11 July 2024 : Indian Express Editorial Analysis

 1. The food price constraint

(Source: Indian Express; Section: The Editorial Page; Page: 10)

Topic: GS3– Indian Economy

Context:

India’s economy has been experiencing diverging trends with respect to GDP growth and inflation. The GDP growth has been consistently exceeding expectations, which suggests a robust economic recovery and development. On the other hand, core inflation, which excludes food and fuel prices, has been on a downward trajectory. This divergence poses a unique challenge for the monetary policy makers at the Reserve Bank of India (RBI), as they strive to balance these contrasting economic indicators.

What is Inflation?

• Inflation refers to the overall increase in the prices of goods and services, coupled with a decrease in people’s purchasing power.
• This means that when inflation rises (without an equivalent rise in your income), you are able to buy fewer things than you could buy previously, or you have to pay more money for the same stuff now.
• A “rising” inflation rate implies that the rate (at which the prices rise) itself is increasing.
• For example, if the inflation rate was 1% in March, 2% in April, 4% in May, and 7% in June, it shows a continuous acceleration in the rate of price increases.

Causes of Inflation

Demand-Pull Inflation:

• It occurs when the demand for goods and services surpasses the supply. When there is high overall demand in the economy, consumers are willing to pay more for available goods and services, causing a general increase in prices.

Cost-Push Inflation:

• Cost-push inflation is fueled by a rise in the production costs of goods and services, this can result from factors such as increased incomes, elevated costs of raw materials, or disruptions in the supply chain.

Wage-Price Inflation:

• This form of inflation is often characterised as a feedback loop between wages and prices, when workers demand higher wages, businesses may raise prices to offset the increased labour costs and consequently, workers seek higher wages in response, perpetuating the cycle.

Stubborn Food Inflation

• Despite the positive trends in GDP and core inflation, food inflation remains persistently high.
• Food prices have been a significant contributor to the overall consumer price index (CPI), which restricts the ability of the RBI’s Monetary Policy Committee to lower the CPI to their target of 4 percent from the current 4.8 percent.
• Historically, food commands nearly 40 percent weight in the CPI basket, making it a crucial factor in controlling overall inflation.

Historical Context of Food Inflation

• Looking back at historical data, food inflation has played a pivotal role in the overall inflation rates.
• For instance, in the years when CPI approached 4 percent, food inflation was notably below 4 percent.
• The period from 2000 to 2006 saw the most stable inflation rates, with an average CPI of 3.9 percent and food inflation at 2.5 percent.
• However, post-2006, there have been only a few instances where headline inflation dipped below the target, and this was primarily due to significantly low food inflation.

Post-Pandemic Surge in Food Inflation

• The COVID-19 pandemic further exacerbated food inflation, with the average food inflation between 2020-2021 and 2023-2024 standing at 6.4 percent, surpassing the overall CPI inflation of 5.9 percent.
• In the 50 months since the first lockdown, food inflation has remained above 4 percent for 39 months and even above 6 percent in 28 months.
• The persistent high food inflation has been a critical barrier to achieving the RBI’s inflation targets.

Challenges and Expectations

Climate Change and Monsoon Patterns

• Historically, the monsoon has been a key determinant of food prices in India. However, climate change has introduced greater uncertainty and additional weather shocks affecting agriculture.
• This year’s above-normal monsoon predicted by the India Meteorological Department brings some hope, but its distribution remains uncertain.
• Moreover, the all-India rainfall deficiency was recorded at 11 percent below the long period average as of June 30. Adequate and well-distributed rains are essential for stabilizing food prices.

Structural Issues in Agriculture

• Weather shocks like heatwaves and unseasonal rains have increased in frequency and severity, impacting food production and prices.
• Heatwaves affect crop yields by depleting groundwater levels, damaging crops, and increasing pest infestations.
• Unseasonal rains disrupt harvesting and transportation, adding to food inflation pressures.
• Addressing these issues requires structural changes in agricultural practices and infrastructure.

