13th November 2019 :The Hindu Editorials Notes – Mains Sure Shot
GS-2 Mains( IR)
Question – Discuss the changing world order and where does BRICS stand in it.(250 words)
Context – The ongoing BRICS summit in Brazil
What is BRICS?
- BRICS is an acronym for the grouping of the world’s leading emerging economies, namely Brazil, Russia, India, China and South Africa.
- Annual summits are held between the leaders.
- This year it is being held in Brazil and next year it will be held in Russia.
- Together, BRICS accounts for about 40% of the world’s population and about 30% of the GDP.
- It’s an emerging investment market and global power bloc.
The present scenario:
- The world politics is changing. We are moving to a polycentric world order.
- With the steady growth of terrorist forces there are several regions in the world that have significant conflict potential like several regions of the Middle East. Syria and Yemen are the prime examples of the devastation that can follow.
- USA has unilaterally withdrawn from the Intermediate-Range Nuclear Forces Treaty escalating tensions with Russia (The Intermediate-Range Nuclear Forces Treaty was an arms control treaty between the United States and the Soviet Union. Effective from 1988).
- The U.S.-China trade war is disrupting smooth global trade.
- A serious threat to global economic growth is posed by such unfair competition practices as unilateral economic sanctions, trade wars and flagrant abuse of the U.S. dollar status as the world reserve currency. The international community is yet to find effective responses to a whole number of critical challenges of our time — from terrorism to climate change.
- There is serious contemplation about replacing the international legal system, established after the Second World War i.e. the UN with the UN Charter bring its guiding force, with the “rules based order”, where “rules” were being invented in secret, in “small groups”, and then, depending upon a political situation, imposed on the whole world.
What is rules based order?
- The rule based international order can generally be described as a shared commitment by all countries to conduct their activities in accordance with agreed rules that evolve over time, such as international law, regional security arrangements, trade agreements, immigration protocols, and cultural arrangements.
- In the present scenario it is increasingly happening that the major powers are designing the rules according to their interests and imposing it on the less powerful ones, at times surpassing the UN Charter.
How does BRICS come in here?
- The BRICS countries play an important role here because all the BRICS countries reject this type of dictat based world order and it proposes to follow the path of a mutually respectful dialogue aimed to reach the consensus that takes into account the interests of all actors in interstate relations.
- They believe that any agreements on most important issues on the global agenda should be reached with the widest and equal participation of all stakeholders and be based on universally recognised legal norms. The BRICS countries are firmly committed to democratisation of international life and its development under the principles enshrined in the UN Charter.
- Our approaches to key global and regional issues are the same or rather similar.
- BRICS, being one of the pillars of the emerging fairer polycentric world order, plays an important stabilising role in global affairs, for which it has all the necessary capacity because the high economic growth of the BRICS economies and their demographic dividends indicate a structural edge possessed by the BRICS economies relative to the rest of the world.
- BRICS also accounts for almost a third of global GDP at purchasing power parity. Last year, BRICS even outperformed the G7 on this indicator.
- BRICS is becoming a magnet for many emerging economies. They are looking at us because the group protects values of multilateralism, supports transparent, nondiscriminatory, open, free and inclusive international trade, and rejects unilateral economic restrictions and protectionist measures in developing international economic ties.
- In their statement following the meeting on the margins of the G20 Summit in Osaka last June, the BRICS leaders explicitly indicated their willingness to protect the pillars of the equitable multilateral trading system and the role of the World Trade Organization as its centre, and to advocate International Monetary Fund reform.
The economic clout of BRICS:
- As seen BRICS accounts for almost a third of global GDP at purchasing power parity. Last year, BRICS even outperformed the G7 on this indicator.
- The New Development Bank (NDB) created by the BRICS countries — one of the promising multilateral development institutions — has been quite successful.
- This year, the NDB Board of Directors has approved 12 new investment projects in the BRICS countries. And since the start of its operation in 2015, 42 investment projects worth over $11 billion have been approved.
- The work to strengthen the BRICS Contingent Reserve Arrangement (CRA) is ongoing. Its total capital of $100 billion is to be a guarantor of the BRICS financial stability in case of crisis.
