QUESTION : Explain the changing scenario of geopolitics of Europe-Asian nations like Armenia and Azerbaijan taking into account of India.
ENDING CONFLICT IN THE CAUCASUS
Confrontation between Armenia and Azerbaijan
WHY IN NEWS ?
The military confrontation between Armenia and Azerbaijan reflects the failure of the Madrid principles.
Dissolution of Soviet Union
- Formally established in 1922, at its height the Soviet Union was composed of fifteen republics, the largest of which was Russia.
- The Russian-dominated Soviet Union encompassed 15 republics–Russia, Ukraine, Georgia, Belorussia, Uzbekistan, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Turkmenistan, Tajikistan, Latvia, Lithuania, and Estonia.
- In 1991, the Soviet Union was dissolved following the collapse of its communist government. The 15 republics broke away.
Armenia and Azerbaijan :
- Armenia declared sovereignty on August 23, 1990, and independence on September 23, 1991.
- Azerbaijan declared sovereignty on September 23, 1989, and independence on August 30, 1991.
- Azerbaijan is majority Muslim and Armenia is majority Christian.
- Located in the main corridor of oil and gas supplies to Europe, Armenia and Azerbaijan have also relied on a nationalist rhetoric.
- Armenia, lies just south of the great mountain range of the Caucasus mountains and fronting the north-western extremity of Asia.
o To the north and east Armenia is bounded by Georgia and Azerbaijan, while its neighbours to the southeast and west are, respectively, Iran and Turkey.
- Azerbaijan, officially called Azerbaijani Republic, is a country of eastern Transcaucasia.
o It lies on the southern flanks of the Caucasus Mountains, bounded on the north by Russia, on the east by the Caspian Sea, on the south by Iran, on the west by Armenia, and on the northwest by Georgia.
Nagorno-Karabakh region :
- It is a mountainous, landlocked region inside the borders of Azerbaijan, and has been a source of dispute since before the creation of the Soviet Union.
- The dispute worsened after Armenia and Azerbaijan gained independence from the USSR after the end of the cold war.
- Nagorno-Karabakh is recognised internationally as Azerbaijan’s territory but has a mostly Armenian population who have resisted Azerbaijani rule for more than a century.
- In 1991 the region declared independence with Armenian support and called itself the Republic of Artsakh which has not been recognized by the international community.
Armenia-Azerbaijan war, 1994 :
- A war between Armenian and Azerbaijani forces ended in a ceasefire in 1994, with Armenia in full control of Nagorno-Karabakh.
REASONS BEHIND CURRENT CONFLICT :
o Territorial: Nagorno-Karabakh region has 95% of the population as ethnically Armenian and is controlled by them but it is internationally recognised as part of Azerbaijan.
o Religious: Armenia is Christian majority, while Azerbaijan is Muslim majority country.
o Domestic Politics: The leaders of both the nations have fueled the issue time and again for their vested political interests.
- With the Covid-19 pandemic taking a toll on the price of Azerbaijani oil and gas, it may be that Armenia has decided to attack the region.
- Armenia had asked for Nagorno-Karabakh’s reunion with the country as a precondition for a possible return of other territories.
- Azerbaijan has asserted the it’s long-standing claim over the occupied Nagorno-Karabakh.
- Ignoring Madrid principles:
They provided for a prohibition on the use of force, respect for territorial integrity, and recognition of the equal right to self-determination.
o In the absence of a peacekeeping force and the political will for peace, low-level frictions have persisted over the years.
- Regional geopolitics:
Regional powers including Russia, Turkey and Iran are invested in the South Caucasus to varying degrees. It could develop into a larger regional conflict.
o Turkey has already declared its support for Azerbaijan, while Russia is traditionally closer to Armenia.
o Russia and Turkey are jostling for influence in Syria and Libya.
- Oil and gas:
The wider South Caucasus is a crucial artery for gas and oil from Azerbaijan into Turkey and on to Europe and other world markets.
o Azerbaijan supplies about 5% of Europe’s gas and oil demands (helping to reduce the EU’s dependence on Russia).
- The humanitarian issue involves civilians on both sides being killed.
THE MINSK GROUP :
- It functions under the Organization for Security and Co-operation in Europe (OSCE).
- It was formed in 1992 to mediate between Baku and Yerevan during the Nagorno-Karabakh conflict, when Armenian militias illegally occupied and claimed the Azerbaijani region.
- It was Co-chaired by Russia, France and the U.S.
- The US, Russia and France are the three countries, where the Armenian diaspora is the most powerful.
- It put forward the Madrid principles in 2007.
THE MADRID PRINCIPLES :
- The Madrid Principles was the basis for the formulation of a peace treaty between Armenia and Azerbaijan.