Policy Measures and Fiscal Support

• Mitigating the impact of climate change on food prices will necessitate a combination of monetary and fiscal policies.
• Enhancing agricultural infrastructure, promoting climate-resistant crop varieties, and incentivizing agricultural research are crucial steps. Investments in irrigation infrastructure and cold storage facilities will help reduce food wastage and stabilize prices.
• The upcoming Union Budget should focus on intensifying efforts in these areas to address the structural issues contributing to high food inflation.

Conclusion

• Controlling food inflation is essential for achieving the RBI’s inflation targets and maintaining economic stability.
• While monetary policy has limited capacity to address the structural issues causing high food inflation, coordinated efforts between monetary and fiscal policies are needed.
• Addressing climate change impacts, improving agricultural infrastructure, and promoting research and development in agriculture are critical for achieving durable low inflation and supporting overall economic growth.

What are Various Government Initiatives to Control Food Inflation?

Subsidized Commodities: The government is increasing the distribution of subsidized vegetables like onions and tomatoes through its network and releasing stocks of wheat and sugar to stabilize prices.   Reduction in Import Duty: To enhance domestic production, the government is incentivizing pulse cultivation among farmers and reducing import duties on certain pulses to boost local availability.   Export Bans: Bans on wheat exports since May 2022 and on broken rice exports since September 2022 aim to maintain ample domestic supply and lower prices.   Ban on Stockpiling: Regulations limit wheat stocks to 3,000 tonnes for traders, millers, wholesalers, and retail chains, and 10 tonnes for smaller retailers and shops to prevent excessive stockpiling.   Operation Greens: This initiative aims to stabilize Tomato, Onion, and Potato (TOP) crop supplies throughout the year across the country to minimize price fluctuations.   Floor Prices: To ensure sufficient domestic onion availability, the government imposed a minimum export price (MEP) of $800 per tonne (₹67 per kg) on onion exports from October 29 to December 31, 2023, amid rising onion prices due to delayed kharif onion arrivals.

PYQ: There is also a point of view that agriculture produce market committees (APMCs) set up under the state acts have not only impeded the development of agriculture but also have been the cause of food inflation in India. Critically examine. (200 words/12.5m) (UPSC CSE (M) GS-3 2014)

Practice Question:  Discuss the challenges and strategies for managing food inflation in India, considering the diverging economic trends of GDP growth and core inflation. How does climate change impact food inflation, and what measures can be taken by both monetary and fiscal policies to address these issues effectively? (250 words/15 m)

 2. Russia razor’s edge

(Source: Indian Express; Section: The Ideas Page; Page: 11)

Topic: GS2 – International Relations – Bilateral Relations

Context:

Prime Minister Narendra Modi’s recent visit to Russia has exemplified India’s adeptness at navigating complex geopolitical landscapes. The visit showcased India’s ability to maintain stable and beneficial relationships with major global powers while addressing divergent international expectations. Modi’s positive remarks about Russia and President Vladimir Putin emphasized the strong political synergy and the potential for expanded economic and scientific cooperation. The aim to reach a trade turnover of $100 billion by 2030 highlights the ambitious future of Indo-Russian relations.

Contrasting Views on Ukraine and Military Purchases

• The visit also brought to light differing perspectives on the Ukraine conflict and military cooperation.
• Modi’s candid statements on Ukraine, emphasizing peace and the pain of innocent casualties, contrasted with the lack of significant military purchases from Russia.
• His remarks resonated widely, indicating India’s stance on peace and diplomacy.
• Despite these differences, the visit signified a strong endorsement of India-Russia ties, even amid the ongoing conflict in Ukraine and the growing Western pressure to reduce relations with Russia.

Strategic Agreements and Shared Goals

Ukraine Conflict and Peaceful Resolution

• Modi’s discussions with the Kremlin led to important agreements, such as the release and safe return of Indians serving in the Russian armed forces.
• The joint statement emphasized resolving the Ukraine conflict through dialogue and diplomacy, aligning with international law and the UN Charter.
• Although India may not immediately take on a mediation role, this stance could serve as a foundation for future negotiations between Russia and Ukraine, possibly facilitated by international stakeholders.