- There are also efforts going on to implement initiatives by all five BRICS parties in fields of economy, science, innovations and health. And also promote cooperation in the areas of culture, education, sport, youth and people-to-people contact.
- The BRICS leaders’ explicit indication of their willingness to protect the pillars of the equitable multilateral trading system and the role of the World Trade Organization as its centre, and to advocate International Monetary Fund reform is a welcome relief for the ailing global economy.
- The group has systematically increased the density of humanitarian exchanges. Cooperation in the areas of culture, education, and sport and youth policy is gaining momentum and the much needed people-to-people contacts are developing which can go a long way in strengthening the ties between the member countries.
- Initiatives have also involved subjects like innovations and health which contribute significantly to improving the ease of living in the member countries.
- The dominance of China in BRICS is problem for others.
- China’s political aspiration creates a challenges that has made it difficult for it to make consensus.
- China’s manipulation of its currency has resulted in significant problems for the manufacturing sectors of other emerging powers. Central banks of other countries have registered protest against undervalued yuan
- It maintains a low profile on security issues.
- The BRICS have little in common. The Chinese economy is 28 times the size of South Africa’s. Income per person in India is one-tenth that in Russia.
- Brazil, India, South Africa are democratic countries while Russia, China are authoritarian regimes
- Russia, Brazil and South Africa export different commodities, while China exports manufactured goods and India exports services.
- From an Indian perspective, BRICS is a strategic geo-economic alliance that seeks to move the narrative emerging from the Bretton Woods institutions towards alternative models of development and governance — through the sheer weight of the incongruent collective.
- Aims to collectively boost bargaining power and clout on global issues.
- Also strengthen economic and political ties among the member-countries on the lines of South-South co-operation.
- With Brazil, India has a unique partnership arrangement that has attracted international attention. Both countries have directly challenged Western nations over free trade during various rounds of WTO negotiations, most notably at the 2003 Cancun meeting.
- Cooperation with other BRICS member-states provides an excellent opportunity to share its development experiences with them as well as learn from their experiences.
- India can resolve the age-old mistrust and complicated relationship with China since the 1962 war between them.
- By improving relations with China and by co-operating in a multilateral forum like BRIC, India would like to stabilize the regional environment
- India wants to strengthen its ties with Russia within the multiple co-operative networks it believes that Russia being a great power can influence the conduct of Pakistan.
- The Brasilia Summit is aimed to be an important milestone in this Penta-lateral cooperation framework.
- In the ever-changing context of world politics, the BRICS should steer a steady course and further contribute significantly to maintaining international stability and ensuring global economic growth.
- BRICS grouping needs to continue with the policy of progressive and comprehensive enhancement of the strategic partnership of the BRICS countries.
- A major pillar of this partnership should consider increasing financial and economic cooperation among the participating countries, effective industrial interaction and practical cooperation in developing and implementing new joint energy, telecommunications, and high-tech projects.
- Future priorities should include enhanced foreign policy coordination within leading multilateral fora, primarily in the UN. Given the collective bargaining power of the group and common goals, this will ensure the much-needed multilateralism.
- BRICS should continue efforts to realize the vision of the BRICS strategic partnership to improve the practical impact of the multifaceted interaction on the prosperity of the member states and its people.
Question -Highlight the various issues related to GDP computation in India & Suggest way forward to improve GDP computation.(250 words)
- Central statistics office has decided to replace the GDP series of 2011-12 base year with new set of national accounts using 2017-18 as soon as data related to annual survey of industries and new consumer expenditure survey becomes available.
- Dr. Subramanian , former economic adviser , has said that GDP growth was 4.5% per year for six years from 2011-12. This is less than the official estimate by 2.5 percentage points, and has caused a lot of uproar in the media.
Issues related to GDP calculation in India
- Questionable methodologies and database used:- Independent studies conducted by experts including former chief economic adviser , Arvind subramanian have suggested that annual GDP growth rates in the last few years have been overestimated by 0.36 % to 2.5 % points.
