27 July 2024 : Indian Express Editorial Analysis

1. Budget hits and misses

(Source: Indian Express; Section: The Ideas Page; Page: 15)

Topic: GS3– Indian Economy – Government Budgeting

Context:

The Union Budget presented recently was highly anticipated as it was expected to lay out a roadmap for the country’s growth and development. The main question that arises is whether the Budget met these expectations.

 Economic Context

• To understand the Budget’s impact, it is crucial to consider the economic context in which it was presented.
• Despite official data indicating an 8.2 percent growth in the economy for 2023-24, there are significant concerns about a slowdown in aggregate demand.

Consumption and Rural Distress

• Private consumption, a major driver of economic activity, showed a mere 4 percent growth in 2023-24, a stark decline from the 11 percent growth rate in 2021-22.
• This decline is largely attributed to economic distress in rural India, affecting overall demand.

Private Investment and Exports

• Private investment and exports, the two main drivers of growth, have not been performing well.
• Despite increased government spending on infrastructure aimed at encouraging private investment, new project announcements have been declining since September 2023, indicating a potential fall in private investment.
• Merchandise exports fell by 3 percent in US dollar terms during 2023-24, and although services exports have performed better, they too have slowed considerably.

Unemployment Crisis

• The slowdown in demand has exacerbated the unemployment crisis. By June 2024, India’s unemployment rate had risen to 9.2 percent, up from 8 percent in 2023.
• This highlights the critical need for a policy framework that encourages private sector expansion, job creation, and sustained growth.

Analysis of the Budget

Macroeconomic Stability

• From a macro stability perspective, the Budget exceeded expectations. It projected a reduction in the fiscal deficit for 2024-25 to 4.9 percent of GDP, down from 5.1 percent announced in the interim budget.
• This positions the government closer to its long-term goal of reducing the deficit to less than 4.5 percent of GDP by 2025-26.
• Additionally, the Budget improved the quality of government expenditure by increasing the share of capital expenditure in total spending to 23 percent in 2024-25, the highest in three decades.

Growth Strategy

• While the government acknowledged the economic challenges indirectly through various measures aimed at agriculture, employment, skilling, and MSMEs, the Budget did not outline a clear economic strategy to address these problems or provide a vision for the future.
• Instead, it relied on schemes that may not effectively tackle the underlying issues.

Employment Initiatives

• One key initiative was the Employment Linked Incentive scheme, which offers Rs 15,000 to new employees in the formal sector.
• However, the impact is unclear given the scarcity of formal-sector jobs. Similarly, reimbursing employers for their EPFO contributions for new employees is expected to have only a marginal impact on job creation.

Agricultural Sector and Rural Economy

• The Budget kept the allocation for MGNREGA unchanged at the same nominal level as the interim budget, despite significant stress in the rural economy.
• This allocation may not be sufficient to address the rural distress effectively.

Missing Elements

Privatization

• A notable omission in the Budget was the lack of mention of privatization.
• Given the high valuations of PSUs in the stock market, this could have been an opportune moment to sell them off, potentially boosting private investment.

Exports and Trade Policy

• The Budget also fell short in boosting merchandise exports.
• While it announced reductions in customs duties for some items, it did not significantly lower import tariffs or dismantle trade barriers, which are crucial for enhancing foreign demand for goods amidst sluggish domestic demand.

Conclusion

• In summary, the Budget scored well on fiscal stability but could have performed better by setting out a well-defined growth strategy.
• Although the Finance Minister mentioned ongoing work on fundamental structural reforms, the absence of detailed plans or timelines leaves much to be desired.
• The true effectiveness of these measures will depend on the government’s ability to address the economy’s underlying problems comprehensively.

PYQ: One of the intended objectives of Union Budget 2017-18 is to ‘transform, energize and clean India’. Analyse the measures proposed in the Budget 2017-18 to achieve the objective. (250 words/15m) (UPSC CSE (M) GS-3 2017)

Practice Question:  Critically evaluate the Union Budget in the context of India’s current economic situation. Highlight the strengths and weaknesses of the Budget in addressing the underlying economic challenges and suggest measures that could have been included to enhance its effectiveness. (250 words/15 m)

 2. Beijing, the mediator

(Source: Indian Express; Section: The Ideas Page; Page: 15)

Topic: GS2– International Relations

Context:

In March 2023, China achieved a significant diplomatic milestone by brokering an agreement between Iran and Saudi Arabia, two long-time adversaries. This agreement, announced during a meeting in Beijing hosted by Chinese Foreign Minister Wang Yi, saw representatives from both countries agree to re-establish diplomatic ties. This event was widely seen as a triumph for Chinese foreign policy, aiming to reduce American influence in the Middle East.

