11 Aug 2023: UPSC Exam Comprehensive News Analysis

E. Editorials

Category: INTERNATIONAL RELATIONS

1. India’s Myanmar Quandary

Syllabus: India and its Neighborhood- Relations

Mains: Indian foreign policy dilemma towards Myanmar

Context: India’s Myanmar policy, amid ongoing turmoil: Suu Kyi’s release, paradoxical stance on democracy/security, future engagement, and refugee concerns.

Chronology of Events Since Coup in Myanmar:

• July 31 and August 1, 2023: Acting President Myint Swe extends ’emergency’ for another six months, violating the 2008 Constitution. Military release of political prisoners reduces sentences for Aung San Suu Kyi and Win Myint.
• Military’s Justification: Min Aung Hlaing cites failure to establish ‘normalcy’ as the reason for the emergency extension, causing suffering and leading to higher civilian violence.
• Continued Violence: Armed Conflict Location & Event Data Project (ACLED) reports Myanmar civilians experiencing 2.5 times more violence than in Afghanistan, with over 30 airstrikes per month in 2023.
• Limited Control: Tatmadaw (Myanmar’s military) controls only 30%-40% of the territory, as confirmed by the Burmese military and the Special Advisory Council for Myanmar (SAC-M), risking the credibility of any future elections.
• Reshuffling and Opposition: Military-backed Union Solidarity and Development Party (USDP’s) reshuffling raises concerns about democracy commitment. National League for Democracy’s decision not to participate and exclusion of smaller parties weaken the opposition.

Read more on Myanmar Coup d’état 2021.

India’s Paradoxical Policy:

• Initial Support: India aided Myanmar during COVID-19 and the coup, but the focus has waned amid Manipur violence allegations and border community support for refugees.
• Security Concerns and China Relations: India’s commitment to democracy contrasts with security concerns in north-east India and rivalry with China. Projects like the Sairang-Hmawngbuchhuah railway counter China’s influence.
• Arms Supply Controversy: Reports by Justice for Myanmar, SAC-M, and UN Special Rapporteur indicate increased arms supply by India to Tatmadaw, conflicting with the democracy restoration stance and fueling border tensions.

Future Course of Action for India:

• Engage with Pro-Democracy Actors: India can use Suu Kyi’s reduced sentence to engage with her and pro-democracy actors, fostering diplomatic ties with the National Unity Government.
• Refugee Treatment: Adopt a compassionate approach towards incoming refugees, avoiding blanket securitisation and profiling, and recognising kinship ties.
• Balancing Security and Democracy: India should reconcile its security concerns with its commitment to democracy, considering its role in regional stability and China’s influence.

Nut Graf: Amid Myanmar’s ongoing crisis, India grapples with a paradoxical policy: supporting democracy while addressing security concerns and China’s influence. Suu Kyi’s release offers a chance for engagement, as refugee treatment and regional stability weigh on India’s approach.

Category: ECONOMY

1. Deflation in China and interest rates in US & India

Syllabus: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Mains: Contradictory inflationary trend over the Globe and its implication over India 

Prelims: Cause and consequences of a rate hike by RBI and USA central bank

Context: Ongoing inflationary trend in India and USA whereas deflationary trend in China.

Condition of Inflation and Central Bank Response in India, China, and USA:

• India: RBI’s Inflation-Fighting Approach Amid Rising Prices
  • RBI’s recent decision maintains the policy rate amid an upwardly revised inflation forecast.
  • Initial projection: 5.1% CPI-based inflation for the fiscal year ending March 2024.
  • Revised projection: 5.4% average annual inflation; 6.2% inflation for July-September due to food price shocks.
  • Emphasis on price stability, macroeconomic stability, and growth alignment with a 4% inflation target.
• China: Deflation Amid Central Bank’s Low-Interest Rates
  • China’s consumer prices fell by 0.3% YoY in July, and producer prices contracted by 4.4%.
  • Deflation challenges contrary to global inflation trends.
  • People’s Bank of China keeps low-interest rates to boost demand.
  • Possible reasons: Turmoil in the property sector, credit boom leading to resource misallocation.
• USA: Federal Fund Rate Hike for Inflation Control
  • Federal Open Market Committee raised the federal funds rate to 5.25-5.5%.
  • Aims to reduce inflation to 2%, while employment numbers rise.
  • A sharp rise of over 450 basis points in a year raises global economic concerns.
  • Balances of developing countries’ central banks increased, leading to lower interest rates; this could influence developing economies through cross-border investment strategies (flight of foreign investment).

Why China is Experiencing Deflation:

• China experiences deflation while the central bank keeps low interest rates to stimulate demand.
• Probable cause: Fundamental issues beyond liquidity.
• Property sector turmoil and credit booms contribute to broader price fall.
• Deflation is a sign of reallocation of resources, and caution in spending during crises.

 Impact of Federal Fund Hike on Developing Countries:

• Advanced countries’ interest rate increase affects the global economy.
• Carry trade implications for developing economies due to high-interest rates.
• Non-financial corporations in developing nations borrow in dollars; risk of unhedged dollar debts.
• Rising rates and currency depreciation worsen debt servicing concerns in these countries.

RBI’s Tough Road Ahead Amid Rising Inflation:

• RBI maintains policy rate despite upwardly revised inflation forecast.
• Focus on keeping inflation expectations anchored to the 4% target.
• Concerns over food price shocks, uneven rainfall, and crude oil price rise.
• Policy actions are crucial for aligning inflation with targets and ensuring stability and growth.

Nut Graf: Current distinct inflation policies and challenges are evident in India, China, and the USA. Examining China’s deflationary tendencies, the potential global effects of US rate hikes, and RBI’s strategies against rising inflation, highlights the complex interactions among these economies and raises concerns about their combined influence on the global financial scenario.