandiago Uno, 49, a wealthy former fund manager who was Jakarta Deputy Governor (2017-18). The latter is seen as pro-business, particularly the private sector. Being young and social media savvy, he could get the support of millennials, who form about 30% of the electorate.
  • India and Indonesia have shared friendly relations. Mr. Jokowi paid a bilateral visit in 2016 and again in 2018 for an ASEAN commemorative summit in New Delhi. Prime Minister Narendra Modi paid a visit to Jakarta last year as part of a three-nation tour. The two leaders have given shape to several ideas on infrastructure, strategic partnership, naval and army cooperation and trade and commerce. The dialogue among faiths is on, and there is closer cooperation on counter-terrorism and other non-traditional threats. They have different views on China, but it is not seen as a hindrance to the bilateral relationship. If Mr. Jokowi wins, as polls predict, the relationship will be on firmer footing than it is now.
  • However, India need not worry too if Mr. Subianto wins. He sees many models in India’s development that are worth emulating. He could, in fact, open more strategic space and markets for India, but he would need time to settle down as he has little prior experience in administration.

    • Sealed disclosure

    The Supreme Court order will not alter the influence of electoral bonds on polls

  • The Supreme Court’s interim order asking political parties to disclose, to the Election Commission in sealed covers, details of the donations they have received through anonymous electoral bonds is an inadequate and belated response to the serious concerns raised about the opaque scheme. The scheme, under which one can purchase bonds of various denominations from a designated bank and deposit them in the accounts of any political party, had been challenged in the apex court a year ago. When the matter was taken up last week, it was considered that the time available was too limited for an in-depth hearing. The order, unfortunately, preserves the status quo, and any effect that the possible asymmetry in political funding would have on the election process will stay as it is. The only concession given to those concerned about the dangers of anonymous political funding is that the names would be available with the EC, albeit in sealed envelopes, until the court decides if they can be made public. There is some concern that a disproportionately large segment of the bonds purchased by corporate donors has gone to the Bharatiya Janata Party. This donor anonymity may end if the court decides that the EC should disclose the names at the end of the litigation, but the influence such donations would have had on the electoral outcome would remain undisturbed.
  • The court notes in its order that the case gives rise to “weighty issues which have a tremendous bearing on the sanctity of the electoral process in the country”. Given this premise, it could be asked whether the judicial intervention could not have come earlier. However, all it has done now is to ensure that its interim arrangement does not ‘tilt the balance’ in favour of either side. The petitioners, the Association for Democratic Reforms, questioned the anonymity-based funding scheme on the grounds that it promotes opacity, opens up the possibility of black money being donated to parties through shell companies and empowers the ruling party, which alone is in a position to identify the donors and, therefore, well placed to discourage donations to other parties. The government, on the other hand, argued that electoral bonds would prevent unaccounted money from entering the system through funding of parties. For the last two decades, the Supreme Court has been proactive in empowering voters and in infusing transparency in the system. It has developed a body of jurisprudence that says the electoral process involves the voter being given information about candidates, their qualifications, assets and crime records, if any. Therefore, it is disappointing to hear the Attorney General arguing that voters do not have a right to know who funds parties. Now that there is no stay on the operation of the scheme, the court must render an early verdict on the legality of the electoral bond scheme.