- Non reconciliation of variation due to new series data vis a vis old series data:- Periodic re-basing of GDP series every seven to 10 years is carried out to account for changes structure and price levels. CSO also released a new series of data with new base year 2011-12 replacing the earlier base year 2004-05 in the year 2015. In general , base year revision and change in methodologies lead to expansion of GDP due to improvements in data collection. But 2011 base year revision was different. (1) The absolute GDP size in the new base year 201-112 contracted by 2.3% (compared to the old series), and the annual GDP growth rate went up sharply from 4.8% in the old series to 6.2% in 2013-14. (2) Similarly, the manufacturing sector growth rate for 2013-14, swung from (-) 0.7% in the old series to (+) 5.3% in the 2011-12 series. Such large variations in growth rates for the same year may be justified if the material conditions of production warranted. But the higher growth estimates recorded by the new series did not square with related economic indicators such as bank credit growth, industrial capacity utilisation or fixed investment growth. Thus began the questioning of the new GDP series.
- Impact of demonetization could not be reflected justifiably :-
- Most of the analyst believed that demonetization severely hurt the output and employment. As per ministry of finance report on income tax reforms for new India accepted that fixed investment in the private sector ( to GDP ratio) as per corporate tax returns fell sharply from 7.5% in 2015 -16 to 2.8% in 2016-17 and suspected demonetization as major reason. But as per national accounts ratio increased from 11.7% in 2015-16 to 12% in 2016-17.
- Similarly, chief economist of the International Monetary Fund, Gita Gopinath’s academic research paper (coauthored) published by the highly regarded National Bureau of Economic Research in the U.S. in May 2019 showed an adverse effect of demonetization on growth rate. Yet, the official GDP for the year 201617 grew at 8.2%, the highest in a decade.
- Before the demonetization , corporate sector growth rate for each sector was applied for estimating the output of non corporate sector. Post demonetization non corporate sector is known to affected much more adversely. Continuing with the same assumption is obviously going to overestimation of output of informal sector.
- Question over Source reliability-
- Estimation of private sector output:- CSO estimated value addition in the private corporate sector using the statutory filing of financial results with the Ministry of Corporate Affairs. The private corporate sector accounts for about a third of GDP, and spans all production sectors, and roughly about half of the private corporate sector output originates in manufacturing. The database of the Ministry of Corporate Affairs has been criticised by many as unreliable; hence it is possible that the private corporate sector output has been overestimated. For example, the Ministry’s database on “active” companies — that is companies claiming to have submitted audited financial results regularly for three years — seems to contain many companies that are actually inactive (not producing output on a regular basis). Last year when the National Sample Survey Office (the government’s premier, independent, data gathering agency), used the Ministry of Corporate Affairs list of active companies to canvass a sample of companies in the services sector, it found that up to 42% of the sample companies were not traceable, had failed to provide the information for the survey, or had failed to provide audited accounts.
- Distortion of estimation of state domestic product :- Ministry of corporate affairs data does not have factory identifier i.e. location of factory units and collects data based upon head office. It distorted the distribution of the SDP estimate across states. Further for estimating the output relate to unorganized sector , state specific labor productivity estimates are unavailable in the 2011-12 series. As
- As per Experts, the methodologies to estimate the output of informal sector requires more improvements
Effect of new method on State Domestic Product (SDP) Estimation:
- State Domestic Product (SDP) estimation uses many of the same databases and methodologies used in all-India GDP estimation. The methodological changes made in the 2011-12 base-year revision have adversely impacted the quality of SDP estimates on two counts.
- First, the Ministry of Corporate Affairs data does not have factory identifiers like the location of production units, but only has the location of the company head office. It is possible that a company might be operating in many states but all the company’s output will be considered for the state where it is headquartered. This has distorted the distribution of the SDP estimates across States.
- Second, for estimating value-added in the informal or unorganized sector, state-specific labour productivity estimates are unavailable in the 2011-12 series. Hence the method used distorts output estimation.
- The CSO has denied the claim that the underlying methodology is flawed and that there are serious problems with the new database being used.
- The official response throughout the debate has been that the 2011-12 GDP series follows global best practices and is in line with the latest United Nations System of National Accounts guidelines.
- The proposed change over to a new base-year of 2017-18, is, in principle, a welcome decision.