Russia-China Relations and Indo-US Ties

• The informal talks between Modi and Putin also likely covered Russia’s growing relationship with China.
• Modi would have sought to understand any shifts in Moscow’s position on India-China relations, especially concerning border clashes.
• While the specifics of these discussions remain private, Russian Foreign Minister Sergei Lavrov’s recent comments suggest no change in Russia’s traditional stance.
• Similarly, Putin would have sought reassurances about India’s growing ties with the US, ensuring they do not negatively impact Indo-Russian relations.

Economic and Trade Dynamics

Trade Growth and Sanctions Impact

• Despite Western sanctions, India-Russia trade has surged from $10 billion before February 2022 to $65.7 billion in the last financial year.
• This growth is largely driven by India’s increased purchase of discounted Russian oil.
• However, this has led to payment challenges and a significant trade imbalance favoring Russia, currently over $50 billion.
• The revival of rupee-rouble transactions accounts for nearly 60 percent of payments, but further measures are needed to address the imbalance and facilitate smooth trade operations.

Potential Growth Areas and Connectivity Projects

• The joint statement from the visit hints at new payment mechanisms and identifies potential growth sectors for Indian exports, such as agriculture and automobiles.
• Additionally, both countries agreed to enhance efforts on key connectivity projects, including the International North-South Transport Corridor, the Chennai-Vladivostok route, and the Arctic Ocean Northern maritime corridor.
• These initiatives are expected to bolster trade and economic cooperation.

Military Cooperation and Production

Addressing Interruptions and Delays

• The discussions also touched on military cooperation, particularly addressing the interruptions in military spares and delays in weapon deliveries.
• The joint statement suggests that these issues will be resolved by setting up production units in India under the ‘Make in India’ initiative.
• This approach aims to make military cooperation more resilient and self-sufficient, reducing dependency on direct imports and fostering domestic production capabilities.

Conclusion

Future Prospects of Indo-Russian Ties

• Contrary to some experts views, the India-Russia relationship is not in “terminal decline.”
• The Modi-Putin dialogue indicates a concerted effort to strengthen bilateral ties in light of current geopolitical realities and mutual limitations.
• The future stability of Indo-Russian relations will depend on how deeply both countries can integrate into each other’s national development projects.
• The successful visit underscores the resilience and adaptability of this consequential partnership, navigating the complex global landscape while prioritizing mutual growth and cooperation.

What are the Key Highlights of the 22nd India-Russia Annual Summit?