    • At a crossroads

    With Omar al-Bashir gone, Sudan needs a quick transition to civilian rule

  • When protests broke out in Atbara in northeastern Sudan over rising prices of bread in mid-December, not many thought it would snowball into a nationwide agitation, shaking the foundations of the junta. President Omar al-Bashir, who captured power through a bloodless coup in 1989, first called the protesters “rats” and then declared a state of emergency. Dozens were killed. When none of these measures quelled public anger, Mr. Bashir sacked the Health Minister and the Prime Minister, and promised reforms. But the protests, led by the Sudanese Professionals Association, a new group, grew in strength. As protests reached the army headquarters, the military high command stepped in, deposing Mr. Bashir on April 11 and announcing a transitional government led by the military council. But even the fall of Mr. Bashir failed to calm the streets as protesters wanted “a revolution”. Over three decades, Mr. Bashir and his military clique had used several tactics, from aligning with Islamists and banning political parties to suppressing dissent and unleashing paramilitaries against defiant regions, to stay in power. But the recent economic crisis, especially after South Sudan split away with three-fourths of the oilfields, broke the regime’s back.
  • The army seems to have realised it is facing the greatest challenge to its power in three decades. It has already made several concessions. Soon after Mr. Bashir was deposed, Awad Ibn Ouf, the chosen head of the military council, also stepped down. The much-feared intelligence chief, Salah Gosh, was fired. The new military ruler, Lt. Gen. Abdel Fattah al-Burhan, has ordered lifting of the curfew and freeing of political prisoners. But the problem is that the army is not ready to give up control. Its plan to be in charge for at least two years has made the protesters wary. They are afraid that the army, given its track record, will try to retain its grip on power through some means or the other. This is the current stalemate – the protesters want a break with the past while the army doesn’t want to give up its privileges. This conflict was visible in neighbouring countries where dictators fell amid public protests. In Egypt, Hosni Mubarak resigned as President in 2011, but the military never gave up its privileges. In two years it was back in power through a coup. In Algeria, Abdelaziz Bouteflika stepped down as President this month, but the army has retained power; protests still continue in the country. The Sudanese protesters say they want an orderly transition under a civilian government. The army should respect their demand and resolve the impasse. Mr. Bashir has quit. It’s time to replace the oppressive regime he built, with a much more inclusive, responsive and democratic civilian government.

    • ‘Women voters now matter much more than before’

    The veteran journalist on opinion polls, the index of opposition unity, vote transfers, anti-incumbency, and the Congress’s misreading of Uttar Pradesh