 The Beijing Declaration

• A year after the Iran-Saudi Arabia agreement, China made another significant diplomatic move.
• Wang Yi brought together leaders of 14 different Palestinian factions, including Hamas and Fatah, in Beijing.
• This meeting resulted in the “Beijing Declaration,” a statement that aimed to end divisions within the Palestinian movement and strengthen national unity.
• Wang proposed a three-step solution to the Palestinian conflict, focusing on a comprehensive ceasefire in Gaza, the principle of “Palestinians governing Palestine,” and the two-state solution.

Challenges to Implementation

Despite the ambitious goals of the Beijing Declaration, several obstacles stand in the way of its implementation.

Internal Palestinian Divisions

• Uniting all factions under the umbrella of the Palestine Liberation Organisation (PLO) is challenging.
• Previous efforts by Egypt in 2011 and Algeria in 2022 failed to achieve this unity.
• Wang Yi’s assertion that the PLO is the sole legitimate representative of all Palestinian people does not address the complexities of these internal divisions.

External Opposition

• The US and Israel’s stance on Hamas, which they consider a terrorist organization, poses a significant barrier.
• Both countries reject any proposal to legitimize Hamas, complicating the implementation of the declaration.
• Additionally, Israel’s firm opposition to the creation of an independent Palestinian state as per UN resolutions further diminishes the declaration’s prospects.

Broader Foreign Policy Moves

• Following the Beijing Declaration, Wang Yi engaged in talks with Ukraine’s foreign minister, Dmytro Kuleba, to address the Ukraine conflict.
• This indicates China’s proactive stance in global diplomacy, with Wang emphasizing China’s belief in bringing warring parties to the negotiation table.

Shift in Chinese Foreign Policy

• These diplomatic moves signal a significant shift in China’s foreign policy. As global tensions rise, China is increasingly positioning itself as a global leader, challenging US dominance.
• This shift became more pronounced after Xi Jinping consolidated control over the party in 2018.
• Unlike his predecessors, Xi has adopted a more assertive international stance, introducing initiatives like the Belt and Road Initiative (BRI), Global Development Initiative (GDI), Global Security Initiative (GSI), and Global Civilisation Initiative (GCI).

The Global Security Initiative

• Xi’s Global Security Initiative (GSI), first mentioned in April 2022 and expanded upon in 2023, represents China’s alternative to the US-led “rules-based order.”
• The GSI emphasizes state sovereignty, territorial integrity, non-interference in internal affairs, and opposition to unilateral sanctions.
• Through these principles, China aims to assert its leadership in global governance and promote a new world order with Chinese characteristics.

The Global Development Initiative

• In 2021, Xi proposed the Global Development Initiative (GDI) at the UN General Assembly to revitalize global efforts to achieve the Sustainable Development Goals (SDGs) by 2030.
• The GDI seeks to place global development under China’s influence, aligning international dialogue with Chinese principles.

The Global Civilisation Initiative

• The Global Civilisation Initiative (GCI), proposed in March 2023, advocates for respecting diverse civilizations, promoting common human values, and enhancing international cooperation.
• This initiative subtly challenges Western efforts to establish a global civilization based on their value system, emphasizing a more inclusive and diversified global culture.

Conclusion

• As China extends its global reach, the world must prepare for its increasing influence, particularly over the Global South.
• The proactive and ambitious foreign policy initiatives under Xi Jinping signal China’s intent to shape global governance according to its worldview, intensifying the geopolitical rivalry characteristic of Cold War 2.0.

What Should be Role of India?

India is a rising global power and citing its importance both the US and China sought to attract India in its camp. Foreign policy experts in the US argue India Is a Natural US Ally in the New Cold War. On the other hand, Chinese’s Ambassador in India has suggested writing “together a new chapter” with “a shared future for mankind”. In this context: India can promote new multilateralism under the aegis of Vasudhaiva Kutumbakam– which relies on restructuring both the economic order and societal behavior for equitable sustainable development. India must take up intensified diplomacy with global powers so that Asian Century can be defined in terms of peaceful co-existence and global interest. Apart from it, India should acknowledge that national security now relies on technological superiority in Artificial Intelligence (AI), cyber and space, and not expensive capital equipment. Thus, India should become self-sufficient in the domain of critical technologies.

PYQ: ‘China is using its economic relations and positive trade surplus as tools to develop potential military power status in Asia’, In the light of this statement, discuss its impact on India as her neighbor. (150 words/10m) (UPSC CSE (M) GS-2 2017)

Practice Question:  Discuss the implications of China’s recent diplomatic initiatives, such as the Iran-Saudi Arabia agreement and the Beijing Declaration, on the global geopolitical landscape. How do these moves reflect a shift in China’s foreign policy under Xi Jinping, and what challenges and opportunities do they present for the existing global order?