Diplomatic Achievements:  President Vladimir Putin conferred Russia’s highest civilian honour, the “Order of Saint Andrew the Apostle,” on Prime Minister Narendra Modi.  The Order of Saint Andrew the Apostle was established by Tsar Peter the Great in 1698 and reinstated in 1998, featuring a double-headed eagle emblem and a light blue silk moire ribbon.  The award is named after Saint Andrew, the patron saint of Russia and Scotland, known for spreading Christianity across Europe and Asia.  Prime Minister Modi was honoured with this award for promoting the strategic partnership and friendly relations between Russia and India, and the announcement was made in 2019, highlighting Modi’s pivotal role in enhancing bilateral cooperation Foreign leaders such as Chinese President Xi Jinping and former Kazakh President Nursultan Nazarbayev have also been honoured with this award. Economic Cooperation:  A new bilateral trade target of USD 100 billion by 2030 was set, significantly higher than the previous target of USD 30 billion by 2025, which was nearly doubled in 2023. This is mainly due to India’s increased imports of Russian crude at a discount after the US and Europe imposed oil sanctions on Russia following the invasion of Ukraine.  Agreement to prepare a comprehensive “Programme-2030” for developing promising areas of economic cooperation.  This program will be coordinated by the India-Russia Intergovernmental Commission on Trade, Economic, Scientific, Technical and Cultural Cooperation (IRIGC-TEC).IRIGC-TEC is the apex G2G forum for bilateral economic cooperation, chaired by the External Affairs Minister of India and the Deputy Prime Minister of Russia. India and the Eurasian Economic Union have commenced negotiations for a Free Trade Agreement on goods.  They also plan to explore a bilateral free-trade agreement in services and investments. The Leaders agreed to facilitate participation of Russian businesses in “Make in India” and “Atmanirbhar Bharat” programs, and Indian companies in investment projects in Russia. Defence and Technology:  Transition from buyer-seller relationship to joint research, development, co-development, and joint production of advanced defence technology and systems. They also aim to encourage joint manufacturing of spare parts and components for Russian-origin arms and defence equipment in India under the Make-in-India program. This includes setting up joint ventures for meeting the needs of the Indian Armed Forces and for subsequent export to friendly third countries.  They have agreed to establish a new Working Group on Technological Cooperation to discuss its provisions in the next meeting of Intergovernmental Commission on Military and Military Technical Cooperation (IRIGC-M&MTC). Russian President Vladimir Putin has accepted the Prime Minister of India’s request to discharge Indian military recruits serving in the Russian military on the Ukrainian war front and wishing to return to India.  Russian law allows the recruitment of foreign soldiers after thorough screening, including mental and physical checks.  Transport and Connectivity:  The Sides are focused on developing stable and efficient transport corridors in Eurasia, including the Chennai-Vladivostok Eastern Maritime Corridor and the International North-South Transport Corridor (INSTC).  The Chennai-Vladivostok Maritime Corridor, is a sea link between ports on the east coast of India and ports in the far-east region of Russia was proposed in 2019 and it aims to transport various types of cargo and reduce the transportation time to Russia by 40%.  The INSTC is a multi-modal transportation route established in 2000 in St. Petersburg by Iran, Russia, and India to promote transportation cooperation among member states.  The corridor connects the Indian Ocean and the Persian Gulf to the Caspian Sea via Iran, and then is connected to St. Petersburg and Northern Europe via the Russian Federation. They aim to increase infrastructure capacity and use the potential of the Northern Sea Route. Both Sides will work together to reduce time and cost of cargo transportation and promote connectivity in the Eurasian space.  International Cooperation:  Russia appreciated India’s non-permanent membership in the UN Security Council (2021-22) and supported India’s efforts in peacekeeping and counter-terrorism. Russia reiterated its support for India’s permanent membership in a reformed and expanded UN Security Council. India expressed full support for Russia’s BRICS Chairship in 2024 under the theme “Strengthening Multilateralism for Just Global Development and Security. “Close cooperation in international forums such as the UN, G20, BRICS, and Shanghai Cooperation Organization (SCO) is emphasised to reinvigorate multilateralism. The Indian side looked forward to Russia’s joining of the International Solar Alliance (ISA), the Coalition for Disaster Resilient Infrastructure (CDRI), and the International Big Cat Alliance (IBCA). Global Issues:  Climate Change: Commitment to combating climate change and achieving the goals of the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement, including cooperation on low-carbon development and green financing. Multipolar World Order: Emphasis on the need for a multipolar world order and the development of an architecture of equal and indivisible regional security in the Eurasian space and the Indian and Pacific ocean regions. Counter Terrorism:  The leaders unequivocally condemned terrorism and violent extremism in all its forms and manifestations, including the cross-border movement of terrorists and terrorism financing networks. The sides reaffirmed their commitment to strengthening multilateral cooperation in combating transnational organised crime, money laundering, terrorist financing, and drug trafficking.

PYQ: Recently, India signed a deal known as ‘Action Plan for Prioritization and Implementation of Cooperation Areas in the Nuclear Field’ with which of the following countries? (2019)   (a) Japan (b) Russia (c) The United Kingdom (d) The United States of America   Ans: B

Practice Question:  Evaluate the outcomes and implications of Prime Minister Narendra Modi’s recent visit to Russia on India-Russia bilateral relations. How does this visit reflect India’s approach to managing complex geopolitical dynamics, particularly in the context of the Ukraine conflict, Russia-China relations, and Western pressures? (250 words/15 m)