  • Veteran journalist and psephologist Prannoy Roy recently co-authored a book, ‘The Verdict: Decoding India’s Elections’, with Dorab R. Sopariwala. In this interview, Mr. Roy talks about opinion polls, landslide victories and the problem of missing women voters in India. Edited excerpts:
  • You are an economist, a chartered accountant, a psephologist and also a journalist. What do you think these roles bring to the table for your journalism?
  • It is an important question. There is a qualitative and quantitative aspect to these roles and these shouldn’t be bridged. For example, when I am doing opinion polls, that’s quantitative work, and as journalists we need to do qualitative work. Many journalists tend to try to forecast the elections, which is not their job. The job of journalism is qualitative; it’s to talk about stories, issues. These cannot be simply translated into numbers by an opinion poll. Pollsters try to be qualitative too, by asking people to list issues of priority, but this is not simple. It takes time to understand issues.
  • One of the findings in your book is that most often pollsters get the winner right, but they invariably underestimate the scale of victory in terms of seats for the winners. Why?
  • Pollsters tend to try to play it safe. It is important for them to get the winner right rather than the seats. If they get the largest party wrong, it is very tough for them to play it down. It is also because respondents, which is particularly true in this election, try to play it safe. They tend to reaffirm that they support the ruling party as they do not always trust the pollster. How much is the fear factor among the respondents... this is very tough for pollsters to assess.
  • One of the most interesting findings of your book is that of landslides. Can you explain this phenomenon at the national and State levels?
  • The Lok Sabha elections are a federation of State elections. And invariably, each State votes differently and the final result in an election is the combination of landslides and results at the State level that could counteract each other. So, we may have a landslide one way in Tamil Nadu, another way in Maharashtra, and so on. We find that 77% of the Lok Sabha elections at the State level have been landslides.
  • Tamil Nadu is a classic case?
  • It’s 94% in Tamil Nadu. It is always one way — huge victories for one party or coalition. Landslides happen because in our first-past-the-post (FPTP) system, a small change in vote share gives a huge number of seats. The combination of the FPTP system and a fragmented Opposition results in a landslide.
  • There is a talk in the media about narratives – say, BJP on populist nationalism, Congress on something else in the past. Does this work nationwide or is it a myth?
  • It is a bit of a myth. For example, in Andhra Pradesh, we didn’t hear of Prime Minister Narendra Modi, or of majoritarianism or nationalism at all. But in some States, such as U.P., these narratives do exist to some extent. We find over time that voters vote based on their life conditions. We went to a village in U.P. where voters said they are going to vote against the government because a bridge had not been fixed. A respondent did mention Pulwama, but he rated it lower than livelihood in his priorities.
  • Maybe there is no one narrative that dominates across States, but we have had a government that has been in campaigning mode since 2014. Has there been any such government in the past that has been so keen on getting its message across? Does this matter in setting the narrative?
  • It does matter a lot. This government and the BJP are extremely efficient in booth management and turnout management. Globally this is seen as the focussed way to win elections. The BJP is superb at that — they have panna pramukhs, booth prabharis, and so on. It has social media apps, which the top leaders in the party use to reach out to panna pramukhs, who get messages in seconds and then everybody gets them. We have seen that lower turnouts tend to help cadre-based parties like the BJP because they make sure their voters turn out. Non-cadre parties hope that people will voluntarily turn out.
  • There is a worry. A turnout management ploy also includes rumour mongering that makes people worry about going to vote in elections fearing violence. In America, voter suppression prevents certain categories of voters, such as African Americans, from voting. Suppression methods make it complicated for them to even be registered as voters. We have a similar problem.
  • Ashok Lahiri and you had developed an index of opposition unity. Can you tell us about its significance? You speak about David Butler’s work on uniform swings and how this does not apply to all-India equations, and say that the index of opposition unity is a big determinant in India.
  • Yes. We learnt a lot from the work of Butler, who originated the uniform swings theory, but this worked largely in a two-party system. When he came to India, he found that it doesn’t quite apply here because we have so many parties here. So, we had to work out an equation, which is a definition of what determines the change in margin. A margin of victory due to change in votes and a change in opposition unity is what determines the winner. If there is a perfect two-party system, the index of opposition unity is 100/100. The more fragmented it is, it goes down to 70, 60, 50, and that determines the margin of victory as much as swings.
  • People often ask, is there a Modi wave? We say, that is a misnomer because he won with 31% of the vote. He won due to the divided Opposition vote. Therefore, we must ask, how divided is the Opposition vote this time?
  • So how good is the index of opposition unity this time for the BJP both State-wide and nationwide?
  • The actual number can only be assessed by opinion polls. For example, we found that Yadavs vote with the Dalits in U.P. This is not only additive, but there is a boost beyond the arithmetic too. Because voters tend to believe this could be a winning coalition and it has momentum. So, if two parties bring 20% each, they could get a boost of 5% more votes due to this factor.
  • Do you have data on vote transfer? People say some parties transfer less of their votes than others in a coalition, right?
  • It is conventional wisdom among journalists, and not just true. We find that vote transfer is almost 100% plus a boost. Journalists say that Yadavs might not vote for [BSP chief] Mayawati, while Dalits might vote for the SP. That is just not true. Yadavs are voting for Mayawati, we find. We hear that Muslims vote tactically. But the Muslim vote does split. In fact, no section is voting 100% for one party.
  • The index of opposition unity is higher compared to 2014. Isn’t that so?
  • Yes, much higher. It is going to make a huge difference, especially in U.P. In U.P., even if the vote shares are exactly as in 2014, just a combination of these two parties, the BSP and SP, could reduce the BJP’s tally from 73 to half of that. If the Congress was part of the coalition, the seat tally could have dropped to 20. The fact that the Congress, with only 6% of votes in U.P., is contesting the elections separately is giving the BJP an extra 14 seats based only on 2014 numbers. The Congress has misread the situation in U.P.
  • Your book’s significant finding is about 21 million missing women voters in 2019. It came down from 25 million in 2014. But first, the positive thing. You are predicting in this book that in this election women voters may actually outnumber male voters at the all-India level in the Lok Sabha.
  • Yes. Out-participate in the sense that the turnout figures may be higher, but because of the missing numbers, the absolute figures may be less.
  • Women are coming out to vote more than men in every State, and more so in south India, where the women are much more proactive. As pollsters we found that in the south, the woman inside the house will see you and come out and say, what questions are you asking? In U.P., they will be standing at the door and they will rush inside. They don’t want to interact. That is changing though. In the south, the husband also comes and we ask the woman, do you vote independently or do you listen to what he says? They say, listen to him, who is he? Sometimes we ask him, do you listen to her? Which they don’t do either. Men and women make up their own mind.
  • Is there a correlation between turnout of women and representation in terms of candidacy?
  • Unfortunately, so far there has not been. The percentage of women candidates the parties have nominated has been appallingly low. But because of this increasing turnout of women overtaking men, now the policies of parties are becoming women-focussed. The policy of gas cylinders [Ujjwala scheme] has worked well. Unfortunately, that has lost a lot of steam because now they have to pay for a second cylinder. That is just one area where parties are focussing on women. But you look at the manifestos and what they do during election time, you see a lot of leaders saying, will all the women please come to the front? They are talking to women because women now matter much more than before. And that is a heartening sign.
  • In your book, you have a historical discussion on three periods. The first period is pro-incumbency, from 1952-1977. Then you have a period of distinct anti-incumbency, 1977-2004.
  • ...2002, yeah. 25 years.
  • And then 50-50.
  • In the first 25 years, over 80% of the governments were voted back. So it was pro-incumbency. The next 25 years, when they found that the politicians had failed them, they just threw out everybody. Good or bad, over 70% of the governments were thrown out. And since 2002, 50-50. Half the governments are thrown out, half have come back. And the governments that are voted back tend to be governments that have worked on the ground. They are doers. It is clear now that the voters are not taken in by pure oratory and great speeches.
  • Let us look at issues. Usually, livelihood issues come right at the top. They are the most important.
  • For an issue to be an election issue, it has to fulfil two criteria. One, it has to be important in my life. Corruption is important to most people. Corruption is always high everywhere. Two, one party must be seen to be better at solving it than the other. Take corruption. There must be a clear distinction in the parties for it to become an election issue. The AAP once swept Delhi because that is the distinction it had at the time that it was not a corrupt party, while all the others were seen as corrupt.