- They were drawn from the 1975 Helsinki Final Act principles, signed at the Conference on Security and Cooperation in Europe.
EFFECT ON INDIA :
In recent years, Indian-Armenian bilateral cooperation has seen rapid growth.
o The then Vice-President of India visited Yerevan (Armenia) in 2017.
o Armenia bought the India SWATHI military radar system in March 2020.
o Many Indian students study in Armenian medical Universities and in recent years Armenia has witnessed an increasing flow of Indian labour migrants.
o For Armenia, close relations with India are vitally important as India provides a counter balance to the rival strategic axis between Azerbaijan, Pakistan and Turkey.
India-Azerbaijan: India is part of the International North-South Transport Corridor (INSTC), a multimodal network of ship, rail, and road route for moving freight between India, Iran, Afghanistan, Azerbaijan, Russia, Central Asia and Europe.
o Azerbaijan is a dialogue partner of (SCO), which India is a member of.
o In 2018, the then Indian External affairs minister had visited Baku (Azerbaijan), the first-ever bilateral visit of an Indian External Affairs Minister to Azerbaijan.
o India’s ONGC-Videsh is an investor in Azeri-Chirag-Gunashli (ACG) oil fields and Baku-Tbilisi-Ceyhan pipeline.
o However, Azerbaijan supports Pakistan’s position on Kashmir issue.
WAY FORWARD :
- There is no better starting point than the reasonable framework outlined in the Madrid Principles.
The conflict between the two countries has reached alarming levels and the international mediators should intervene immediately and push sides for substantive negotiations to prevent any further escalations.
Growing Pakistan- China-Turkey’s influence in the south caucasus region is a source of concern for India. It is important for it to strengthen its ties with both the countries in line continuing its non-aligned stance, and call for peace in the region.
QUESTION : Explain how can RBI monetary policy stabilize Indian economy at the time of GPD sudden contraction ?
RBI’s Monetary Policy
WHY IN NEWS ?
Latest Monetary policy review, after the reconstitution of the Monetary Policy Committee (MPC).
ABOUT MONETARY POLICY COMMITTEE MPC:
The RBI has a government-constituted Monetary Policy Committee (MPC) which is tasked with framing monetary policy using tools like the repo rate, reverse repo rate, bank rate, cash reserve ratio (CRR).
It has been instituted by the Central Government of India under Section 45ZB of the RBI Act that was amended in 1934.
The MPC is entrusted with the responsibility of deciding the different policy rates including MSF, Repo Rate, Reverse Repo Rate, and Liquidity Adjustment Facility.
MONETARY POLICY :
Monetary policy is adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply. The policy often targets inflation or interest rate to ensure price stability and generate trust in the currency.
The monetary policy in India is carried out under the authority of the RBI.
MAIN OBJECTIVES OF MONETARY POLICY :
To maintain price stability while keeping in mind the objective of growth as price stability is a necessary precondition for sustainable economic growth.
In India, the RBI plays an important role in controlling inflation through the consultation process regarding inflation targeting. The current inflation-targeting framework in India is flexible.
NEED TO STABILISE THE ECONOMY :
- RBI Governor Shaktikanta Das went to great lengths to emphasise that the current ‘inflation hump’ was a transient phenomenon.
- He said it needed to be looked through when taking measures to support the ‘emerging impulses’ and helping the economy return to its feet.
- Through a series of liquidity enhancing and credit flow supportive steps, the central bank repeated its commitment to maintaining stability in the financial markets.
- Resources-strapped Central and State governments are expected to resort to substantially higher levels of borrowing to meet their spending needs.
- There can certainly be no argument at this point that the economy needs all the support it can get to recover from its 23.9% estimated contraction of the first quarter.
- The RBI sees a gradual recovery, forecasting a marginal growth of 0.5% in the fourth quarter that would narrow the full-year contraction to 9.5%.
- It is the inflation assumptions, however, that cause disquiet. From a projection of 6.8% for Q2, CPI inflation is posited to sharply ease — 5.4% in Q3 and 4.5% in Q4.
- The RBI did try to compensate for the pause on rate cuts by further making it cheaper for new loans to be provided. It did this by tweaking the risk weights and bringing down the cost of creating credit for banks. It also provided more liquidity to aid credit creation.
- In a nutshell, while there are encouraging signs of recovery, it is not entirely clear how things will pan out and that is why RBI continues to be in a wait-and-watch mode. Ideally, as the economy recovers and supply lines are restored, retail inflation should ease, but everything depends on the rate of Covid-19 infections coming down. If that goes up again, for any reason, then all bets are off.
In overlooking the risks that the persistence of supply bottlenecks, cost-push pressures from higher taxes on transport fuels and the possibility of food-price inflation becoming entrenched pose to the outlook on prices, the RBI has clearly sought to talk up confidence.