- The new rebasing exercise must address the methodological disputes and data related questions relating to the current national accounts series.
- As long as the underlying methodological apparatus remains the same, feeding it with up-to-date data is unlikely to improve the quality of the estimates which will lead to the loss of credibility.
- Setting up of an independent commission of national and international experts to review the GDP methodology might be a welcome move as this will bring in transparency in the process and much-needed expertise.
- The ideal time to do this would be now so that solutions could be found and incorporated into the new GDP series.
Gandhian views on secularism and its relevance in the present context.(200 words)
- Gandhian views on secularism and its relevance in the present context.
Difference between the European and Indian conception of secularism:
Secularism in Europe
- The background of the emergence of political secularism in Europe is profound religious homogenization wherein dissenters, and adherents of non-dominant religions were expelled or exterminated during and after the wars of religion.
- Rulers publicly confessed allegiance to one of the many churches in these predominantly single-religion societies, thereby consolidating a strong alliance between state and the dominant church.
- The problem with the system began, when the church became increasingly politically meddlesome and socially oppressive. The key issue then was how to tame the power of the church. The state’s disentanglement from the dominant church was necessary to realize a number of goals, including the enhancement of individual liberty and equality.
- Tackling religious diversity was not an issue in the European countries where there was religious homogeneity.
- Hence the European conception of secularism involves the strict separation of the state from the church or religion.
Secularism in India
- In India, deep religious diversity has been a part of its social, cultural and historical landscape.
- India is one of the very few nations in the ancient world which had recognized and accepted cultural democracy.
- Hence in the Indian context what was needed is that Secularism accords due recognition to the different religious communities and ensures comfort and trust among members.
The idea of secularism in India:
- Two related but equally distinctive conceptions of secularism have developed in India.
- First is the constitutional approach to secularism which talks about the principled distance model. This involves the state maintaining equal distance from all religions without any bias towards any one religion.
- The second approach involves the communal harmony model, attributed to Mahatma Gandhi.
- This Gandhian conception is distinctive from the constitutional approach and there is an urgent need for its revival in the present context of fears of majoritarianism.
Gandhian Take on Secularism:
- Gandhi had always dismissed the idea that there could ever be one religion in the world, a uniform religious code, as it were, for all humankind. Gandhi held that the roads to one and the same God are many, but the goal was one because God was one and the same.
- Gandhi believed that all humans had a fundamental desire for what might be called deep sociability. They value human relations as an end in itself. They desire a constructive relationship with others. Humans simply can’t do without one another, and no matter how much they like to be with people of their own ilk, they invariably also need to live with those with who they differ, to reach out to people with whom they disagree.
- The world’s religious diversity and the impossibility of there ever being one religion for humankind, makes mutual respect, equal regard and communal harmony a necessity to ensure peace and tranquility. Gandhi believed that this can become a reality by virtue of the human quality of deep sociability.
- Gandhi felt that a large part of the responsibility for maintaining communal harmony lies with the communities themselves. But there are times when this communally sustained harmony is disturbed or breaks down. In such a situation the state has to step in. Such a scenario needs the state to be secular and must be distant from all. The Gandhian conception is indispensable in times of religious disharmony.
- Secularism thus marks an important quality of the state whereby it distances itself from all religio-philosophical perspectives in order to promote a certain quality of sociability and fraternity between communities.
The distinctiveness of the Gandhian model of secularism:
- Unlike modern Western secularisms that separate church and state for the sake of individual freedom and equality and have a place for neither community nor fraternity, the Gandhian conception demands that the state be secular for the sake of better relations between members of all religious communities, especially if they are mutually estranged. This makes Gandhian secularism distinctive.
- This Gandhian view did not stem from strategic considerations but was grounded in deep conviction and reasoning. His approach involved accepting the differences between the different cultures but at the same time linking all this together. Gandhi held that the roads to one and the same God are many, but the goal was one because God was one and the same.
- Gandhian views meant that every attack on someone else’s god was a denial of one’s own god; every claim that one’s own god is better than the other’s was tantamount to the humiliation of one’s own god. This would avoid unnecessary one-upmanship among religions.