    • Clouds on the horizon

    The deteriorating trade climate and the U.S.-China conflict are holding back global growth

  • At the recent spring meeting sof the International Monetary Fund (IMF) and World Bank, Finance Ministers and central bank Governors by and large played down fears about a slowing global economy. Their optimism was based on the pause in the U.S.’s interest rate policy in February, ease in the country’s trade tensions with China, and receding risk of a hard Brexit.
  • However, in stark contrast, the IMF has consistently emphasised a cautious stance on the current growth trajectory for some months. As the ultra-low interest rates of the post-crisis years have come to stay in many economies, the IMF has highlighted the limits of monetary policy in a future downturn. Its latest economic forecast cuts the outlook for growth in 2019 to 3.3% from estimates of 3.5% in January and 3.7% in October, when it had cited concerns over trade protectionism and the flight of capital from vulnerable emerging economies.
  • These projections were echoed by the IMF chief at the U.S. Chamber of Commerce earlier this month. Christine Lagarde said that whereas two years ago, 75% of the global economy experienced an upswing, the expectation this annum is for a slump in 70% of the world economy. Contributing to the overall deceleration is the deteriorating trade climate of the last two years. The pace of exports and imports was 4.6% in 2017, the strongest since the rebound after the 2007-08 financial crisis. But the 2018 figures were a modest 3% and could fall much further this year, says the WTO.
  • In the U.S., where year-on-year growth touched 2.9%, the fund’s forecast is 2.3% in 2019 — a far cry from the 4% rate in the second quarter last year. The Federal Reserve has also lowered its estimate from 2.3% to 2.1%, a sign possibly of the fading impact of President Donald Trump’s 2017 corporate tax cuts. A more than anticipated fall in recent German imports and exports is said to reflect, among other things, the impact of the trade friction between the U.S. and China and growing uncertainty over Britain’s exit from the European Union.
  • While stopping short of projecting a global recession, the IMF forecasts growth to touch 3.6% in 2020, lower than earlier estimates. That would be underpinned by tepid growth in the advanced world and hopes of a stable Chinese environment. The potential for an acceleration depends on Argentina and Turkey climbing out of a recession, besides a precarious rebound in other emerging and developing economies. During last week’s meeting, the view among Finance Ministers was that the IMF was painting a rather grim picture of the world economy. The hope is that their optimism will be borne out by evidence. Equally, a lasting resolution of the U.S.-China trade dispute would revive momentum in the global economy.